                                                                                  ACCEPTED
                                                                              03-11-00462-CV
                                                                                      5229183
                                                                   THIRD COURT OF APPEALS
                                                                              AUSTIN, TEXAS
                                                                        5/11/2015 12:20:56 PM
                                                                            JEFFREY D. KYLE
                                                                                       CLERK

                         NO. 03-11-00462
                                                             FILED IN
                                                      3rd COURT OF APPEALS
                               In The                      AUSTIN, TEXAS
                                                      5/11/2015 12:20:56 PM
                  Third Court of Appeals                  JEFFREY D. KYLE
                                                               Clerk

                         AT   AUSTIN, TEXAS

Sanadco Inc., Mahmoud A. Isba, Walid Abderrahman, Majic Investments
Inc., Faisal Khan, Isra Enterprises, Inc., Hattab Al-Shudifat, Haifa
Enterprises, Inc., EID Corp., Mohammed S. Al Hajeid, Majdi Rafe Okla
Nsairat, Omar Unlimited, Inc., and All Others Similarly Situated,
                                                             APPELLANTS
                                       VS.

The Office of the Comptroller of Public Accounts; Susan Combs, in her
individual and official capacities as Comptroller of Public Accounts for
the State of Texas; and Greg Abbott in his official capacity as Attorney
General of the State of Texas
                                                             APPELLEES
        __________________________________________________________
                    Appeal From Cause No D-1-GV-10-000902
                  The 98th District Court Of Travis County, Texas
                       The Honorable Tim Sulak, Presiding
        __________________________________________________________

              APPELLANTS’ FURTHER MOTION FOR REHEARING
                  AND FOR RECONSIDERATION EN BANC
        ___________________________________________________________

SAMUEL T. JACKSON
SBN 10495700
P.O. BOX 670133
ARLINGTON, TX 76003-0133
TEL: (512) 692-6260
FAX: (866) 722-9685
E-MAIL: jacksonlaw@hotmail.com
COUNSEL FOR RELATORS
                IDENTITY OF PARTIES AND COUNSEL

APPELLANTS:

    Sanadco Inc., Mahmoud A. Isba, Walid Abderrahman, Majic
    Investments Inc., Faisal Khan, Isra Enterprises, Inc., Hattab Al-
    Shudifat, Haifa Enterprises, Inc., EID Corp., Mohammed S. Al Hajeid,
    Majdi Rafe Okla Nsairat, Omar Unlimited, Inc., and All Others
    Similarly Situated,

COUNSEL FOR APPELLANTS:

                     LAW OFFICE OF
                     SAMUEL T. JACKSON
                         P.O. Box 170633
                         Arlington, Texas 76003-0633
                         TEL: (512) 692-6260
                         FAX: (866) 722-9685
                         Email: jacksonlaw@hotmail.com


APPELLEES:

    The Office of the Comptroller of Public Accounts; Glenn Hager, in his
    official capacity as Comptroller of Public Accounts of the State of
    Texas; and Ken Paxton, in his official capacity as Attorney General of
    the State of Texas

COUNSEL FOR APPELLEES:

                           JACK HOHENGARTEN
                           Assistant Attorney General
                           FINANCIAL LITIGATION DIVISION
                           P.O. Box 12548
                           Austin, TX 78711-2548
                           TEL: (512) 475-3503
                           FAX: (512) 477-2348/480-8327
                           Email: jack.hohengarten@oag.state.tx.us
                               NO. 03-11-00462

                                      In The
                       Third Court of Appeals
                                AT   AUSTIN, TEXAS

Sanadco Inc., Mahmoud A. Isba, Walid Abderrahman, Majic Investments Inc., Faisal
Khan, Isra Enterprises, Inc., Hattab Al-Shudifat, Haifa Enterprises, Inc., EID Corp.,
Mohammed S. Al Hajeid, Majdi Rafe Okla Nsairat, Omar Unlimited, Inc., and All
Others Similarly Situated,
                                                                       APPELLANTS
                                           VS.

The Office of the Comptroller of Public Accounts; Susan Combs, in her individual and
official capacities as Comptroller of Public Accounts for the State of Texas; and Greg
Abbott in his official capacity as Attorney General of the State of Texas
                                                                           APPELLEES
             __________________________________________________________
                         Appeal From Cause No D-1-GV-10-000902
                       The 98th District Court Of Travis County, Texas
                            The Honorable Tim Sulak, Presiding
             __________________________________________________________

                    APPELLANTS’ FURTHER MOTION FOR REHEARING
                        AND FOR RECONSIDERATION EN BANC
              ___________________________________________________



TO THE HONORABLE THIRD COURT OF APPEALS:

Appellants, SANADCO, INC. ET AL, pursuant to TEX. R. APP. P. 49.5 (b),

submit this Motion for Further Rehearing and for Reconsideration En Banc, in

response to the opinion issued by this Court on March 25, 2015, reversing its

opinion of September 26, 2013 on other grounds. Further Rehearing is requested

because the court’s opinion on rehearing ignores prior Texas Supreme Court
precedent of R Commc'ns, Inc. v. Sharp, 875 S.W.2d 314, 314 (Tex. 1994), and

its own holdings in Richmont Aviation, Inc. v. Combs, 03-11-00486-CV

(Tex.App.-Austin 9-12-2013); Rylander v. Bandag Licensing Corp., 18 S.W.3d

296 (Tex. App.-Austin 2000, pet. denied); FM Express Food Mart, Inc. v.

