2014 PROPERTY TAX CASES And Attorney General s Opinions

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1 MCCREARY, VESELKA, BRAGG & ALLEN, P.C. ATTORNEYS AT LAW 700 Jeffrey Way, Suite 100 Round Rock, Texas PROPERTY TAX CASES And Attorney General s Opinions Last updated: August 1, 2015 Cases Thiery v. Texas Tax Solutions, LLC 2014 WL (W.D. Tex., December 19, 2014) Issues: Property tax loans Thiery took out two property-tax loans from Texas Tax Solutions. She later sued the lender in federal court under the Federal Truth in Lending Act (TILA), 15 U.S.C. 1601, et seq. The specifics of her claim are not described in this opinion from the district court. Instead, the opinion focuses on whether the TILA applies to property-tax loans at all. The lender argued that it did not and that the case should be dismissed. The TILA applies to consumer credit transactions, defined as transactions in which 1) credit is offered or extended to a natural person; and 2) the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes. Credit means the right to defer payment of debt or to incur debt and defer its payment. A property tax assessed by a governmental entity is not an extension of credit; it simply arises as a result of property ownership. A property-tax loan, on the other hand, arises from a specific agreement between the parties. It involves an extension of credit. A property owner takes out the loan in order to avoid foreclosure and, at least in the case of the person s home, that is a personal, family, or household purpose. Thus the TILA can apply to a property-tax loan. The court refused to dismiss the case. Signal International Texas, L.P. v. Orange County 2014 WL (Tex. App. Beaumont, December 18, 2014, pet. denied) (not reported) Issues: Agreements resolving protests; exhaustion of remedies Signal s business personal property, included a barge (worth almost $13 million) that it leased to another company. Signal rendered its bpp, including the barge, in Although Signal and the appraisal district initially disagreed about the value of Signal s property, they soon signed a written agreement settling on a value of about $32 million, including the barge. In early 2012, Signal contacted the district and claimed that the

2 lessee had moved the barge to Mexico prior to January 1, The district declined to make any type of correction to the 2011 appraisal roll. Signal sued the district and the taxing units. It claimed that its agreement with the district should be rescinded under equitable principles of contract law. (A court will sometimes rescind a contract if it appears that the parties were mutually mistaken about some fact critical to the contract.) The trial court dismissed the case for lack of jurisdiction, and Signal appealed. The court of appeals affirmed the dismissal. The higher court explained that under of the Tax Code, an agreement between an appraisal district and a property owner is final if it relates to a claim that could be the subject of a protest. In May of 2011, Signal could have filed a protest concerning the taxable situs of the barge. It waived that right when it signed the settlement agreement. The types of claims and defenses that might lead a court to rescind an ordinary contract do not apply to an agreement made final by A court has no jurisdiction to rescind such an agreement. Section says that the Code s procedures and remedies are exclusive. A lawsuit based on contract principles is not available as an alternative. When Signal signed the settlement agreement, it gave up its rights to use the Code s procedures and to claim the Code s remedies. It left itself with no recourse when it later decided to assert a situs claim. Consequently, the trial court correctly dismissed the case. Billings v. Propel Financial Services, LLC 2014 WL (W.D. Texas, November 28, 2014) Issues: Property tax loans This case raises the same issue raised in Thiery v. Texas Tax Solutions, discussed above, i.e., whether the Federal Truth in Lending Act (TILA), 15 U.S.C. 1601, et seq. applies to property tax loans. But this opinion reaches the opposite conclusion. A borrower sued a lender alleging violations of the TILA and the Federal Home Ownership and Equity Protection Act (HOEPA), 15 U.S.C The court dismissed the claims concluding that property taxes are not a debt, and agreements concerning those taxes are not considered credit. Hidalgo International, Inc. v. Wolkowitz 2014 WL (Tex. App. Houston [1 st Dist.], November 20, 2014, no pet.) (not reported) Issues: Redemption following tax sale Hidalgo bought property encumbered by liens securing delinquent taxes. When Hidalgo did not pay, the taxing units foreclosed, and Wolkowitz bought the property at the tax sale. Hidalgo later approached Wolkowitz about redeeming the property. She provided an itemized statement (under 34.21(i) of the Tax Code) of what she contended was the redemption amount. Hidalgo thought that Wolkowitz was claiming too much, but it never attempted to redeem the property through the tax office under 34.21(f), and it never tendered any payment to Wolkowitz. Instead, it waited until the redemption period had 2

3 passed and then sued Wolkowitz. In a trial, a jury found against Hidalgo, but it is not clear just what question was submitted to the jury or just what the jury s answer was. The trial court entered judgment for Wolkowitz, and Hidalgo appealed. On appeal, Hidalgo argued that it was excused from tendering payment to Wolkowitz or to the tax office because Wolkowitz was demanding an excessive redemption amount and because she had made it clear that she would not accept Hidalgo s tender. The court of appeals explained that it could not consider Hidalgo s arguments because they had not been raised in the trial court. Hidalgo had also failed to take the steps in the trial court that would have been necessary in order for it to challenge the jury s verdict on appeal. The court, however, added a footnote to its opinion that says, Even if Hidalgo had preserved error, we would conclude that its appellate arguments lack merit. The court of appeals affirmed the trial court s judgment. Bexar Appraisal District v. Sivage Investments, Ltd WL (Tex. App. San Antonio, November 19, 2014, no pet.) (not reported) Issues: Agricultural land changing use Several owners of open-space agricultural properties decided to develop those properties and take them out of agricultural use. The appraisal district determined that the uses of the properties had changed and that rollback taxes should be assessed. The district also determined that the properties should lose their agricultural appraisals for the years in which their uses were changed. The cancelation of an agricultural appraisal for the year that a property s use changes is required by the Comptroller s Manual for the Appraisal of Agricultural Land. Appraisal districts have followed the Manual for decades. These property owners, however, argued that the rule set out in the Manual was void. They claimed that they were entitled to keep their agricultural appraisals for the years in which they changed the uses of their properties. The trial courts issued summary judgments for the property owners, and the district appealed. The various cases were consolidated by the court of appeals. In a very short opinion, the court of appeals affirmed the trial courts rulings. The court reasoned that the Tax Code did not expressly authorize an appraisal district to reappraise an agricultural property in the year that the property underwent a change of use. The Comptroller s rule was void because it was contrary to the Code. Editor s Comment: The court s opinion exposes but does not answer a question raised by the Code: when is a property s eligibility for agricultural appraisal determined? Is January 1 the relevant date? Is another date relevant? Or, must the property be used for agriculture throughout the year? (By contrast, the Code has a lot to say about the dates that are relevant to exemptions. see , ) This opinion threatens to undermine the answer provided by the State Property Tax Board and the Comptroller, but the opinion itself does not provide a clear alternative answer. Also noteworthy is the fact that the court chose to set out a potentially dramatic decision in a 3

