### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 6 -00 463 -CV

No or ani G as & C onv e nie nc e , I nc ., a Te xa s C or por at ion ; HIB Ent e r pr ise s, Inc ., a Te xa s C or por at ion ; K ar e e m Has sa n, a /k/a K ar e e m Al i Ha ssa n;

and H ar ish B hag wanan i, I ndiv idua lly , A ppe lla nt s v. The St at e of Te xa s; The Ci tyof Sa n An to nio , Te xa s; and T he Transit Authority of S an Antoni o, Texas , Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 201S T JUDICIAL DISTRICT N O. D -1 -G V -0 3- 00 45 32 , HON OR A BL E S U Z A N N E C OV IN G T ON , JUDGE PRESIDI NG

M E M O R

A N D U M O P I N I O N
Th is i s an a

pp e a l f ro m a po st- ans we r d e fa

ult jud g me nt a

wa rd e d in fa vo r o f a

pp e lle e s, the State of

Te xas, the City

of San A nto nio and

the Tr ans it Auth or ity

of San A nto nio (c oll e c tiv e ly the “State” ) in a sui t to rec over delinquent taxes from appe llants Noorani Ga s & Convenie nce, I nc., HI B En te rp ri se s, I nc ., Ka re e m H a ssa

n, a /k/ a Ka re e m A li H a ssa

n, and Ha ri shB ha g wa

na ni. Appellants ar g ue that (1) they have satisfied the require ments set forth in Craddock v. Sunshine Bus Lines, Inc. , 133 S.W .2d 124, 126 (Tex. 1939) , for setting aside a defa ult judg ment and ar e ther efor e entitled to a n e w tr ia l; an d ( 2 ) th e e v id e n c e is le g a ll y an d f a c tu a ll y in s u f

f ic ie n t to s u

p p o rt the jud g me nt a g a ins t the m. F or the re a so ns we e xpla in b e low , w e a ff ir m th e dis tr ic t c ourt ’s jud g me nt.2 BACK GR OUND No or ani G a s & Con ve nie nc e , Inc ., ow ne d a nd op e ra te d a conve nie nc e sto re in San Antonio, T exas. I n a 2002 audit, the comptroller deter mined that Noora

ni owed $328,663.17 in unpaid taxe s on the conve nience store’s sa les from August 1, 1998, through A pril 30, 2002. The a uditor prese nted t he audit re sults to a Noorani re prese ntative at an e x it confer ence on Dec ember 3 , 2 0 0 2
. T h i r t y - e i g h td ay s l a t e r , o nJ an u ar y 1 0 , 2 0 0 3 , N o o r an i s o l d

t h e c o n v e n i e n c e s t o r e t o H IB Enterpr ises, I nc., for $25,000. HI B continued to conduct the business under the same name , at the same location, using the same telephone numbe r.

On Novembe r 7, 2003, the State filed a n orig inal peti t i o n s ee k i ng to rec over the delinquent taxes plus penalties, interest and attorney ’s fe es, fr om ( 1 ) No o ra n i , on the basis of the audit; (2) Noorani’s president, Kar eem Hassan, as a responsible party under se ction 111.016(b) of the tax code; (3) HI B Ente rprises, a s a leg al succ essor unde r sec tion 111.020( a) of the tax code and
as a c ontinuing business enterprise of Noora ni; and (4) HI B’ s president, Harish Bhag wana ni, under
a c o rpor a te v e il

- p ie r c in g th e o r y . T h e St a te a ls o s o u g h t a p e r ma n e n t i n ju n c ti o nto “ e n

jo in [] De fe nd ants , th e ir

a g e nts , e mpl oy e e s and

se rv ants , f

ro m c on tin

uin g in t he bu sin e ss o f m a kin g ta xab le sales in the State of Texas .
. . until all the tax es, pena lties and interest owe d to Plainti ffs a re pa id.” Attorney Michae l Clay

filed a g ener al denial on be half o f al l o f the def endants on Dec ember

8, 2003. The re cord r efle cts that Clay continued to re prese nt the defe ndants throug h the discovery phase of the l awsuit, at one point ente ring into a rule 11 a g ree ment with the State to ext end discovery deadlines, a

nd eventua lly ag ree ing to prese nt his clients for depositions that were to take place on Dec ember

