Sanadco Inc., a Texas Corporation Mahmoud Ahmed Isba Broadway Grocery, Inc. And Shariz, Inc. v. Glenn Hegar, in His Individual and Official Capacity as Comptroller of Public Accounts Office of Comptroller of Public Accounts for the State of Texas And Ken Paxton, in His Official Capacity as Attorney General of the State of Texas

ACCEPTED
03-14-00771-CV
5693499
THIRD COURT OF APPEALS
AUSTIN, TEXAS
June 29, 2015 6/16/2015 12:17:11 PM
JEFFREY D. KYLE
CLERK
NO. 03-14-00771-CV
RECEIVED IN
In The 3rd COURT OF APPEALS
AUSTIN, TEXAS
Third Court of Appeals 6/16/2015 12:17:11 PM
JEFFREY D. KYLE
AT AUSTIN, TEXAS Clerk
Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby
& Sons Store, Inc., and Rubina Noorani,
APPELLANTS
VS.
The Office of the Comptroller of Public Accounts; Glenn Hegar, in his
official capacity as Comptroller of Public Accounts for the State of Texas;
and Ken Paxton in his official capacity as Attorney General of the State of
Texas,
APPELLEES
__________________________________________________________
Appeal From Cause No D-1-GN-13-4352
The 200th District Court Of Travis County, Texas
The Honorable Charles Ramsay, Presiding
__________________________________________________________
APPELLANT’S REPLY BRIEF
___________________________________________________________
SAMUEL T. JACKSON
SBN 10495700
P.O. BOX 670133
ARLINGTON, TX 76003-0133
TEL: (512) 692-6260
FAX: (866) 722-9685
COUNSEL FOR APPELLANTS
ORAL ARGUMENT REQUESTED
IDENTITY OF PARTIES AND COUNSEL
APPELLANTS:
Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby
& Sons Store, Inc., and Rubina Noorani
COUNSEL FOR APPELLANTS:
LAW OFFICE OF
SAMUEL T. JACKSON
P.O. Box 170633
Arlington, Texas 76003-0633
TEL: (512) 692-6260
FAX: (866) 722-9685
Email: jacksonlaw@hotmail.com
APPELLEES:
The Office of the Comptroller of Public Accounts; Glenn Hager, in his official
capacity as Comptroller of Public Accounts of the State of Texas; and Ken
Paxton, in his official capacity as Attorney General of the State of Texas
COUNSEL FOR APPELLEES:
JACK HOHENGARTEN
Assistant Attorney General
FINANCIAL LITIGATION DIVISION
P.O. Box 12548
Austin, TX 78711-2548
TEL: (512) 475-3503
FAX: (512) 477-2348/480-8327
Email: jack.hohengarten@oag.state.tx.us
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TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL........................................ 2
TABLE OF CONTENTS ................................................................. 3
TABLE OF AUTHORITIES ............................................................ 5
STATEMENT OF JURISDICTION ................................................. 12
ISSUES PRESENTED.................................................................... 12
SUMMARY OF ARGUMENTS ...................................................... 13
ARGUMENT ............................................................................... 16
I. The absence of the reporter’s records is not dispositive of issues that are
purely matters of law, requiring no factual findings. ................................. 16
II. Sanadco 2 does not control resolution of the issues involved in this case
because these issues challenge the validity of rules, the constitutionality of
statutes and ultra vires conduct, and not the applicability, assessment,
collection, or constitutionality of a state tax, ostensibly controlled by
Chapter 112. ................................................................................................. 19
III. Chapter 112’s prepayment provisions are inapplicable to petitions for
judicial review and declaratory judgment actions because the Texas
Supreme Court has ruled that they unconstitionally violate the Open
Courts provision when applied to these remedies. ..................................... 23
IV. Appellants’ pleadings provided sufficient relevant, undisputed
allegations conclusively establishing that the administrative orders were
void and unenforceable ab initio as a matter of law, thus, there was no final
judgment to support the Comptroller’s collection efforts, and the trial court
abused its discretion by failing to grant the temporary restraining
order.............................................................................................................. 27
A......... Appellants’ pleadings established the invalidity of the rules as a
matter of law. ............................................................................................27
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B. Appellants’ pleadings established the nullification of the
administrative judgment as a matter of law. ...........................................35
C. Appellants’ pleadings established the Comptroller’s ultra vires
conduct as a matter of law. .......................................................................39
CONCLUSION ............................................................................ 41
PRAYER FOR RELIEF .................................................................. 42
CERTIFICATE OF COMPLIANCE ................................................ 43
CERTIFICATE OF SERVICE ......................................................... 43
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TABLE OF AUTHORITIES
Cases
Ard v. Carrington,
01-13-00067-CV (Tex.App.-Houston [1st Dist.] 3-27-2014) ................................................... 16
Bexar Metro. Water Dist. v. City of Bulverde,
156 S.W.3d 79, 85-86 (Tex. App. — Austin 2004, pet. denied) ........................................ 17, 35
Bland Indep. Sch. Dist. v. Blue,
34 S.W.3d 547, 554-55 (Tex. 2000) ......................................................................................... 19
Bonham State Bank v. Beadle,
907 S.W.2d 465, 467 (Tex. 1995) ............................................................................................. 32
Cayton v. Moore,
224 S.W.3d 440, 445 (Tex. App. — Dallas 2007, no pet.)....................................................... 16
Chenault v. Phillips,
914 S.W.2d 140, 141 (Tex. 1996) ............................................................................................. 32
City of El Paso v. Heinrich,
284 S.W.3d 366, 372 (Tex. 2009) ....................................................................................... 26, 38
City of Pasadena v. Gennedy,
125 S.W.3d 687, 691 (Tex. App.-Houston [1st Dist.] 2003, pet. denied) ................................ 36
City of Sherman v. Public Util. Comm'n,
643 S.W.2d 681, 683 (Tex. 1983) ............................................................................................. 31
Cobb v. Harrington,
144 Tex. 360, 366, 190 S.W.2d 709, 713 (1945) ...................................................................... 32
Combs v. Entertainment Publ'ns Inc.,
292 S.W.3d 712, 723 (Tex. App.—Austin 2009, no pet.) ................................ 21, 22, 27, 28, 33
Combs v. Texas Entm’t Ass’n, Inc.,
287 S.W.3d 852, 864-65 (Tex. App.—Austin, 2009) ............................................................... 22
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Crane v. Richardson Bike Mart, Inc.,
295 S.W.3d 1, 5 (Tex. App.-El Paso 2009, no pet.) ................................................................. 37
Dept. of State Health Services v. Balquinta,
429 S.W.3d 726, 750-751 (Tex.App.-Austin 2014) ................................................................. 23
Doan v. Christus Health ArkLa-Tex,
329 S.W.3d 907, 910 (Tex.App.-Texarkana 2010, no pet.)...................................................... 36
El Paso Hosp. Dist. v. Texas Health & Human Servs. Comm'n,
247 S.W.3d 709, 715 (Tex. 2008). ...................................................................................... 27, 33
Eldercare Props., Inc. v. Department of Human Servs.,
63 S.W.3d 551, 558 (Tex.App.-Austin 2001, pet. denied) ....................................................... 15
Frasier v. Yanes,
9 S.W.3d 422, 427 (Tex.App.-Austin 1999, no pet.) ................................................................ 32
Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River Auth.,
96 S.W.3d 519, 529 (Tex. App.-Austin 2002, pet. denied) ................................................ 27, 29
Fulton v. Finch,
162 Tex. 351, 356, 346 S.W.2d 823, 827 (1961) (orig. proceeding) .......................................... 37
HCA Healthcare Corp. v. Texas Dep't of Ins.,
303 S.W.3d 345, 352 (Tex. App. — Austin 2009, no pet.) ...................................................... 34
Hill v. Board of Trs.,
40 S.W.3d 676, 679 (Tex. App. — Austin 2001, no pet.) ........................................................ 34
Howell v. Texas Workers' Comp. Comm'n,