4 memorandum opinion that will not be reported in the Southwestern Reporter. (That does not mean that it can be ignored.) Will other courts of appeals follow this opinion? Watch this space. Blume v. Wells Fargo Bank, N.A WL (Tex. App. Dallas, November 6, 2014, no pet.) (not reported) Issues: Liability for taxes Boyd was upside-down in his mortgage and behind on his payments to Wells Fargo. In early 2011, he contracted to sell his house to Blume. Their original contract contained a typical clause requiring proration of the 2011 taxes on the house, and added, If taxes are not paid at closing or prior to closing, Buyer shall pay taxes for the current year. Because the transaction was a short sale, it required the mortgagee s approval, and Wells Fargo granted that approval in a letter to Boyd dated January 21, Boyd and Blume later amended their contract to say, No 2011 taxes will be prorated at closing. They closed on February 25, Later that year, Blume paid $14,365 in 2011 taxes but claimed that Wells Fargo was obligated to reimburse her for those taxes. When Wells Fargo refused, she sued alleging breach of contract and other claims. The trial court entered a summary judgment for Wells Fargo, and Blume appealed. The court of appeals affirmed the judgment for Wells Fargo and tersely debunked Blume s claims. She first claimed that Wells Fargo had contracted to pay the taxes. The court responded that Wells Fargo was not even a party to the sales contract, and that the contract obligated Blume to pay the taxes. Wells Fargo s letter to Boyd did not even mention taxes and did not create any obligation to Blume. Blume next claimed that Wells Fargo was responsible for the taxes because, as of January 1, 2011, Boyd was in default on his mortgage and Wells Fargo could have foreclosed. According to Blume, that made Wells Fargo the house s equitable owner. The court explained that the person holding legal title to a property is ordinarily responsible for the taxes on it. A lienholder is not considered the owner (not even the equitable owner), even if the lienholder has the option of foreclosing. Thus, Blume, not Wells Fargo, was responsible for the taxes. Davis v. Fayette County Appraisal District 2014 WL (Tex. App. Austin, November 4, 2014, pet. denied) (not reported) Issues: Delinquent-tax suits; counterclaims against taxing units The appraisal district, acting as the tax collector for various taxing units, sued Davis for delinquent taxes. Davis filed various counterclaims accusing the district of libel, slander, conspiracy, etc., all based on the district s having sued him. Davis was incarcerated, and, although he knew about the case being scheduled for trial, he made no effort to seek a court order that would have allowed him to appear for the trial. In Davis s absence, the district presented its evidence and the trial court entered a judgment for the district. The judgment denied Davis any relief on his counterclaims. Davis appealed. 4

5 Before the court of appeals could consider the case, the district released the judgment unconditionally, thus giving up all its rights under the judgment. (The court s opinion does not discuss the district s reason for releasing the judgment.) The court ruled that the release made the case moot insofar as it applied to the district s delinquent-tax claims and it vacated the award of delinquent taxes to the district. Davis s counterclaims were not moot, and the court proceeded to consider them. The record from the trial court, however, did not include any evidence related to the counterclaims because Davis had not been at the trial to present any evidence. His failure to appear and offer evidence justified the trial court s denial of his counterclaims. Davis tried including some documents as appendices to his brief, but the court of appeals would not allow that. The court of appeals affirmed the trial court s decision denying relief on the counterclaims. Haynes v. Haire 2014 WL (Tex. App. Beaumont, October 23, 2014, pet. denied) (not reported) Issues: Redemption following tax sale Haynes owned a company called Vair and an interest in another company called Texas Regional. Texas Regional was facing a tax sale of its real property. On the day of the sale, Texas Regional conveyed the property to Vair. The tax sale proceeded and Haire bought the property for $53,000. Haynes, acting on behalf of Vair tried to redeem the property by offering Haire a check, but Haire rejected it. Haynes then went to the Tax office and filed an affidavit stating that Vair had attempted to redeem the property but Haire had rejected its efforts. Haynes gave the tax office a check for $66,250 representing Haire s purchase price for the property plus 25%. When Haire did not vacate the property, Haynes sued him. Haynes claimed the property and claimed damages because Haire had removed a tree and an old storage building from the property. Haire responded that Haynes had not redeemed the property because the amount that he had given to the tax office had been too small. Haire claimed that the redemption amount should include amounts that he had spent for things like clean-up directed by city officials, insurance, water, equipment and tools. The parties stipulated that Haire had spent $6,226. The trial court ruled for Haire, and Haynes appealed. The court of appeals affirmed the judgment for Haire. The court explained that the under of the Tax Code the amount tendered to redeem a property must include amounts that the tax-sale purchaser spent on: maintaining, preserving and safekeeping the property; insurance; and repairs and improvements required by local authorities or by a lease. The correct redemption amount should have been calculated by adding Haire s $6,226 in costs to his $53,000 purchase price and then adding an extra 25% for a total of $74,033. A redemption will still be effective if the payment is off by an insignificant amount, but, in this case, Haynes s payment was almost $7,800 too low. Consequently, the attempted redemption was ineffective and Haire was the owner of the property. 5