9, 2005. On December 9, the day the depositions were schedule d to take plac e,3

Cla y faxed a le tte r to the a ssi sta

nt attor ne y g e ne ra l r e pr e se nti ngthe State re qu e sti ngto r e sc he du le the depositions “in light of the weather.” When Clay and the de fen dants did not appea r for the depositions, the State filed a motion for discovery sanctions. At the sanc tions hearing , held J anuar y 5, 2006, the district court e ntere d an ag ree d order re q u i ri n g t he def

endants, within ten day s of the date of the orde r, to provide the State w ith dates within the mo n t h o f Fe b ru ar y 2006 that the defe ndants would be available to g ive t heir depositions , to appea r for the deposit ions on the Fe bruar y 2006 date se lected by

the State, and to bringwith them the documents re quested with the de position notice. The court fur

ther orde red the defe ndants to pay the State $500 “a s rea sonable e x penses f or the nec essity

of bring ing the [m otion] .” Two months later, on Mar ch 9, 2006, the State f iled a sec ond motion for

discovery sancti o n s co m p laining that the defe ndants had not complied with the a g ree d order and re questing that the cour

t impose “death penalty ” s anctions pursuant to Tex as Rule of Civil Procedure 215.2(b)( 4). The State’s motion containe d notice that a he aringon the sec ond motion for discovery sanctions had be en sche duled for Ma rch 23, 2006, a

nd included a cer

tificate of service wher ein the
a ssi sta nt atto rn e y

g e ne ra l r e pr e se nti ngthe State c e rt if ie d th a t a c op y of the mot ion

ha d b e e n s e nt t o the def endants throug h “their attorney of record, Michael D. Clay ” on Mar ch 8, 2006, by cer tified mail, return r ece ipt requested. A fter n ei t h er C l ay nor the de fenda

nts appea red f or the Mar ch 23 hear ing, the district court entered an order imposing death penalty sanctions. Specific ally , the cour t
or de re d th a t: ( 1) No or ani “ may no t opp os e” t

he State ’s c la im that it

“ is l ia ble fo r t he sa le s ta x in the amounts s hown by

the Comptroller ce rtificate s attache d to the [S tate’s] petition”; (2) Ha ssan “may not oppose” the State’ s claim that “he is liable as a responsible individual pursuant to Tex. Tax4

Code Ann. § 111.016(b) with reg ard to the sa les tax for the periods re fer ence d in the Comptroller
cer tificates . . . in what ever amount is established at trial”; ( 3) HI B “ may not oppose” the State ’s c la ims tha

t it “ a c qu ir e d th e [co nv e nie nc e sto re ] bus ine ss . . . su bs e qu e nt t o th e lia

bil ity periods shown by

the comptroller c ertificates . . . for consideration in ex cess of the amounts shown in the cer tifi ca t es ”; (4) HI B “ may not oppose” the State’ s claims that it “acquir ed asse ts from No or ani G a s & Con ve nie nc e , Inc . th ro ug h a fr a ud ule nt t ra ns fer o r sham

tr ans a c tio n a s d e fi ne d in Tex. Tax Code Ann. § 111.024(b) ”; and ( 5) B hag wana ni and Hassa

n “may not oppose ” the State’s
c la ims that “ the bu sin e ss o f H I B En te rp ri se s, I nc . is i n s ub sta nc e that of

sa id i nd ivi du a l de fe nd a nts doing busine ss as a pa

rtnership.” On Marc h 24, 2006, the S tate sent notice to Clay that a non-jury trial was set for May 16, 2006. When the case was called for trial on May 16, the def

endants did not appe ar. To pr ove t h at t he def

endants we re g iven notice of the trial setting , the State introduce d a copy of the notice of t rial filed f

or re cord a

nd a copy of a c over le tter addr essed to Clay stating: “ Enclosed plea se find Plaintiff’s Notice of

Trial, filed in the r ecor d . . . . Please be advised that there is a non jury setting . . . schedule d for 2:00 p.m ., Tuesday, May 16, 2006. ” Th e le tte r w a s a dd re sse d to Cla

y ’s a dd re ss
o f r ec o rdan d

re fl ec t edt h at i th adb ee ns en tv i a c er t i fi edm ai l , re tu rn re ce i p tre qu es t ed , ci t i n g a trac king numbe r. Along with the letter, the State also introduce d a copy of the sig ned mail re ceipt or “g ree n car d” indicatingrec eipt by “Micha el Clay ” on Marc h 29, 2006. The g ree n car d contained the same tra cking number a s the letter.