143 S.W.3d 416, 442 (Tex.App.-Austin 2004, pet. denied) ..................................................... 15
In re Garza,,
126 S.W.3d 268, 271 (Tex. App.-San Antonio 2003, orig. proceeding). ........................... 37, 39
In re Humphreys,
880 S.W.2d 402, 404 (Tex. 1994) ............................................................................................. 35
Logal v. United States,
195 F.3d 229, (5th Cir. 1999) ................................................................................................... 39
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Montemayor v. City of San Antonio Fire Dept.,
985 S.W.2d 549, 551 (Tex.App.-San Antonio 1998, pet. denied) ............................................ 32
Montrose Mgt. Dist. v. 1620 Hawthorne, Ltd.,
435 S.W.3d 393, 410-11; fn. 16 (Tex.App.-Houston [14th Dist.] 2014) .................................. 26
Office of the Attorney Gen. v. Buhrle,
210 S.W.3d 714, 717 (Tex. App. —Corpus Christi 2006, pet. denied) .................................... 16
Office of the Attorney General of Texas v. Duran,
13-13-00423-CV (Tex.App.-Corpus Christi 5-28-2015) .......................................................... 16
R Commc'ns, Inc. v. Sharp,
875 S.W.2d 314 (Tex. 1994) ......................................................................................... 14, 24, 25
Risk Management Strategies, Inc. v. Texas Workforce Commission,
03-13-00560-CV *6 (Tex.App.-Austin 5-22-2015).................................................................. 17
Rutherford Oil v. Land Office of Tex.,
776 S.W.2d 232, 235 (Tex.App.-Austin 1989) ......................................................................... 15
Sanadco, Inc. et. al. v. Texas Comptroller of Public Accounts, et. al.,
No. 03-11-00462-CV (Tex. App.—Austin, September 26, 2013)............................................ 30
Sanadco, Inc. v. Office of the Comptroller,
2015 WL, 1478200 at *10 (Tex. App.—Austin March 25, 2015)..................................... passim
Simon v. York Crane & Rigging Co.,
739 S.W.2d 793, 795 (Tex. 1987) ............................................................................................. 13
Southern Canal Co. v. State Bd. of Water Engineers,
318 S.W.2d 619; 159 Tex. 227 (Tex. 1958) ............................................................................. 36
State Bd. of Ins. v. Republic Nat'l Ins. Co.,
384 S.W.2d 369, 372 (Tex.Civ.App. — Austin 1964, writ ref'd n.r.e.) .................................... 36
State v. Crawford,
262 S.W.3d 532 (Tex.App.-Austin 2008, no pet.) .................................................................... 39
Subaru of America v. David McDavid Nissan,
84 S.W.3d 212, 224 (Tex. 2002) ............................................................................................... 22
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Tex. Logos, L.P. v. Tex. Dept. of Transp.,
241 S.W.3d 105, 123 (Tex. App.-Austin 2007, no pet.) ........................................................... 27
Texas Dep't of Parks & Wildlife v. Miranda,
133 S.W.3d 217, 226 (Tex. 2004) ................................................................................. 16, 19, 35
Texas Dep't of Pub. Safety v. Salazar,
304 S.W.3d 896, 903 (Tex.App. Austin 2009, no pet.) ...................................................... 23, 28
Texas Dep't of Transp. v. Sunset Transp., Inc.,
357 S.W.3d 691, 705 (Tex.App. Austin 2011, no pet.) ............................................................ 23
Texas Dept. of Banking v. Mount Olivet Cemetery Ass'n,
27 S.W.3d 276, 282 (Tex.App.-Austin 2000, pet. denied) ....................................................... 32
Texas Entm’t Ass’n, Inc. v. Combs,
431 S.W.3d 790, 795 (Tex. App.—Austin 2014, pet. denied).................................................. 22
The Allee Corporation v. Texas Department of Motor Vehicles,
03-13-00096-CV, *6-7 (Tex.App.-Austin 11-21-2014). .......................................................... 35
The Pea Picker, Inc. v. Reagan,
632 S.W.2d 674, 677 (Tex.App.-Tyler 1982, writ ref'd n.r.e.) ................................................. 32
Walker v. Packer,
827 S.W.2d 833, 840 (Tex. 1992) ............................................................................................. 16
Watts v. Hancock,
05-12-01635-CV *2 (Tex.App.-Dallas 6-18-2014) .................................................................. 16
Weck v. Sharp,
884 S.W.2d 153, 154 (Tex. 1994) ................................................................................. 14, 23, 24
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Statutes
Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-.011 ..................................................................... 21
Tex. Civ. Prac. & Rem. Code Ann. § 37.002 ............................................................................... 32
Tex. Civ. Prac. & Rem. Code Ann. § 37.004 ............................................................................... 31
Tex. Civ. Prac. & Rem. Code Ann. § 51.012 ............................................................................... 12
Tex. Gov’t Code Ann. § 22.220(a) ............................................................................................... 12
Tex. Gov’t Code Ann. § 2001.003(6) ........................................................................................... 28
Tex. Gov’t Code Ann. § 2001.004…………………………………………………………. 38
Tex. Gov’t Code Ann. § 2001.005 ................................................................................................ 33
Tex. Gov’t Code Ann. § 2001.035(a) ..................................................................................... 28, 38
Tex. Gov't Code Ann. § 2001.038 ........................................................................................ passim
Tex. Gov’t Code Ann. § 2001.145(a) ........................................................................................... 34
Tex. Gov’t Code Ann. § 2001.171 ................................................................................................ 34
Tex. Gov’t Code Ann. § 2001.173 ................................................................................................ 35
Tex. Gov't Code Ann. § 2001.173(a) ............................................................................................ 35
Tex. Gov’t Code Ann. § 2001.174 ................................................................................................ 35
Tex. Gov’t Code Ann. § 2001.176(a) ........................................................................................... 34
Tex. Tax Code Ann. § 111.104 ..................................................................................................... 33
Tex. Tax Code Ann. § 111.105 ..................................................................................................... 33
Tex. Tax Code Ann. Chapter 112 .......................................................................................... passim
Rules
Tex. R. App. P. 37.3(c) (1) ........................................................................................................... 16
Constitutional Provisions
Tex. Const. art. V, § 6 (a) ............................................................................................................. 12
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In The
Third Court of Appeals
AT AUSTIN, TEXAS
Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby & Sons Store,
Inc., and Rubina Noorani,
APPELLANTS
VS.
The Office of the Comptroller of Public Accounts; Glenn Hegar, in his official capacity
as Comptroller of Public Accounts for the State of Texas; and Ken Paxton in his official
capacity as Attorney General of the State of Texas,
APPELLEES
__________________________________________________________
Appeal From Cause No D-1-GN-13-4352
The 200th District Court Of Travis County, Texas
The Honorable Charles Ramsay, Presiding
__________________________________________________________
APPELLANTS’ REPLY BRIEF
___________________________________________________________
TO THE HONORABLE THIRD COURT OF APPEALS:
Appellants, Sanadco Inc. and Mahmoud A Isba, Et Al, (collectively,
Sanadco), pursuant to Tex. R. App. P. 38.4, submit this Reply to Appellees’
Responsive Brief filed on May 26, 2015, and request consideration of the following:
Appellees have mischaracterized this accelerated appeal as governed by
Sanadco, Inc. v. Office of the Comptroller, 2015 WL, 1478200 (Tex. App.—Austin
March 25, 2015) (mem. op.) recently decided by this court in Case No. 03-11-00462-
CV from the trial court’s judgment in Cause No. D-1-GV-10-000902. (Sanadco 2).