6 Hammond v. Ocwen Loan Servicing, LLC 2014 WL (N.D. Tex., October 21, 2014) Issues: Transfer of tax lien; home equity loan In 2006 remember what housing prices were doing in 2006? Ocwen made a $732,000 home equity loan to Hammond in exchange for a note and lien on Hammond s home. By 2009, Hammond could not pay his property taxes and took out the first of two property-tax loans, with the tax liens being transferred to the lender. The other property-tax loan occurred in In 2012, Ocwen paid off the property-tax loans. The total amount that Ocwen paid is not stated, but it increased Hammond s principal balance by $70,000 to a total of $710,000. Ocwen also demanded that Hammond pay more into escrow for property taxes. Hammond sued Ocwen in state court. Among other allegations, he claimed that Ocwen had violated the Texas Constitution s limitation on home equity loans. He also claimed that Ocwen had violated the Unfair Debt Collection Practices Act by making misrepresentations in connection with paying off the property-tax loans and increasing the amount of Hammond s home equity loan. Ocwen removed the case to federal court and asked the court to dismiss those two claims on the grounds that the facts alleged by Hammond did not amount to violations of law. In this opinion, the federal magistrate judge agreed with Ocwen. The Judge noted that Art. XVI, 50 of the Texas Constitution prohibits a home equity loan that, when combined with other liens on the property, exceeds eighty percent of the property s value. Hammond alleged that his property was worth less than the home equity loan balance when Ocwen added the $70,000 to that balance. The judge saw no problem. The Constitutional limitation applies at the time that a lender makes an extension of credit. When it paid off the property-tax loans and increased Hammond s balance, Ocwen was not making a new extension of credit. The original 2007 loan documents required Hammond to pay property taxes. They gave Ocwen the authority to pay off any debt that might arise with a lien-priority higher than that of Ocwen s lien and to add those payments to the amounts secured by Ocwen s lien. Ocwen merely exercised rights that Hammond gave it when he signed the original documents. The judge next explained that the Unfair Debt Collection Practices Act does not give a debtor a cause of action for a creditor s conduct that amounts to a breach of contract. The Act did not apply to Hammond s claims that Ocwen had made misrepresentations in violation of their loan agreement. Hammond might have a claim under contract law, but he did not have one under the Act. The Judge dismissed Hammond s claims under the Constitution and the Act. In Re Morales 2014 WL (Bkrtcy. W.D.Tex., October 21, 2014) Issues: Transfer of tax lien; correction of loan agreement 6

7 Morales and her six siblings inherited real property from their deceased parents. Morales had a 1/7 interest in the property. On some unspecified date, probably early in 2012, she contracted for a property-tax loan from Ovation, with the money going to pay the delinquent taxes on the property. The original loan agreement contained an error concerning the size of the property. In July of 2012, Morales signed a corrected loan agreement. In March of 2014, Morales filed for bankruptcy. Ovation claimed that it had a top-priority tax lien on the whole property. Morales objected to Ovation s claim. She argued that because the original loan agreement contained an erroneous property description, Ovation s lien was invalid. She also argued that if Ovation had a lien at all, that lien covered only her 1/7 interest in the property, not the interests of her siblings. The bankruptcy judge ruled for Ovation. The judge explained that the correction of the property description in the corrected loan agreement almost two years before Morales filed bankruptcy did not invalidate Ovation s tax lien. He also explained that when Ovation paid the delinquent taxes pursuant to its agreement with Morales, it became subrogated to the taxing units tax liens on the property, i.e., it received all of the taxing units interests and rights. Those tax liens applied to the whole property, not just to Morales s 1/7 interest. Where a property has multiple owners, any of them can enter a property-tax loan agreement that results in the tax liens on the whole property being transferred to the lender. Williams v. Sterling City Independent School District 447 S.W.3d 505 (Tex. App. Eastland, October 16, 2014, no pet. hist.) Issues: School finance In 2006, the legislature passed House Bill 1, the bill that provided some additional state money for school districts but lowered and compressed local school taxes. One part of that bill, (h) of the Education Code provided that if a school district wound up with too much of certain kinds of money, that excess amount (called a clawback amount ) would be subtracted from the district s state funding. A rich district would have to pay the clawback amount to the state. The three types of money listed in the statute were those resulting from increases in the equalized wealth level under , the basic allotment under and the guaranteed level under The Commissioner of Education, however, also considered a school district s increased tax revenues resulting from increased property values when he calculated the district s clawback amount. Three rich school districts that were harmed by the Commissioner s actions sued him. The Commissioner responded that he was immune from the suit. The trial court ruled for the school districts. The court did not order the Commissioner to pay refunds to the districts. Instead it ordered him to give the districts credits against amounts that they would owe to the state in the future. The Commissioner appealed. The court of appeals affirmed the trial court s ruling. The court reasoned that a state official is not immune from being sued if he has acted ultra vires, i.e., if he has acted outside his legal authority or failed to perform an act that he is required to perform. The Commissioner acted ultra vires when he calculated the districts clawback amounts 7

8 using sources of money other than those listed in (h). He could be sued, but only for prospective relief, not for refunds of excessive clawback payments. The credits ordered by the trial court were a form of prospective relief and were therefore legal. Scott v. Hamilton County 2014 WL (Tex. App. Waco, October 16, 2014, pet. denied) (not reported) Issues: Service and notice for delinquent-tax suit; defenses to delinquent taxes; practicing law; demand for jury trial Taxing units sued Scott for delinquent taxes on her separate real property. She responded by filing a pro se answer and a counter-suit against the taxing units. Shortly before trial, the taxing units amended their pleadings. On the day before the trial, Scott responded with another answer and counter- suit, which included a demand for a jury trial. When the trial judge called the case for trial, Scott announced that she was ready to proceed. She asked for a jury, but the judge denied her request as untimely. The judge also denied her request to allow her husband to act as her lawyer. During the trial, she wanted her husband to testify that the property qualified for a religious exemption, but the judge did not allow his testimony. When the trial ended, the judge ruled for the taxing units. In a post-trial motion, Scott claimed that she was indigent and should be excused from paying some court costs and fees. After a hearing the judge concluded that she was not indigent. Scott appealed. The court of appeals affirmed the trial court s judgment and related rulings. Scott complained that she was not properly served with the taxing units pleadings or with the notice of the trial. The court responded by noting that she had previously admitted receiving the pleadings and that she had responded to them. She showed up for the trial and did not complain about any lack of notice at that time. Her husband could not represent her because he was not licensed to practice law. He could not testify about religious uses of the property because a property owner cannot claim a tax exemption in the context of a delinquent-tax case. Scott also complained that her son had not been allowed to testify at the indigence hearing because he would not take an oath, but, because there was no transcript of that hearing, the court of appeals could not review the trial judge s decision. A jury request must be filed at least thirty days before trial, so Scott s request filed one day before trial was not timely. Scott could not complain about not having received various items from the trial court after the trial because the record showed that she had received them and had not been charged for them. Harris County v. PRSI Trading, LLC 2014 WL (S.D. Tex., September 29, 2014) Issues: Federal courts The appraisal district granted an exemption for PRSI s oil and petroleum products under the federal law creating foreign trade zones. The county claimed that the exemption should not have been granted because the operator of the foreign trade subzone in 8