T o p r o v e l i a

b i l i t y, t h e S t a t e i n t r o d

u c e d t h e c o mp t r o l l e r ’ s c e rt i f

i c a t e o f d e l i n qu e n c y, ref lecting that, for de linquent taxes, penalties and interest ca lculated throug h May 16, 2006, Noora

ni5

Gas & Convenience , I nc., owe d $453, 5 6 7
. 4 5 t o the State, $75,332.97 to the City of San Antonio, and $36,300.77 to the San An t o n i o T ransit Authority . The State a lso introduced Ha ssan’s and Bha g wana

ni’s response s to reque sts for admissions
. I n them, Hassan admitted that he wa s an off icer of No or ani G a s & C on venie nc e , Inc ., duri ngthe lia bil ity pe ri od and that he ow ns the ma

jor ity int e re st i n N oo rani ’s sto c k. B ha g wa na ni a dmi tte d ( 1) that he is a n o ff ic e r o f H I B En te rp ri se s; (2) that he owns the contr olling intere st in the shares HI B’ s stock; (3) that he is in cha rg e of the company ’s fi n an ci al aff

airs; (4) that HI B a cquire d Noora ni’s business, including the business’s fu rn iture , f ixtur e , e qu ipm e nt , in ven to ry and a c c ounts ; and

(5 ) t hat H I B c on tin

ue s in the same business previously conducte d by Noora ni and conducts the bus iness under the same name, at the same location, using the same telephone numbe r. The State a lso introduced a copy of t he audit and offe red the testimony

of the a uditor, Quincy

Fuller , who expl ai n ed that, beca use Noora

ni did not pr ov ide him

wi th any re c or ds , he pe rf

or me d the a ud it u sin g a

sampl e of the sto re ’s ve nd or

purc ha se s. Finally , to prove attorney ’s fe es, the State o ffered the aff idavit of the assistant attorney g ener al who repr esente d the State, David Rande ll. Mr. Randell testified that he spent a total of 24 ho ur s w or

kin g on the c a se and that a re a so na ble a tto rn e y ’s fe e fo r a ca se of thi s n a tur e wo uld be $200 per

hour. He also testified t h e Of fi ce of the Attorney

Gene ral’s le g al assistants spent 27 ho ur s pe rf

or min g g e ne ra l a dmi nis tr a tiv e du tie s re la te d to the c a se and that a re a so na ble fe e fo r t

he ir service s is $75.00 per hour. Adding the 24 hours that he spe nt on the case at a r ate of $200 per hour to t he 27 ho ur s th a t th e le g a l a ssi sta nts sp e nt on the c a se a t a

ra te of $7 5. 00 pe r h our, Mr . Ra

nd e ll opined that $6,825.00 would be a rea sonable amount of attorney ’s fe es for the ca se.6 Th e dis tr ic t c ourt

re nd e re d a

jud g me nt h old ingthe de fe nd ants joi ntl y and se ve ra lly liable for $453,567.45 in sa les tax, pena lties, inter est, and $7,825.00 in attorney ’s fe es owe d to the State, $75,332.97 in sales taxes, pen al ties, and intere st owed to the City of San Antonio, and $36,300.77 in sales tax es, penalties and int ere st owed to the Transit Authority of San Antonio. The
c ourt a lso iss ue d a

pe rm ane nt inj un c tio n en

joi nin g the de fe nd ants “ fr om c on tin uin g in t he bu sin e ss of making taxable sales in the State of Texas .
. . until all tax, penalties, and intere st adjudg ed to be due ar e pa i d
. ” On J u n e 1 5, 2006, Mr. Clay filed a motion for ne w trial on beha lf of all the defe ndants, which wa s later ove rruled by operation of law. This appea l followed.
DI SCU SSIO N On a p p e a l , t h e d e f

e n d an t s a s s e rt t h a t ( 1 ) t h e d i s t r i c t c o u rt e r r e d i n o v e r

r u l i ng the ir motion for new trial beca use they met the Craddock fa c tor s for se tti nga sid e the de fa ult jud g me nts
and (2 ) t he e vid e nc e pr e se nte d at tr ia l w a s in su ff ic ie nt t o s up po rt

