DocketNumber: 03-11-00462-CV
Filed Date: 5/11/2015
Status: Precedential
Modified Date: 9/29/2016
ACCEPTED 03-11-00462-CV 5229183 THIRD COURT OF APPEALS AUSTIN, TEXAS 5/11/2015 12:20:56 PM JEFFREY D. KYLE CLERK NO. 03-11-00462 FILED IN 3rd COURT OF APPEALS In The AUSTIN, TEXAS 5/11/2015 12:20:56 PM Third Court of Appeals JEFFREY D. KYLE Clerk AT AUSTIN, TEXAS Sanadco Inc., Mahmoud A. Isba, Walid Abderrahman, Majic Investments Inc., Faisal Khan, Isra Enterprises, Inc., Hattab Al-Shudifat, Haifa Enterprises, Inc., EID Corp., Mohammed S. Al Hajeid, Majdi Rafe Okla Nsairat, Omar Unlimited, Inc., and All Others Similarly Situated, APPELLANTS VS. The Office of the Comptroller of Public Accounts; Susan Combs, in her individual and official capacities as Comptroller of Public Accounts for the State of Texas; and Greg Abbott in his official capacity as Attorney General of the State of Texas APPELLEES __________________________________________________________ Appeal From Cause No D-1-GV-10-000902 The 98th District Court Of Travis County, Texas The Honorable Tim Sulak, Presiding __________________________________________________________ APPELLANTS’ FURTHER MOTION FOR REHEARING AND FOR RECONSIDERATION EN BANC ___________________________________________________________ SAMUEL T. JACKSON SBN 10495700 P.O. BOX 670133 ARLINGTON, TX 76003-0133 TEL: (512) 692-6260 FAX: (866) 722-9685 E-MAIL: jacksonlaw@hotmail.com COUNSEL FOR RELATORS IDENTITY OF PARTIES AND COUNSEL APPELLANTS: Sanadco Inc., Mahmoud A. Isba, Walid Abderrahman, Majic Investments Inc., Faisal Khan, Isra Enterprises, Inc., Hattab Al- Shudifat, Haifa Enterprises, Inc., EID Corp., Mohammed S. Al Hajeid, Majdi Rafe Okla Nsairat, Omar Unlimited, Inc., and All Others Similarly Situated, 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 NO. 03-11-00462 In The Third Court of Appeals AT AUSTIN, TEXAS Sanadco Inc., Mahmoud A. Isba, Walid Abderrahman, Majic Investments Inc., Faisal Khan, Isra Enterprises, Inc., Hattab Al-Shudifat, Haifa Enterprises, Inc., EID Corp., Mohammed S. Al Hajeid, Majdi Rafe Okla Nsairat, Omar Unlimited, Inc., and All Others Similarly Situated, APPELLANTS VS. The Office of the Comptroller of Public Accounts; Susan Combs, in her individual and official capacities as Comptroller of Public Accounts for the State of Texas; and Greg Abbott in his official capacity as Attorney General of the State of Texas APPELLEES __________________________________________________________ Appeal From Cause No D-1-GV-10-000902 The 98th District Court Of Travis County, Texas The Honorable Tim Sulak, Presiding __________________________________________________________ APPELLANTS’ FURTHER MOTION FOR REHEARING AND FOR RECONSIDERATION EN BANC ___________________________________________________ TO THE HONORABLE THIRD COURT OF APPEALS: Appellants, SANADCO, INC. ET AL, pursuant to TEX. R. APP. P. 49.5 (b), submit this Motion for Further Rehearing and for Reconsideration En Banc, in response to the opinion issued by this Court on March 25, 2015, reversing its opinion of September 26, 2013 on other grounds. Further Rehearing is requested because the court’s opinion on rehearing ignores prior Texas Supreme Court precedent of R Commc'ns, Inc. v. Sharp,875 S.W.2d 314
, 314 (Tex. 1994), and its own holdings in 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.); and 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, all holding that Chapter 112’s prepayment requirements were unconstitutional as a prohibitive bar to court access. This decision effectively overrules these cases sub silentio without acknowledgment or explanation while applying compliance with Chapter 112 as jurisdictional to virtually all challenges to tax assessments, an opprobrious bar to judicial access. The court’s apparent reliance on the Texas Supreme Court’s decision in In re Nestle appears to be woefully misplaced, therefore Appellants respectfully request that this Honorable Court consider the following issues: ISSUES PRESENTED I. Is it unconstitutional to require prepayment of taxes to file petitions for judicial review of administrative proceedings? II. Is Tex. Tax Code Ann. § 112.108 applicable to petitions for declaratory relief filed pursuant to Tex. Gov’t Code Ann. § 2001.038? III. Was it error for the court to dismiss the joined petitioners’ claims without giving consideration to their individual claims? IV. Was it error for the court to dismiss Sanadco’s claims for failure to submit issues to the administrative tribunal which they were not legally authorized to address? TABLE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL ........................................................2 ISSUES PRESENTED ............................................................................................5 I. Is it unconstitutional to require prepayment of taxes to file petitions for judicial review of administrative proceedings?.....................................................................................5 II. Is Tex. Tax Code Ann. § 112.108 applicable to petitions for declaratory relief filed pursuant to Tex. Gov’t Code Ann. § 2001.038? ......................................................................5 III. Was it error for the court to dismiss the joined petitioners’ claims without giving consideration to their individual claims?.................................................................................5 IV. Was it error for the court to dismiss Sanadco’s claims for failure to submit issues to the administrative tribunal which they were not legally authorized to address?............5 TABLE OF CONTENTS ........................................................................................6 ARGUMENT .........................................................................................................10 I. Chapter 112 is unconstitutional as applied to the cross-plaintiffs’ suits because they were contested cases pursuant to the Administrative Procedure Act with timely filed petitions for judicial review which do not require prepayment under Chapter 112. ........12 II. The Court failed to recognize the individual claims of each party joining the Sanadco counter-petition and erroneously attributed Sanadco’s deficiencies to the counter- plaintiffs. ...................................................................................................................................17 III. The Court erred when it determined that Chapter 112 deprived it of jurisdiction of the cross-plaintiffs’ rule validity claim filed pursuant to Government Code § 2001.038... …………………………………………………………………………………………19 IV. The Court erred when it determined that Chapter 112 deprived it of jurisdiction of Sanadco’s defensive claims, because the collection suit was filed pursuant to Tax Code § 111.010 and not Chapter 112. ..............................................................................................22 CONCLUSION ......................................................................................................27 PRAYER ................................................................................................................28 CERTIFICATE OF COMPLIANCE ..................................................................29 CERTIFICATE OF SERVICE ............................................................................30 TABLE OF AUTHORITIES Cases Anderson, Clayton & Co. v. State ex rel. Allred,122 Tex. 530
,62 S.W.2d 107
, 110 (1933).................................................................................21 Bennett v. Grant, 03-11-00669-CV (Tex.App.-Austin 3-20-2015)........................................................................16 City of El Paso v. Heinrich,284 S.W.3d 366
, 372 (Tex. 2009)............................................................................14, 22, 23, 25 City of Sherman v. Public Util. Comm'n,643 S.W.2d 681
, 683 (Tex. 1983)..............................................................................................18 Combs v. Entertainment Publ'ns, Inc.,292 S.W.3d 712
, 720 (Tex. App.-Austin 2009, no pet.) ....................................................1, 3, 23 Combs v. City of Webster,311 S.W.3d 85
, 100-01 (Tex.App.-Austin 2009, pet. denied) ...................................................19 Combs v. Texas Entm’t Ass’n, Inc.,287 S.W.3d 852
, 864-65 (Tex. App.—Austin, 2009) ................................................................13 Comunidad Corp. v. State,445 S.W.3d 401
(Tex.App.-Houston [1st Dist.] 2013) ..............................................................24 Creedmoor-Maha Water Supply Corp v. Texas Commission on Environmental Quality),307 S.W.3d 505
(Tex. App.—Austin, 2010)..................................................................................25 Cunningham v. Parkdale Bank,660 S.W.2d 810
, 813 (Tex. 1983) .................................................................................................21 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.) ...................................................................................................................................4, 12 Guar. Trust Co. v. United States,304 U.S. 126
, 134-35,58 S. Ct. 785
