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IRAAN-SHEFFIELD INDEPENDENT SCHOOL DISTRICT, Appellant, v. KINDER MORGAN PRODUCTION COMPANY LLC, Individually and as successor in Interest to Kinder Morgan Production Company, LP, Appellee.
This appeal arises out of a taxing unit's challenge of the appraised values of mineral interest in Pecos County, Texas. The pivotal question is whether Appellant Iraan-Sheffield Independent School District (ISISD) exhausted its administrative remedies by raising the issue of taxpayer fraud during the appraisal review board hearing. The trial court concluded ISISD did not exhaust its administrative remedies, granted Appellee Kinder Morgan Production Company LLC's (Kinder Morgan) plea to the jurisdiction, and dismissed ISISD's petition. Finding ISISD exhausted its administrative remedies, we reverse the trial court's dismissal and remand the case for further proceedings.
STATE OF THE RECORD
Before we set forth the factual and procedural background of this case, we must address the state of the appellate record. After the parties completed briefing, ISISD filed a first and second supplemental designation of items to be included in the clerk's record of this appeal. The first supplemental request sought to include a letter from Kinder Morgan's counsel to the members of the Pecos County Appraisal Review Board (ARB) dated after the trial court's ruling on the plea to the jurisdiction. The second supplemental request sought to include pleadings from the lawsuit captioned: ISISD v. Pecos County Appraisal District and Kinder Morgan Production Co., LLC, Individually and as Successor in Interest to Kinder Morgan Production Co., LP, cause no. P-8133-83-CV, which is a separate and different lawsuit filed in the 83rd Judicial District of Pecos County between the same parties involved in this matter. Kinder Morgan filed a motion to strike these subsequent filings from the record contending ISISD had improperly designated part of the record on appeal. Kinder Morgan argues both requests for supplementation of the clerk's record improperly designate records not before the trial court when it granted Kinder Morgan's plea to the jurisdiction at issue here.
An appellate court may only consider the record as it appeared before the trial court at the time the court made the decision in question. Hogg v. Lynch, Chappell & Alsup, P.C., 480 S.W.3d 767, 774 (Tex.App.—El Paso 2015, no pet.)(citing In re Bristol-Myers Squibb Co., 975 S.W.2d 601, 605 (Tex. 1998))(a reviewing court must “focus on the record that was before the court” when it rendered its decision); In re Allstate Ins. Co., 232 S.W.3d 340, 343 (Tex.App.—Tyler 2007, no pet.). Having reviewed the proposed supplementation, we agree the records ISISD seeks to include in the appellate record were not before the trial court when it considered Kinder Morgan's plea to the jurisdiction. ISISD argues the contested records show Kinder Morgan made subsequent filings and admissions relevant to the disputed issues of this appeal. Regardless of whether these records are relevant, which we do not determine at this juncture, we are not permitted to consider records not before the trial court at the time it rendered the ruling under appellate review. See Hogg, 480 S.W.3d at 774. Accordingly, we grant Kinder Morgan's motion to strike notices of subsequent filing from the record of this appeal.
With that understanding, we turn to the background of this appeal as reflected by such appellate record.
APPRAISAL REVIEW BOARD PROCEEDINGS
ISISD is a taxing unit and independent school district located in Iraan, Texas. In May 2018, it filed a Texas Comptroller of Public Accounts Form 50-215 “Petition Challenging Appraisal Records” (Original Challenge Petition) with the ARB. It selected two of the five statutory grounds listed on the form as the basis for its challenge: (1) “the level of appraisals of any category of property in the district or in any geographical area in the district, but not the appraised value of a single taxpayer's property,” and (2) “an exclusion of property from the appraisal records.” It described the category of property involved in the challenge as “Category G property: Oil and Gas, Minerals, and other subsurface interests - Pecos County.” ISISD also provided the following brief explanation of why its challenge was necessary:
ISISD asserts the levels of appraisal for Cat. G property located within Pecos County for years 2017, and 2012-2016, were erroneous, inconsistent, and insufficient. ISISD asserts that Cat. G property was erroneously and incorrectly omitted from appraisal for 2017, and 2012-2016. Beck & Masten Pontiac-GMC, Inc. v. Harris Co. Appraisal Dist., 830 S.W.2d 291, 294-95 (Tex. App.—Houston [14th Dist.] 1992, writ denied). ISISD asserts back-appraisal is required for Cat. G property for years 2012-2016. Atascosa Co. v. Atascosa Co. Appraisal Dist., 990 S.W.2d 255, 257 (Tex. 1999). ISISD challenges the level of Cat. G property appraisals for 2017, and 2012-2016; the omission of taxable Cat. G property for 2017, and 2012-2016; and requests back-appraisal of Cat. G property for 2012-2016. Id.; In re ExxonMobil Corp., 153 S.W.3d 605, 619 (Tex. App.—Amarillo 2004); Tex. Tax Code Ch. 25, 41.
ISISD filed a supplemental Petition Challenging Appraisal Records Form 50-215 (Supplemental Challenge Petition) challenging the appraisal records for tax years 2012-2018. The Supplemental Challenge Petition identified the same two statutory grounds for the challenge as it did in the Original Challenge Petition and contained the same description of the property involved. ISISD provided the following brief explanation for why its challenge was necessary in its Supplemental Challenge Petition:
The taxing unit is challenging all current and past appraisals of Cat. G property from present back to and including 2012, including any that are currently pending. Tex. Tax. Code 25.21 and 41.03. The taxing unit challenges the levels of appraisals for Cat. G property located within Pecos County for years 2012-2018 as being erroneous, inconsistent, and insufficient; challenges that Cat. G property was erroneously and incorrectly omitted (in toto and ab initio) from appraisals for years 2012-2018; and requests back-appraisal for Cat. G property for all previous years as allowed by law. Atascosa Co. v. Atascosa Co. Appraisal Dist., 990 S.W.2d 255, 257 (Tex. 1999).
The Appraisal Review Board Hearing
The ARB held a hearing on ISISD's Original and Supplemental Challenge Petitions. ISISD did not present any witnesses. But through its attorney it presented data compiled by Louis Posgate, a private appraiser, that purports to show the appraised value of Kinder Morgan's mineral interests in Pecos County varies significantly from the value Kinder Morgan claims for the same mineral interest in publicly available filings it is required to make with various public state and federal entities. ISISD indicated it had asked the Pecos County Appraisal District (PCAD) for the data underlying the Kinder Morgan appraisals to confirm Posgate's calculations, but it did not get anything in response. It proceeded to argue, however, the ARB should trust the data used in Posgate's calculations because it was derived from what Kinder Morgan swore was true in its public filings: “This is a case of these are Kinder Morgan's statements to the different agencies. So, you know, do you trust the one that they've sworn to and given to the SEC or do you go with one that is not sworn to” that is provided to the appraisal district. ISISD then argued that while it did not have specific evidence to back up its claims because of PCAD's refusal to provide it with any underlying data, the ARB could presume fraud because the appraised value of Kinder Morgan's mineral interests was more than 25% less than its purported actual value:
So they make all these filings with these other entities—or with these other agencies and if you take the information ․ and you plug it into ․ the mandatory formula that is required by law and by the Comptroller, the value is significantly more as to the oil that is in Pecos County than what ․ the Appraisal District came up with. So what that leads to is the Comptroller has—and it's by statute—a general position that if taxes were over 25 percent underpaid, ․ that it is considered to be fraud or misrepresentation that the Panel or a court would consider.
ISISD's counsel concluded by asking the ARB to order a reappraisal of Kinder Morgan's mineral interests for the years 2012 through 2018 because “either there was an error by [PCAD] or there was a misrepresentation by Kinder Morgan.”
PCAD, the only party opposing ISISD before the ARB, realized the issue before the board was whether Kinder Morgan committed fraud. In its closing, it asserted “the whole focus of this hearing's been on Kinder Morgan.” It then argued “[t]here's no fraud, there is nothing there,” and “[T]here is no fraud proven or even insinuated here.”