Combs, No. 03-12-0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex.

App.-Austin Mar. 15, 2013, no pet.) (mem. op.); and Local Neon Co. v.

Strayhorn, No. 03-04-00261-CV, 2005 Tex. App. LEXIS 4667, at *17 n.6 (Tex.

App.-Austin June 16, 2005, no pet.) (mem. op.) Page-11, all holding that Chapter

112’s prepayment requirements were unconstitutional as a prohibitive bar to

court access.

     This decision effectively overrules these cases sub silentio without

acknowledgment or explanation while applying compliance with Chapter 112 as

jurisdictional to virtually all challenges to tax assessments, an opprobrious bar to

judicial access. The court’s apparent reliance on the Texas Supreme Court’s

decision in In re Nestle appears to be woefully misplaced, therefore Appellants

respectfully request that this Honorable Court consider the following issues:
                      ISSUES PRESENTED
I.     Is it unconstitutional to require prepayment of taxes to file
       petitions for judicial review of administrative proceedings?

II.    Is Tex. Tax Code Ann. § 112.108 applicable to petitions for
       declaratory relief filed pursuant to Tex. Gov’t Code Ann. §
       2001.038?

III.   Was it error for the court to dismiss the joined petitioners’
       claims without giving consideration to their individual claims?

IV.    Was it error for the court to dismiss Sanadco’s claims for failure
       to submit issues to the administrative tribunal which they were
       not legally authorized to address?
                                                TABLE OF CONTENTS


IDENTITY OF PARTIES AND COUNSEL ........................................................2
ISSUES PRESENTED ............................................................................................5
  I. Is it unconstitutional to require prepayment of taxes to file petitions for judicial
  review of administrative proceedings?.....................................................................................5
  II. Is Tex. Tax Code Ann. § 112.108 applicable to petitions for declaratory relief filed
  pursuant to Tex. Gov’t Code Ann. § 2001.038? ......................................................................5
  III. Was it error for the court to dismiss the joined petitioners’ claims without giving
  consideration to their individual claims?.................................................................................5
  IV. Was it error for the court to dismiss Sanadco’s claims for failure to submit issues
  to the administrative tribunal which they were not legally authorized to address?............5
TABLE OF CONTENTS ........................................................................................6
ARGUMENT .........................................................................................................10
  I. Chapter 112 is unconstitutional as applied to the cross-plaintiffs’ suits because they
  were contested cases pursuant to the Administrative Procedure Act with timely filed
  petitions for judicial review which do not require prepayment under Chapter 112. ........12
  II. The Court failed to recognize the individual claims of each party joining the Sanadco
  counter-petition and erroneously attributed Sanadco’s deficiencies to the counter-
  plaintiffs. ...................................................................................................................................17
  III. The Court erred when it determined that Chapter 112 deprived it of jurisdiction
  of the cross-plaintiffs’ rule validity claim filed pursuant to Government Code § 2001.038...
  …………………………………………………………………………………………19
  IV. The Court erred when it determined that Chapter 112 deprived it of jurisdiction
  of Sanadco’s defensive claims, because the collection suit was filed pursuant to Tax Code
  § 111.010 and not Chapter 112. ..............................................................................................22
CONCLUSION ......................................................................................................27
PRAYER ................................................................................................................28
CERTIFICATE OF COMPLIANCE ..................................................................29
CERTIFICATE OF SERVICE ............................................................................30
                                              TABLE OF AUTHORITIES

Cases
Anderson, Clayton & Co. v. State ex rel. Allred,
  122 Tex. 530, 62 S.W.2d 107, 110 (1933).................................................................................21

Bennett v. Grant,
  03-11-00669-CV (Tex.App.-Austin 3-20-2015)........................................................................16

City of El Paso v. Heinrich,
  284 S.W.3d 366, 372 (Tex. 2009)............................................................................14, 22, 23, 25

City of Sherman v. Public Util. Comm'n,
  643 S.W.2d 681, 683 (Tex. 1983)..............................................................................................18

Combs v. Entertainment Publ'ns, Inc.,
  292 S.W.3d 712, 720 (Tex. App.-Austin 2009, no pet.) ....................................................1, 3, 23

Combs v. City of Webster,
  311 S.W.3d 85, 100-01 (Tex.App.-Austin 2009, pet. denied) ...................................................19

Combs v. Texas Entm’t Ass’n, Inc.,
  287 S.W.3d 852, 864-65 (Tex. App.—Austin, 2009) ................................................................13

Comunidad Corp. v. State,
  445 S.W.3d 401 (Tex.App.-Houston [1st Dist.] 2013) ..............................................................24

Creedmoor-Maha Water Supply Corp v. Texas Commission on Environmental Quality),
307 S.W.3d 505 (Tex. App.—Austin, 2010)..................................................................................25

Cunningham v. Parkdale Bank,
660 S.W.2d 810, 813 (Tex. 1983) .................................................................................................21

FM Express Food Mart, Inc. v. Combs,
No. 03-12-0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex. App.-Austin Mar. 15, 2013,
 no pet.) ...................................................................................................................................4, 12

Guar. Trust Co. v. United States,
 304 U.S. 126, 134-35, 58 S.Ct. 785, (1938)...............................................................................21

Hendee v. Dewhurst,
 228 S.W.3d 354, 368-69 (Tex. App.-Austin 2007, pet. denied) ................................................25