9 which the goods were located was not authorized to operate it. After an unsuccessful challenge before the ARB, the county filed suit against PRSI in a state district court. PRSI attempted to remove the case to federal court on the grounds that federal law controlled the issue. The county requested that the federal court transfer the case back to the state court. The federal judge agreed with the district and transferred the case back to the state court. The judge explained that a federal court will sometimes have jurisdiction to consider a case involving a substantial question of federal law, but not when the federal law is only being used defensively. In the judge s opinion, the county was claiming the authority to tax PRSI s property under Texas law, and PRSI was asserting the federal tax exemption in defense to the county s claim. A federal court may also have jurisdiction over a case filed against an agency or officer of the federal government or against an agent acting under a federal officer. But PRSI was not a federal officer or agent because it was not acting to help the federal government carry out its duties. There was no basis for the federal court to exercise jurisdiction over the case. Joaquin Independent School District v. Shelby County Appraisal District 2014 WL (Tex. App. Tyler, August 29, 2014, pet. denied) (not reported) Issues: Challenging determination of property s location in taxing unit This case arose from a long-running controversy concerning the exact location of the boundary between the Joaquin ISD and the Shelbyville ISD. In the years , the JISD filed challenges with the ARB claiming that the appraisal district had erroneously determined that 164 properties were located in the SISD. It also claimed that the appraisal district had been under-appraising properties. The ARB denied those challenges. The JISD then filed suit against the appraisal district and the ARB. Its pleadings sought to appeal the ARB s orders, sought a declaratory judgment and sought relief under Chapter 43 of the Tax Code. The JISD requested that the appraisal rolls be changed going all the way back to It sought to recover the taxes it would have received if the appraisal district had listed the properties on the JISD s rolls--for some reason, it referred to this as a refund. The SISD intervened to defend itself. All parties filed Motions for summary judgment. The trial judge based his summary judgment on two prior court rulings in other cases. The net effect of his ruling was to transfer five properties into the JISD beginning the following year, The summary judgment denied all other relief sought by the JISD. The JISD appealed. The court of appeals affirmed the summary judgment. The JISD was not entitled to any relief on its claim concerning appraised values because it had not presented any evidence that the appraisal district was not appraising properties at their full market values. Chapter 43 allows a taxing unit to sue an appraisal district with respect to the district s policies and procedures. It is not an alternative to the Chapter-41 challenge procedures that allow a taxing unit to contest specific determinations made by a district. The Code s procedures and remedies are exclusive. That means that a declaratory judgment is not available as an alternative. A declaratory judgment ordering the 9

10 appraisal district to appraise properties at their market values would be pointless because the Tax Code already requires that. Because the JISD was not entitled to a declaratory judgment, it was not entitled to recover its attorneys fees under the Declaratory Judgments Act. The JISD based its claim for relief dating back to 2003 on an argument that in 2008, when it first filed a challenge, the ARB could have corrected appraisal rolls for five past years under 25.25(c). The court of appeals explained that taxing units are not allowed to file motions under that law. The court further reasoned that JISD was not entitled to refunds, even for the years in which it had filed challenges because the Tax Code did not specifically authorize refunds for taxing units. Because corrections to past years rolls would not result in refunds to the JISD, there would be no point in making those corrections. The trial court correctly ordered that the five properties be included in the JISD for only 2013 and future years. Waobikeze v. Fort Bend County 2014 WL (Tex. App. Houston [1 st Dist], August 29, 2014, no pet.) (not reported) Issues: Exhaustion of remedies; proof of delinquent taxes Taxing units sued Waobikeze for delinquent taxes on her business personal property. Waobikeze claimed that she had not been sent notices of appraised value for the relevant years and that the appraised values were too high. When the case was tried, the taxing units offered certified copies of their delinquent-tax records, which were admitted by the trial court. The court entered judgment for the taxing units in the amounts that they claimed, and Waobikeze appealed. The court of appeals affirmed the judgment for the taxing units. The court explained that a property owner who wants to complain about an appraised value or the delivery of a notice must do so in a timely protest or motion filed with the ARB. Section of the Tax Code prevents a property owner from raising those claims as defenses in a delinquent-tax lawsuit. Section of the Code allows taxing units to prove up their delinquent-tax claims using certified copies of their records just as the taxing units did in this case. The evidence established prima facie evidence of everything that they needed to prove. Waobikeze had no valid defense. Therefore the taxing units were entitled to judgment for their delinquent taxes. One footnote in the court s opinion is noteworthy. Waobikeze complained that the appraisal district had sent notices to the address of her business even after the business had closed. The court explained that in the absence of any renditions or other notices from Waobikeze, the district was not responsible for knowing that the business had closed. Houston Unlimited, Inc. v. Mel Acres Ranch 443 S.W.3d 820 (Tex. August 22, 2014) 10