The ARB members, none of whom are attorneys or judges, also believed the issue before them was fraud. At the close of evidence and argument, an unidentified board member motioned for the board to make a finding there was no fraud committed:
UNIDENTIFIED SPEAKER: I make a motion that we stay with our—our findings—
UNIDENTIFIED SPEAKER: That no fraud was committed?
UNIDENTIFIED SPEAKER: No fraud was committed.
UNIDENTIFIED SPEAKER: Second.
MR. SLAUGHTER: We have a motion and a second to stay with the finding ․ no fraud was committed.
Another ARB member suggested the motion to find no fraud be phrased “as a motion to deny the challenge” to comply with the Texas Tax Code. The ARB then voted to deny ISISD's challenge and issued a written order of denial on July 23, 2018.
DISTRICT COURT PROCEEDINGS
On August 28, 2018 ISISD filed a petition for review and writ of mandamus in district court to appeal the ARB decision. Naming PCAD and Kinder Morgan as defendants, ISISD alleged the trial court had jurisdiction because “[a]ll conditions precedent to the pursuit of this action have occurred or such have been waived by the Defendants.” Specifically, ISISD alleged it exhausted its administrative remedies by filing a challenge petition with the ARB, presented its challenge at a hearing before the ARB, and timely filed a petition for de novo review with the trial court after its challenge was denied. ISISD did not make any substantive factual allegations against either defendant in its initial petition. But it did cite to Beck & Masten Pontiac-GMC, Inc. v. Harris County Appraisal District, 830 S.W.2d 291 (Tex.App.—Houston [14th Dist.] 1992, writ denied) in support of its claim that Kinder Morgan's mineral interests had been omitted from appraisal:
Plaintiff asserts that mineral interest real property of the Kinder Morgan Entities in Pecos County was erroneously and incorrectly omitted from appraisal for years 2018, and 2013-2017 and that accurate values should be determined by this Court. Beck & Masten Pontiac-GMC, Inc. v. Harris Co. Appraisal Dist., 830 S.W.2d 291, 294-95 (Tex.App.—Houston [14th Dist.] 1992, writ denied).
ISISD also alleged in its original petition the “omission of properties, in toto or ab initio, was brought to the attention and knowledge of the Chief Appraiser of the Pecos County Appraisal District as to the mineral interest real property of the Kinder Morgan Entities ․” ISISD asked the trial court to either set a proper appraised valuation of Kinder Morgan's mineral interests or order the Pecos County Chief Appraiser to re-appraise the mineral interests for the years 2013 through 2018.
Kinder Morgan answered the original petition with a general denial and a motion to dismiss under Texas Rule of Civil Procedure 91a. Kinder Morgan based its motion to dismiss partially on the fact that ISISD “does not allege any facts in support of either cause of action that could establish a viable, legally cognizable right to relief or provide the Kinder Morgan defendants with fair notice of the facts on which the claims are based.”
ISISD filed two amended petitions in response to Kinder Morgan's motion to dismiss. In its second amended petition, ISISD alleged again that Kinder Morgan's mineral interest in Pecos County was excluded and omitted, in toto and/or ab initio, from appraisal for years 2018, and 2013-2017. Asserting the appearance of fraud is evidence of omission ab initio, ISISD's second amended petition expressly alleged Kinder Morgan had engaged in such fraud: “ISISD, based on the conduct of Defendants and review by experts of other Kinder Morgan federal and state filings, believes Kinder Morgan knowingly and purposefully provided inaccurate and/or incomplete information to be relied upon by PCAD/Pickett in a fraudulent effort to evade payment of taxes and such misrepresentation were relied upon to the detriment of Plaintiff and the citizens of Pecos County, Texas.”
Kinder Morgan subsequently withdrew its Rule 91a motion to dismiss and filed a plea to the jurisdiction. Attaching the transcript from the ARB hearing, Kinder Morgan argued in its plea to the jurisdiction the trial court did not have jurisdiction because ISISD had not exhausted its administrative remedies. Specifically, it claimed ISISD failed to litigate before the ARB its claim Kinder Morgan had made an intentional misrepresentation. After a hearing on the matter, the trial court granted Kinder Morgan's plea to the jurisdiction and dismissed the case without prejudice. This appeal followed.
ISSUES ON APPEAL
There is one central issue on appeal: did the trial court err in granting Kinder Morgan's plea to the jurisdiction? Resolution of this primary issue requires us to consider two component issues. First, did ISISD exhaust its administrative remedies by presenting its claim of taxpayer fraud to the ARB? Second, if ISISD exhausted its administrative remedies, did ISISD timely appeal the issue of taxpayer fraud to the district court? We will consider each of these issues in turn.
STANDARD OF REVIEW
A plea to the jurisdiction is a dilatory plea by which a party challenges the trial court's subject matter jurisdiction. Hernandez v. Sommers, 587 S.W.3d 461, 467 (Tex.App.—El Paso 2019, pet. denied). Its purpose is to defeat a cause of action without regard to whether the claims asserted have merit. Id. at 467-68. The trial court's ruling on a plea to the jurisdiction is subject to de novo review. Id. at 468.
A plea to the jurisdiction may challenge either the sufficiency of jurisdictional allegations in the pleadings or the existence of jurisdictional facts. Texas Department of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226-27 (Tex. 2004). When a plea to the jurisdiction challenges the sufficiency of the pleadings, we determine whether the plaintiff has met that burden by pleading facts that affirmatively demonstrate the trial court's subject matter jurisdiction. Id. at 226. In doing so, we construe the pleadings liberally in favor of the plaintiff and look to the pleader's intent and accept as true the factual allegations in the pleading. Id. at 226, 228. If the pleadings are insufficient to establish jurisdiction but do not affirmatively demonstrate an incurable defect, then the issue is one of pleading sufficiency and the plaintiff should be afforded the opportunity to amend. Id. at 226-27. On the other hand, if the pleadings affirmatively negate the existence of the trial court's jurisdiction, then a plea to the jurisdiction may be granted without allowing the plaintiff an opportunity to amend. Id.
When a plea to the jurisdiction challenges the existence of jurisdictional facts, we consider relevant evidence submitted by the parties to the extent necessary to resolve the jurisdictional issues, just as the trial court is required to do. Id. at 227. If the evidence presents a jurisdictional fact question, a plea to the jurisdiction may not be granted and the fact finder should resolve the fact issue. Id. at 228. If, however, the relevant evidence is undisputed or fails to raise a fact question on the jurisdictional issue, then the plea to the jurisdiction may be ruled on as a matter of law. Id.