In re Nestle USA, Inc.,
  359 S.W.3d 207, 208 Tex.2012 ...........................................................................................passim
In re Union Carbide Corp.,
  273 S.W.3d 152, 155 (Tex.2008)...............................................................................................16

Local Neon Co. v. Strayhorn,
  No. 03-04-00261-CV, 2005 Tex. App. LEXIS 4667, at *17 n.6 (Tex. App.-Austin June 16,
  2005, no pet.) .........................................................................................................................4, 12

Montrose Mgt. Dist. v. 1620 Hawthorne, Ltd.,
 435 S.W.3d 393, 410-11; fn. 16 (Tex.App.-Houston [14th Dist.] 2014)...................................14

R Commc'ns, Inc. v. Sharp,
  875 S.W.2d 314 (Tex. 1994)............................................................................................4, 11, 14

Reata Const. Corp. v. City of Dallas,
  197 S.W.3d 371 (Tex. 2006)......................................................................................................21

Richmont Aviation, Inc. v. Combs,
  03-11-00486-CV (Tex.App.-Austin 9-12-2013)........................................................4, 11, 12, 26

Rylander v. Bandag Licensing Corp.,
  18 S.W.3d 296 (Tex. App.-Austin 2000, pet. denied) ...............................................4, 11, 12, 26

Sanadco, et al v. Office of the Comptroller of Public Accounts, et al,
  No. 03-11-00462 (Austin App.) (Sept. 26, 2013) ................................................................19, 23

Subaru of America v. David McDavid Nissan,
  84 S.W.3d 212, 224 (Tex. 2002)................................................................................................13

Tex. Dep't of Human Servs. v. ARA Living Ctrs. of Tex., Inc.,
  833 S.W.2d 689, 693 (Tex.App.-Austin 1992, writ denied)......................................................17

Texas Department of Insurance v. Reconveyance Services, Inc. 284 S.W.3d 366 (Tex. 2009);
  306 S.W.3d 256 (Tex. 2010)......................................................................................................23

Texas Dep't of Pub. Safety v. Salazar,
  304 S.W.3d 896, 903 (Tex.App.-Austin 2009, no pet.) .............................................................18

Texas Entm’t Ass’n, Inc. v. Combs,
  431 S.W.3d 790, 795 (Tex. App.—Austin 2014, pet. denied)...................................................13

Texas Logos, L.P. v. Texas Dep't of Transp.,
  241 S.W.3d 105, 123 (Tex.App.-Austin 2007, no pet.) .................................................17, 18, 24

Tex-Hio Part. v. Garner,
  106 S.W.3d 886 (Tex.App.-Dallas 2003) ..................................................................................17
Weck v. Sharp,
 884 S.W.2d 153, 154 (Tex. 1994)..............................................................................................11


Statutes
Government Code
§ 2001.038…………………………………………………………………………………passim
§ 2001.176……………………………………………….………………………………. 9
§ 2001.171, ………………………………………………………………………………….9
§ 173.10………………………..…………………………………………………………….9

Tax Code
Chapter 112 ............................................................................................................................passim
§ 111.010 ...............................................................................................................................6, 9, 20
§ 111.0102 .....................................................................................................................................21
§ 112.052 .........................................................................................................................................9


Rules

Rule 40...........................................................................................................................................16
Rule 42;..........................................................................................................................................15
Rule 97 (f) ………………………………………………………………………………………15
                                                   ARGUMENT
           The court paints with an extremely broad brush respecting Sanadco’s claims

and those of the counter-plaintiffs in holding that “the only permitted taxpayer

actions challenging state taxes are ‘a suit after payment under protest, suit for

injunction after payment or posting of a bond, and a suit for a refund,’” (quoting In

re Nestle USA, Inc., 359 S.W.3d 207, 208 Tex.2012). It relies heavily on Nestle for

the erroneous assertion that Tax Code Chapter 12 bars all of Sanadco’s claims and

those of the remaining claimants, while ignoring several obvious distinctions

between the two cases. Among them is the fact that the relator in Nestle sought to

avoid filing its protest claims in district court through an original mandamus

proceeding challenging the constitutionality of the franchise taxes pursuant to § 24

of the Texas Franchise Tax Act1. Thus, the Nestle court primarily addressed

jurisdictional issues that are inapplicable to Sanadco's claims.

           On the other hand, Sanadco presented defensive claims and counter-

petitions involving a suit filed in district court by the Attorney General pursuant to

Tex. Tax Code Ann. § 111.010 to collect alleged delinquent excise sales and use

taxes. Sanadco raised defensive claims challenging the validity of the audits,

challenges to the comptroller’s ultra vires conduct in excess of his statutory

authority, claims challenging the constitutionality of certain tax statutes, and

unconstitutional takings claims which were all joined by the counter-plaintiffs. In
1   Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, § 24, 2006 Tex. Gen. Laws 1, 40 (House Bill 3
addition, the counter-plaintiffs sought judicial review of their administrative claims

pursuant to Gov’t Code § 2001.176 pending exhaustion of their administrative

remedies. None of these claims or defenses were addressed by the court in Nestle,

and cannot be reasonably presumed from its holding.