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This appeal, however, is from the trial court’s judgment in Cause No. D-1-
GN-13-004352 involving different parties and different audit periods. Although
Sanadco, Inc. and Mahmoud Isba are common to both appeals, their contested audits
are for different auditing periods and, more importantly, they fully engaged in the
administrative proceedings and exhausted their administrative remedies.
Of major concern to this court in Sanadco 2 was Sanadco’s failure to
challenge the audits before their right to administrative remedies had expired,
forcing the State to initiate a collection suit. Sanadco, fn. 9 (“Sanadco sought
injunctive relief from liability for the tax long after completion of the administrative
process and the deficiency assessment had become final . . . .”). The court reasoned:
“The facts here are distinguishable from those cases in which the taxpayers sought
declarations of the validity or constitutionality of rules and statutes and their
threatened enforcement prior to finality of an agency determination.” The court
therefore held that the trial court lacked jurisdiction over Sanadco's counterclaims
due to their noncompliance with the prerequisites of Chapter 112. (op. *12).
In the instant case, all parties were fully engaged in the administrative process
and have timely filed Petitions for Judicial Review, thereby deferring the finality of
the administrative judgments. Subaru of America, Inc. v. David McDavid Nissan,
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Inc., 84 S.W.3d 212, 227-28 (Tex. 2002) (op. on reh'g). The issue therefore is
whether Chapter 112 applies to cases in which a petition for judicial review was
timely filed contemporaneously with a challenge to the validity of the audit results.
Accordingly, this case presents issues not addressed in Sanadco 2, and should now
be considered.
STATEMENT OF JURISDICTION
The Court of Appeals is authorized to exercise jurisdiction in this cause
pursuant to TEX. CONST. ART. V, § 6 (a); TEX. GOV’T CODE ANN. § 22.220 (a), and
TEX. CIV. PRAC. & REM. CODE ANN. § 51.014 (a) (4).
ISSUES PRESENTED
Issue No. 1. Is the absence of the court reporter’s records dispositive of
matters that are purely questions of law?
Issue No. 2. Is the application of Chapter 112 to petitions for judicial
review and declaratory judgments unconstitutional as a burden on
Plaintiffs’ access to the courts?
Issue No. 3. Is Sanadco 2’s jurisdictional determination applicable to
cases engaged in the administrative process?
Issue No. 4. Are petitions for declaratory judgment “suits challenging the
applicability, assessment, collection, or constitutionality" of a state tax
and thereby subject to Chapter 112.108?
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SUMMARY OF ARGUMENTS
The primary issue presented by this appeal is whether the audits are invalid
due to the Comptroller’s failure to follow the adoption procedures mandated by the
APA, the constitutional infirmity of various tax code statutes and rules, and/or his
ultra vires conduct. Plaintiffs assert that his collection efforts are premature because
they are not supported by final judgments. If so, the Comptroller was without
authority to continue his collection efforts and the trial court’s failure to grant
Plaintiffs’ temporary injunction was an abuse of discretion. Accordingly, the order
denying such relief must be reversed, and judgment rendered for Plaintiffs.
The reviewing court may consider Plaintiffs’ appellate points that do not
require the reporter's record for decision. See Tex. R. App. P. 37.3(c). For all other
issues, the court presumes the evidence supported the trial court's decision. See
Simon v. York Crane & Rigging Co., 739 S.W.2d 793, 795 (Tex. 1987). The issues
presented by this appeal are purely matters of law to be determined de novo without
the necessity of factual findings, and the court may therefore adjudicate them
without a reporter’s record. Consequently, the absence of the reporter’s record is not
dispositive of the issues raised by this appeal.
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The Comptroller’s insistence on applying Tex. Tax Code Ann. Chapter 112’s
prepayment requirements to Plaintiffs’ claims for injunctive relief are meritless for
three reasons. First, Chapter 112’s application to petitions for judicial review and
other injunctive relief has been declared unconstitutional as an abridgment upon
access to the courts. R Commc'ns, Inc. v. Sharp, 875 S.W.2d 314, 314 (Tex. 1994);
Weck v. Sharp, 884 S.W.2d 153, 154 (Tex. 1994).
Second, suits pursuant to the APA or the UDJA are not protest suits or suits
for refund “challenging the applicability, assessment, collection, or
constitutionality" of a state tax. Instead, they challenge the validity of agency rules,
official misconduct and the constitutionality of tax statutes. Plaintiffs timely filed
petitions for judicial review of the Comptroller’s adverse decisions, and declaratory
judgment actions pursuant to Tex. Gov’t Code Ann. § 2001.038 to determine the
validity of the audits, none of which requires the initial filing of a protest or refund
suit. They contend that the audits supporting the judgments are invalid,
unenforceable and/or void because the comptroller failed to adopt the auditing
procedures in accordance with the Administrative Procedure Act (APA) and certain
statutes are unconstitutional. The fact that the Comptroller’s right to collect taxes
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may be implicated by an adverse decision does not change their basic character, nor
convert them to Chapter 112 suits.
Third, section 2001.038 is the exclusive remedy for testing the validity of an
administrative rule — which includes a challenge to the constitutionality of the rule.
See Tex. Gov't Code Ann. § 2001.038; Howell v. Texas Workers' Comp. Comm'n,
143 S.W.3d 416, 442 (Tex.App.-Austin 2004, pet. denied) (APA is exclusive
remedy); Local Neon Co v. Strayhorn, 03-04-00261-CV (Tex.App.-Austin 6-16-
2005); Eldercare Props., Inc. v. Department of Human Servs., 63 S.W.3d 551, 558
(Tex.App.-Austin 2001, pet. denied) (validity includes constitutionality). Chapter
112 does not provide for this type of suit.
The purpose of the declaratory judgment action is to obtain a final declaration
of a rule's validity or its constitutionality before the rule is applied. Rutherford Oil
v. Land Office of Tex., 776 S.W.2d 232, 235 (Tex.App.-Austin 1989). The court’s
refusal to enjoin enforcement of the audit permits the comptroller to collect the
assessments before the validity of the audits can be determined, thereby defeating
the purpose of the statute. The Comptroller’s attempt to impose Chapter 112’s
prepayment requirements is therefore without merit, and the court’s judgment is an
abuse of discretion.
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ARGUMENT
I. The absence of the reporter’s records is not dispositive of issues
that are purely matters of law, requiring no factual findings.
When an appellant fails to file the recorder’s record, the reviewing court may
consider and decide only those issues that do not require a reporter's record. See Tex.
R. App. P. 37.3(c) (1); Watts v. Hancock, 05-12-01635-CV *2 (Tex.App.-Dallas 6-
18-2014). The question posed by Appellee’s contentions, is whether this appeal
raises issues that may be considered and decided by this court without benefit of the
reporter’s records.
The Comptroller correctly contends that the court’s decision whether to issue
an injunction “is discretionary, not to be disturbed absent a clear abuse of discretion”.
However, a trial court has no discretion, when determining what the law is, which
law governs, or how to apply the law. Walker v. Packer, 827 S.W.2d 833, 840 (Tex.