, (1938)...............................................................................21 Hendee v. Dewhurst,228 S.W.3d 354
, 368-69 (Tex. App.-Austin 2007, pet. denied) ................................................25 In re Nestle USA, Inc.,359 S.W.3d 207
, 208 Tex.2012 ...........................................................................................passim In re Union Carbide Corp.,273 S.W.3d 152
, 155 (Tex.2008)...............................................................................................16 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.) .........................................................................................................................4, 12 Montrose Mgt. Dist. v. 1620 Hawthorne, Ltd.,435 S.W.3d 393
, 410-11; fn. 16 (Tex.App.-Houston [14th Dist.] 2014)...................................14 R Commc'ns, Inc. v. Sharp,875 S.W.2d 314
(Tex. 1994)............................................................................................4, 11, 14 Reata Const. Corp. v. City of Dallas,197 S.W.3d 371
(Tex. 2006)......................................................................................................21 Richmont Aviation, Inc. v. Combs, 03-11-00486-CV (Tex.App.-Austin 9-12-2013)........................................................4, 11, 12, 26 Rylander v. Bandag Licensing Corp.,18 S.W.3d 296
(Tex. App.-Austin 2000, pet. denied) ...............................................4, 11, 12, 26 Sanadco, et al v. Office of the Comptroller of Public Accounts, et al, No. 03-11-00462 (Austin App.) (Sept. 26, 2013) ................................................................19, 23 Subaru of America v. David McDavid Nissan,84 S.W.3d 212
, 224 (Tex. 2002)................................................................................................13 Tex. Dep't of Human Servs. v. ARA Living Ctrs. of Tex., Inc.,833 S.W.2d 689
, 693 (Tex.App.-Austin 1992, writ denied)......................................................17 Texas Department of Insurance v. Reconveyance Services, Inc.284 S.W.3d 366
(Tex. 2009);306 S.W.3d 256
(Tex. 2010)......................................................................................................23 Texas Dep't of Pub. Safety v. Salazar,304 S.W.3d 896
, 903 (Tex.App.-Austin 2009, no pet.) .............................................................18 Texas Entm’t Ass’n, Inc. v. Combs,431 S.W.3d 790
, 795 (Tex. App.—Austin 2014, pet. denied)...................................................13 Texas Logos, L.P. v. Texas Dep't of Transp.,241 S.W.3d 105
, 123 (Tex.App.-Austin 2007, no pet.) .................................................17, 18, 24 Tex-Hio Part. v. Garner,106 S.W.3d 886
(Tex.App.-Dallas 2003) ..................................................................................17 Weck v. Sharp,884 S.W.2d 153
, 154 (Tex. 1994)..............................................................................................11 Statutes Government Code § 2001.038…………………………………………………………………………………passim § 2001.176……………………………………………….………………………………. 9 § 2001.171, ………………………………………………………………………………….9 § 173.10………………………..…………………………………………………………….9 Tax Code Chapter 112 ............................................................................................................................passim § 111.010 ...............................................................................................................................6, 9, 20 § 111.0102 .....................................................................................................................................21 § 112.052 .........................................................................................................................................9 Rules Rule 40...........................................................................................................................................16 Rule 42;..........................................................................................................................................15 Rule 97 (f) ………………………………………………………………………………………15 ARGUMENT The court paints with an extremely broad brush respecting Sanadco’s claims and those of the counter-plaintiffs in holding that “the only permitted taxpayer actions challenging state taxes are ‘a suit after payment under protest, suit for injunction after payment or posting of a bond, and a suit for a refund,’” (quoting In re Nestle USA, Inc.,359 S.W.3d 207