      The Texas Supreme Court specified that its opinion applied to suits

authorized by Tax Code Chapter 12 . (Taxpayer suits generally, and suits

challenging the franchise tax in particular, are permitted by chapter 112 of the Tax

Code.) Nestle 359 S.W.3d at 208. It also made clear that the litigation specifically

pertained to franchise taxes (Section 112.052 (a) provides that "[a] person may

bring suit against the state to recover [a] . . . franchise . . . tax . . .). Id. Section

112.052 identifies the remaining tax suits which may be brought under Chapter 12,

including occupation, excise, gross receipts, franchise, license, or privilege tax or

fee. The sales and use tax does not appear among the eligible categories of taxes.

      To state categorically, that “Nestle explicitly prohibits any attempt at relief

from assessed state taxes on any basis except as provided in [Chapter 112]”, cuts

too wide a swath, and cannot be supported on closer analysis.
       I.    Chapter 112 is unconstitutional as applied to the cross-plaintiffs
             suits because they were contested cases pursuant to the
             Administrative Procedure Act with timely filed petitions for
             judicial review which do not require prepayment under Chapter
             112.

      The counter-plaintiffs first joined Sanadco’s “Counterclaim for Declaratory

Judgments and Injunction” in its Second Amended Petition filed on February 5,

2011. They did not, however, join Sanadco’s defenses in the Attorney General’s

suit against Sanadco for the collection of the delinquent taxes. When judgment

granting the Attorney General’s plea to the jurisdiction was entered on July 8,

2011, the live pleading, filed on June 7, 2011 as “Defendant, Counter-Plaintiffs

Fourth Amendment and Counterclaim for Declaratory Judgment, Injunctive Relief

and Compensatory Damages”, alleged jurisdiction of their petition for judicial

review pursuant to Gov’t Code §§ 2001.171, 173, the validity claims pursuant to

Gov’t Code § 2001.038, and ultra vires claims pursuant to the UDJA. Each

claimant alleged their current involvement in litigation before SOAH.

      For almost four decades it has been unconstitutional to require compliance

with the Chapter 112 prepayment requirements to petitions for judicial review of

contested administrative proceedings. When discussing the constitutionality of the

statutes authorizing judicial review of tax assessments, the supreme court held that

“conditioning a taxpayer's right to initiate judicial review on the payment of taxes

or the posting of a bond equal to twice the alleged tax obligation violates the open
courts mandate." R Commc'ns, Inc. v. Sharp, 875 S.W.2d 314, 314 (Tex. 1994).

The prepayment provisions, the ban on declaratory judgments, "mean that a

taxpayer is financially restricted in its ability to get to court." Id. at 317-18.

Accordingly, the supreme court determined that section 112.108 is unconstitutional

and void. Id. at 318. In Weck v. Sharp, 884 S.W.2d 153, 154 (Tex. 1994) the court

determined that because the prohibition in section 112.108 against declaratory-

judgment actions and other similar remedies was invalid, the trial court could

consider the taxpayer's declaratory claim and remanded the case. Id.

      This Court has emphasized this constitutional ruling on at least four

occasions. See Richmont Aviation, Inc. v. Combs, 03-11-00486-CV (Tex.App.-

Austin 9-12-2013) (reaffirming its prior decisions finding section 112.108 was

unconstitutional); Rylander v. Bandag Licensing Corp., 18 S.W.3d 296 (Tex. App.-

Austin 2000, pet. denied) (concluding that section 112.108 violated open-courts

provision and imposed unreasonable financial barrier to court access even though it

excused prepayment for indigent taxpayers); FM Express Food Mart, Inc. v.

Combs, No. 03-12-0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex. App.-

Austin Mar. 15, 2013, no pet.) (mem. op.) (stating that this Court previously

determined that amended version of section 112.108 was unconstitutional); Local

Neon Co. v. Strayhorn, No. 03-04-00261-CV, 2005 Tex. App. LEXIS 4667, at *17

n.6 (Tex. App.-Austin June 16, 2005, no pet.) (mem. op.) Page-11 (relating that
Comptroller "concedes on appeal that this Court held section 112.108

unconstitutional").

      This court has not wavered from this conclusion, even after In re Nestle was

decided. In footnote 2 of Richmont, it stated:

            Specifically, the Comptroller urges that the supreme court overruled
      Bandag in In re Nestle USA, Inc., 359 S.W.3d 207 (Tex. 2012). In Nestle,
      the court did discuss the restrictions imposed by section 112.108 and also
      discussed the amendment to the provision excusing prepayment in certain
      circumstances. Id. at 210-11 & n.38. . . However, the court did not mention
      Bandag or our determination that the amended version was also
      unconstitutional, nor did the court expressly state that the amendment cured
      the constitutional infirmity. See id.; see also FM Express Food Mart, Inc. v.
      Combs, No. 03-12-0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex.
      App.-Austin Mar. 15, 2013, no pet.) (mem. op.) (explaining that although
      supreme court in Nestle explained that statute was amended in response to
      determination that statute violated open-courts provision, supreme court "did
      not address whether it did so successfully"). Accordingly, we do not agree
      with the Comptroller's assertion that our determination in Bandag has
      been overruled.

      In the instant decision this court acknowledged that Chapter 112 was not

applicable to the counter-plaintiffs suits in footnote 10 where it was noted that the

decision was limited “to cases in which a taxpayer seeks relief from a tax

assessment that has become a final liability and is no longer subject to review

through administrative procedures; . . .”

      Here, unlike Sanadco, each of the counter-plaintiffs alleged that they were

currently engaged in the administrative process and awaiting a hearing before
SOAH. They also alleged that the court had jurisdiction over their petitions for

judicial review subject to the results of the administrative proceedings.