Exhaustion of Administrative Remedies
An “ad valorem tax” is a tax on property at a certain tax rate based on the property's value. City of Austin v. Travis Central Appraisal District, 506 S.W.3d 607, 613 (Tex.App.—Austin 2016, no pet.). The value of the property is determined by an appraisal conducted by county-based appraisal districts and appraisal review boards throughout the State. Id.; Tex.Tax Code Ann. § 6.01(b). The appraisal process is defined in detail in the Texas Tax Code's legislative scheme. Relevant for our purpose is section 25.21 of the Tax Code, which at the time this case was initiated, required the chief appraiser to enter in the appraisal records real property that “was omitted” from an appraisal roll in any of the five preceding years. Tex.Tax Code Ann. § 25.21 (West 2018), amended by Tex.Tax Code Ann. § 25.21 (West 2021). Courts in Texas have interpreted the word omitted in section 25.21 to include property “undervalued by virtue of taxpayer fraud.” See In re ExxonMobil Corp., 153 S.W.3d 605, 613 (Tex.App.—Amarillo 2004, no pet.)(“For purposes of section 25.21, property ‘omitted’ from the appraisal roll includes that undervalued by virtue of taxpayer fraud.”); Willacy County Appraisal District v. Sebastian Cotton & Grain, Ltd., 555 S.W.3d 29, 50 (Tex. 2018)(stating section 25.21 of the Texas Tax Code “provides a remedy for an erroneous appraisal based on property that escaped taxation because of a void assessment arising from taxpayer fraud”). The Fourteenth Court of Appeals explained in Beck & Masten Pontiac-GMC, Inc. v. Harris County Appraisal District, 830 S.W.2d 291, 294-95 (Tex.App.—Houston [14th Dist.] 1992, writ denied) that taxpayer fraud makes “the initial assessment [by the appraisal district] void ab initio.” Interpreting a predecessor to section 25.21 that used the phrase “escaped taxation” in place of the word omitted, the Beck & Masten court reasoned a void assessment resulted in property being omitted for purposes of the Tax Code. Id. at 295. See Jim Wells County v. El Paso Production Oil & Gas Co., 189 S.W.3d 861, 868 (Tex.App.—Houston [1st Dist.] 2006, pet. denied)(“The Taxing Units argue that the amendment to section 25.21 that changed the word “escaped taxation” to “omitted” property, renders 25.21 inapplicable to the facts before us. We disagree. Both In re ExxonMobil and Beck & Masten considered the very argument presented by the Taxing Units, and both courts concluded that section 25.21’s application is determined by the allegation of fraud, not the characterization of the result.”).
Taxing units like ISISD are generally excluded from this appraisal process. City of Austin, 506 S.W.3d at 613. However, section 41.03 of the Texas Tax Code gives them the right to file property tax appeals with an appraisal review board in limited circumstances. The version of section 41.03 effective when ISISD filed its challenge petition in 2018 allowed taxing units to file challenges, among other bases, in the following two circumstances: (1) “the level of appraisals of any category of property in the district or in any territory in the district, but not the appraised value of a single taxpayer's property”; and (2) “an exclusion of property from the appraisal records.” Tex.Tax Code Ann. § 41.03 (a)(1)-(2) (West 2019), amended by Tex.Tax Code Ann. § 41.03 (a)(1)-(2) (West 2020). In In re ExxonMobil, the Seventh Court of Appeals held this second basis for appeal allows taxing units to appeal to the appraisal board if the chief appraiser does not address property omitted due to taxpayer fraud under section 25.21:
The challenge procedures provided a further remedy for the taxing units in the event the chief appraiser failed to address the oil companies’ actions that they considered fraudulent. Section 41.03 specifically authorizes taxing units to bring to the appraisal review board challenges to the level of appraisals of any category of property and to an exclusion of property from the appraisal records.
In re ExxonMobil, 153 S.W.3d at 614. A taxing unit can appeal the appraisal review board's decision to the district court. Tex.Tax Code Ann. §§ 42.031, 42.21(a). However, to properly invoke the subject-matter jurisdiction of the district court, the taxing unit must exhaust its administrative remedies before the appraisal review board before filing its petition for judicial review. City of Austin, 506 S.W.3d at 618. In Webb County Appraisal District v. New Laredo Hotel, Inc., 792 S.W.2d 952, 954 (Tex. 1990) the Texas Supreme Court stated the “intent of the administrative review process is to resolve the majority of tax protests at this level, thereby relieving the burden on the court system.” Consequently, the New Laredo court required the appealing party to appear before the appraisal review board with evidence to allow the board an opportunity to make a decision on the merits of the protest. Id.; see also City of Austin, 506 S.W.3d at 619. And “Texas courts have honored this intent by consistently recognizing that a party may not protest on one ground to the appraisal review board but assert a different ground before the district court.” Midland Central Appraisal District v. Plains Marketing, L.P., 202 S.W.3d 469, 475 (Tex.App.—Eastland 2006, pet. denied).
Kinder Morgan argued in the trial court, and again on appeal, ISISD did not exhaust its administrative remedies because: (1) ISISD did not allege fraud in its challenge petition; (2) it did not present any evidence to the ARB that Kinder Morgan made an intentional misrepresentation; and (3) the ARB did not decide the merits of a taxpayer fraud claim. We disagree.
Adequacy of the Challenge Petition
As a threshold matter, we hold we do not need to consider the adequacy of ISISD's challenge petitions. Our ultimate task is to determine whether the ARB considered the substance of the claim ISISD seeks to assert in the trial court—that Kinder Morgan's property was undervalued as a result of its commission of taxpayer fraud. See Plains Marketing, 202 S.W.3d at 476 (holding it unnecessary to consider adequacy of notices of protest because the court's task was to determine whether the appraisal review board considered party's exemption claim). As a result, we focus on the dispositive issue presented regarding the nature and substance of the ARB hearing.
ISISD argues it presented evidence regarding the issue of Kinder Morgan's taxpayer fraud before the ARB. After reviewing the transcript of the ARB hearing, we agree. It provided data from a private appraiser that ISISD claims demonstrated Kinder Morgan gave PCAD lower values of its mineral interests than it provided in its filings with state and federal entities. It argued the ARB should trust the data Kinder Morgan provided in its public filings under oath. It then explicitly argued the difference in numbers was either an error by PCAD “or there was a misrepresentation by Kinder Morgan.”
Kinder Morgan argues ISISD never accused Kinder Morgan of an intentional misrepresentation before the ARB, but instead argued “a misrepresentation could be ‘assumed’ pursuant to a so-called ‘25% Rule’.” Therefore, it concludes ISISD failed to present any evidence that would allow the ARB to make a determination of taxpayer fraud. Kinder Morgan defines taxpayer fraud too narrowly.
We are instructed “[f]raud is never presumed; that is, without proof.” Parker v. Solis, 277 S.W. 714, 715 (Tex.App.—San Antonio 1925, writ dism'd); Stephanz v. Laird, 846 S.W.2d 895, 903 (Tex.App.—Houston [1st Dist.] 1993, writ denied)(“Fraud is never presumed, and when it is alleged, the facts sustaining it must be clearly shown.”). However, a presumption of fraud can be raised in certain instances. Corpus Christi Area Teachers Credit Union v. Hernandez, 814 S.W.2d 195, 198 (Tex.App.—San Antonio 1991, no writ)(stating an extortionate and unconscionable contract raises a presumption of fraud); Estate of Grogan, 595 S.W.3d 807, 817 (Tex.App.—Texarakana 2020, no pet.)(holding a presumption of fraud may be raised in fiduciary relationships, such as guardian and ward, trustees, etc.); Cantu v. Cantu, 556 S.W.3d 420, 427 (Tex.App.—Houston [14th Dist.] 2018, no pet.)(“Fraud is presumed whenever one spouse disposes of the other spouse's one-half interest in community property without that other spouse's knowledge or consent.”). Further, as we explained in Houle v. Casillas, 594 S.W.3d 524, 564 (Tex.App.—El Paso 2019, no pet.) fraud in Texas encompasses both actual and constructive fraud:
Texas law recognizes two types of common law fraud claims: actual fraud and constructive fraud. In re Estate of Kuykendall, 206 S.W.3d 766, 770–71 (Tex.App.—Texarkana 2006, no pet.)(citing Chien v. Chen, 759 S.W.2d 484, 494–95 (Tex.App.—Austin 1988, no writ)). The elements of a claim for actual fraud are: “(1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury.” See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011)(citing Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009)(per curiam)); see also Sprick v. Sprick, 25 S.W.3d 7, 15 (Tex.App.—El Paso 1999, pet. denied)(citing Stone v. Lawyers Title Insurance Corp., 554 S.W.2d 183, 185 (Tex. 1977)). A claim for actual fraud therefore involves dishonesty of purpose or intent to deceive. See TransPecos Banks v. Strobach, 487 S.W.3d 722, 730 (Tex.App.—El Paso 2016, no pet.)(citing Castleberry v. Branscum, 721 S.W.2d 270, 273 (Tex. 1986)); see also Sprick, 25 S.W.3d at 15.
