                                                                                              ACCEPTED
                                                                                          06-15-00007-CV
                                                                               SIXTH COURT OF APPEALS
                                                                                     TEXARKANA, TEXAS
                                                                                     8/19/2015 9:41:39 AM
                                                                                         DEBBIE AUTREY
                                                                                                   CLERK

                              No. 06-15-00007-CV

                           In the Court of Appeals for the
                                                                   FILED IN
                           Sixth Judicial District of Texas 6th COURT OF APPEALS
                                  Texarkana, Texas            TEXARKANA, TEXAS
     ____________________________________________________________________
                                                            8/19/2015 9:41:39 AM
                                                                   DEBBIE AUTREY
                                                                      Clerk
          HYDROGEO, LLC AND FIRST BANK & TRUST EAST TEXAS
                               Appellants
                                  and
                  DEBERRY 3 OPERATING COMPANY, LLC
                               Appellants

                                      vs.

   QUITMAN INDEPENDENT SCHOOL DISTRICT, WOOD COUNTY, UPPER
              SABINE WATER DISPOSAL DISTRICT, AND
                WOOD COUNTY HOSPITAL DISTRICT,
                                   Appellees
                     ___________________________________

                   On Appeal from the 402nd Judicial District Court
                                Wood County, Texas
      _________________________________________________________________

    APPELLEE’S BRIEF FOR QUITMAN INDEPENDENT SCHOOL DISTRICT
    ____________________________________________________________________

                                    David Hudson
                                    Texas Bar No. 00786445
                                    Tab Beall
                                    Texas Bar No. 01954000
                                    Perdue, Brandon, Fielder, Collins & Mott, LLP
                                    PO Box 2007
                                    Tyler, Texas 75710-2007
                                    (903) 597-7664
                                    Fax: (903) 597-6298
                                    dhudson@pbfcm.com
                                    tbeall@pbfcm.com
ORAL ARGUMENT NOT REQUESTED
                                    Attorneys for Quitman Independent School District
                  TABLE OF CONTENTS

                                           Page

TABLE OF CONTENTS                     i

CERTIFICATE OF INTEREST PARTIES       ii

INDEX OF AUTHORITIES                  iii

STATEMENT OF THE CASE                 1

STATEMENT REGARDING ORAL ARGUMENT     1

SUMMARY OF ARGUMENT                   1

    Issue No. 1                       2

    Issue No. 2                       5

CONCLUSION                            12

PRAYER                                12

CERTIFICATE OF COMPLIANCE             13

CERTIFICATE OF SERVICE                13




                          i
                         Certificate of Interested Parties


      The listed persons having an interest in the outcome of this case as identified
by Appellant in the Certificate of Interested Parties is not contested. Appellee,
Quitman Independent School District would add the following name as co-counsel
for Quitman ISD.



Appellee                        Counsel for Quitman Independent
Quitman Independent             School District
School District

                                David Hudson, lead counsel
                                dhudson@pbfcm.com
                                Tab Beall, co-counsel
                                tbeall@pbfcm.com
                                Perdue, Brandon, Fielder, Collins & Mott, LLP
                                PO Box 2007
                                305 S. Broadway, Suite 200
                                Tyler, Texas 75710-2007
                                903-597-7664
                                fax: 903-597-6298




                                          ii
                    INDEX OF AUTHORIES

                                                                      Page

CASES

Aluminum Co. of Am. vs. Bullock                                   3
     870 SW2d 2 (Tex. 1994)

Bocquet vs. Herring                                               3
     972 SW2d 19 (Tex. 1998)

City of Bellaire vs. Sewell                                       4
       426 SW3d 116 (Tex.App. – Houston [1st] 2012, no pet.)

Davis vs. City of Austin                                          7
      632 SW2d 331 (Sup. 1982)

Harris County Appraisal District vs. Texas Gas Transmission Corp. 10
      105 SW3d 88 (App.1 Dist. 2003) review denied

Maximum Medical Imp., Inc. vs. County of Dallas                   7
     272 SW2d 832 (App. 5 Dist. 2008)

Oscar Luis Lopez vs. LaMadeleine of Texas, Inc.                   3, 4
     200 SW3d 854 (Tex.App – Dallas, no pet.)

Parker Plaza West, Ltd. vs. Boniuk Invs., Ltd.                    3
     153 SW3d 729 (Tex.App – Dallas 2005, no pet.)

Ramos vs. Champlin Petroleum Co.                                  5
     750 SW2d 873 (Tex.App. – Corpus Christi 1998, pet. denied)

Wal-Mart Stores, Inc. vs. Tinsley                                 4, 5
     998 SW2d 911 (Tex.App. – Texarkana 1999, no pet.)