11 Issues: Appraiser testimony This is not a property-tax case, but the opinion from the Supreme Court of Texas has a lot to say about how courts view testimony from appraisers. Over the course of several years, pollutants from HUI s metal processing plant ran off onto Mel s land, contaminated a stock tank and made the land temporarily unsafe for cattle. Mel reported the pollution to state authorities. HUI paid a fine, stopped its polluting practices and built a berm to prevent further runoff onto Mel s land. Mel sued HUI for negligence and sought to recover for the land s loss of value. Mel relied on testimony from an appraiser who concluded that the land s value had declined from $2.3 million to $900,000, a decline of $1.4 million, principally because contamination had stigmatized Mel s land. The appraiser relied on information about two other properties that had been affected by contamination in the past. She said that one had lost 72% of its value and the other had lost 41% of its value. From that evidence, she concluded that Mel s land had lost 60% of its value as a result of the contamination stigma. The jury believed the appraiser and awarded Mel $1.4 million in damages. The court of appeals affirmed the jury s decision. Then the Supreme Court decided to consider HUI s appeal. The Supreme Court reversed the Judgments of the lower courts and ruled that HUI did not owe Mel anything. The appraiser s testimony was so seriously flawed that it did not support the jury s verdict. The properties that she cited were not even in the same county as Mel s land. She considered them comparable to Mel s land only because they had a history of nearby contamination. She made no adjustments to account for differences between the properties or for differences between the types of contamination that affected the properties. One of the properties that she cited had been sold from a business to a former employee who called the sale a sweetheart deal. It was not an arm s-length sale. The other property had not sold at all. The appraiser had simply compared the owner s asking price with a verbal offer that he received. An unaccepted offer to buy or sell property does not tend to establish the property s market value. The amounts of the asking price and the verbal offer were both determined after contamination had occurred near the property, so they did not show a loss of value due to a contamination stigma. The appraiser assumed that the two properties lost value solely because of the stigma of past contamination, but she offered no evidence to support her assumption. She did not explain why she chose 60% as the portion of value lost by Mel s land. The Court explained that the conclusions of an appraiser or other expert are of no value if they have no basis to support them or if the basis offered does not actually support them. This is because the evidentiary value of expert testimony is derived from its basis, not from the mere fact that the expert has said it. In this case, the factual information cited by Mel s expert did not support her conclusions. In re Valero Refining-Texas, L.P WL (Tex. App. Houston [14 th Dist.], August 21, 2014, orig. proceeding) (not reported) 11

12 Issues: Discovery in appeals Valero sued the appraisal district to appeal an ARB order concerning Valero s refinery. Valero claimed excessive value and unequal value. The district used discovery procedures to seek information about the refinery, principally information about its income and expenses and the volumes of inputs consumed and products produced by the refinery. Valero objected, claiming that the information requested included trade secrets. When the trial court ordered it to produce the information, Valero withdrew its excessive-value claim and reasserted its objections to the discovery. Again the trial court ordered it to produce the information, and Valero took its objections to the court of appeals. The higher court ruled for Valero. The court explained that a trade secret is any formula, pattern, device or compilation of information which is used in one s business and presents an opportunity to obtain an advantage over competitors who do not know or use it. Determining whether information constitutes a trade secret involves considering six factors: (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the business and to its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. One of Valero s officers had testified to his conclusions that all six factors were present and that some of Valero s records were trade secrets. He offered few details to support his conclusions, but his testimony convinced the court of appeals. The court next considered whether it was necessary for the district to have the information. It acknowledged that the information would be very important to an income-approach appraisal but reasoned that the district might be able to determine the value of the refinery without using the income approach. For that reason, the trial court abused its discretion when it ruled that the district was entitled to the information. Editor s comment: Suppose a top-notch golfer applies to play in a major tournament and compete for large prizes. The tournament director tells him that he may play, but he may carry only seven clubs. The other competitors, all of them elite golfers, will each carry fourteen clubs. The Houston Court of Appels would say that the director s decision is correct because fourteen clubs are not really necessary; a golfer should be able to play a round with only seven clubs. The court, however, would be confusing what is necessary to play a round of golf and what is necessary to compete against the world s best golfers. That is just what the court did when it confused what is necessary to reach some estimate of a refinery s value with what is necessary to compete in a trial against a property owner with access to much more relevant information. Bauer-Pileco, Inc. v. Harris County Appraisal District 443 S.W.3d 304 (Tex. App. Houston [1 st Dist.], August 7, 2014, pet. denied) 12

13 Issues: Correcting appraisal rolls In 2008, Bauer rendered its business personal property at a value of $39 million. The appraisal district appraised the bpp in reliance on the rendition, and Bauer did not protest. In 2011, the company filed a motion under 25.25(c)(3) of the Tax Code, which allows an ARB to correct an appraisal roll to remove property that does not exist in the form or at the location described on the roll. Bauer argued that when it prepared its 2008 rendition, it mistakenly included: 1) items that were in transit but that had not reached Harris County; 2) intangible receivables; and 3) items that were actually in California. Bauer argued that the values of those items (a total of about $9 million) should be subtracted from the 2008 appraisal. It admitted having approximately $30 million of bpp in the county. The ARB denied Bauer s motion. Bauer then sued the district and included claims that the items in dispute were protected constitutionally from taxation in Harris County. The trial court granted a summary judgment for the district, and Bauer appealed. The court of appeals affirmed the summary judgment in favor of the district. It explained that 25.25(c)(3) does not apply to the types of errors alleged by Bauer. Bauer admitted having bpp at its Harris County location, so it could not deny having property in the form of bpp at that location. Additionally, 25.25(c)(3) requires a court or an ARB to focus on an appraisal roll. Although Bauer s rendition may have contained errors, the 2008 appraisal roll correctly reflected that Bauer had bpp in Harris County. The statute would not allow a court or an ARB to consider or change the value of that property. If Bauer had acted sooner, it could have raised its claims through a protest or a motion under 25.25(d) to correct a value alleged to be more than one-third too high. Bauer also argued that the district s motion for summary judgment had not addressed its constitutional claims. The court of appeals responded that even if it sent the constitutional claims back to the trial court, that court would not have the necessary jurisdiction to consider them. Bauer had failed to raise those claims through a timely protest to the ARB. Consequently, there was no reason to remand the constitutional claims to the trial court. Sam Griffin Family Investments-I, Inc. v. Dallas Central Appraisal District 2014 WL (Tex. App. Dallas, July 21, 2014, no pet.) (not reported) Issues: Attorney s fees After an unsuccessful protest before the ARB, Griffin sued the appraisal district to challenge the 2010 appraisal of his car wash. While the case was pending, the district discovered that it had misclassified the car wash. It agreed to reduce the value from $500,000 to $270,000. That value was acceptable to Griffin, but he insisted on recovering his attorney s fees. The trial court held a trial on the issue of attorneys fees and found that Griffin had not proven, under of the Tax Code, that the appraised value of his car wash exceeded the value required by law. He could not recover 13