On the other hand, in a claim for constructive fraud, the actor's intent is irrelevant. Kuykendall, 206 S.W.3d at 770–71 (citing Sprick, 25 S.W.3d at 15); see also Chien, 759 S.W.2d at 495 (citing Archer v. Griffith, 390 S.W.2d 735 (Tex. 1965)). Instead, constructive fraud is the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure public interests. Strobach, 487 S.W.3d at 730 (citing Castleberry, 721 S.W.2d at 273). As this Court has recognized, constructive fraud occurs when a party violates a fiduciary duty or breaches a confidential relationship. Holland v. Thompson, 338 S.W.3d 586, 598 (Tex.App.—El Paso 2010, pet. denied)(citing Texas Integrated Conveyor Systems, Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 366 (Tex.App.—Dallas 2009, pet. denied)); see also In re Estate of Kuykendall, 206 S.W.3d at 770–71.
It is undisputed Beck & Masten and ExxonMobil are illustrative of cases in which the taxpayer either outright committed fraud by undervaluing inventory or alleged to have committed fraud by misrepresenting oil market prices. Beck & Masten, 803 S.W.2d at 293; ExxonMobil 153 S.W.3d at 608. But Beck & Masten and ExxonMobile do not limit taxpayer fraud to actual fraud. Taxpayer fraud can be actual or constructive fraud. For actual fraud, Kinder Morgan would have made a material representation that was false; and when the representation was made, Kinder Morgan knew it was false; or made it recklessly without any knowledge of the truth and as a positive assertion; and Kinder Morgan made the representation with the intent that PCAD would act on it; and in fact PCAD acted in reliance on Kinder Morgan's representation; and PCAD and/or ISISD suffered injury. Actual fraud involves dishonesty of purpose or intent to deceive. Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1964).
Constructive fraud, on the other hand, renders Kinder Morgan's intent irrelevant. Instead, constructive fraud is the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure public interests. Strobach v. WesTex Community Credit Union, 621 S.W.3d 856, 879 (Tex.App.—El Paso 2021, pet. denied) (citing TransPecos Banks v. Strobach, 487 S.W.3d 722, 730 (Tex.App.—El Paso 2016, no pet)). Constructive fraud or legal fraud is not actual fraud. Archer, 390 S.W.2d at 740.
Here, ISISD alleged constructive taxpayer fraud by virtue of the erroneous undervaluation of Kinder Morgan's property interest of $4.7 billion. ISISD was not required to prove intentional misrepresentation or actual fraud, the mere showing of the alleged enormous discrepancy placed the issue of constructive fraud squarely before the ARB.
Nor is ISISD limited in the district court to the same evidence or arguments regarding taxpayer fraud it made to the ARB. “An appeal of an ARB determination to the district court is a trial de novo, and the district court ‘shall try all issues of fact and law raised by the pleadings in the manner applicable to civil suits generally.’ ” Willacy, 555 S.W.3d at 50. The Texas Supreme Court has said in a trial de novo “a court may consider argument and evidence that are introduced afresh.” Id.; see also PR Investments & Specialty Retailers, Inc. v. State, 251 S.W.3d 472, 476 (Tex. 2008)(“A trial de novo, conducted ‘in the same manner as other civil causes,’ is not confined to the same evidence that was presented at the administrative phase.”). Consequently, while a party appealing an appraisal review board decision is not permitted to raise an issue for the first time in district court, it can assert new evidence and new arguments in favor of issues it presented to the board. Plains Marketing, 202 S.W.3d at 475 (holding a party may not protest on one ground to the appraisal review board but assert a different ground before the district court); Willacy, 555 S.W.3d at 50. Therefore, ISISD can present any new evidence or arguments it has to the district court in furtherance of its claim of taxpayer fraud, including evidence of any intentional misrepresentations.
ARB Hearing Decision
Kinder Morgan argues the ARB did not decide the merits of a taxpayer fraud claim. The transcript of the board hearing, however, shows this argument does not have merit. At the hearing, a motion was made and seconded that “No fraud was committed.” While another ARB member suggested the motion to find no fraud be phrased “as a motion to deny the challenge” to comply with the Texas Tax Code, it is clear the ARB considered and rejected ISISD's taxpayer fraud allegation.
For the foregoing reasons, we find ISISD exhausted its administrative remedies. Simply because actual fraud was not alleged or presented here, as it was in Beck & Masten, does not foreclose the conclusion there was a full presentation and consideration of fraud by Kinder Morgan to the ARB. New Laredo Hotel, 792 S.W.2d at 954-55. A review of the transcript of the ARB hearing shows the issue of fraud was intensively litigated, considered, and rejected by the ARB. As a result, given ISISD's presentation of fraud at the administrative level, and that the undervaluation of Kinder Morgan's mineral interests is injurious to the public interest, we find ISISD exhausted its administrative remedies. Therefore, the trial court has jurisdiction over this matter and committed error in granting Kinder Morgan's plea to the jurisdiction. ISISD's first issue is sustained.
Appeal to the District Court
Kinder Morgan argues on appeal the trial court's grant of its plea to the jurisdiction can be affirmed because ISISD failed to plead taxpayer fraud in its original petition. Kinder Morgan maintains taxpayer fraud was not pled until ISISD filed its second amended petition on November 27, 2018, which is “well in excess of 60 days after the Pecos ARB issued its order denying ISISD's challenge.” Kinder Morgan also argues the trial court's order granting the plea to the jurisdiction “must be affirmed” because ISISD did not address this issue in its opening brief on appeal, and, thus, waived any error in the trial court's order.
Regarding Kinder Morgan's waiver argument, we agree an issue not raised in an opening appellate brief is ordinarily waived. Hutchison v. Pharris, 158 S.W.3d 554, 564 (Tex.App.—Fort Worth 2005, no pet.). However, because Kinder Morgan fully addressed the issue of the untimeliness of ISISD's allegation of taxpayer fraud in its response brief, we may consider ISISD's responsive argument on the issue found in its reply brief. See Hutchison, 158 S.W.3d at 563-65 (“Ordinarily, an issue raised for the first time on appeal in a reply brief is waived. However, the parties joined issue when Murray & Massie fully argued the evidence supporting the negative finding to proximate cause in its response brief and Appellants replied. Therefore, we will consider and address the issue as properly before us.”).
The Texas Tax Code requires a taxing unit to file an appeal of an appraisal review board's order “within 60 days after the party received notice that a final order had been entered.” Tex.Tax Code Ann. § 42.21(a). The ARB entered its final order on July 23, 2018, and ISISD filed its petition appealing that order on August 28, 2018; well within the sixty-day time limit. Kinder Morgan, however, argues ISISD did not assert a taxpayer fraud claim in its original petition. We disagree.
The Texas Supreme Court recently released an opinion involving Kinder Morgan and a different group of Texas taxing units. Kinder Morgan SACROC, L.P., et al. v. Scurry County, 622 S.W.3d 835 (Tex. 2021). Like here, the taxing units in Scurry County appealed an appraisal review board's decision regarding the valuation of mineral interests in Scurry County, Texas. Id. at 839. Indeed, ISISD and the Scurry County taxing units are represented by the same attorney and made nearly identical allegations in their original petitions to the respective district courts. Id. at 849. The taxing units in both cases included an allegation in their original petitions that Kinder Morgan's mineral interests had been “omitted from appraisal” records which was followed by a citation to Beck & Masten. Id. The taxing units in Scurry County, like ISISD here, also alleged that Kinder Morgan's mineral interests had been omitted “in toto or ab initio.” Id. The taxing units in both cases filed amended petitions that allege facts claiming Kinder Morgan purposefully provided inaccurate and/or incomplete information to the appraisal district in a fraudulent effort to evade payment of taxes.” Id. at 840. The Scurry County court held the original petition in that case “did not plead a cause of action for reappraisal based on taxpayer fraud” that put Kinder Morgan on notice that it should file a motion to dismiss under the Texas Citizens Participation Act. Id. As a result, the Scurry County court held that the clock for Kinder Morgan to file its motion to dismiss started when the amended petition with new facts was filed. Id. at 850.