                                  iii
STATUTES



Vernon’s Annotated Rules of Civil Procedure

      Rule 193.6(a)(2)                        4

Texas Tax Code

      Section 11.01(a)                        5

      Section 11.01(b)                        5

      Section 21.01                           5

      Section 21.02                           6

      Section 21.02(a)                        6

      Section 21.021                          6

      Section 21.04                           6

      Section 21.05                           6

      Section 21.055                          6

      Section 22.01                           10

      Section 25.01                           7

      Section 25.12                           7

      Section 25.19                           7

      Section 25.19(d)                        8

      Section 25.21                           11


                                iv
Section 26.01              7

Section 33.01              7

Section 31.01(g)           8

Section 33.07              7

Section 33.42 (a, b)       4

Section 33.47(a)           3

Section 41.41              7, 8

Section 41.41(a)(1)        8

Section 41.41(a)(3)        8

Section 41.41(a)(7)        8

Section 41.41(a)(9)        9

Section 41.411             8

Section 42.09(a)           9

Section 42.21              9




                       v
                             STATEMENT OF THE CASE

       Appellee, Quitman Independent School District, adopts the Statement of the

Case set forth by Appellee Wood County, etal.

                STATEMENT REGARDING ORAL ARGUMENT

       Appellee, Quitman Independent School District, does not request Oral

Argument, but agrees the customary time limits should apply if the Court grants oral

argument.



                             SUMMARY OF ARGUMENT


       Quitman Independent School District1 (hereinafter QISD) seeks

foreclosure of its tax lien following entry of Judgment (in the absence of payment of

the taxes). This Court should affirm the trial court’s Judgment because:

       The trial Court properly admitted Exhibit “A”2 into evidence. This was a

bench trial, and the trial judge did not commit error.




1
  At trial, Quitman Independent School District was represented by the same Counsel for Wood
County, etal. (Mr. Jim Lambeth, with the Linebarger, Goggan firm). On appeal, Quitman ISD is
represented by Mr. David Hudson, with the Perdue, Brandon firm. References to “Taxing
Entities”, as utilized by Appellant in its brief, shall include all appellee taxing jurisdictions.
References to “QISD” shall be limited to Quitman Independent School District. References to
Hydrogeo shall include both Hydrogeo, LLC and First Bank & Trust East Texas as Appellants.
2
  Reference to Exhibit “A” shall mean Tax Entities Exhibit “A” introduced at trial, also included
in Appellant’s Brief at Appendix A.
                                                1
      Exhibit “A”, along with pre-trial discovery, put the defendant’s on notice of

the claim of Taxing Entities, and any typographical errors were cured by the

testimony of witnesses.

      Taxing Entities met their burden of proof and established their prima facie

case with the admission into evidence of Exhibit “A”. To the extent Hydrogeo was

able to successfully rebut that presumption (which is denied), Taxing Entities

established through testimonial evidence facts sufficient to meet their burden and

support the Court’s Judgment.

      Taxing Entities had levied their tax on working interest, which is a real

property interest, not a personal property interest. Taxing Entities obtained their

Judgment on real property, entitling them to foreclosure of their tax lien, and any

references to personal property are merely an irrelevant argument.



       APPELLEE QUITMAN INDEPENDENT SCHOOL DISTRICT

              REPLY TO APPELLANTS ISSUES PRESENTED

                              ISSUE NO. 1 (restated)

Did the trial court commit reversible error by admitting Plaintiffs’ Exhibit “A”
into evidence when the document had not been produced prior to trial, and
when the taxing authorities failed to make any showing of good cause for their
failure to produce the document.

      Appellant’s contention in this issue is that taxing entities prima facie case fails

because Exhibit “A” was not offered pursuant to a discovery request and that the
                                           2
trial court erred in admitting the document at trial and that admission of evidence

constitutes reversible error. The trial court’s evidentiary ruling can be reviewed on

appeal for abuse of discretion. Parker Plaza West, LTD. v. Boniuk Invs., Ltd., 153

S.W.3d 729, 734 (Tex.App.-Dallas 2005, no pet.) (citing Aluminum Co. of Am. V.

Bullock, 870 S.W.2d 2, 3 Tex. 1994)). It is an abuse of discretion for a trial court

to rule arbitrarily, unreasonably, without regard to guiding legal principles, or

without supporting evidence. Oscar Luis Lopez v. La Madeleine of Texas, Inc., 200

S.W.3d 854, 860 (Tex.App-Dallas, no pet.) (citing Bocquet v. Herring, 972 S.W.2d

19, 21 (Tex.1998)).