Accordingly, there was no final liability determination, and the cases remained

subject to review through administrative procedures and should have been

excluded from the Chapter 112 requirements according to the court’s own

language. See, Subaru of America v. David McDavid Nissan, 84 S.W.3d 212, 224

(Tex. 2002).

      In support of this limitation, the court cited Texas Entm’t Ass’n, Inc. v.

Combs, 431 S.W.3d 790, 795 (Tex. App.—Austin 2014, pet. denied) (citing Combs

v. Texas Entm’t Ass’n, Inc., 287 S.W.3d 852, 864-65 (Tex. App.—Austin, 2009),

rev’d on other grounds, 347 S.W.3d 277 (Tex. 2011)) (on remand, citing with

approval its previous opinion holding that declaratory-judgment action

challenging constitutionality and implementation of new tax statute was not

preempted by Chapter 112 of Tax Code); Combs v. Entertainment Publ’ns Inc.,

292 S.W.3d 712, 723 (Tex. App.—Austin 2009, no pet.) (affirming trial court’s

denial of plea to jurisdiction in suit in which taxpayer sought declaratory and

injunctive relief to prevent Comptroller from implementing allegedly invalid rule).

      Footnote 10 further declared that “we do not hold that Chapter 112 preempts

every suit challenging a Comptroller rule or tax statute’s constitutionality. See

also, In re Nestle, footnote 39:
                    Petitioners do not argue that the limitations of these actions is
             unconstitutional, as did the taxpayers in R Communications, 875
             S.W.2d at 314-315. Nor do petitioners contend that an ultra vires suit
             against the Comptroller is outside chapter 112's provisions. See City
             of El Paso v. Heinrich, 284 S.W.3d 366, 372 (Tex. 2009).

      These are the precise allegations raised in counter-plaintiffs’ petitions which

challenged the validity of AP92 and AP122, and the constitutionality of various tax

statutes, as well as the comptroller’s ultra vires conduct. Other courts have likewise

limited the application of Nestle, see, Montrose Mgt. Dist. v. 1620 Hawthorne,

Ltd., 435 S.W.3d 393, 410-11; fn. 16 (Tex.App.-Houston [14th Dist.] 2014)

(Nestle does not apply to ultra vires claims)

      Moreover, In re Nestle did not overrule R Commc'ns, Inc. and its progeny

because the constitutionality of Chapter 112 was never raised by the parties, and

was not referred to at all by the Court. The issue before the court was the

constitutionality of the Franchise Tax Act and its jurisdiction to hear the claim, not

Chapter 112. Though Chapter 112 was referred to in the decision and played a

major role in the holding, there was no occasion for the court to rule on its

constitutionality absent the issue being raised by one of the parties.

      The court’s decision, however, erroneously tied Sanadco’s conduct to that of

the counter-plaintiffs to their detriment, including them in its conclusion that

Sanadco had “sought injunctive relief from liability for the tax long after

completion of the administrative process and the deficiency assessment had
become final. None of these conclusions fit the circumstances surrounding the

counter-petitioners who should have been included in the court’s distinguishing

factors as one of “those cases in which the taxpayers sought declarations of the

validity or constitutionality of rules and statutes and their threatened enforcement

prior to finality of an agency determination.” (Footnote 10).

      Accordingly, the court was in error by requiring compliance with Chapter

112 to establish its jurisdiction and should reverse its ruling requiring compliance

with Chapter 112 as to these plaintiffs and remand the cause to the trial court for

further proceedings as appropriate.


       II.    The Court failed to recognize the individual claims of each party
              joining the Sanadco counter-petition and erroneously attributed
              Sanadco’s deficiencies to the counter-plaintiffs.

      The counter-plaintiffs joined Sanadco’s counterclaims as permissive and

class-action plaintiffs. Tex. R. Civ. Proc. Rules 40; 42; 97 (f). Their claims,

however, remain separate and apart from other joining parties’ claims and

judgment may be given for one or more of the plaintiffs according to their

respective rights to relief, and against one or more defendants according to their

respective liabilities. Tex. R. Civ. Proc. Rule 40. They need not be interested in

obtaining or defending against all the relief demanded. Id.

      Rule 40 (a) provides that “All persons may join in one action as plaintiffs if

they assert any right to relief jointly, severally, or in the alternative in respect of or
arising out of the same transaction, occurrence, or series of transactions or

occurrences and if any question of law or fact common to all of them will arise in

the action". In re Union Carbide Corp., 273 S.W.3d 152, 155 (Tex.2008)

(“Permissive joinder relates to proper parties to an action who may be joined or

omitted at the pleader's election."). Rule 97 (f) provides that persons other than

those made parties to the original action may be made parties to a counterclaim in

accordance with the provisions of Rule 40. Bennett v. Grant, 03-11-00669-CV

(Tex.App.-Austin 3-20-2015). As class-action plaintiffs, Rule 42 permits a class

claimant to represent the claims of other similarly situated plaintiffs if, inter alia,

“there are questions of law, or fact common to the class, [and] the claims or

defenses of the representative parties are typical of the claims or defenses of the

class. . .”

       The Attorney General made no objection to the joinder, nor has he claimed

that the initial petition failed to invoke the court’s jurisdiction and neither has this

court except for the claims relating to compliance with Chapter 112. Accordingly,

there is no bar to considering the cross-plaintiffs’ claims as those entitled to be

treated in accordance with the joinder provisions. Tex-Hio Part. v. Garner, 106

S.W.3d 886 (Tex.App.-Dallas 2003). Even if the court should determine that

joinder is improper for some reason, dismissal of the improperly joined claims is

improper. Rule 41. Instead, the improper party “may be severed and each ground
of recovery improperly joined may be docketed as a separate suit between the same

parties”. Id.