, 208 Tex.2012). It relies heavily on Nestle for the erroneous assertion that Tax Code Chapter 12 bars all of Sanadco’s claims and those of the remaining claimants, while ignoring several obvious distinctions between the two cases. Among them is the fact that the relator in Nestle sought to avoid filing its protest claims in district court through an original mandamus proceeding challenging the constitutionality of the franchise taxes pursuant to § 24 of the Texas Franchise Tax Act1. Thus, the Nestle court primarily addressed jurisdictional issues that are inapplicable to Sanadco's claims. On the other hand, Sanadco presented defensive claims and counter- petitions involving a suit filed in district court by the Attorney General pursuant to Tex. Tax Code Ann. § 111.010 to collect alleged delinquent excise sales and use taxes. Sanadco raised defensive claims challenging the validity of the audits, challenges to the comptroller’s ultra vires conduct in excess of his statutory authority, claims challenging the constitutionality of certain tax statutes, and unconstitutional takings claims which were all joined by the counter-plaintiffs. In 1 Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, § 24, 2006 Tex. Gen. Laws 1, 40 (House Bill 3 addition, the counter-plaintiffs sought judicial review of their administrative claims pursuant to Gov’t Code § 2001.176 pending exhaustion of their administrative remedies. None of these claims or defenses were addressed by the court in Nestle, and cannot be reasonably presumed from its holding. The Texas Supreme Court specified that its opinion applied to suits authorized by Tax Code Chapter 12 . (Taxpayer suits generally, and suits challenging the franchise tax in particular, are permitted by chapter 112 of the Tax Code.)Nestle 359 S.W.3d at 208
. It also made clear that the litigation specifically pertained to franchise taxes (Section 112.052 (a) provides that "[a] person may bring suit against the state to recover [a] . . . franchise . . . tax . . .).Id. Section 112.052
identifies the remaining tax suits which may be brought under Chapter 12, including occupation, excise, gross receipts, franchise, license, or privilege tax or fee. The sales and use tax does not appear among the eligible categories of taxes. To state categorically, that “Nestle explicitly prohibits any attempt at relief from assessed state taxes on any basis except as provided in [Chapter 112]”, cuts too wide a swath, and cannot be supported on closer analysis. I. Chapter 112 is unconstitutional as applied to the cross-plaintiffs suits because they were contested cases pursuant to the Administrative Procedure Act with timely filed petitions for judicial review which do not require prepayment under Chapter 112. The counter-plaintiffs first joined Sanadco’s “Counterclaim for Declaratory Judgments and Injunction” in its Second Amended Petition filed on February 5, 2011. They did not, however, join Sanadco’s defenses in the Attorney General’s suit against Sanadco for the collection of the delinquent taxes. When judgment granting the Attorney General’s plea to the jurisdiction was entered on July 8, 2011, the live pleading, filed on June 7, 2011 as “Defendant, Counter-Plaintiffs Fourth Amendment and Counterclaim for Declaratory Judgment, Injunctive Relief and Compensatory Damages”, alleged jurisdiction of their petition for judicial review pursuant to Gov’t Code §§ 2001.171, 173, the validity claims pursuant to Gov’t Code § 2001.038, and ultra vires claims pursuant to the UDJA. Each claimant alleged their current involvement in litigation before SOAH. For almost four decades it has been unconstitutional to require compliance with the Chapter 112 prepayment requirements to petitions for judicial review of contested administrative proceedings. 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." R Commc'ns, Inc. v. Sharp,875 S.W.2d 314
, 314 (Tex. 1994). The prepayment provisions, 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 supreme 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 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 was decided. In footnote 2 of Richmont, it stated: Specifically, the Comptroller urges that the supreme court overruled Bandag in In re Nestle USA, Inc.,359 S.W.3d 207