14 attorney s fees under The trial court denied Griffin s request for attorney s fees, and Griffin appealed. The court of appeals affirmed the trial court s judgment. In the court s words, [The] evidence suggests Griffin's property was overvalued because of a clerical error, rather than because it was excessively or unequally appraised. We cannot conclude that there is no evidence to support the trial court's findings that Griffin did not prove an excessive or unequal appraisal... Thus, did not allow an award of attorneys fees to Griffin. Brookshire Brothers, Ltd. V. Aldridge, 2014 WL (Tex. July 3, 2014) Issues: Preservation of evidence This isn t a property tax case, but it involves a detailed analysis by the Texas Supreme Court of a party s duty to preserve evidence and the consequences of spoliating (i.e., destroying or disposing of) evidence. It should be of interest to any person or entity that may become involved in litigation. The Court explained that a party has a duty to preserve evidence in its possession or control (including documents, photographs, videos and computer data) when the party knows or reasonably should know that there is a substantial chance that a claim will be filed and that the evidence will be relevant to that claim. If the party, either intentionally or negligently spoliates the evidence, it can be sanctioned by a court. A court will generally presume that the spoliated evidence would have been harmful to the party that destroyed or disposed of it. Sanctions should be proportionate to the spoliating party s culpability and the harm done to the other party. Sanctions can include requiring the spoliating party to pay the other party s legal fees, excluding evidence or striking the guilty party s claims or defenses. In the most serious cases, a court may instruct a jury to presume that the spoliated evidence would be harmful to the guilty party. Mandel v. Lewisville Independent School District 445 S.W.3d 469 (Tex. App. Fort Worth, July 1, 2014, pet. denied) Issues: Service of process in delinquent-tax suit The school district sued Ross and Lea Mandel for delinquent 2010 taxes on their house. The Mandels were personally served with the suit papers. (Personal service means that a deputy or some other process server actually found the defendant and handed him the papers. The deputy or process server files a written return of service with the court.) The Mandels did not file an answer. A lienholder that had not yet been served paid the taxes. Before the district got around to dismissing the case, the 2011 taxes became delinquent. In June of 2012, the district amended its pleadings and included claims for the 2011 taxes. The lienholder was personally served with the district s amended pleadings and filed an answer. The amended pleadings were served on the Mandels by certified mail under Rule 21a of the Texas Rules of Civil Procedure (TRCP). (Rule 21a 14

15 does not require personal service; a party can be served by less formal means such as certified mail, courier or fax.) In early November, the other taxing units intervened in the case but did not serve their pleadings on the Mandels or on the lienholder. In mid- November, the case was called to trial. The trial court entered judgment for the taxing units, ordered the sale of the property and ordered that the purchaser receive a writ of possession. The district clerk mailed notices of the judgment to the Mandels. The sheriff proceeded to publish notices of the tax sale and mailed a copy to the Mandels. On April 2, 2013, the Sheriff sold the property. On May 14, 2013, the Mandels filed a restricted appeal to contest the trial court s judgment. In October of 2013, the court clerk issued a writ of possession ordering that possession of the property be turned over to the purchaser. The Mandels filed a cash deposit with the clerk and demanded that the writ of possession be quashed. The trial court could not act fast enough. On the same day that a constable started removing the Mandels belongings from the house, the court of appeals granted an emergency stay of execution. The higher court then proceeded to consider the Mandels claims concerning service of process. The court explained hat in a restricted appeal, it could only consider the record from the earlier trial and determine whether the record showed error on the part of the trial court. The Mandels first complained that the officer who had served Ross Mandel had not noted in his return the specific time of day when the service occurred. The officer had noted the date of service and that service occurred in the A.M. The court explained that Rule 107 of the TRCP requires that a return of service include the date of service but not the specific time of day. The officer s return was sufficient to satisfy the rule. The Mandels next argued that the district s amended pleading had to be served on them personally. The court rejected that argument and ruled that service under Rule 21a was sufficient. The certificate of service on the district s amended pleading was enough to show that the Mandels were served, at least in the absence of any contrary evidence. The Mandels complained that the other taxing units had not served their pleadings on them at all. The court explained that Rule 117a of the TRCP did not require the other taxing units to serve the Mandels. The district s pleadings had identified the other taxing units and advised the Mandels that the other taxing units might file their own delinquenttax claims without further notice to the Mandels. The rules were sufficient to protect the Mandels due-process rights. The court further explained that the clerk s notice of judgment and the sheriff s notice of sale needed only to be served on the Mandels under Rule 21a. Neither the clerk nor the sheriff was required to include proof of that service in the record. The record did not show that the clerk or the sheriff failed to serve the notices. Because the record did not reveal any error, the Mandels restricted appeal failed, and the Court of appeals affirmed the trial court s judgment for the taxing units. Sonne v. Harris County Appraisal District 2014 WL (Tex. App. Houston [1 st Dist.], June 26, 2014, no pet.) (not reported) 15