       Accordingly, this court should reverse its decision intimating that the

counter-plaintiffs’ claims were denied because of their failure to pursue

administrative procedures, and remand the cause for further proceedings.


         III.   The Court erred when it determined that Chapter 112 deprived
                it of jurisdiction of the cross-plaintiffs’ rule validity claim filed
                pursuant to Government Code § 2001.038

       Section 2001.038 is a grant of original jurisdiction and waives sovereign

immunity. Tex. Logos, L.P. v. Tex. Dep't of Transp., 241 S.W.3d 105,

123(Tex.App.-Austin 2007, no pet.); Tex. Dep't of Human Servs. v. ARA Living

Ctrs. of Tex., Inc., 833 S.W.2d 689, 693 (Tex.App.-Austin 1992, writ denied). The

section also provides that "[a] court may render a declaratory judgment without

regard to whether the plaintiff requested the state agency to rule on the validity or

applicability of the rule in question.” Tex. Gov’t Code Ann. § 2001.038 (d).

       The Texas Supreme Court has held that an action for declaratory relief is

permissible, even during the pendency of an administrative proceeding, when the

issue is whether the agency is exercising authority beyond its statutorily conferred

powers. See City of Sherman v. Public Util. Comm'n, 643 S.W.2d 681, 683 (Tex.

1983).    Further, the statutory language emphasized above clearly implies that

section 2001.038 permits a plaintiff to bring a declaratory-judgment action
challenging the validity of an agency rule even after the initiation of administrative

proceedings.

      Section 2001.038 waives sovereign immunity to the extent of creating a

cause of action for declaratory relief regarding the validity or applicability of a rule

if it is alleged that the rule or its threatened application interferes with or impairs,

or threatens to interfere with or impair, a legal right or privilege of the plaintiff."

Tex. Gov't Code Ann. § 2001.038(a); see Texas Logos, L.P. v. Texas Dep't of

Transp., 241 S.W.3d 105, 123 (Tex.App.-Austin 2007, no pet.) ("Section 2001.038

is a grant of original jurisdiction and, moreover, waives sovereign immunity").

Claims under section 2001.038 invoke the district court's subject-matter

jurisdiction if properly pled. Determining whether the plaintiffs have done so,

unlike with the analysis of ultra vires claims, does not require the court to delve

into the merits of the claims, see Texas Dep't of Pub. Safety v. Salazar, 304 S.W.3d

896, 903 (Tex.App.-Austin 2009, no pet.) — nor would such an inquiry be proper.

See Bland Indep. Sch. Dist., 34 S.W.3d 547; Hendee, 228 S.W.3d at 366.

      Plaintiffs have alleged that AP92 and AP122 are invalid and unenforceable

rules because they are of general application to convenience store audits, and they

implement and prescribe agency policy, but were implemented without compliance

with the APA notice and comment requirements. These factual allegations suffice

to invoke the district court's subject-matter jurisdiction if the memos are rules
within the meaning of the APA. See, e.g., Combs v. City of Webster, 311 S.W.3d

85, 100-01 (Tex.App.-Austin 2009, pet. denied) (recognizing that "[t]o the extent

that no rule as defined by the APA is at issue, section 2001.038 does not provide

any basis for the district court's jurisdiction over appellees' declaratory judgment

action").

      Plaintiffs’ claims are buttressed by this court’s holding in the first Sanadco

case in which this issue was addressed where the court held, “we conclude that the

directives in AP 92 and AP 122 are in fact rules. For that reason, we must also

conclude that the district court had jurisdiction over Sanadco’s claim that AP 92

and AP 122 were invalid rules and that, therefore, the district court erred by

dismissing Sanadco’s first counterclaim”. Sanadco, Inc. et. al. v. Texas

Comptroller of Public Accounts, et. al., No. 03-11-00462-CV (Tex. App.—Austin,

September 26, 2013). Although this court reversed that decision on other grounds,

the reasoning in this case gives a strong basis for the conclusion that the

memoranda are rules, and the district court’s jurisdiction was therefore invoked by

plaintiffs’ claim.

      Aside from the unconstitutionality of Chapter 112’s prepayment

requirements, plaintiffs further assert that suit under Section 2001.038 is not a suit

filed under Chapter 112 because its purpose is to determine the validity of the audit

procedure, and not to challenge the propriety of a tax assessment, potentially
bringing it into the purview of Chapter 112. See, Combs v. Entertainment

Publications, Inc., 292 S.W.3d 712 (Tex. App. 2009) (“Entertainment did not seek

declaratory relief regarding the tax itself, but regarding the validity of the rule

promulgated by the Comptroller in violation of the APA, for which the legislature

has expressly permitted suit by a declaratory-judgment action”). Since suit

pursuant to Section 2001.038 is pursuant to an original grant of authority, it is filed

without regard to Chapter 112 mandates, and is therefore sufficient to invoke the

court’s jurisdiction without compliance with Chapter 112. Thus, the court should

reverse its decision denying subject-matter jurisdiction and enter judgment on the

plaintiffs’ Section 2001.038 claims because there is no assertion by the

Comptroller that he complied with the APA’s requirements.