      The evidentiary issue in this matter was the introduction of a “Certified Copy

of Tax Records”, dated August 22, 2014. (2 R. R. p.7 line 15-20).

      In a suit to collect delinquent taxes, Texas Tax Code (hereinafter “Tax Code”)

Section 33.47(a) provides:

      [T]he taxing unit’s current tax roll and delinquent tax roll or certified copies
      of the entries showing the property and the amount of the tax and penalties
      imposed and interest accrued constitute prima facie evidence that each
      person charged with a duty relating to the imposition of the tax has complied
      with all requirements of law and that the amount of tax alleged to be
      delinquent against the property and the amount of penalties and interest
      due on that tax as listed are the correct amounts.



      In this case the Taxing Entities introduced the tax records described in Section

33.47(a), creating a rebuttable presumption that the taxes were due, delinquent, and

                                          3
unpaid. City of Bellaire v. Sewell, 426 S.W.3d 116, 120 (Tex. App.—Houston [1st.]

2012, no pet.)

      Appellants contention in their Issue No. 1 is that because the Certified Copy

of Tax Records was not provided in discovery, the trial court erred in admitting that

evidence over objection at trial without good cause effectively rebutting Taxing

Entities prima facie case causing harmful error. “The purpose of the discovery rules

is to encourage full discovery of the issues and facts before trial so that parties can

make realistic assessment of their respective positions in order to facilitate

settlements and prevent trial by ambush.” La Madeleine 200 S.W.3d at 860). In this

case there can be no contention of surprise or ambush at trial. Taxation is a fact of

life and Appellants knew or reasonably should have known that a tax liability was

due when served with citation. Taxing Units pleadings include claims for all

delinquent taxes penalties, interest, attorney’s fees, and costs. (See Original Petition,

CR at 9). Additionally, tax records are certified public records with the seal of the

appropriate official and Appellants had the same access to them as the Taxing Units.

V.T.C.A., Tax Code Sec. 33.42(a, b); Vernon’s Ann.Texas Rules Civ.Proc., Rule

193.6(a)(2).


      Good cause for the admission of evidence is at the discretion of the Trial

Judge. “The trial court has the discretion to determine whether the offering party

has met his burden of showing good cause to admit the testimony.” Wal-Mart

                                           4
Stores, Inc. v. Tinsley, 998 S.W.2d 911 at 671 (Tex.App.—Texarkana 1999 no pet.).

The trial court here, exercising its discretion, overruled objections and admitted the

tax records offered, Exhibit “A”, into evidence. (2 R.R. p. 9, line 5 – p. 9, line 13).

Furthermore, Wal-Mart, 998 S.W.2d at 671, citing, Ramos v. Champlin Petroleum

Co., 750 S.W.2d 873, 877 (Tex.App.-Corpus Christi 1998, pet. denied) recognizes

that the Trial Court can implicitly find good cause by simply admitting the evidence.


      Because the Trial Court did not err in admitting Tax Records, and that

admission did not result in an improper judgment, a holding sustaining the Trial

Court’s admission of evidence should be affirmed.

                              ISSUE NO. 2 (restated)

Did the trial court err by holding taxing entities’ entire alleged tax lien
enforceable against Hydrogeo, LLC, and First Bank & Trust East Texas when
taxing entities failed to segregate that portion of the lien which was
unenforceable against Hydrogeo.


      The argument raised in Issue #2 is based upon the erroneous assumption that

the value of the real estate (minerals in this case) is combined with the value of

personal property to establish one tax account. This is not the law, and all arguments

following from that erroneous assumption become moot.

      The distinction and separation in the taxation of real estate (minerals in place)

from personal property is set forth in Tax Code §11.01(a) for real estate and

§11.01(b) for business personal property. The distinction is further echoed in §21.01

                                          5
providing for the taxation of real estate by its situs (location) and §21.02 for the

taxation of personal property held for the production of income based upon its situs.

      The reality in separating the taxation of real estate and personal property lies

in the fact the real estate is permanently in place, whereas personal property can be

moved. In fact, special rules exist for the taxation of personal property to determine

its situs for purposes of taxation as set forth in Tax Code §21.02(a). There are further

rules for the taxation of personal property such as vessels and other watercraft

(§21.021), railroad rolling stock (§21.04) and aircraft (§§21.05 and 21.055). There

are no provisions in the Tax Code for including the value of “production equipment,

such as casing, tubing, pump jacks tanks and surface pipelines” (p. 15 Appellant’s

Brief) in the value of the underlying working interest (or royalty interest) of a

mineral interest. The situs rules of §21.02(a) may have even resulted in the business

personal property of Hydrogeo being taxed in a different taxing jurisdiction: recall

the testimony of Mr. William E. Godsey, Jr., as owner of Hydrogeo, where he states

that if there is no longer any production he will “…take my equipment and use it on

some other leases”. (transcript p. 62). The personal property is clearly movable, and

there is nothing in the record to show the personal property of Hydrogeo had even

acquired taxable situs in Wood County. It may have been taxable in Wood County,

and it may have been taxable elsewhere; there is simply nothing in the Record to




                                           6
show how, where, or if it was taxed. Certainly, there is no evidence that it was taxed

as part of the real estate – only the argument of Hydrogeo.