(Tex. 2012). In Nestle, the court did discuss the restrictions imposed by section 112.108 and also 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 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. In the instant decision this court acknowledged that Chapter 112 was not applicable to the counter-plaintiffs suits in footnote 10 where it was noted that the decision was limited “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; . . .” Here, unlike Sanadco, each of the counter-plaintiffs alleged that they were currently engaged in the administrative process and awaiting a hearing before SOAH. They also alleged that the court had jurisdiction over their petitions for judicial review subject to the results of the administrative proceedings. Accordingly, there was no final liability determination, and the cases remained subject to review through administrative procedures and should have been excluded from the Chapter 112 requirements according to the court’s own language. See, Subaru of America v. David McDavid Nissan,84 S.W.3d 212
, 224 (Tex. 2002). 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 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). Footnote 10 further declared that “we do not hold that Chapter 112 preempts every suit challenging a Comptroller rule or tax statute’s constitutionality. See also, In re Nestle, footnote 39: Petitioners do not argue that the limitations of these actions is unconstitutional, as did the taxpayers in RCommunications, 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). These are the precise allegations raised in counter-plaintiffs’ 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 limited the application of Nestle, see, Montrose Mgt. Dist. v. 1620 Hawthorne, Ltd.,435 S.W.3d 393
, 410-11; fn. 16 (Tex.App.-Houston [14th Dist.] 2014) (Nestle does not apply to ultra vires claims) Moreover, In re Nestle did not overrule R Commc'ns, Inc. and its progeny because the constitutionality of Chapter 112 was never raised by the parties, and was not referred to at all by the Court. The issue before the court was the constitutionality of the Franchise Tax Act and its jurisdiction to hear the claim, not Chapter 112. Though Chapter 112 was referred to in the decision and played a major role in the holding, there was no occasion for the court to rule on its constitutionality absent the issue being raised by one of the parties. The court’s decision, however, erroneously tied Sanadco’s conduct to that of the counter-plaintiffs to their detriment, including them in its conclusion that Sanadco had “sought injunctive relief from liability for the tax long after completion of the administrative process and the deficiency assessment had become final. None of these conclusions fit the circumstances surrounding the counter-petitioners who should have been included in the court’s distinguishing factors as one of “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.” (Footnote 10). Accordingly, the court was in error by requiring compliance with Chapter 112 to establish its jurisdiction and should reverse its ruling requiring compliance with Chapter 112 as to these plaintiffs and remand the cause to the trial court for further proceedings as appropriate. II. The Court failed to recognize the individual claims of each party joining the Sanadco counter-petition and erroneously attributed Sanadco’s deficiencies to the counter-plaintiffs. The counter-plaintiffs joined Sanadco’s counterclaims as permissive and class-action plaintiffs. Tex. R. Civ. Proc. Rules 40; 42; 97 (f). Their claims, however, remain separate and apart from other joining parties’ claims and judgment may be given for one or more of the plaintiffs according to their respective rights to relief, and against one or more defendants according to their respective liabilities. Tex. R. Civ. Proc. Rule 40. They need not be interested in obtaining or defending against all the relief demanded.Id. Rule 40
(a) provides that “All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all of them will arise in the action". In re Union Carbide Corp.,273 S.W.3d 152
, 155 (Tex.2008) (“Permissive joinder relates to proper parties to an action who may be joined or omitted at the pleader's election."). Rule 97 (f) provides that persons other than those made parties to the original action may be made parties to a counterclaim in accordance with the provisions of Rule 40. Bennett v. Grant, 03-11-00669-CV (Tex.App.-Austin 3-20-2015). As class-action plaintiffs, Rule 42 permits a class claimant to represent the claims of other similarly situated plaintiffs if, inter alia, “there are questions of law, or fact common to the class, [and] the claims or defenses of the representative parties are typical of the claims or defenses of the class. . .” The Attorney General made no objection to the joinder, nor has he claimed that the initial petition failed to invoke the court’s jurisdiction and neither has this court except for the claims relating to compliance with Chapter 112. Accordingly, there is no bar to considering the cross-plaintiffs’ claims as those entitled to be treated in accordance with the joinder provisions. Tex-Hio Part. v. Garner,106 S.W.3d 886