the dis tr ic t c ourt ’s jud g me nt.
Motion for new trial

Trial cour

ts have broa d discretion in ruling on motions fo r new tria l. Limestone Constr. v. Summit Commercial In d u s. Props ., 143 S.W .3d 538, 542 (Tex. App.—Austin 2004, no pet.). We re view a t ri al co u rt ’s denial of a motion for new

trial for a n abuse of

discretion. Id
. at 542. The te st for abuse of discretion is w hether the trial court a cted a rbitrar ily or without ref

ere nce t o gu i d i n g leg al principles. Cire v. Cummings , 134 S.W .3d 835, 838 (Tex. 2004). A tr ia l c o u rt ab u ses its discretion if it misi nterpre ts or misapplies the law. I n r e D u P o n t D e Nemours & Co. , 136 S.W .3d 218, 223 (Tex. 2004).Although the statement of f acts in HI B’ s and B hag wana ni’s brief on a

ppeal state s that 1 “Mr. B hag wana

ni disputes any notice or knowledg e of this suit until after the de fault judg ment was taken,” none of the defe ndants raise lack of service in their ar g uments on appea l. I n any event, we note that Mr. Clay filed an answ er on be half of a ll of the defe ndants on Dec ember 8, 2003, making s er v i ce of citation unnec essar y . See T e x. R
. C i v . P
. 1 2 1
. T h e f i l i n g o f anan s w e r

o r s o me other appear ance g ener ally waives any defe ct i n the s ervic e of citation. See B aker v . Monsanto Co. , 111 S.W .3d 158, 160 (Tex. 2003) (per curiam).
7 A trial cour

t abuses its discretion if it r efuse s to set aside a de fault judg ment and g rant
a new trial wher e (1) the def

endant’ s failure to answer or appe ar w as not intentional or the re sult of conscious indiffe renc e, but due to a m i s t ak e o r accident; (2) the motion for ne w trial sets up
a mer itorious defe n s e; and ( 3) g ranting a motion for new trial will not cause undue delay
or otherwise injure the party taking the def ault judgme nt. Craddock , 1 33 S.W. 2d a t 12 6; se e als o C l i f f v. Huggins , 724 S.W .2d 778, 779 (Tex. 1987) ( Craddock an a ly s is a p p li e s to mo ti o n s to set
a sid e po st- a ns we r d e fa

ult jud g me nts ); Iv

yv . Ca rre ll , 407 S.W .2d 212, 214 (Tex. 1966) (same ). 1 He re , th e de fe nd ants fi le d a n uns wo rn

mot ion fo r n e w tri a l in

wh ic h th e y

c or re c tly
rec ited all of the Craddock elements—i.e. that their failure to appea r wa s not intentional, that they have a me ri tor iou s d e fe ns e , a

nd that the ir re qu e st wo uld no t c a us e de lay or inj ur y to t he no nmo va

nts
. Howeve r, they

have not a lleg ed any fac ts, verifie d these facts, or attache d any evidenc e to support the ir a sse rt ion s. A m oti on

fo r n e w tri a l “ mu st all e

ge fac ts wh ic h in law wo uld c on sti tut e a de fe ns e to the cause of ac tion asserted by the plaintiff, and must be supported by affidavits or other evide nce proving prima fa cie that the de fenda nt has such mer it o ri o us defe nse.” Ivy , 407 S.W .2d at 214 (empha ses adde d). Since the de fenda nts did not alleg e any fac ts that would constitute a meritorious defe nse or attach a

ny evidenc e to support such a defe nse, nor did they

asser t any fac ts or attach a

ny8

evidenc e to explain why their fa ilu re to appea

r wa s not intentional or the result of c onscious ind if fe re nc e , the dis tr ic t court did no t abu se its dis c re tio n in ove rr uli ng the ir mot ion fo r ne w tri a l. We overrule the appe llants’ first issue.
Suf fi ciency of the evidence