      A more accurate analysis of the taxation of the working interest presently

owned by Hydrogeo and the existence of the business personal property at the well

head is as follows:

      For each of the tax years in question (2009-2011) the Chief Appraiser of

Wood County appraised the real property (mineral working interests) the subject of

this appeal pursuant to Tax Code §25.01 and in compliance with §25.12. Any

required notices of Appraised Value were mailed pursuant to Tax Code §25.19, and

the respective market values of the subject properties were certified to the taxing

units pursuant to Tax Code §26.01. Tax bills were mailed pursuant to Tax Code

§33.01, and in the absence of payment, the taxes reflected in those bills became

delinquent and subject to penalties and interest authorized by Tax Code §33.01 and

33.07. The admission into evidence of Taxing Entities Exhibit “A” established their

prima facie case, Davis vs. City of Austin (Sup. 1982) 632 SW2d 331, and further

established proper delivery of all required tax notices despite taxpayer’s assertion

that he did not receive any notices. See also Maximum Medical Imp., Inc. vs. County

of Dallas (App. 5 Dist. 2008) 272 SW3d 832.

      Of note, the Tax Code affords numerous rights to property owners beginning

with the Right of Protest authorized in Tax Code §41.41. Property owners can


                                          7
protest all of the complaints raised by Hydrogeo, including (A) a determination of

the appraised value in §41.41(a)(1) to the extent Hydrogeo believed the real estate

and personal property values were combined in one total, (B) inclusion of the

owner’s property on the appraisal records (§41.41(a)(3)) or a determination that the

property owner is the owner of the property (§41.41(a)(7)) to the extent Hydrogeo

or any other property owner objected to their inclusion or exclusion from the

Appraisal Roll (such as Steelman Investments, Inc.), and (C) the failure to even

receive the notice of appraised value as authorized by §41.411.

      Affording some protections to property tax jurisdictions (and preventing a

taxpayer from suggesting “I don’t owe anything because you never sent me a

statement”), the Tax Code provides in §25.19(d) that the failure to receive a notice

of appraised value “does not affect the validity of the appraisal of the property, the

imposition of any tax…the existence of any tax lien…or any proceeding instituted

to collect the tax”. Regarding tax bills, the Tax Code provides in §31.01(g) that the

failure to “receive the tax bill required by this section…does not affect the validity

of the tax, penalty, or interest… the existence of a tax lien, or any procedure to collect

a tax”.

      The Tax Code is replete with rights and remedies for the taxpayer, and

provides procedures for the taxpayer to exhaust their administrative remedies

through the protest procedures set forth in the Tax Code (i.e. §41.41 to protest any


                                            8
issues with a tax appraisal, including the catch all §41.41(a)(9) “any other

action…that applies to and adversely affects the property owner”. (emphasis added).

The administrative remedy provisions of the Tax Code are designed to resolve

valuation and description disputes on an administrative level (the taxpayer who

complies with the law and follows the administrative remedy provisions can later

file suit pursuant to Tax Code 42.21 – not the facts here). In order to emphasize the

requirement of exhaustion of administrative remedies, the Tax Code provides in

§42.09(a) that the protest procedures of the Tax Code are exclusive and may not be

raised “in defense to a suit to enforce the collection of delinquent taxes….” Most of

the arguments raised by Hydrogeo are issues that should have been timely protested

through the administrative remedies provisions of the Tax Code, and not raised as

defenses to the underlying delinquent tax suit.

      Hydrogeo suggests that Taxing Entities live petition noted “the value of any

personal property that may be described above…” (emphasis added - Brief p. 16).

Although the live petition of Taxing Entities “may” describe personal property, it

did not describe or identify any personal property; Exhibit “A” did not identify any

personal property, and the Judgment did not recover taxes on any described personal

property. To the extent Taxing Entities may have sought taxes on personal property

(which is denied), the Court’s Judgment notes in its final paragraph that “All relief

prayed for in any of the pleadings in this cause which is not specifically granted by


                                          9
this judgment is hereby denied”. (Appellant’s Brief, Appendix B). Hydrogeo raises

issues (or imaginatively tries to create issues) and presents appellate arguments

regarding the taxation of personal property that simply were not included in the

Judgment.