1992). A trial court's failure to analyze or apply the law correctly constitutes an abuse
of discretion. Id.; Cayton v. Moore, 224 S.W.3d 440, 445 (Tex. App. — Dallas 2007,
no pet.); Office of the Attorney Gen. v. Buhrle, 210 S.W.3d 714, 717 (Tex. App. —
Corpus Christi 2006, pet. denied); Ard v. Carrington, 01-13-00067-CV (Tex.App.-
Houston [1st Dist.] 3-27-2014). Office of the Attorney General of Texas v. Duran,
13-13-00423-CV (Tex.App.-Corpus Christi 5-28-2015).
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This court has stated “whether sovereign immunity has been waived
implicates subject-matter jurisdiction. Texas Dep't of Parks & Wildlife v. Miranda,
133 S.W.3d 217, 226 (Tex. 2004).” “Whether a court has subject-matter jurisdiction
is a question of law, which is reviewed de novo, when disputed facts relevant to the
jurisdictional inquiry are not presented. See id. (subject-matter jurisdiction is
determined as matter of law on pleadings and when evidence relevant to
jurisdictional inquiry is undisputed).” Risk Management Strategies, Inc. v. Texas
Workforce Commission, 03-13-00560-CV *6 (Tex.App.-Austin 5-22-2015) (quoting
Bexar Metro. Water Dist. v. City of Bulverde, 156 S.W.3d 79, 85-86 (Tex. App. —
Austin 2004, pet. denied)). Thus, when the appellant’s pleadings are devoid of
relevant factual disputes, the court may consider the claims raised by those pleadings
de novo, without the court reporter’s record because they are not dependent on the
trial court’s factual findings or evidence presented at trial.
Appellants contended that the trial court abused its discretion by refusing to
enjoin the Comptroller from engaging in its enforcement activities in the absence of
a valid final judgment. Appellee’s assertions that a recorder’s record is necessary to
determine whether Plaintiffs met their burden of proof of probable injury and
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probable right to recovery is misguided—if the underlying judgment is invalid or
unenforceable, there is no need for this determination.
Throughout these proceedings, neither their responses in their answers nor in
this appeal, have the appellees ever once disputed any of the relevant factual
allegations in Appellants’ pleadings or in their briefs. Nor could they because the
provisions of AP92 and AP122 (the memos) are included on their website1, and in
their responses to the appeals, and they have never claimed that they were properly
adopted. Moreover, they have judicially admitted their existence, use and refusal to
adopt the memos in their pleadings as shown in the following excerpts:
See, State Officials’ Motion for Protection and to Stay All Discovery,
p. 2 (“AP92 and 122 are internal staff memoranda that provide guidance to
audit staff about how and when to use such estimates.”). 2 In the same pleading,
they acknowledged that the memoranda had not been properly adopted. (“The
court erred, however, in concluding the memos are rules which must be
implemented through the APA’s formal rulemaking process as shown by the
State Officials’ motion for rehearing and reconsideration in banc.”). Id. at p.3.3
In its Motion for Rehearing, the issue for review was,
1
http://comptroller.texas.gov/taxinfo/audit_memos/
2
(CR, 104 ¶3)
3
(CR, 105 ¶8)
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Are internal staff memos that provide audit guidance to agency
auditors—here, AP 92 and AP 122—formal “rules” as that term is
defined in the Administrative Procedure Act?
State Officials’ Motion for Rehearing and Reconsideration En Banc, at p.2. 4
“As already noted, while agency rules must be adopted pursuant to
proper APA procedures, internal memos directing audit staff are not rules and
do not require formal adoption.” Id. at p.12.5
The remaining claims involve the constitutionality or construction of tax
statutes and determining whether the Comptroller acted without statutory authority
by implementation or authorization of the use of the void and unenforceable memos.
Accordingly, the relevant factual allegations necessary for resolution of Appellant’s
claims are undisputed, and the absence of the reporter’s record is not dispositive of
these purely legal claims.
II. Sanadco 26 does not control resolution of the issues involved in
this case because these issues challenge the validity of rules, the
constitutionality of statutes and ultra vires conduct, and not the
4
(CR, 133)
5
(CR, 144)
6
Sanadco 2, Sanadco, Inc. v. Office of the Comptroller, 2015 WL, 1478200 at *10 (Tex. App.—Austin March 25,
2015) (mem. op.) refers to this court’s decision on rehearing holding that the trial court was without jurisdiction.
Appellees’ brief refers to this opinion as “Sanadco 1”. Sanadco 1, Sanadco, Inc. v. Office of Comptroller of Public
Accounts of Texas, No. 03-10-00462-CV, 2013 Tex. App. LEXIS 12013 at * 13 (Tex. App.—Austin Sept. 26,
2013)6 refers in this brief, to the initial determination that AP92 and AP122 were rules, but was replaced by Sanadco
2.
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applicability, assessment, collection, or constitutionality of a
state tax, ostensibly controlled by Chapter 112.
A plea to the jurisdiction often may be determined solely from the pleadings
and sometimes must be. See Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554-55
(Tex. 2000). Such a determination is reviewed de novo. Miranda, 133 S.W.3d at
226. If the facts relevant to jurisdiction are undisputed, the court should make the
jurisdictional determination as a matter of law based solely on those undisputed
facts. Id. at 228.
Sanadco 2 held, as a matter of law, that the trial court was without jurisdiction
over Sanadco’s and Isba’s claims because they had not engaged in the administrative
review process, and had not raised their defensive issues and cross-claims until the
Comptroller’s decision had become final. The court failed, however, to specifically
rule on its jurisdiction over the remaining petitioners, stating:
It is undisputed that Sanadco did not engage in an administrative
redetermination proceeding or meet any of the statutory requirements for a
refund claim or protest suit. Sanadco may not attempt to avoid those
administrative and procedural requirements by merely filing counterclaims to
a collection suit brought by the Comptroller.
Sanadco, Inc. v. Office of the Comptroller, 2015 WL, 1478200 at *10 (Tex. App.—
Austin March 25, 2015) (mem. op.) (Sanadco 2).
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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This language clearly suggests that a suit filed during the administrative
process invokes the court’s jurisdiction without meeting the requirements for a
refund claim or protest suit. The court reiterated this view, asserting:
Sanadco had two adequate, available remedies upon the Comptroller's
deficiency determination: (1) a redetermination proceeding or (2) payment of
the taxes and pursuit of the Chapter 112 refund or protest procedures.
However, Sanadco elected not to pursue either remedy.
Sanadco 2 at *11.
At the time of the October 14, 2014 hearing (CR 340), the pleading on file
was Plaintiffs’ Second Amended Petition, filed on August 6, 2014 (CR 284). When
the November 11, 2014 judgment was entered however (CR 340), the live pleading
on file was Plaintiffs’ Third Amended Petition filed on October 17, 2014 (CR 314).
Both petitions alleged three causes of action: (1) the validity of agency rules pursuant
to Tex. Gov’t Code Ann. § 2001.038 (CR 291-292, ¶¶ 33-38); (2) the ultra vires
conduct of an Agency official, (CR 292-296, ¶¶ 39-57); and (3) the constitutionality
of certain state statutes (CR 296-299, ¶¶ 58-73), both pursuant to the Uniform
Declaratory Judgments Act (UDJA), Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-
.011.