(Tex.App.-Dallas 2003). Even if the court should determine that joinder is improper for some reason, dismissal of the improperly joined claims is improper. Rule 41. Instead, the improper party “may be severed and each ground of recovery improperly joined may be docketed as a separate suit between the same parties”.Id. Accordingly, this
court should reverse its decision intimating that the counter-plaintiffs’ claims were denied because of their failure to pursue administrative procedures, and remand the cause for further proceedings. III. The Court erred when it determined that Chapter 112 deprived it of jurisdiction of the cross-plaintiffs’ rule validity claim filed pursuant to Government Code § 2001.038 Section 2001.038 is a grant of original jurisdiction and waives sovereign immunity. Tex. Logos, L.P. v. Tex. Dep't of Transp.,241 S.W.3d 105
, 123(Tex.App.-Austin 2007, no pet.); Tex. Dep't of Human Servs. v. ARA Living Ctrs. of Tex., Inc.,833 S.W.2d 689
, 693 (Tex.App.-Austin 1992, writ denied). The section also 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 after the initiation of administrative proceedings. Section 2001.038 waives sovereign immunity to the extent of creating a cause of action for declaratory relief regarding the validity or applicability of a rule if it is alleged 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." Tex. Gov't Code Ann. § 2001.038(a); see Texas Logos, L.P. v. Texas Dep't of Transp.,241 S.W.3d 105
, 123 (Tex.App.-Austin 2007, no pet.) ("Section 2001.038 is a grant of original jurisdiction and, moreover, waives sovereign immunity"). Claims under section 2001.038 invoke the district court's subject-matter jurisdiction if properly pled. Determining whether the plaintiffs have done so, unlike with the analysis of ultra vires claims, does not require the court 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
. Plaintiffs have alleged that AP92 and AP122 are invalid and unenforceable rules because they are of general application to convenience store audits, and they implement and prescribe agency policy, but were implemented without compliance with the APA notice and comment requirements. These factual allegations suffice to invoke the district court's subject-matter jurisdiction if the memos are rules within the meaning of the APA. See, e.g., Combs v. City of Webster,311 S.W.3d 85
, 100-01 (Tex.App.-Austin 2009, pet. denied) (recognizing that "[t]o the extent that no rule as defined by the APA is at issue, section 2001.038 does not provide any basis for the district court's jurisdiction over appellees' declaratory judgment action"). Plaintiffs’ claims are buttressed by this court’s holding in the first Sanadco case in which this issue was addressed where 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 (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. Aside from the unconstitutionality of Chapter 112’s prepayment requirements, plaintiffs 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 Comptroller in violation of the APA, for which the legislature has expressly permitted suit by a declaratory-judgment action”). 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. Thus, the court should reverse its decision denying subject-matter jurisdiction and enter judgment on the plaintiffs’ Section 2001.038 claims because there is no assertion by the Comptroller that he complied with the APA’s requirements. IV. The Court erred when it determined that Chapter 112 deprived it of jurisdiction of Sanadco’s defensive claims, because the collection suit was filed pursuant to Tax Code § 111.010 and not Chapter 112. Chapter 112 asserts jurisdiction over a taxpayer suit brought under this chapter. The collection suit against Sanadco was filed in Cause No. D-1-GV-10- 000902 by the office of the Attorney General on July 6, 2010 in the 98th District Court of Travis County, Texas. The petition alleged that “venue and jurisdiction of this suit are exclusively conferred upon this Court pursuant to the Tex. Tax Code Ann. ("Tax Code"), Title 2 § 111.010 (Vernon Supp. 2001).” This section applies to state taxes imposed by this title or by other laws not included in this title except the state ad valorem tax on property. § 111.010 (b). The franchise tax is notably absent from the exceptions. Sanadco’s suit seeking to challenge or avoid the comptroller collection action is governed by Tax Code § 111.0102 where venue and jurisdiction is exclusively conferred on the district courts of Travis County. It is therefore not a suit brought under Chapter 112, and not subject to its prepayment requirements. It has been long held that, "[W]here a state voluntarily files a suit and submits its rights for judicial determination it will be bound thereby and the defense will be entitled to plead and prove all matters properly defensive. This includes the right to make any defense by answer or cross-complaint germane to the matter in controversy." Reata Const. Corp. v. City of Dallas,197 S.W.3d 371