The adequacy of the ISISD pleading in ISISD's petition is not at issue in this appeal. The issue before us is whether the district court had subject matter jurisdiction over ISISD's case. In making that determination, we not only construe ISISD's pleadings liberally in favor of finding jurisdiction, but we also look to the pleader's intent. Miranda, 133 S.W.3d 217, 226-27.
Here, ISISD's intent to plead a taxpayer fraud claim is evidenced by the fact that it connects Beck & Masten to its allegation that Kinder Morgan's mineral interests were omitted from the Pecos County appraisal records. Further, the Scurry County court stated the original petition did assert a claim of omission of property and the amended petition added factual allegations to that claim: “The factual allegations of taxpayer fraud added in the second amended petition are ‘new essential facts’ to support the claim of ‘erroneous[ ] and incorrect[ ]’ omission of property asserted in the original petition.” Id. at 848. As a result, we find ISISD's original petition asserted a valid claim for purposes of invoking the trial court's jurisdiction. Consequently, without opining on the adequacy of ISISD's pleadings, we find the trial court had jurisdiction and erred in granting Kinder Morgan's plea to the jurisdiction. ISISD's first issue is sustained.
For the foregoing reasons, we reverse the trial court's order dismissing ISISD's petition for lack of subject-matter jurisdiction. This matter is remanded to the trial court for further proceedings.
Based on two independent grounds, I would conclude the trial court properly granted Kinder Morgan's plea to the jurisdiction against Iraan-Sheffield Independent School District's (ISISD) taxpayer fraud claim. First, before seeking judicial review of the claim, ISISD failed to exhaust administrative remedies required by the Tax Code. And second, even if we assume that ISISD properly presented such claim to the Appraisal Review Board of Pecos County (ARB), it otherwise failed to timely file the fraud claim in the district court. Because the trial court could have based its grant of the plea to the jurisdiction on either ground, I would conclude that either one supports the trial court's ruling. Thus, I would affirm the trial court's ruling. For these reasons, I respectfully dissent.
A. Failure to exhaust administrative remedies
In its plea to the jurisdiction, and now on appeal, Kinder Morgan argues that ISISD failed to exhaust its administrative remedies with regard to a claim of taxpayer fraud because it did not plead, nor attempt to prove at the administrative hearing held by the ARB, that Kinder Morgan engaged in any fraud relative to records submitted for the tax years at issue. Kinder Morgan points out that ISISD has been consistent about the relief it sought—the re-appraisal and back-appraisal of Kinder Morgan's Pecos County mineral property for tax years 2013-2018. But comparing how ISISD engaged in the administrative review process and how it sought juridical review of the board's denial of its claim, Kinder Morgan contends that ISISD was not consistent with its alleged basis for obtaining the relief it sought.
Specifically, Kinder Morgan contends that ISISD abandoned its original basis for obtaining its desired relief and then adopted an entirely new theory built on the allegation that Kinder Morgan had committed fraud or made intentional misrepresentations relative to the appraisal process. Kinder Morgan points out that ISISD's claim was brought under the Tax Code as an ad valorem tax case. Recognizing that iterative pleading may be permissible in a standard civil suit, it argues that such practice does not apply in the context of such suit. Unlike a standard civil suit, a tax suit must comply with procedural and administrative prerequisites mandated by law. In this context, Kinder Morgan argues the district court's subject matter jurisdiction wholly depends upon whether ISISD complied with the regulatory scheme of the Tax Code. Ultimately, Kinder Morgan contends that ISISD's attempt to assert a new cause of action in its Second Amended Petition violated procedural requirements of the Tax Code, and those violations deprived the trial court of subject matter jurisdiction over the claim.
In response, ISISD contends that the district court erred to the extent it concluded that ISISD failed to exhaust its administrative remedies with regard to a claim of taxpayer fraud. ISISD argues that it fully complied with all administrative requirements including the requirement to appear before the ARB on its challenge petition. It points out that it presented documentation referencing taxpayer misrepresentation and also raised the “25 Percent Presumption Rule” before the board. Additionally, ISISD also points out that counsel for Pecos County Appraisal District (PCAD) not only discussed the presumption rule at the hearing but also mentioned the case of Beck & Masten Pontiac-GMC, Inc. v. Harris Cnty. Appraisal Dist., 830 S.W.2d 291, 296 (Tex. App.—Houston [14th Dist.] 1992, writ denied), which is known for its discussion of taxpayer fraud.
Based on these arguments, the majority concludes that ISISD exhausted its administrative remedies after it determined that “the issue of fraud was intensively litigated, considered, and rejected by the ARB.” Because I ultimately conclude that ISISD presented a theory of presumed fraud, not intentional taxpayer fraud, I disagree. On this record, I would conclude the trial court lacked subject matter jurisdiction over the taxpayer fraud claim filed in district court given that such claim was not first presented to the ARB for its determination.
Texas trial courts are courts of general jurisdiction. Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 220 (Tex. 2002). The Texas Constitution provides that such courts are presumed to have subject matter jurisdiction unless a contrary showing is made. See Tex. Const. art. V, § 8; Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 75 (Tex. 2000). Such showing may arise due to the legislature bestowing exclusive original jurisdiction on an administrative body. See Subaru, 84 S.W.3d at 220. As the Supreme Court of Texas explained, “[a]n agency has exclusive jurisdiction ‘when a pervasive regulatory scheme indicates that Congress intended for the regulatory process to be the exclusive means of remedying the problem to which the regulation is addressed.’ ” Id. at 221 (quoting Andrew G. Humphrey, Comment, Antitrust Jurisdiction and Remedies in an Electric Utility Price Squeeze, 52 U. Chi. L. Rev. 1090, 1107 n.3 (1985)). Whether an agency has exclusive jurisdiction depends on statutory interpretation. Id. “Typically, if an agency has exclusive jurisdiction, a party must exhaust all administrative remedies before seeking judicial review of the agency's action.” Id. Until such prerequisite is met, the trial court lacks subject matter jurisdiction and must dismiss the claims within the agency's exclusive jurisdiction. Id.
The purpose of the exhaustion-of-remedies requirement is to allow the agency to resolve disputed issues of fact and policy and to ensure that the appropriate body adjudicates the dispute. Strayhorn v. Lexington Ins. Co., 128 S.W.3d 772, 780 (Tex. App.—Austin 2004), aff'd, 209 S.W.3d 83 (Tex. 2006). “The exhaustion doctrine serves as a timing mechanism to ensure that the administrative process runs its course.” See City of Houston v. Rhule, 417 S.W.3d 440, 442 (Tex. 2013). Absent exhaustion of administrative remedies, a trial court must dismiss the case. See Subaru, 84 S.W.3d at 221.
Relative to this case, “[t]he Tax Code is a pervasive regulatory scheme, vesting appraisal review boards with exclusive jurisdiction to decide protests and challenges as permitted under chapters 41 and 42.” City of Austin v. Travis Cent. Appraisal Dist., 506 S.W.3d 607, 617 (Tex. App.—Austin 2016, no pet.). Pursuant to that scheme, the Tax Code provides taxing units, like the ISISD of this case, “with a limited statutory right to challenge certain actions of the appraisal district before a local review board and with standing to seek judicial review of the review board's determination on its challenge in district court.” Id.; see also Tex. Tax Code Ann. §§ 41.03—.07, 42.031, 42.21. For example, a taxing unit may challenge “the level of appraisals of any category of property in the district ․ but not the appraised value of a single taxpayer's property.” See Act of May 28, 1999, 76th Leg., R.S., ch. 631, § 10, 1999 Tex. Gen. Laws 3191, 3196 (amended 2019) (current version at Tex. Tax. Code Ann. § 41.03(a)(1)).1 The challenge is initiated by the taxing unit's filing of a challenge petition with the appraisal review board, see id. § 41.04, which subsequently conducts a hearing on that petition, see id. § 41.05, determines the challenge, and makes its decision by written order, see id. § 41.07. The taxing unit may then appeal the review board's decision to the district court in the county in which the review board is located. Id. §§ 42.031 (right of appeal by taxing unit), 42.21 (petition for review). To properly invoke the subject-matter jurisdiction of the district court, however, the taxing unit must exhaust its administrative remedies before filing its suit for judicial review. City of Austin, 506 S.W.3d at 618.