The Sanadco 2 court excluded these causes of action from its holding where
there was no final administrative judgment, stating:
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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We limit our holding to cases in which a taxpayer seeks relief from a
tax assessment that has become a final liability and is no longer subject to
review through administrative procedures; we do not hold that Chapter 112
preempts every suit challenging a Comptroller rule or tax statute's
constitutionality. . . See Combs v. Entertainment Publ'ns Inc., 292 S.W.3d
712, 723 (Tex. App.—Austin 2009, no pet.) (affirming trial court's denial of
plea to jurisdiction in suit in which taxpayer sought declaratory and injunctive
relief to prevent Comptroller from implementing allegedly invalid rule).
Sanadco 2, n.9 at *12.
Here, unlike Sanadco, each of these plaintiffs alleged that they were
currently engaged in the administrative process and awaiting a hearing before
SOAH. (CR 288-289, ¶¶ 22-26). They also alleged that the court had jurisdiction
over their petitions for judicial review subject to the results of the administrative
proceedings. (CR 287, ¶ 13); Accordingly, there was no final liability determination,
see, Subaru of America v. David McDavid Nissan, 84 S.W.3d 212, 224 (Tex. 2002),
and the cases remained subject to review through administrative procedures, and are
excluded from the Chapter 112 requirements because they are not final judgments.
In support of this limitation, the court cited Texas Entm’t Ass’n, Inc. v. Combs,
431 S.W.3d 790, 795 (Tex. App.—Austin 2014, pet. denied) (citing Combs v. Texas
Entm’t Ass’n, Inc., 287 S.W.3d 852, 864-65 (Tex. App.—Austin, 2009), rev’d on
other grounds, 347 S.W.3d 277 (Tex. 2011)) (on remand, citing with approval its
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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previous opinion holding that declaratory-judgment action challenging
constitutionality and implementation of new tax statute was not preempted by
Chapter 112 of Tax Code); Combs v. Entertainment Publ’ns Inc., 292 S.W.3d 712,
723 (Tex. App.—Austin 2009, no pet.) (affirming trial court’s denial of plea to
jurisdiction in suit in which taxpayer sought declaratory and injunctive relief to
prevent Comptroller from implementing allegedly invalid rule). See Sanadco 2, *13,
n. 9.
If Appellants have raised valid challenges to the agency’s rules under the
APA, then the court need not determine whether the Plaintiffs have properly alleged
ultra vires claims pursuant to the UDJA because section 2001.038 of the APA
establishes the trial court's subject-matter jurisdiction for both claims. See Dept. of
State Health Services v. Balquinta, 429 S.W.3d 726, 750-751 (Tex.App.-Austin
2014); Texas Dep't of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691, 705
(Tex.App. Austin 2011, no pet.); see also Texas Dep't of Pub. Safety v. Salazar, 304
S.W.3d 896, 903 (Tex.App. Austin 2009, no pet.) (where plaintiff asserted section
2001.038 rule challenges and UDJA ultra-vires claims turning on same underlying
statutory-authority issues).
III. Chapter 112’s prepayment provisions are inapplicable to
petitions for judicial review and declaratory judgment actions
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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because the Texas Supreme Court has ruled that they
unconstitionally violate the Open Courts provision when
applied to these remedies.
For over three decades, it has been unconstitutional to require compliance
with the Chapter 112 prepayment provisions to petitions for judicial review of
contested administrative proceedings.7 When discussing the constitutionality of the
statutes authorizing judicial review of tax assessments, the supreme court held that
“conditioning a taxpayer's right to initiate judicial review on the payment of taxes
or the posting of a bond equal to twice the alleged tax obligation violates the open
courts mandate." Tex. Const. art. I, Sec. 13; R Commc'ns, Inc. v. Sharp, 875 S.W.2d
314, 314 (Tex. 1994).
The prepayment provisions and the ban on declaratory judgments, "mean that
a taxpayer is financially restricted in its ability to get to court." Id. at 317-18.
Accordingly, the court determined that section 112.108 is unconstitutional and void.
Id. at 318. In Weck v. Sharp, 884 S.W.2d 153, 154 (Tex. 1994) the court determined
that because the prohibition in section 112.108 against declaratory-judgment actions
7
R Commc'ns, Inc. v. Sharp, 875 S.W.2d 314, 314 (Tex. 1994); Weck v. Sharp, 884 S.W.2d 153, 154 (Tex. 1994);
Richmont Aviation, Inc. v. Combs, 03-11-00486-CV (Tex.App.-Austin 9-12-2013); Rylander v. Bandag Licensing
Corp., 18 S.W.3d 296 (Tex. App.-Austin 2000, pet. denied); FM Express Food Mart, Inc. v. Combs, No. 03-12-
0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex. App.-Austin Mar. 15, 2013, no pet.) (mem. op.).
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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and other similar remedies was invalid, the trial court could consider the taxpayer's
declaratory claim and remanded the case. Id.
This Court has emphasized this constitutional ruling on at least four occasions.
See Richmont Aviation, Inc. v. Combs, 03-11-00486-CV (Tex.App.-Austin 9-12-
2013) (reaffirming its prior decisions finding section 112.108 was unconstitutional);
Rylander v. Bandag Licensing Corp., 18 S.W.3d 296 (Tex. App.-Austin 2000, pet.
denied) (concluding that section 112.108 violated open-courts provision and
imposed unreasonable financial barrier to court access even though it excused
prepayment for indigent taxpayers); FM Express Food Mart, Inc. v. Combs, No. 03-
12-0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex. App.-Austin Mar. 15,
2013, no pet.) (mem. op.) (stating that this Court previously determined that
amended version of section 112.108 was unconstitutional); Local Neon Co. v.
Strayhorn, No. 03-04-00261-CV, 2005 Tex. App. LEXIS 4667, at *17 n.6 (Tex.
App.-Austin June 16, 2005, no pet.) (mem. op.) Page-11 (relating that Comptroller
"concedes on appeal that this Court held section 112.108 unconstitutional").
This court has not wavered from this conclusion even after In re Nestle USA,
Inc., 359 S.W.3d 207 (Tex. 2012) was decided. In footnote 3 of Richmont, it stated:
Specifically, the Comptroller urges that the supreme court overruled
Bandag in In re Nestle. In Nestle, the court did discuss the restrictions
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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imposed by section 112.108 and discussed the amendment to the provision
excusing prepayment in certain circumstances. Id. at 210-11 & n.38. . .
However, the court did not mention Bandag or our determination that the
amended version was also unconstitutional, nor did the court expressly state
that the amendment cured the constitutional infirmity. See id.; see also FM
Express Food Mart, Inc. v. Combs, No. 03-12-0144-CV, 2013 Tex. App.
LEXIS 2744, at *17 n.6 (Tex. App.-Austin Mar. 15, 2013, no pet.) (mem. op.)
(explaining that although the supreme court in Nestle explained that statute
was amended in response to determination that statute violated open-courts
provision, supreme court "did not address whether it did so successfully").
Accordingly, we do not agree with the Comptroller's assertion that our
determination in Bandag has been overruled.
Richmont Aviation, Inc. v. Combs, 03-11-00486-CV, *11, n.3.
Nestle did not overrule R Commc'ns, Inc. or its progeny’s assessment of
Chapter 112’s unconstitutionality or its applicability to ultra vires claims because
these issues were not presented to the court.
Petitioners do not argue that the limitations of these actions is
unconstitutional, as did the taxpayers in R Communications, 875 S.W.2d at
314-315. Nor do petitioners contend that an ultra vires suit against the
Comptroller is outside chapter 112's provisions. See City of El Paso v.
Heinrich, 284 S.W.3d 366, 372 (Tex. 2009).