(Tex. 2006); Anderson, Clayton & Co. v. State ex rel. Allred,122 Tex. 530
,62 S.W.2d 107
, 110 (1933). “It would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party's claims against it. See Guar. Trust Co. v. United States,304 U.S. 126
, 134-35,58 S. Ct. 785
, (1938); see also Cunningham v. Parkdale Bank,660 S.W.2d 810
, 813 (Tex. 1983) (stating that fundamental fairness requires parties to be heard on the merits of their cases). Reata Const. Corp. v. City of Dallas,197 S.W.3d 371
(Tex. 2006). The State of Texas has filed a suit for damages against the Plaintiffs and has therefore waived its sovereign immunity to the extent that these defenses and counterclaims are “germane to, connected with, and properly defensive to" claims that the State has asserted. The court’s opinion curiously overlooks this long-held legal principle and fails to assert that Sanadco’s defenses and counterclaims are not germane, connected with, or properly defensive to the claims raised by this law suit, and must reverse its assertion of lack of jurisdiction. Plaintiffs challenged Sanadco’s claims and defenses on the grounds of sovereign immunity because they failed to comply with various statutory requirements of the Tax Code before seeking this relief. They assert that Sanadco’s failure to comply with the requirements for filing a protest suit, a refund claim or an injunction, precluded Sanadco from seeking the remedies sought. This defense is without merit, however, in the context under which these claims have arisen and the legal basis upon which they have been brought because sovereign immunity is not implicated in any of the claims. A suit asserting that a government officer "acted without legal authority" and seeking to compel the official "to comply with statutory or constitutional provisions" is an ultra vires suit that is not protected by sovereign immunity. City of El Paso v. Heinrich,284 S.W.3d 366
, 372 (Tex. 2009). They are not barred by sovereign immunity because they "do not attempt to exert control over the state."Id. Instead, the
suits "attempt to reassert the control of the state." Id.;Saenz, 319 S.W.3d at 920
. The supreme court recently expounded upon sovereign immunity in ultra vires cases in. Heinrich and Texas Department of Insurance v. Reconveyance Services, Inc.284 S.W.3d 366
(Tex. 2009);306 S.W.3d 256
(Tex. 2010) (respectively). The supreme court determined that "while governmental immunity generally bars suits for retrospective money relief, it does not preclude prospective injunctive remedies in official-capacity suits against government actors who violate statutory or constitutional provisions."Heinrich, 284 S.W.3d at 368
- 69. In Heinrich, the supreme court confirmed that "suits 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."Heinrich, 284 S.W.3d at 372
.Reconveyance, 284 S.W.3d at 434
. Moreover, if valid challenges to the agency’s rules under the APA are raised, then it is not necessary to determine whether the Appellees have properly alleged ultra vires claims because the trial court's subject-matter jurisdiction is established by section 2001.038 of the APA. See Tex. Gov't Code Ann. § 2001.038; Combs v. Entertainment Publ'ns, Inc.,292 S.W.3d 712
, 720 (Tex. App.-Austin 2009, no pet.). Section 2001.038 is considered a legislative grant of subject-matter jurisdiction, so that valid claims raised pursuant to that provision are not barred by sovereign immunity. Id.; Tex. Dept. of Pub. Safety v. Salazar,304 S.W.3d 896
(Tex. App. [3rd] 2010). Sanadco has alleged a valid claim against the State under 2001.038 for its violations regarding AP 92 and AP 122. Sanadco, et al v. Office of the Comptroller of Public Accounts, et al, No. 03-11-00462 (Austin App.) (Sept. 26, 2013). He has also alleged valid ultra vires claims asserting the Comptroller’s failure to perform purely ministerial acts, and engaging in conduct which exceeded its statutory authority. Consequently, the State’s immunity is not impacted by these proceedings. The court finds that it does not have jurisdiction over Sanadco’s constitutional, ultra vires, and validity claims because they were not raised in an administrative proceeding before the State Office of Administrative Hearings (SOAH) though SOAH has previously held that it does not have jurisdiction over these claims. See, Comp. Hearing No. 109,293 (Oct. 31, 2014); Comp. Hearing No. 106,516 (Nov. 29, 2012); Comp. Hearing No. 105,002 (Oct. 19, 2011). To bring these issues before SOAH without any expectation of a ruling from the comptroller, would have constituted engaging in a useless act, which litigants are not required to do. See, Comunidad Corp. v. State,445 S.W.3d 401