16 Issues: Payment of taxes during appeal In 2009, Sonne protested the appraisals of two tracts of land. The ARB reduced the appraised values, but Sonne nevertheless sued the appraisal district, claiming further reductions. His pleadings said that he would timely pay all taxes due, or he would pay the taxes on the undisputed value of the land, or he would request relief from the court. Sonne s taxes were only $638 but he did not pay and the taxes became delinquent. The same things happened in 2010, but Sonne s taxes for that year were only $40. He amended his pleadings to add his 2010 claims to his existing lawsuit but did not make any payment. When the appraisal district sought the dismissal of the case, Sonne responded that he had to pay only the taxes on the undisputed values of his land, and, because he claimed that his land had no value at all, that amount was zero. Thus, he argued, his payment of $0 satisfied of the Tax Code and allowed him to maintain his suit. The trial court disagreed and dismissed the case. Sonne appealed. The court of appeals upheld the dismissal of the case. The court explained that if a property owner proposes to pay only the taxes on the undisputed value of his property, his pleading must be accompanied by a statement of the amount that he proposes to pay. Sonne s pleadings did not state the amount that he proposed to pay. Therefore, he had to pay the full amount of the assessed taxes. When he made no payment at all and the taxes became delinquent, he failed to even substantially comply with the payment requirement. Section required the dismissal of the case. Sonne tried arguing that the statute was unconstitutional, but the court rejected that argument. KMR Minden, L.P. v. Harris County Appraisal District 2014 WL (Tex. App. Houston [1 st Dist.], June 24, 2014, pet. denied) (not reported) Issues: Payment of taxes during appeal KMR protested the 2011 appraisal of its apartment complex and then sued to appeal the ARB s order. Its petition stated that it would timely pay all taxes due, or it would pay the taxes on the undisputed value of the property, or it would request relief from the court. In October of 2011, KMR received a tax bill for approximately $12,000. KMR did not pay any taxes prior to delinquency. It paid the full assessment in mid-april. When the appraisal district asked the trial court to dismiss the case, KMR responded by filing an affidavit of inability to pay. In the affidavit and in the testimony of its representative, KMR claimed that it did not have enough in its bank account as of January 31 to pay the entire assessment. It attached bank statements for the months of January through April, If further explained that in April, some of its owners had loaned it money to pay the taxes. The trial court concluded that KMR should not be excused from paying taxes and that the payment requirement did not unreasonably restrain KMR s access to the court. The court dismissed the case, and KMR appealed. 16

17 The court of appeals affirmed the dismissal of the case. The higher court focused on several facts shown by the evidence. The bank statements presented by KMR did not cover the months of October through December, 2011, months when KMR had its tax bill. The bank statements that it did provide showed that KMR took in enough money in January to pay the taxes, but it elected to pay its other expenses instead. The statements also showed regular, unexplained transfers of thousands of dollars to another account. KMR s owners had lent it money before, and it did not explain why it could not have borrowed from them earlier in order to pay the taxes on time. KMR never contacted the taxing units or attempted to arrange for an installment payment plan. Additionally, KMR never offered any evidence concerning what the taxes would have been on the undisputed value of its property or whether it could have paid that undisputed amount. The fact that its original petition failed to state an undisputed value or an undisputed tax amount would not have prevented it from making such a payment. The court also explained that the substantial-compliance language in of the Tax Code does not apply to the date of a tax payment. A payment must be timely, although its amount need not be exactly right. A property owner s failure to satisfy deprives a trial court of jurisdiction to consider the owner s case. Parker County Appraisal District v. Francis 436 S.W.3d 845 (Tex. App. Fort Worth, June 19, 2014, no pet.) Issues: Land qualifying for homestead exemption and open-space appraisal Francis owned three tracts of contiguous land: a one-acre tract where he lived; a threeacre tract used for agriculture; and a nine-acre tract used for agriculture. Prior to 2010, the appraisal district had been applying a homestead exemption to the one-acre tract and appraising the two larger tracts as open-space agricultural land. In 2010, Francis applied to have the three acre tract included under the homestead exemption, but he also wanted to keep the open-space appraisal on that tract. The district responded that Francis could not receive both tax breaks on the same tract and denied the homestead exemption for the three-acre tract. After an unsuccessful protest before the ARB, Francis filed suit. Francis and the district stipulated the facts to be considered by the trial court. They stipulated that absent the open-space land valuation, the three-acre tract would qualify for the residence homestead exemption, and in the absence of the residence homestead exemption, the three-acre tract qualifies for the open-space land valuation. The trial court ruled for Francis and the district appealed. The court of appeals affirmed the judgment for Francis and ruled that, based upon the stipulations, the three-acre tract could receive both the homestead exemption and an open-space appraisal. The court noted that under 11.13(j) of the Tax Code, a residence homestead can include up to twenty acres of land used in connection with the residential occupancy of a structure. Section requires an appraisal district to apply the same per-acre market value to the land portion of a single-family residence and contiguous agricultural land owned by the same people. The court understood that to mean that if the residential land qualifies for a homestead exemption, the agricultural land does too. Under 23.51, open-space land must be devoted principally to 17

18 agriculture, but that does not preclude it from being used for residential purposes as well. Section 23.55(i) allows an owner to claim some open-apace land as part of a homestead without paying a rollback tax. The court read that law to allow the same land to receive both agricultural and homestead benefits simultaneously. Under 11.13(k), a portion of a residential structure that is used primarily for non-residential purposes cannot qualify for a homestead exemption, but that rule does not apply to land. The district attempted to cite the Comptroller s Manual for the Appraisal of Agricultural Land, but the court said that the Manual did not even exist. Somehow, it disappeared when the Comptroller took over the responsibilities of the State Property Tax Board. Editor s Comment: The court of appeals focused on the specific language of the parties stipulations. If a similar issue arises in another case, a different ruling may result if the parties do not use stipulations or if they use different language in their stipulations. The court was mistaken about the Manual. The 1991 legislation that transferred the SPTB s duties to the Comptroller provided that the SPTB s rules would remain in effect unless they were amended, repealed or superseded by the Comptroller. The Comptroller has never repealed or changed the Manual. Ashland, Inc. v. Harris County Appraisal District 437 S.W.3d 50 (Tex. App. Houston [14 th Dist.], June 12, 2014, no pet. hist.) Issues: Freeport exemption Ashland claimed a freeport exemption for motor oil, gear oil and grease held at its at its plant in Houston. According to Art. VIII, 1-j of the Texas Constitution, the freeport exemption does not apply to oil, natural gas, and other petroleum products. Ashland claimed that its products were something different and that they qualified for the exemption. Ashland s claim was denied by the appraisal district and the ARB, and Ashland filed suit. The trial court entered a summary judgment for the district, and Ashland appealed. The court of appeals reversed the trial court s ruling and entered judgment for Ashland. The court referred to a definition of petroleum products found in of the Tax Code: liquid and gaseous materials that are the immediate derivatives of the refining of oil or natural gas. It also noted that the Comptroller had prescribed a list of petroleum products and that the list included lubricants. Ashland, however, had submitted an affidavit from a chemical engineer, and the court relied heavily on that affidavit. The engineer explained that refining crude oil produces a product called base oil. Ashland acquired base oil and combined it with other chemicals and products in a secret manufacturing process. The resulting products, including motor oil, gear oil and grease were not immediate derivatives of refining; they were only secondary derivatives. Ashland s plant was not a refinery, and its manufacturing process did not begin until the refining process had been completed at a refinery somewhere else. The district did not respond with expert testimony of its own. The court accepted the conclusions of Ashland s engineer and concluded that Ashland s products were not petroleum products. The products, therefore qualified for the exemption. 18