Nestle USA, Inc., 359 S.W.3d 207 at 211- 212, n. 39.
These are the precise allegations raised in Appellants’ petitions, which
challenged the validity of AP92 and AP122, and the constitutionality of various tax
statutes, as well as the comptroller’s ultra vires conduct. Other courts have likewise
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
26
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limited the application of Nestle. See, Montrose Mgt. Dist. v. 1620 Hawthorne, Ltd.,
435 S.W.3d 393, 410-11, n. 16 (Tex.App.-Houston [14th Dist.] 2014) (Nestle does
not apply to ultra vires claims).
Accordingly, Appellants’ failure to comply with Chapter 112’s requirements
present no obstacle to consideration of the claims raised by this appeal.
IV. Appellants’ pleadings provided sufficient relevant, undisputed
allegations conclusively establishing that the administrative
orders were void and unenforceable ab initio as a matter of law,
thus, there was no final judgment to support the Comptroller’s
collection efforts, and the trial court abused its discretion by
failing to grant the temporary restraining order.
A. Appellants’ pleadings established the invalidity of the rules as a
matter of law.
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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§ 2001.038 is not controlled by Chapter 112.
"[S]ection 2001.038 is a grant of original jurisdiction and, moreover, waives
sovereign immunity." Tex. Logos, L.P. v. Tex. Dept. of Transp., 241 S.W.3d 105,
123 (Tex. App.-Austin 2007, no pet.). The APA gives the district court jurisdiction
to resolve two issues: "(1) whether a rule is valid, and/or (2) whether a rule is
applicable." Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River Auth., 96
S.W.3d 519, 529 (Tex. App.-Austin 2002, pet. denied). "[The APA] authorizes
declaratory relief when determining the validity or applicability of a rule, if the
plaintiff alleges `that the rule or its threatened application interferes with or impairs,
or threatens to interfere with or impair, a legal right or privilege of the plaintiff.'" El
Paso Hosp. Dist. v. Tex. Health & Human Servs. Comm'n, 247 S.W.3d 709, 713
(Tex. 2008) (quoting Tex. Gov't Code Ann. § 2001.038(a)).
Appellants further assert that suit under Section 2001.038 is not a suit filed under
Chapter 112 because its purpose is to determine the validity of the audit procedure,
and not to challenge the propriety of a tax assessment, potentially bringing it into the
purview of Chapter 112. See, Combs v. Entertainment Publications, Inc., 292
S.W.3d 712 (Tex. App. 2009) (“Entertainment did not seek declaratory relief
regarding the tax itself, but regarding the validity of the rule promulgated by the
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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Comptroller in violation of the APA, for which the legislature has expressly
permitted suit by a declaratory-judgment action”). When an agency promulgates a
rule without complying with the statutory rule-making procedures, the rule is invalid
and may be challenged in the absence of exhaustion of administrative remedies. See
APA § 2001.035(a); El Paso Hosp. Dist., 247 S.W.3d at 715.
Since suit pursuant to Section 2001.038 is pursuant to an original grant of
authority, it is filed without regard to Chapter 112 mandates, and is therefore
sufficient to invoke the court’s jurisdiction without compliance with Chapter 112.
The administrative judgment is void and unenforceable
To establish entitlement to a declaratory judgment pursuant to § 2001.038, the
challenged procedure or document must be a rule as defined by the Administrative
Procedure Act (APA). Tex. Gov’t Code Ann. § 2001.003(6). The jurisdictional
inquiry concerns whether the Comptroller's memos constitute rules under the
APA and, if so, whether that rule or its threatened application interferes with or
impairs Plaintiffs’ legal rights or privileges. Combs v. Entertainment Publ'ns, Inc.,
292 S.W.3d at 720. Accordingly, to ascertain its jurisdiction, the trial court
necessarily had to determine whether the memos were rules.
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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In making this determination, the trial court was not required to delve into the
merits of the claims, see Texas Dep't of Pub. Safety v. Salazar, 304 S.W.3d 896, 903
(Tex.App.-Austin 2009, no pet.) — nor would such an inquiry be proper. See Bland
Indep. Sch. Dist., 34 S.W.3d 547; Hendee, 228 S.W.3d at 366.” Texas Dept. Of
Transp. v. Sunset Transp., 357 S.W.3d 691, 702 (Tex.App.-Austin 2011). Section
2001.038 only authorizes a district court to resolve whether an administrative rule is
valid or whether an administrative rule is applicable. Friends of Canyon Lake, Inc.
v. Guadalupe-Blanco River Auth., 96 S.W.3d 519, 529 (Tex.App.-Austin 2002, pet.
denied).
The court’s assumption of jurisdiction over this claim necessitates the
conclusion that it was determined that the memos were rules. A rule is invalid and
unenforceable unless the Comptroller promulgates and adopts it in accordance with
the requirements of the APA. Tex. Gov’t. Code Ann. §§ 2001.035,8 2001.0049 and
8
§ 2001.035. Substantial Compliance Requirement; Time Limit on Procedural Challenge
(a) A rule is voidable unless a state agency adopts it in substantial compliance with Sections
2001.0225 through 2001.034.
9
§ 2001.004 Requirement to Adopt Rules of Practice and Index Rules, Orders, and Decisions
In addition to other requirements under law, a state agency shall:
(1) adopt rules of practice stating the nature and requirements of all available formal and informal
procedures;
(2) index, cross-index to statute, and make available for public inspection all rules and other written
statements of policy or interpretations that are prepared, adopted, or used by the agency in
discharging its functions; and
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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2001.00510. It is undisputed that neither AP92 nor AP122 were promulgated
pursuant to APA requirements, and were therefore invalid and unenforceable as a
matter of law. Gov’t Code §§ 2001.023-.037.
Appellants’ claims are buttressed by this court’s holding in Sanadco 1 where this
issue was addressed and the court held, “we conclude that the directives in AP 92
and AP 122 are in fact rules. For that reason, we must also conclude that the district
court had jurisdiction over Sanadco’s claim that AP 92 and AP 122 were invalid
rules and that, therefore, the district court erred by dismissing Sanadco’s first
counterclaim”. Sanadco, Inc. et. al. v. Texas Comptroller of Public Accounts, et. al.,
No. 03-11-00462-CV, *14 (Tex. App.—Austin, September 26, 2013). Although this
court reversed that decision on other grounds, the reasoning in this case gives a
strong basis for the conclusion that the memoranda are rules, and the district court’s
jurisdiction was therefore invoked by plaintiffs’ claim.
(3) index, cross-index to statute, and make available for public inspection all final orders,
decisions, and opinions.
10
§ 2001.005 Rule, Order, or Decision Not Effective Until Indexed
(a) A state agency rule, order, or decision made or issued on or after January 1, 1976, is not valid
or effective against a person or party, and may not be invoked by an agency, until the agency has
indexed the rule, order, or decision and made it available for public inspection as required by this
chapter.
(b) This section does not apply in favor of a person or party that has actual knowledge of the
rule, order, or decision.
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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In the absence of enforceable audits, there is nothing to support the
enforcement activities. Thus, there is no need to establish probable injury or probable
right to recovery from the unenforceable order as Appellees contend. The trial court
therefore abused its discretion by permitting continuation of the unenforceable
enforcement activities by denying the temporary injunction.
Appellants entitled to ruling on declaratory judgments before enforcement
activities commenced.
Section 2001.038 provides that "[a] court may render a declaratory judgment
without regard to whether the plaintiff requested the state agency to rule on the
validity or applicability of the rule in question.” Tex. Gov’t Code Ann. § 2001.038
(d).