      A party seeking to be excused from the lawful obligation of paying taxes

should otherwise comply with the law, which brings us to one final note regarding

the personal property. Tax Code §22.01 provides a person “…shall render for

taxation all tangible personal property used for the production of income….”

(emphasis added). See Harris County Appraisal District v. Texas Gas Transmission

Corp. (App. 1 Dist.2003) 105 SW3d 88 review denied – where the Court held “shall”

is mandatory, not discretionary. There is nothing in the record to show that any of

the taxpayer entities rendered their personal property as required by law (in Wood

County or elsewhere), or paid taxes on personal property and were somehow taxed

twice on the same property. There is nothing in the record to show that any of the

taxpayer entities had paid their personal property taxes but were delinquent on the

mineral interests. There is finally nothing in the record to show Taxing Entities

sought recovery of specific dollars on specific personal property. The inescapable

conclusion (and this conclusion is implicit in Hydrogeo’s argument) is that the

business personal property held for the production of income at the well head

(production equipment, such as casing, tubing, pump jacks tanks and surface


                                        10
pipelines) escaped taxation altogether and perhaps should be added to the Tax Roll

as omitted property as authorized by Tax Code §25.21. But it is certainly not a basis

for a legal finding that the Judgment entered on the working interest (a real property

interest) of Hydrogeo is somehow defective because it did not describe and identify

personal property. Finally, Hydrogeo should not be rewarded for their failure to

render their own business personal property with a finding that such failure becomes

a basis to reverse the trial court’s Judgment.

         The trial court’s Findings of Fact and Conclusions of Law (Appellant’s Brief,

Appendix F) does not make any finding of the existence or taxation of personal

property, nor does it include a conclusion of law that the omission of the personal

property impacts the lien on the mineral interest owned by Hydrogeo. The tax lien

of Taxing Entities is found to be valid and enforceable through foreclosure.

         As the personal property was not taxed, the issue of Hydrogeo’s status as a

bona fide purchaser need not be addressed here.3




3
 QISD maintains the testimony of Loretta Ward that she obtained “a receipt” (Transcript p.25), is not legally the same
as a Tax Certificate. See Tax Code §31.075 for receipts, and §31.08 for Tax Certificates. An erroneous Tax Certificate
can extinguish the lien of a taxing unit, whereas a receipt is merely evidence of a payment. Obtaining a receipt (not
produced in the record) does not make one a bona fide purchaser.

                                                         11
                                    CONCLUSION

         The Trial Judge did not commit error in admitting Exhibit “A” into evidence,

as the material included in Exhibit “A” had already been provided to the opposing

side – there was no surprise or ambush at trial resulting from the admission of

certified public records.

         Although Appellant suggests that personal property was included in the

taxation of Hydrogeo’s working interest, the evidence produced by Plaintiff at trial,

the Court’s Judgment, the Trial Court Findings of Fact and Conclusion of Law and

the Texas Property Tax Code all definitively establish taxation of Hydrogeo’s

mineral interests was limited to their real property interest, and did not include the

taxation of personal property. Taxing Entities do not argue Hydrogeo did not have

or own personal property; simply that it was not taxed in the accounts the subject of

this litigation. Accordingly, the Judgment entered in favor of Taxing Entities is

valid.

                                       PRAYER

         Taxing Entities pray that this honorable Court affirm the Judgment of the Trial

Court.




                                            12
                                Respectfully submitted,


                                __/s/ David Hudson_______________
                                David Hudson
                                Texas Bar No. 00786445
                                Tab Beall
                                Texas Bar No. 01954000
                                Perdue, Brandon, Fielder, Collins & Mott, LLP
                                PO Box 2007
                                Tyler, Texas 75710-2007
                                (903) 597-7664
                                Fax: (903) 597-6298
                                dhudson@pbfcm.com
                                tbeall@pbfcm.com


                     CERTIFICATE OF COMPLIANCE

            Counsel certifies that this reply brief contains, as counted by Microsoft

Word, contains 2,915 words. It was typed in 14-point Times New Roman.

      Dated: August 18, 2015.

                                /s/ David Hudson
                                David Hudson


                        CERTIFICATE OF SERVICE

      I do hereby certify that the above and forgoing Appellee’s Brief for Quitman

Independent School District has been served on all counsel of record in accordance

with the Texas Rules of Appellate Procedure on August 18, 2015.

                                /s/ David Hudson
                                David Hudson


                                        13