Applicable to a taxing unit challenge, section 41.04 of the Tax Code provides that a taxing unit initiates a challenge before an appraisal review board by filing a petition that includes “an explanation of the grounds for the challenge.” Tex. Tax Code Ann. § 41.04. Based on the challenge, the appraisal review board then schedules a hearing, at which the taxing unit is “entitled to an opportunity to appear to offer evidence or argument.” Id. § 41.05. Here, the central issue of the dispute is whether or not the ISISD fulfilled this obligation, “to appear to offer evidence or argument” to the review board, under section 41.05 of the Tax Code. Id.
This identical statutory language also appears in a statute applicable to a taxpayer protest which was construed by the Supreme Court of Texas in Webb Cty. Appraisal Dist. v. New Laredo Hotel, Inc., 792 S.W.2d 952, 953 (Tex. 1990). As a result, New Laredo Hotel provides guidance on the meaning of what is required for exhaustion of remedies in the analogous context of a taxpayer protest suit. Id. at 953—54. In New Laredo Hotel, the taxpayer did not appear before the appraisal review board at all. Id. at 954. Instead, the taxpayer argued that appearance before the board was optional and therefore not a prerequisite to filing suit in district court. Id. at 953. The Supreme Court of Texas disagreed, stating: “Chapter 41 of the Texas Tax Code assumes appearance. Put simply, it is not a question of whether the taxpayer must appear, but rather how the taxpayer will make its appearance.” Id.
The Supreme Court went on to explain that a protest “merely initiates the process while the affidavit or appearance provides the evidence on which the protest will be determined.” Id. at 954. It further explained that “[t]he Board must have evidence before it from which it can determine if the property was overvalued[,]” and, “[i]f the taxpayer presents no evidence, the appraisal review board has nothing before it on which to make a determination, which is a prerequisite to judicial review.” Id. at 953—54. The Supreme Court clarified that “[t]he intent of the administrative review process is to resolve the majority of tax protests at this level, thereby relieving the burden on the court system.” Id. at 954. Thus, as a corollary of that rule, the Court further explained that “judicial review of administrative orders is not available unless all administrative remedies have been pursued to the fullest extent.” Id. (citing City of Sherman v. Pub. Util. Comm'n of Tex., 643 S.W.2d 681, 683 (Tex. 1983)). In short, the Supreme Court admonished that the administrative review process is not “merely one more hoop to jump through before appealing to district court.” Id.
In City of Austin, our sister court applied the guidance of New Laredo to a taxing unit's challenge of appraisal valuations. 506 S.W.3d at 611. In City of Austin, the city challenged the appraisal district's level of appraisals for the 2015 tax year on certain categories of real property in Travis County. Id. Unlike the taxpayer protest discussed in New Laredo, the city in fact made an appearance before the appraisal review board. Id. When doing so, however, it deliberately chose not to present its challenge on the merits. Id. at 619. Instead, the city presented a joint motion along with the appraisal district which asked the appraisal review board to enter an order denying the challenge petition. Id. The attorney for the review board explained to board members they had agreed to this course of action “in order for the parties to proceed to district court.” Id. Adding to this explanation, the city further stated it considered the district court to be a better forum for the dispute. Id. Ultimately, attorneys for the appraisal district and the city each presented a statement to the board, arguing the board should deny the city's challenge petition “so that the Appraisal District could move forward on certifying the tax rolls and so that the parties could proceed in district court.” Id. Once the challenge petition was denied, the city then attempted to appeal that ruling to the district court. Id.
In filing suit for judicial review, the city alleged the appraisal district's 2015 level of appraisals of certain categories of properties was unequal when compared to other categories of property. Id. at 611. In asking for relief, the city requested that the district court order a reappraisal of all such properties within the county. Id. Eventually, several commercial property owners appeared in the case, waived service, and answered as defendants in the lawsuit. Id. One such party subsequently filed a traditional motion for summary judgment seeking dismissal of the city's claims based on the court's lack of subject matter jurisdiction. Id. at 611—612. Among other arguments, the movant argued the city had failed to exhaust its administrative remedies by failing to present evidence at the review board hearing. Id. at 612. The district court granted summary judgment against the city and dismissed the suit for lack of jurisdiction. Id. On review, the Austin Court of Appeals held that—because the city affirmatively requested that the review board deny its challenge petition—the city had failed to “appear,” as contemplated by the Texas Supreme Court, and thus it failed to exhaust its administrative remedies. Id. at 619—20 (citing New Laredo Hotel, 792 S.W.2d at 954). The court referenced New Laredo Hotel's concern as centering “not on the taxpayer's lack of actual presence [at an ARB hearing] but on the fact that, as a consequence, the review board had not been provided any opportunity to make a decision on the merits of the protest.” Id. at 619.
Here, the record demonstrates that, although attorneys and a representative from ISISD attended the hearing on ISISD's challenge petition, ISISD did not present a case on the merits of its challenge. In its introductory remarks to the ARB, ISISD explained its challenge related to the undervaluation of certain oil and gas property in Pecos County, particular property owned by Kinder Morgan. Even so, at the administrative hearing it did not attribute that alleged undervaluation to any intentional misrepresentation or fraud on Kinder Morgan's part. At the end of ISISD's remarks, PCAD pointed out that if ISISD was asserting fraud, it had a heavy burden to prove both that fraud was committed, and that such fraud resulted in an incorrect appraisal. PCAD's point was that, for ISISD to challenge the appraisal of a single taxpayer—i.e., Kinder Morgan—it was required to prove both that taxpayer fraud was committed and that the appraisals were incorrect because of that fraud. Replying, ISISD disagreed with PCAD's description of the applicable law and insisted that “all we have to do is prove that the values that were found by Pickett and submitted to the ARB through the appraisal board, that those were incorrect[.]”
Providing additional background to its challenge, ISISD then discussed the fact that the Pickett organization, the commercial firm that appraised the property at issue here, had made an $84 million error in appraising Category G property in another county.2 ISISD then explained,
What we want is the accuracy of the value of the mineral interests in Pecos County, particularly in the jurisdiction of the school district, and we're not looking for liability, we're not looking for wrongdoing, we're not trying to hold anybody responsible for any type of purposeful wrongdoing, anything like that.
The factual basis of ISISD's challenge, as explained at the hearing, was that ISISD had hired a commercial appraiser who inserted figures derived from Kinder Morgan's public filings into a formula mandated by law. The resulting valuations were significantly higher than those reached by PCAD and Thomas Y. Pickett Company (Pickett), the organization that conducted the challenged appraisals. In addition, ISISD looked at valuations for oil and gas properties in Pecos County owned by other companies and found those valuations to be “more consistent with reality.” At the administrative hearing, ISISD informed the board that its retained appraiser concluded that the Kinder Morgan property was undervalued by $4.7 billion.
Despite these introductory statements and remarks, ISISD did not present its retained appraiser, or any other witness for that matter, at the ARB hearing. Instead, its counsel gave a presentation based on documents prepared by its retained appraiser. PCAD cautioned the ARB that the documents on which ISISD relied were hearsay and lacking in probative value because they were not introduced through any witness, and because PCAD was unable to conduct any cross-examination concerning their content and accuracy.