The Texas Supreme Court has held that an action for declaratory relief is
permissible, even during the pendency of an administrative proceeding, when the
issue is whether the agency is exercising authority beyond its statutorily conferred
powers. See City of Sherman v. Public Util. Comm'n, 643 S.W.2d 681, 683 (Tex.
1983). Further, the statutory language emphasized above clearly implies that section
2001.038 permits a plaintiff to bring a declaratory-judgment action challenging the
validity of an agency rule even without the initiation of administrative proceedings.
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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The UDJA provides a basis for a claimant to obtain a declaration of rights,
status, or other legal relations under a writing or statute. See Tex. Civ. Prac. & Rem.
Code Ann. § 37.004 (West 1997); City of Waco, 83 S.W.3d at 177. The legislature
intended the UDJA to be remedial, to settle and afford relief from uncertainty and
insecurity with respect to rights, and to be liberally construed. Tex. Civ. Prac. &
Rem. Code Ann. § 37.002 (West 1997); Bonham State Bank v. Beadle, 907 S.W.2d
465, 467 (Tex. 1995).
Declaratory-judgment actions are intended to determine the rights of parties
when a controversy has arisen, before any wrong has actually been committed, and
are preventative in nature. Cobb v. Harrington, 144 Tex. 360, 366, 190 S.W.2d 709,
713 (1945); Montemayor v. City of San Antonio Fire Dept., 985 S.W.2d 549, 551
(Tex.App.-San Antonio 1998, pet. denied). Historically, challengers to improper
governmental action have sought declaratory relief. Frasier v. Yanes, 9 S.W.3d 422,
427 (Tex.App.-Austin 1999, no pet.); see Chenault v. Phillips, 914 S.W.2d 140, 141
(Tex. 1996).
A person seeking a declaratory judgment need not have incurred actual injury.
City of Waco, 83 S.W.3d at 175; Texas Dept. of Banking v. Mount Olivet Cemetery
Ass'n, 27 S.W.3d 276, 282 (Tex.App.-Austin 2000, pet. denied). Courts have also
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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issued declaratory judgments construing a statute before the statute is violated. See
The Pea Picker, Inc. v. Reagan, 632 S.W.2d 674, 677 (Tex.App.-Tyler 1982, writ
ref'd n.r.e.) (trial court had power to construe Open Meetings Act and determine
whether notice must be given and when meeting is required to be open).
Appellants do not seek declaratory relief regarding the tax refund itself, but
regarding the validity of the rule promulgated by the Comptroller in violation of the
APA, construction of relevant statutes, including their constitutionality, and certain
ultra vires acts of a state official, for which the legislature has expressly permitted
suit by a declaratory-judgment action. See APA § 2001.038; Tex. Civ. Prac. & Rem.
Code Ann. § 37.001 et. seq.; Combs v. Entertainment Publ'ns, Inc., 292 S.W.3d 712,
720. Since this is not a suit for a refund or protest pursuant to Tex. Tax Code Ann.
§ 111.104 or 111.105 their requirements are not relevant to Plaintiffs’ right to seek
injunctive relief. Combs v. Entertainment Publications, 292 S.W.3d 712, 720
(Tex.App. [3rd] 2009).
Accordingly, this Court may enter an order reversing the trial court’s order
denying the temporary injunction, and render judgment prohibiting the Comptroller
from further enforcement activities or use of these procedures in future audits until
they have complied with the APA requirements. See El Paso Hosp. Dist. v. Texas
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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Health & Human Servs. Comm'n, 247 S.W.3d 709, 715 (Tex. 2008). The court
should further render judgment that all audits performed pursuant to the procedures
mandated by AP92 and AP122, including the use of HB 11 data, are invalid pursuant
to Gov't Code § 2001.035, Gov’t Code § 2001.004 and Gov’t Code § 2001.005,
and prohibit enforcement of the resulting tax liabilities, including all taxes,
penalties and interest.
B. Appellants’ pleadings established the nullification of the
administrative judgment as a matter of law.
The Administrative Procedure Act (APA) allows a party aggrieved by a final
agency decision in a contested case to seek judicial review of the agency's decision
if the party has exhausted all of its administrative remedies available within the
agency. See Tex. Gov't Code § 2001.171. To exhaust its administrative remedies, a
party must timely file a motion for rehearing with the agency. See id. § 2001.145(a).
If a motion for rehearing is not timely filed, the trial court lacks jurisdiction over a
suit for judicial review of the agency's decision. Hill v. Board of Trs., 40 S.W.3d
676, 679 (Tex. App. — Austin 2001, no pet.).
Assuming that a timely motion for rehearing has been filed, after the motion
has been overruled, the losing party must file its petition for judicial review no later
than the 30th day after the order becomes final and appealable. See Tex. Gov't Code
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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§ 2001.176(a). If the petition for judicial review is not timely filed, the trial court
lacks jurisdiction over the suit. HCA Healthcare Corp. v. Texas Dep't of Ins., 303
S.W.3d 345, 352 (Tex. App. — Austin 2009, no pet.) (holding that APA Section
2001.176(a) requirement that suit for judicial review must be filed within 30 days of
agency decision becoming final and appealable is jurisdictional). The Allee
Corporation v. Texas Department of Motor Vehicles, 03-13-00096-CV, *6-7
(Tex.App.-Austin 11-21-2014). If jurisdiction is successfully invoked, "the filing of
the petition vacates a state agency decision for which trial de novo is the manner of
review authorized by law. . . ." Tex. Gov't Code Ann. § 2001.176 (b) (3).
Appellants’ petition for judicial review pursuant to Tex. Gov’t Code Ann. §
2001.173 and Tex. Gov’t Code § 2001.174 is for a de novo hearing to determine the
validity of the deficiency assessments sought to be collected by the Comptroller in
the contested proceeding and seeks judgment that the audit is void and
unenforceable. When disputed facts relevant to the jurisdictional inquiry are not
presented, whether a court has subject-matter jurisdiction is a question of law, and
is reviewed de novo. See Texas Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d
217, 226 (Tex. 2004) (subject-matter jurisdiction is determined as matter of law on
pleadings and when evidence relevant to jurisdictional inquiry is undisputed); Bexar
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Metro. Water Dist. v. City of Bulverde, 156 S.W.3d 79, 85-86 (Tex. App. — Austin
2004, pet. denied). When the only issue under review involves a pure question of
law, the standard of review is de novo. In re Humphreys, 880 S.W.2d 402, 404 (Tex.
1994); City of Pasadena v. Gennedy, 125 S.W.3d 687, 691 (Tex. App.-Houston [1st
Dist.] 2003, pet. denied); Doan v. Christus Health ArkLa-Tex, 329 S.W.3d 907, 910
(Tex.App.-Texarkana 2010, no pet.).
The only factual issue to be determined is whether Appellants timely filed the
petitions for judicial review, which is undisputed, because they are part of the court
record. The only dispute Appellees raise is whether the petitions invoked the court’s
jurisdiction in the absence of compliance with Chapter 112, which is a pure question
of law that can be determined from the information before the court.
The sine qua non of a de novo trial is the nullification of the judgment of the
first tribunal and a retrial of the issues on which the judgment or order was founded.
When jurisdiction of the second tribunal attaches, the judgment of the first tribunal
is not merely suspended, but nullified. Texas Dept. of Public Safety v. Banks Transp.