       IV.    The Court erred when it determined that Chapter 112 deprived
              it of jurisdiction of Sanadco’s defensive claims, because the
              collection suit was filed pursuant to Tax Code § 111.010 and not
              Chapter 112.

      Chapter 112 asserts jurisdiction over a taxpayer suit brought under this

chapter. The collection suit against Sanadco was filed in Cause No. D-1-GV-10-

000902 by the office of the Attorney General on July 6, 2010 in the 98th District

Court of Travis County, Texas. The petition alleged that “venue and jurisdiction of

this suit are exclusively conferred upon this Court pursuant to the Tex. Tax Code

Ann. ("Tax Code"), Title 2 § 111.010 (Vernon Supp. 2001).” This section applies
to state taxes imposed by this title or by other laws not included in this title except

the state ad valorem tax on property. § 111.010 (b). The franchise tax is notably

absent from the exceptions. Sanadco’s suit seeking to challenge or avoid the

comptroller collection action is governed by Tax Code § 111.0102 where venue

and jurisdiction is exclusively conferred on the district courts of Travis County. It

is therefore not a suit brought under Chapter 112, and not subject to its prepayment

requirements.

      It has been long held that, "[W]here a state voluntarily files a suit and

submits its rights for judicial determination it will be bound thereby and the

defense will be entitled to plead and prove all matters properly defensive. This

includes the right to make any defense by answer or cross-complaint germane

to the matter in controversy." Reata Const. Corp. v. City of Dallas, 197 S.W.3d

371 (Tex. 2006); Anderson, Clayton & Co. v. State ex rel. Allred, 122 Tex. 530, 62

S.W.2d 107, 110 (1933).

      “It would be fundamentally unfair to allow a governmental entity to assert

affirmative claims against a party while claiming it had immunity as to the party's

claims against it. See Guar. Trust Co. v. United States, 304 U.S. 126, 134-35, 58

S.Ct. 785, (1938); see also Cunningham v. Parkdale Bank, 660 S.W.2d 810, 813

(Tex. 1983) (stating that fundamental fairness requires parties to be heard on the
merits of their cases). Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (Tex.

2006).

      The State of Texas has filed a suit for damages against the Plaintiffs and has

therefore waived its sovereign immunity to the extent that these defenses and

counterclaims are “germane to, connected with, and properly defensive to" claims

that the State has asserted. The court’s opinion curiously overlooks this long-held

legal principle and fails to assert that Sanadco’s defenses and counterclaims are not

germane, connected with, or properly defensive to the claims raised by this law

suit, and must reverse its assertion of lack of jurisdiction.

      Plaintiffs challenged Sanadco’s claims and defenses on the grounds of

sovereign immunity because they failed to comply with various statutory

requirements of the Tax Code before seeking this relief. They assert that Sanadco’s

failure to comply with the requirements for filing a protest suit, a refund claim or

an injunction, precluded Sanadco from seeking the remedies sought. This defense

is without merit, however, in the context under which these claims have arisen and

the legal basis upon which they have been brought because sovereign immunity is

not implicated in any of the claims.

      A suit asserting that a government officer "acted without legal authority" and

seeking to compel the official "to comply with statutory or constitutional

provisions" is an ultra vires suit that is not protected by sovereign immunity. City
of El Paso v. Heinrich, 284 S.W.3d 366, 372 (Tex. 2009).          They      are    not

barred by sovereign immunity because they "do not attempt to exert control over

the state." Id. Instead, the suits "attempt to reassert the control of the state." Id.;

Saenz, 319 S.W.3d at 920. The supreme court recently expounded upon sovereign

immunity in ultra vires cases in. Heinrich and Texas Department of Insurance v.

Reconveyance Services, Inc. 284 S.W.3d 366 (Tex. 2009); 306 S.W.3d 256 (Tex.

2010) (respectively). The supreme court determined that "while governmental

immunity generally bars suits for retrospective money relief, it does not preclude

prospective injunctive remedies in official-capacity suits against government actors

who violate statutory or constitutional provisions." Heinrich, 284 S.W.3d at 368-

69.

      In Heinrich, the supreme court confirmed that "suits to require state officials

to comply with statutory or constitutional provisions are not prohibited by

sovereign immunity, even if a declaration to that effect compels the payment of

money." Heinrich, 284 S.W.3d at 372. Reconveyance, 284 S.W.3d at 434.

Moreover, if valid challenges to the agency’s rules under the APA are raised, then

it is not necessary to determine whether the Appellees have properly alleged ultra

vires claims because the trial court's subject-matter jurisdiction is established by

section 2001.038 of the APA. See Tex. Gov't Code Ann. § 2001.038; Combs v.

Entertainment Publ'ns, Inc., 292 S.W.3d 712, 720 (Tex. App.-Austin 2009, no
pet.). Section 2001.038 is considered a legislative grant of subject-matter

jurisdiction, so that valid claims raised pursuant to that provision are not barred by

sovereign immunity. Id.; Tex. Dept. of Pub. Safety v. Salazar, 304 S.W.3d 896

(Tex. App. [3rd] 2010).

      Sanadco has alleged a valid claim against the State under 2001.038 for its

violations regarding AP 92 and AP 122. Sanadco, et al v. Office of the Comptroller

of Public Accounts, et al, No. 03-11-00462 (Austin App.) (Sept. 26, 2013). He has

also alleged valid ultra vires claims asserting the Comptroller’s failure to perform

purely ministerial acts, and engaging in conduct which exceeded its statutory

authority. Consequently, the State’s immunity is not impacted by these

proceedings.