A trial cour

t may not rende r a post-a

nswer de fault judg ment b ased solely on the plaintiff’s pleadings: when a defe ndant has filed a n answe r but fails to appe ar f or trial, the plaintiff is stil l require d to offer

evidenc e and pr ove all aspe cts of his ca se. Bradley M otors v. Mack

ey , 878 S.W .2d 140, 141 (T ex . 1 994). All four de fenda nts contend that the e vidence is leg ally and fa c tua lly ins uf fi c ie nt e vid e nc e to s up po rt the dis tr ic t c ourt ’s po st- ans we r de fa ult jud g me nt a g a ins t them. Specifica lly , t h ey ar gu e that the auditor, F uller, wa s not qualified to g ive an opinion
c on c e rn ingthe de fe nd ants ’ ta x li a bil ity and that th e fi g ur e s u se d to c a lc ulate ta x lia bil ity in t he a ud it
wer e inac curate. HI B a

nd Har ish B hag wana

ni f urther asser

t that the district court er

red in holding them jointly

and seve rally

liable for the full amount of t ax , p en alty and intere st, beca

use (1) there
was no e vidence that either H I B or Bhg wana

ni are the alter

eg o of Noora

ni and (2) H I B a

nd Bhg wana ni’s liability , i f an y , as a successor unde r sec tion 111.020 of the tax code is l imi te d to $25,000—the purc hase pr ice of the conve nience store. We may sustain a lega l sufficie ncy challeng e only if the record discloses one of the following situations: (a) a co m p l et e ab s en ce of evidenc e of a vital fac t; (b) the cour

t is barre d by
ru le s o f l aw o r o f e vid e nc e fr om g iving wei ght to th e on ly e vid e nc e of

fe re d to pr ov e a

vit a l f a c t; (c) the evidenc e off

ere d to prove a

vital fac t is no mo re t h an a m ere scintilla; or (d) the e vidence establishes conc lusively

the opposite of the vital fa ct. City of Keller v. W ilson , 168 S.W .3d 802, 8109

(Tex. 2005) (quoting Robert W. Calvert, “No Evide nce” and “I nsufficie nt E v idence ” Points of Error, 38 T e x. L
. R e v . 3 6 1 , 3 6 2

- 6 3 ( 1 9 6 0 ) )
. I n d e t e r m i n i n g w h e t h e r a f

i n d i n g i s s u

p p o rt e d b y

le g a lly
s u f f ic ie n t e v id e n c e , w e v ie w th e e v id e n c e in th e li g h t m o s t f

a v o r a b le to th e f

in d in g , “ c r e d iting fa vo ra ble e vid e nc e if

re a so na ble jur or s coul d, and dis re g ard ingc on tr ary e vid e nc e un le ss
rea sonable juror s could not.” Id. at 807. We indulge e very rea sonable infe renc e that would support the finding
. Id . at 822.

I n r e vie wi ngthe fact ual suf fi c ie nc y of the e vid e nc e , w e c on sid e r a nd we ig h a ll the e vid e nc e pr e se nte d at tr ia l, i nc lud ingany e vid e nc e c on tr ary

to t he jud g me nt. Plas-Te

x, Inc

. v. U.S. Stee l Corp. , 7 72 S.W. 2d 44 2, 44 5 ( Te x. 19 89 ); Cai n v . B ain , 709 S.W .2d 175, 176 (Tex. 1986). We set aside a finding for fac tual insufficienc y if it is “so contra ry to the overw helming weig ht of the evide nce a s to be clea rly wrongand unjust.” Cai n , 709 S.W .2d at 176.
No orani We conclude that the evidenc e is leg ally and fa ctually

sufficie nt to su p p o rt the judgme nt ag ainst Defe ndant Noora ni Gas & Convenience , I nc. Section 111.013 of t h e t ax code provides that a c omptroller’s ce rtificate of delinquenc y “is prima fa cie e vidence ” of: (1) the stated tax or amount of the tax, after a ll justand lawf ul of fsets, pay ments, and cre dits have bee n allowed; (2 ) t he state d amou

nt o f p e na lti e s a

nd int e re st; (3) the de linquency

of the amounts; and ( 4 ) th e c o mp li an c e o f

th e c o mp tr o ll e r

w it h th e a p p li c a b le prov is io n s o f

[th e tax] code in c omputing and de termining the amount due.10

Tex. Tax Code Ann. § 111.013(a ) (West 2002).