Focusing on the critical issue of whether ISISD presented a claim of taxpayer fraud to the ARB, ISISD's first mention of “fraud” was made in the context of discussing the sheer size of the alleged undervaluation of Kinder Morgan's property. It argued that “by statute”3 there is “a general position that if taxes were over 25 percent underpaid, then that is considered to be fraud or misrepresentation that the Panel or a court would consider.” ISISD later generally explained that property may be “omitted” from appraisal records ab initio if an erroneous valuation results from fraud or misrepresentation on the part of the taxpayer. However, ISISD did not apply this general statement of law to the case before the ARB. Rather, in discussing fraud in the context of the actual case, ISISD again did not assert that Kinder Morgan committed any intentional misrepresentation or fraud that caused its property to be undervalued. As demonstrated by the following statements, it returned instead to its position that fraud was established merely by showing an underpayment of more than 25%:
There is a presumption that if an audit shows 25 percent or more, that that is a gross error and, therefore, our position is that we have shown 25 percent. So this argument about fraud, for one, the cases are clear, it's not common law fraud, it's not statutory fraud which have high degrees of elements. Instead in [ ] that case and the other cases it discusses, it has to do with misrepresentation, and we think that by showing there's a 25 percent—more than 25 percent shortage of what was paid, then we have met that threshold ․
For its part, PCAD presented testimony from Steven Campbell, Pickett's president, explaining Pickett's valuation of Kinder Morgan property and why its values for that property did not compare with the values attributed to other Category G properties in the area. In the course of that testimony, PCAD showed Campbell a dictionary definition of fraud and asked him whether, based on his experience, he thought he would be able to spot fraud. Campbell responded that he thought he would notice something of the magnitude alleged by ISISD.
In closing, ISISD reiterated its position that application of a purported “25% rule” demonstrates fraud. It then stated that “either there was an error by Pickett or there was a misrepresentation by Kinder Morgan,” and the way to determine which occurred would be to order back-appraisals. It concluded that the ARB should order such back-appraisals because of the $84 million error (which the evidence revealed was actually an error and not the product of fraud) that occurred in another county: “That should be a red flag that the appraisals in the same area where the $84 million error occurred, those should be reappraised and looked at with a stricter eye, and that's what we are asking [ ] this Panel to do.”
PCAD's closing statement denied that there was any fraud and specifically addressed ISISD's “25% rule” argument. It urged that that rule had no application because the 25% threshold applies to the underpayment of taxes, not undervaluation, as was the case before the board. PCAD further argued that, if there had been a 25% discrepancy, the Comptroller, who has authority over underpayments, would have discovered it. It declared that “there is no fraud proven or even insinuated here.” Finally, PCAD turned its attention to a general discussion of the Beck & Masten fraud case. See Beck & Masten, 830 S.W.2d at 291. After setting out the facts of that case, PCAD advised the ARB to view its holding (that property is omitted from appraisal records if it is undervalued as a result of taxpayer fraud) with some skepticism because of its potential to disrupt the entire property tax scheme. PCAD advised instead that the ARB strictly construe and apply the Tax Code.
In total, the hearing transcript reveals that the theory of fraud ISISD presented to the ARB was not the same theory it presented to the district court. At the ARB, ISISD relied on a theory of presumed fraud based on a purported “25% rule.” To that claim, Kinder Morgan argues that this “rule” derives from a statute that ISISD misconstrues and misapplies. Section 111.205 of the Texas Tax Code provides that gross error in a tax report “means that, after correction of the error, the amount of tax due and payable exceeds the amount initially reported by at least 25 percent.” Tex. Tax Code Ann. § 111.205(b). As Kinder Morgan notes, the statute, by its plain language, applies to a taxpayer's underpayment of taxes, not to an appraisal district's undervaluation of property. It therefore argues it has no application to this case. In addition, even if the statute were to apply, it does not equate a “gross error” with fraud as ISISD claims by its argument. Id. On the contrary, the statute expressly differentiates between a false or fraudulent tax report and one that contains a “gross error.” See id. § 111.205(a)(1) (false or fraudulent report), (a)(3) (report containing “gross error”).
Kinder Morgan's argument concerning ISISD's misinterpretation or misapplication of section 111.205, however, goes to the merits of ISISD's claim that application of its alleged “25% rule” demonstrates fraud. In the context of this jurisdictional review, however, our task is limited to deciding what claims ISISD presented to the ARB, not whether those claims have merit. See Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000) (stating courts must confine their evidentiary review to the jurisdictional issue). Even if we were to conclude that ISISD asserted a claim of presumed fraud before the ARB, I would otherwise conclude that such claim is not the type of fraud that ISISD now alleges in the district court and before this Court.
As recognized by ISISD in its statement of the issues on appeal, the relevant claim it presented in the trial court when seeking judicial review is one of taxpayer fraud. In the context of this case, that means fraud committed by Kinder Morgan. But the record shows that ISISD steadfastly denied in the ARB hearing that it was required to show that Kinder Morgan committed fraud as defined by the common law. Even so, ISISD does not reconcile its insistence before the ARB that it was not required to show such fraud with its current insistence that it presented a claim of fraud to the ARB.
In any event, ISISD's own case authority refutes the contention that it was not required to make a showing of fraud as defined by the common law. ISISD heavily relies on the case Beck & Masten out of the Fourteenth Court of Appeals. In Beck & Masten, the court observed that, while an appraisal district's remedy is not established through a common law action for fraud, nonetheless, an action of “fraud goes to the issue of whether the assessment was void.” 830 S.W.2d at 295. And in the context of determining that the assessment in that case was void, the court applied the elements of common law fraud, expressly noting that the taxpayer made false, material representations about the value of its inventory, and that the appraisal district relied on those misrepresentations to its detriment. Id.
In my view, the focus of ISISD's presentation and argument at the ARB hearing was on alleged errors by the Pickett firm in appraising Kinder Morgan's property, as well as its appraisal of like property in other counties. ISISD explained, in general terms, that if a taxpayer commits fraud that results in an erroneous appraisal, the appraisal is void ab initio, and the property may be considered omitted or excluded from appraisal records. But the only claim of fraud it argued in relation to the actual circumstances of this case was presumed fraud derived from an alleged 25% rule. Again, when PCAD argued that ISISD could not challenge the appraisal of Kinder Morgan's property without proving that Kinder Morgan committed fraud, ISISD strongly disagreed.4 At the hearing, ISISD argued:
• “[A]ll we have to do is prove that the values that were found by Pickett and submitted to the ARB through the appraisal board, that those were incorrect.”
• “What we want is the accuracy of the value of the mineral interests in Pecos County, particularly in the jurisdiction of the school district, and we're not looking for liability, we're not looking for wrongdoing, we're not trying to hold anybody responsible for any type of purposeful wrongdoing, anything like that.” [emphasis added].
In addition to not arguing that Kinder Morgan engaged in any intentional misrepresentation or fraud, ISISD presented no evidence from which any such intentional misrepresentation or fraud could even be inferred. At most, it briefly acknowledged the possibility that Kinder Morgan may have made some misrepresentation, though not necessarily an intentional misrepresentation or one otherwise rising to the level of fraud: “either there was an error by Pickett or there was a misrepresentation by Kinder Morgan.” Even considering this passing reference as evidence, it lacks any probative value because it “does no more than create a mere surmise or suspicion and is so slight as to necessarily make any inference a guess.” Serv. Corp. Int'l v. Guerra, 348 S.W.3d 221, 228 (Tex. 2011); see also Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004).
ISISD's entire factual presentation concerned comparisons between Pickett and PCAD's valuation of Kinder Morgan's property, a valuation of that property by an appraiser hired by ISISD, and valuations of property owned by other taxpayers in the county. Its entire legal argument concerned a theory of presumed fraud based on an alleged 25% or greater underpayment of taxes. But presumed fraud founded only on numbers does not evidence, or necessarily even implicate, intentional misrepresentation or fraud by the taxpayer, Kinder Morgan.5 In the absence of any probative evidence of intentional misrepresentation or fraud, or even any argument identifying an intentional misrepresentation or fraud by Kinder Morgan and its impact on the appraisal process, nothing was presented to the ARB upon which it could decide the issue of taxpayer fraud. See New Laredo Hotel, 792 S.W.2d at 954 (“If the taxpayer presents no evidence, the appraisal review board has nothing before it on which to make a determination, which is a prerequisite to judicial review.”).