(Tex.App.- Houston [1st Dist.] 2013). In APA section 2001.038, the Legislature has waived sovereign immunity to the extent of creating a cause of action for declaratory relief regarding the "validity" or "applicability" of a "rule," as defined under the Act. Tex. Gov't Code Ann. § 2001.038(a); see Texas Logos, L.P. v. Texas Dep't of Transp.,241 S.W.3d 105
, 123 (Tex.App.-Austin 2007, no pet.) (holding that "section 2001.038 is a grant of original jurisdiction and, moreover, waives sovereign immunity"). To determine whether appellees have asserted a valid ultra vires claim that invokes the district court's subject-matter jurisdiction, we would construe the provisions of the tax code and UCR Act that define the scope of the Comptroller’s legal authority, apply them to the facts that Sanadco has alleged, and ascertain whether those facts constitute acts beyond the Comptroller’s legal authority. SeeHeinrich, 284 S.W.3d at 372
-73 (ultra vires 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"); Creedmoor-Maha Water Supply Corp v. Texas Commission on Environmental Quality),307 S.W.3d 505
at 516 n. 8 (quoting Hendee v. Dewhurst,228 S.W.3d 354
, 368-69 (Tex. App.-Austin 2007, pet. denied) (when analyzing whether plaintiff has alleged ultra vires acts, we construe the relevant statutory or constitutional provisions that define the governmental actor's discretionary authority, apply the provisions to the pled and un-negated facts, and determine whether those facts fall within or outside that authority). Appellants emphasize that they explicitly pled that the Comptroller acted "ultra vires" or contrary to his legal authority. To this extent, the jurisdictional inquiry with respect to appellees' purported ultra vires claims would substantially overlap with the claims' merits.Id. at 516
n. 8. Accordingly, Sanadco’s constitutional and ultra vires claims are not barred by sovereign immunity or the requirements of Chapter 112 and the court has jurisdiction of such claims. CONCLUSION The court’s opinion that jurisdiction over Appellants’ claims is predicated upon compliance with Chapter 112 is clearly erroneous and must be reconsidered. R. Communications, Bandag and Richmont retain their vitality and were not overruled by In re Nestle as this court now seems to intimate, contrary to its prior decisions on this issue. The court’s assessment that Nestle did not overrule these decisions because “the court did not discuss the restrictions imposed by section 112.108,” or the effect of the subsequent amendments, remains a valid evaluation. Put simply, the constitutionality of Chapter 112 was not revisited in Nestle because the issue was not raised by either party, thus any decision addressing its constitutionality would have been a prohibited advisory opinion. The Nestle court said as much in footnote 39 where the court expressly noted that neither the constitutionality of Chapter 112 or its application to ultra vires claims was raised. The application of the opprobrious and prohibitive requirements of Chapter 112 remain an unconstitutional burden on the plaintiffs’ access to the courts, and must be reconsidered. PRAYER Appellants pray this Honorable Court to reconsider its opinion on rehearing and to reverse and render its decision regarding the validity of the audits, and to remand the remaining claims to the trial court for further proceedings. Respectfully submitted, Law Office of Samuel T. Jackson __/s/ Samuel T Jackson Texas Bar No. 10495700 PO Box 170633 Arlington, TX 76003-0633 Tel: (512) 692-6260 Fax. 866 -722-9685 jacksonlaw@hotmail.com ATTORNEY FOR APPELLANTS 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) (D), because it contains 4,484 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. __/s/ Samuel T. Jackson__ SAMUEL T. JACKSON CERTIFICATE OF SERVICE By my signature above, I hereby certify 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 May 8, 2015, in accordance with the Texas Rules of Appellate Procedure, to the following: 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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