      The court finds that it does not have jurisdiction over Sanadco’s

constitutional, ultra vires, and validity claims because they were not raised in an

administrative proceeding before the State Office of Administrative Hearings

(SOAH) though SOAH has previously held that it does not have jurisdiction over

these claims. See, Comp. Hearing No. 109,293 (Oct. 31, 2014); Comp. Hearing

No. 106,516 (Nov. 29, 2012); Comp. Hearing No. 105,002 (Oct. 19, 2011). To

bring these issues before SOAH without any expectation of a ruling from the

comptroller, would have constituted engaging in a useless act, which litigants are
not required to do. See, Comunidad Corp. v. State, 445 S.W.3d 401 (Tex.App.-

Houston [1st Dist.] 2013).

      In APA section 2001.038, the Legislature has waived sovereign immunity to

the extent of creating a cause of action for declaratory relief regarding the

"validity" or "applicability" of a "rule," as defined under the Act. Tex. Gov't Code

Ann. § 2001.038(a); see Texas Logos, L.P. v. Texas Dep't of Transp., 241 S.W.3d

105, 123 (Tex.App.-Austin 2007, no pet.) (holding that "section 2001.038 is a

grant of original jurisdiction and, moreover, waives sovereign immunity").

      To determine whether appellees have asserted a valid ultra vires claim that

invokes the district court's subject-matter jurisdiction, we would construe the

provisions of the tax code and UCR Act that define the scope of the Comptroller’s

legal authority, apply them to the facts that Sanadco has alleged, and ascertain

whether those facts constitute acts beyond the Comptroller’s legal authority. See

Heinrich, 284 S.W.3d at 372-73 (ultra vires suit "must not complain of a

government officer's exercise of discretion, but rather must allege, and ultimately

prove, that the officer acted without legal authority or failed to perform a purely

ministerial act"); Creedmoor-Maha Water Supply Corp v. Texas Commission on

Environmental Quality), 307 S.W.3d 505 at 516 n. 8 (quoting Hendee v. Dewhurst,

228 S.W.3d 354, 368-69 (Tex. App.-Austin 2007, pet. denied) (when analyzing

whether plaintiff has alleged ultra vires acts, we construe the relevant statutory or
constitutional provisions that define the governmental actor's discretionary

authority, apply the provisions to the pled and un-negated facts, and determine

whether those facts fall within or outside that authority). Appellants emphasize that

they explicitly pled that the Comptroller acted "ultra vires" or contrary to his legal

authority. To this extent, the jurisdictional inquiry with respect to appellees'

purported ultra vires claims would substantially overlap with the claims' merits. Id.

at 516 n. 8.

      Accordingly, Sanadco’s constitutional and ultra vires claims are not barred

by sovereign immunity or the requirements of Chapter 112 and the court has

jurisdiction of such claims.


                                  CONCLUSION
      The court’s opinion that jurisdiction over Appellants’ claims is predicated

upon compliance with Chapter 112 is clearly erroneous and must be reconsidered.

R. Communications, Bandag and Richmont retain their vitality and were not

overruled by In re Nestle as this court now seems to intimate, contrary to its prior

decisions on this issue. The court’s assessment that Nestle did not overrule these

decisions because “the court did not discuss the restrictions imposed by section

112.108,” or the effect of the subsequent amendments, remains a valid evaluation.

Put simply, the constitutionality of Chapter 112 was not revisited in Nestle because
the issue was not raised by either party, thus any decision addressing its

constitutionality would have been a prohibited advisory opinion.

      The Nestle court said as much in footnote 39 where the court expressly

noted that neither the constitutionality of Chapter 112 or its application to ultra

vires claims was raised.

      The application of the opprobrious and prohibitive requirements of Chapter

112 remain an unconstitutional burden on the plaintiffs’ access to the courts, and

must be reconsidered.


                                     PRAYER
      Appellants pray this Honorable Court to reconsider its opinion on rehearing

and to reverse and render its decision regarding the validity of the audits, and to

remand the remaining claims to the trial court for further proceedings.
                                       Respectfully submitted,
                                       Law Office of
                                       Samuel T. Jackson
                                       __/s/ Samuel T Jackson
                                       Texas Bar No. 10495700

                                       PO Box 170633
                                       Arlington, TX 76003-0633
                                       Tel: (512) 692-6260
                                       Fax. 866 -722-9685
                                       jacksonlaw@hotmail.com
                                       ATTORNEY FOR APPELLANTS


                      CERTIFICATE OF COMPLIANCE
       This document complies with the typeface requirements of Tex. R. App. P.
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                                             __/s/ Samuel T. Jackson__
                                             SAMUEL T. JACKSON
                         CERTIFICATE OF SERVICE

      By my signature above, I hereby certify that a true and correct copy of the
above and foregoing instrument was served on the parties or their attorneys via
facsimile, certified mail, return receipt requested, and/or hand delivery on May 8,
2015, in accordance with the Texas Rules of Appellate Procedure, to the following:

JACK HOHENGARTEN
Assistant Attorney General
FINANCIAL LITIGATION DIVISION
P.O. Box 12548
Austin, TX 78711-2548
Tel: (512) 475-3503
Fax: (512) 477-2348/480-8327
Email: jack.hohengarten@oag.state.tx.us