19 Patel v. Harris County Appraisal District 434 S.W.3d 803 (The. App. Houston [14 th Dist.], June 5, 2014, no pet.) Issues: Appeal of favorable ARB order In 2010, Patel protested the $2 million appraised value of his property, claiming that the value was excessive and unequal compared to the appraised values of other properties. Patel s agent gave the ARB a document containing an unsworn statement that, in the agent s opinion, the property s value was $1.9 million. The ARB reduced the appraised value to the exact figure stated in the agent s document. Patel nevertheless filed suit to appeal the ARB s order. His pleadings claimed that the value set by the ARB was still excessive and unequal. The appraisal district responded that Patel should not be able to appeal an ARB order that gave him exactly the value that his agent had claimed. The trial court entered a summary judgment for the district, and Patel appealed. The court of appeals reversed the summary judgment for the district. The higher court noted that it did not have a full record of what happened at the ARB hearing. It could not be sure that the reduction ordered by the ARB completely satisfied Patel with respect to both of his grounds of protest. The court of appeals explained that the unusual circumstances of the case did not deprive the trial court of jurisdiction to consider Patel s claims. Section of the Tax Code allows a property owner to file suit to appeal an ARB order determining the owner s protest. It contains no exception for an owner who is successful before the ARB. Patel had standing to appeal because he was the owner of the property and was responsible for the taxes on it. The case presented a real controversy because Patel claimed that the value set by the ARB was too high and the district disagreed. Even though Patel did not give the ARB the chance to consider whatever value he might claim in court, he had, nevertheless, exhausted his administrative remedies. The bar for exhausting administrative remedies in a value dispute is set pretty low. The district also argued that Patel s claim was barred by the principle of judicial estoppel, which generally prevents a party from taking inconsistent positions in two different cases. The court disagreed. Judicial estoppel applies when a party s inconsistent statements are sworn, and the statement of value that Patel s agent gave the ARB was not sworn. Further, the proceedings before the ARB and the trial court were in the same case, not two different cases. The court of appeals sent the case back to the trial court for further proceedings. Curry v. Harris County Appraisal District 434 S.W.3d 815 (The. App. Houston [14 th Dist.], June 5, 2014, no pet.) Issues: Appeal of favorable ARB order This case is very similar to Patel v. Harris County Appraisal District described above. In 2011, Curry protested the $1.6 million appraised value of his property, claiming that the 19

20 value was excessive and unequal compared to the appraised values of other properties. Curry s agent gave the ARB a document stating that, in the agent s opinion, the property s value was $1.5 million. The agent also testified under oath to the same figure at the ARB hearing. The ARB reduced the appraised value to the exact figure claimed by the agent. Curry nevertheless appealed, and the appraisal district raised the same defenses that it raised in the Patel case. The trial court entered a summary judgment for the district, and Curry appealed. This time, the court of appeals did have the record of the ARB hearing. It nevertheless reached the same conclusion that it did in the Patel case, i.e., that it could not determine whether the reduction ordered by the ARB completely satisfied Curry with respect to both of his grounds of protest. The court of appeals proceeded to rule that the trial court had jurisdiction over Curry s claims for the same reasons relied upon by the higher court in its Patel opinion. The court also addressed the principle of judicial estoppel. In this case, unlike in Patel, the agent had stated a value under oath before the ARB. But judicial estoppel did not apply because the proceedings before the ARB and the trial court were in the same case, not two different cases. The court of appeals reversed the trial court s summary judgment and sent the case back to the trial court for further proceedings. Hoppenstein Properties, Inc. V. McLennan County Appraisal District 2014 WL (Tex. App. Amarillo, May 20, 2014, pet. denied) (not reported) Issues: Funding-out clause in lease; debt limitations The appraisal district acquired office space under a five-year lease from Hoppenstein. The lease contained a funding-out clause stating that [t]he loss or reduction of funds by the district shall render this agreement null and void as to those provisions for which funding is not available. The lease also said that any party that prevailed in litigation against the other would be entitled to recover its attorneys fees from the other party. The office space proved unsatisfactory, and during the second year of the lease, the district acquired other offices. The district s directors did not include money for the Hoppenstein lease in the district s 2010 budget, and the district ceased paying Hoppenstein after the end of Hoppenstein sued for breach of the lease. The trial court ruled that the district was liable to Hoppenstein. The parties presented several different calculations of the amount of lost rent. A jury found that the district owed Hoppenstein approximately $374,000, and the trial court entered judgment for Hoppenstein in that amount. The court did not award attorneys fees to Hoppenstein. Both parties appealed. On appeal, Hoppenstein argued that the trial court should have disregarded the jury s verdict and awarded it $475,000 in lost rent. The court of appeals explained that overturning the jury s verdict would require Hoppenstein to show: 1) that no evidence supported the jury s verdict; and 2) that the $475,000 figure was established conclusively by the evidence. Because there was evidence of several different amounts, 20