The final basis for ISISD's contention that the ARB actually considered and decided the issue of taxpayer fraud is the following exchange that occurred at the close of the hearing:
UNIDENTIFIED SPEAKER: I make a motion that we stay with our—our findings—
UNIDENTIFIED SPEAKER: That no fraud was committed?
UNIDENTIFIED SPEAKER: No fraud was committed.
UNIDENTIFIED SPEAKER: Second.
MR. SLAUGHTER: We have a motion and a second to stay with the finding that no fraud was committed.6
UNIDENTIFIED SPEAKER: Mr. Chairman, I think that in terms of just complying with the tax code requirements and preparing an order and everything, I think that, understanding the consensus of the Board, that [ ] I would rather see that phrased as a motion to deny the challenge.
MR. SLAUGHTER: Oh, okay.
UNIDENTIFIED SPEAKER: Then I make a motion to deny the challenge.
UNIDENTIFIED SPEAKER: Second.
MR. SLAUGHTER: Okay. That's better. Any other discussion? All in favor say aye.
MR. SLAUGHTER: Those opposed? Motion carries.
No doubt this exchange indicates that the ARB considered fraud in some fashion. Even so, the board could only have considered fraud in the sense of how such claim was presented by the ISISD—that is, a theory of presumed fraud against Kinder Morgan arising by virtue of an alleged 25% rule. Yet in the absence of any evidence or argument from ISISD that Kinder Morgan made an intentional misrepresentation, I do not interpret the board members’ reference to the term “fraud” as having encompassed any claim beyond that which was actually presented.
Kinder Morgan contends that the ARB did not actually decide an issue of fraud because, although there was a seconded motion concerning fraud, no vote was taken on that motion. Rather, the ARB decided only that the challenge be denied. At most, I would conclude that a purported claim of presumed fraud was presented to and considered by the ARB. As a consequence, resolution of that claim is necessarily encompassed within the decision denying ISISD's challenge. But because no claim of actual fraud by Kinder Morgan was presented to and considered by the ARB, I agree with Kinder Morgan's argument that the ARB's denial of ISISD's challenge does not encompass a decision on the merits of any such claim.
Indeed, the undisputed facts contained in our record demonstrate that ISISD did not present to the ARB a claim of taxpayer fraud, i.e., a claim that the alleged undervaluation of Kinder Morgan's property was the result of fraud committed by Kinder Morgan. Because the claim was not presented, it was also neither considered nor decided by the ARB. ISISD consequently failed to exhaust its administrative remedies relating to its current claim of taxpayer fraud by Kinder Morgan. While the record shows that whether ISISD was required to show that Kinder Morgan made an intentional misrepresentation or had otherwise committed fraud was an issue discussed before the ARB, I would conclude that the substance of any such claim was not in fact presented for an ARB ruling. Accordingly, the issue of taxpayer fraud was not, and could not have been, considered by the board.
B. Failure to challenge all grounds supporting the trial court's ruling
As an alternative ground for affirmance, Kinder Morgan contends that ISISD waived any error in the trial court's order granting its plea to the jurisdiction because it failed to challenge all possible grounds for that ruling. See Ollie v. Plano Indep. Sch. Dist., 383 S.W.3d 783, 790 (Tex. App.—Dallas 2012, pet. denied) (finding party waived error in dismissal of claims by failing to challenge one possible ground for court's ruling). I would also agree with this alternative argument.
In its plea to the jurisdiction, Kinder Morgan raised as an independent ground for dismissal that ISISD's claim that Kinder Morgan committed fraud was not timely raised in the district court. A petition for review of an appraisal review board's ruling must be filed in the district court within sixty days after the party receives notice that an appealable final order has been entered. Tex. Tax Code Ann. § 42.21(a). The statute provides for amendment of the petition in only two circumstances—to correct or change the name of a party, or to identify or describe the property originally involved in the appeal. Id. § 42.21(e).
Kinder Morgan asserted in its plea to the jurisdiction that, while ISISD's original petition was timely filed, it did not contain a claim that Kinder Morgan committed fraud. It further argued that, even though such a claim was asserted in ISISD's Second Amended Petition, that pleading was filed long after the sixty-day filing period expired and, therefore, was untimely. In addition, it urged that the amended petition adding the fraud claim must be disregarded because it constitutes a substantive amendment that is not permitted under the express terms of section 42.21(e).
The trial court's order granting Kinder Morgan's plea to the jurisdiction does not specify the grounds on which it is based. “When a trial court issues an adverse ruling without specifying its grounds for doing so, the appellant must challenge each independent ground asserted by the appellee that fully supports the adverse ruling since it is presumed that the trial court considered all of the asserted grounds.” In re Elamex, S.A. de C.V., 367 S.W.3d 879, 888 (Tex. App.—El Paso 2012, orig. proceeding). In the absence of a challenge to all possible grounds, this Court “must accept the validity of the unchallenged independent grounds and affirm the adverse ruling.” Id.
The timeliness of ISISD's assertion of fraud by Kinder Morgan is a possible ground supporting the trial court's broadly worded order granting that plea. ISISD, however, does not challenge that ground on appeal.7 I would accept the validity of that ground and affirm the trial court's order on this additional basis. See id.
For all of these reasons, I respectfully dissent.
1. Because the underlying suit was filed and heard in 2018, the parties cite to the prior version of section 41.03 of the Tax Code, which remained in effect until January 1, 2020.
2. At the hearing, ISISD repeatedly referred to proceedings in Scurry County concerning alleged appraisal errors in that county. Although these references were made, ISISD cites no authority permitting this Court to consider claims, arguments, or evidence in proceedings outside of this lawsuit to determine what claims ISISD raised before the ARB in Pecos County. See Kinder Morgan SACROC, LP v. Scurry Cnty., 589 S.W.3d 889, 897 (Tex. App.—Eastland 2019), rev’d on other grounds, 622 S.W.3d 835, 838 (Tex. 2021) (addressing Kinder Morgan's challenge of the taxing unit's legal services contract and TCPA dismissal motion).
3. ISISD did not identify the statute to which it was referring.
4. Even in the district court, ISISD initially took the position that requiring it to allege and prove that Kinder Morgan committed fraud was a “false requirement.”
5. ISISD contends that error by the appraiser does not preclude fraud by Kinder Morgan. We agree. But it was ISISD's burden to present to the ARB a claim that Kinder Morgan committed fraud. It simply did not do so.
6. Although the motion was to “stay with” a finding of no fraud, the record does not reflect a prior decision or ruling from the ARB on that issue.
7. Even in its reply brief, ISISD states only that its original petition was timely filed. It does not address the merits of Kinder Morgan's ground for dismissal—that fraud was not asserted until ISISD's Second Amended Petition, which was not filed within 60 days of notice of the ARB's ruling. In any event, error would be waived even if ISISD had addressed the matter in its reply brief. See Burrus v. Reyes, 516 S.W.3d 170, 182 n.8 (Tex. App.—El Paso 2017, pet. denied) (“An issue raised for the first time in a reply brief is not properly preserved for our review.”). Furthermore, the Supreme Court of Texas has recently held that citation to Beck & Masten and ExxonMobil “does not equate to fair notice of the essential factual allegations giving rise to a claim for relief[.]” Kinder Morgan SACROC, LP, 622 S.W.3d at 850.
YVONNE T. RODRIGUEZ, Chief Justice
Response sent, thank you
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Docket No: No. 08-19-00090-CV
Decided: August 30, 2022
Court: Court of Appeals of Texas, El Paso.
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