Co., 427 S.W.2d 593, (Tex. Sup. 1968); Southern Canal Co. v. State Bd. of Water
Engineers, 318 S.W.2d 619; 159 Tex. 227 (Tex. 1958). Accordingly, “res judicata”
and “final judgment” are inapplicable in de novo proceedings because the original
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
37
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administrative order that is the subject of appeal is nullified in a de novo proceeding.
State Bd. of Ins. v. Republic Nat'l Ins. Co., 384 S.W.2d 369, 372 (Tex.Civ.App. —
Austin 1964, writ ref'd n.r.e.).
Consequently, the filing of the petition for review nullified the administrative
judgment, leaving nothing for the Comptroller to enforce pending entry of a final
judgment in the petition for review, and such enforcement activity was illegal and
premature. In the absence of a final judgment in the redetermination hearing, no tax
has yet been imposed and no tax is “due and payable” upon which a delinquency
may be predicated.
A void order has no force or effect and confers no right; it is a nullity. See
In re Garza,, 126 S.W.3d 268, 271 (Tex. App.-San Antonio 2003, orig.
proceeding). Where the trial court (in this case the administrative judge) did
not have jurisdiction to render a judgment, the proper practice is for the
reviewing court to set the judgment aside and dismiss the cause. Fulton v.
Finch, 162 Tex. 351, 356, 346 S.W.2d 823, 827 (1961) (orig. proceeding) (If the
trial court lacks jurisdiction, the appellate court only has jurisdiction to set
the judgment aside and dismiss the cause.); Crane v. Richardson Bike Mart,
Inc., 295 S.W.3d 1, 5 (Tex. App.-El Paso 2009, no pet.).
ACCELERATED APPEAL REPLY BRIEF, SANADCO,
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C. Appellants’ pleadings established the Comptroller’s ultra vires
conduct as a matter of law.
Appellants sued the Comptroller seeking “a declaratory judgment . . .
declaring that the Comptroller’s memoranda, designated as AP 92, AP 122
(incorporating HB 11), are invalid administrative rules. They allege the
Comptroller acted ultra vires when he failed to perform the purely ministerial,
non-discretionary act of adopting them in accordance with the requirements
of the APA found at Tex. Gov’t Code Ann. §§ 2001.035 and 2001.004.” (CR 293
¶42). Such an allegation is sufficient to allege an ultra vires act subject to
adjudication pursuant to the Declaratory Judgment Act. City of El Paso v.
Heinrich, 284 S.W.3d 366, 372, 373 (Tex. 2009). In Heinrich, the Supreme Court
defined ultra vires suits:
[S]uits to require state officials to comply with statutory or
constitutional provisions are not prohibited by sovereign immunity,
even if a declaration to that effect compels the payment of money. To fall
within this ultra vires exception, a suit must not complain of a
government officer's exercise of discretion, but rather must allege, and
ultimately prove, that the officer acted without legal authority or failed
to perform a purely ministerial act.
These allegations fit this definition because the legislature has vested the
Comptroller with authority:
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[T]o adopt rules that do not conflict with the laws of this state or the
constitution of this state or the United States for the enforcement of the
provisions of this title and the collection of taxes and other revenues
under this title. In addition to the discretion to adopt, repeal, or amend
such rules permitted under the constitution and laws of this state and
under the common law, the comptroller may adopt, repeal, or amend
such rules to reflect changes in the power of this state to collect taxes and
enforce the provisions of this title due to changes in the constitution or
laws of the United States and judicial interpretations thereof.
As this is a discretionary function, the Comptroller is under no
ministerial duty to promulgate the memos as a Rule upon their publication.
They remained invalid and unenforceable, however, until they were properly
promulgated in accordance with the APA requirements. It then became the
Comptroller’s ministerial duty to submit the memos for formal adoption prior
to implementing them as auditing procedures.
In the absence of a valid Rule, the Comptroller’s implementation of the
memos was without legal authority because of her failure to perform a purely
ministerial act. Consequently, the Comptroller engaged in ultra vires conduct
because she acted without legal authority and failed to perform a purely
ministerial act, and this Court should so hold.
Accordingly, the collection activity is void and the comptroller should
dismiss the underlying administrative judgment and reimburse Appellants for the
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illegally collected funds, and the results of said activity should be nullified. State v.
Crawford, 262 S.W.3d 532, 546 (Tex.App.-Austin 2008, no pet.).
CONCLUSION
Each of the underlying administrative judgments upon which the Comptroller
relies to validate his collection activities are void and unenforceable as a matter of
law. They are void and unenforceable because the audit procedures upon which the
judgments are predicated were unauthorized because they were not properly adopted
in accordance with APA requirements. They are void and unenforceable because the
Comptroller engaged in ultra vires conduct when he failed to perform the purely
administrative act of adopting these new audit procedures as mandated by the APA,
and exceeded his statutory authority when he authorized the implementation and use
of the invalid memos to conduct the audits. Moreover, he exceeded his statutory
authority by authorizing the estimation of the audits, and unilaterally establishing an
irrebuttable presumption to impose the 50% penalty, in contravention of statutory
authority.
These statutory violations are established as a matter of law by reference to
the undisputed pleadings on file at the time of the entry of the trial court’s judgment
without any additional factual findings. Since the trial court exercised jurisdiction
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over these claims, we must presume that he determined that AP92 and 122 were
rules as defined by the APA. In the absence of controverting allegations to the
contrary—indeed in the face of judicial admissions—we must also presume that he
determined that the Comptroller failed to adopt the memos properly as required by
the APA and invalidated the audits and the judgments supporting them as a matter
of law.
Accordingly, this court should reverse and render judgment that the audits are
invalid and prohibit their enforcement and use until the rules are properly adopted.
PRAYER FOR RELIEF
WHEREFORE PREMISES CONSIDERED, Appellants pray that this
Court will reverse the trial court’s order denying the temporary restraining order
and render judgment that the audits were invalid, and unenforceable, and order the
comptroller to cease its enforcement efforts and reimburse all funds and property
collected from the Appellants. In the alternative, Appellants pray the court to
reverse the judgment of the trial court and remand it for further
proceedings. Appellants pray for such other and further relief in law and in
equity to which they may show themselves entitled.
Respectfully submitted,
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Law Office of
Samuel T. Jackson
PO Box 170633
Arlington, TX 76003-0633
Tel: (512) 692-6260
Fax. 866-722-9685
ATTORNEY FOR
APPELLANTS
By: /s/ Samuel T. Jackson
Samuel T. Jackson
Texas Bar No. 10495700
CERTIFICATE OF COMPLIANCE
This document complies with the typeface requirements of Tex. R. App. P.
9.4(e) because it has been prepared in a conventional typeface no smaller than 14-
point for text and 12-point for footnotes. This document also complies with the
word-count limitations of Tex. R. App. P. 9.4 (i) (2) (C), because it contains 6,550
words, excluding any parts exempted by Tex. R. App. P. 9.4 (i) (1), as counted by
the computer program used to prepare this document.
CERTIFICATE OF SERVICE
I hereby certify by my signature above that a true and correct copy of the
above and foregoing instrument was served on the parties or their attorneys via
facsimile, certified mail, return receipt requested, and/or hand delivery on August
20, 2011, in accordance with the Texas Rules of Appellate Procedure, to the
following:
JACK HOHENGARTEN
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Assistant Attorney General
FINANCIAL LITIGATION
DIVISION
P.O. Box 12548
Austin, TX 78711-2548
TEL: (512) 475-3503
FAX: (512) 477-2348/480-8327
Email: jack.hohengarten@oag.state.tx.us
ATTORNEY FOR DEFENDANTS
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