H e re, the comptroller’ s cer tificate of delinquency

showing the amount of tax Noorani owed wa s attache d to the State’s original and amende d petitions and int roduce d into evidence at the hear ing on the defa

ult judgment. The S tate thereby established a pr ima fac ie ca se for collection of the delinquent taxes from Noora ni. See id. Fur

thermore , we note that Noorani filed only an unsworn g e ne ra l de nia l in

re sp on se to t

he c la ims a g a ins t it . Se c tio n 1 11 .0 13 of the ta x co de pr ov ide s th a t a

“ de fe nd ant may no t deny a c la im fo r ta xes, pe na lti e s or inte re st unl e ss the de fe nd ant t ime ly fi le s a
sworn wr i tten denial that spec ifically identifies the taxes, penalties, and inter est that are not due.” Tex. Tax Code Ann. § 111.013(b) (West 2002)
. Noora ni’s failure to file a swor n written denia l is fatal to his defe nse and f or that re aso n al o n e, the judg ment ag ainst him is affirmed. Se e id .;
se e als o Sc hwa rz v . S

tat e , No . 03- 00 -0 05 86 -C V, 20 01 Te x. Ap p. L EX I S 35 85 (T e x. Ap p. —A us tin May 31, 2001, no pet.) (not de signated for publication). We over ru l e No o rani’s leg al and f actua l sufficie ncy

issue.
Kareem H

assan We likewise conc lude that the evidenc e is leg ally and fa ctually

sufficie nt to support the judg ment rende red ag ainst Noora ni’s president, Ka

ree m Hassan. Sec tion 111.016(b) of the ta x
c od e pr ov ide s th a t:
an individual who controls or supervises the collection of tax or money from anothe r person, or

an individual who cont ro l s o r supervises the a ccountingfor a nd paying over of the tax or money , and who wilfully fails t o pay or ca use to be pa id the tax or money is liable as a r e spo nsib le indiv idua l for an amount equal to the t ax or money not paid or ca

used to be pa id.11

Te x. Ta x Code Ann. 11 1. 01 6( b) (We st 2002 ) (em ph a sis a dd e d) . “ Re sp on sib le ind ivi du a l” is de fi ne d to includ[e] an off

icer , manag er, dire ctor, or e mploy ee of a cor poration, assoc iation, or limit ed liability

company or a me mber of a

partne rship who, as an off icer , manag er, direc tor, employ ee, or

member, is under a duty to pe rfor m a n act with respec t to the collection, ac cou n t i n g, or pay ment of a ta x or money

subject to the provisions of Su b s e c ti o n( a ) [o f

s e c ti o n1 1 1
. 0 1 6 ].
Tex. Tax Code Ann. 111.016(d) (1) ( West 2002).

I n his response to re quest for a dmissions , Hassan a dmitted that he was a n office r of No or ani G a s & Con ve nie nc e , I nc . duri ng the lia bil ity pe ri od and that he ow ns the ma jor ity int e re st in Noorani’s stock
. Hassan signe d the audit’s questionnaire as the c orporation’s president, and repr esente d himself to be the cor poration’s pre sident during the cour se of the audit. W e conc lude that there is leg ally

and fa ctually

suffic i en t ev i d ence that Hassa n is liable for the f

ull amount of the j udg ment as a “re sponsible individual” under sec tion 111.016(b) of the ta x code. See Tex. Tax Cod e Ann. § 1 11 .0 16 (b ), (d )( 1) ; Gh as him v . S tat e , 104 S.W .3d 184, 187 (Tex. App.—Austin 2003, no pet.). We over

rule Ha ssan’s leg al and f

actua l sufficienc y

issue.
HIB E nterprises Simi la rl y , w e c on c lud e that th e re is l e g a lly and fa c tua lly su ff ic ie nt evi dence to support the judg ment ag ainst HI B Ente rprises. The State sued HI B a lleg ing that it is oblig ated to pay the ta x lia bil ity of No or ani a s a

le g a l su c c e sso r t o a

nd or purc ha se r o f t

he c on ve nie nc e sto re bu sin e ss under se ction 111.020 of the tax code. Sec tion 111.020 of t he tax code pr ovides that when a person with unpaid tax debt sells or quit s his business “the succ es s o r t o the seller or the seller’ s assig nee12

shall wi t h h old an amount of the pur chase price sufficie nt to pay the amount due until the seller provides a rec eipt from the comptroller showing that the amount has be en paid or a ce rtificate stating that no a mou

nt i s d ue .” Te x. Ta x Code Ann. § 111 .0 20 (a ) (We st 200 2)
. A pur c ha se r w ho fa ils to withhold th e tax a mo u n t d u e “ is li a b le f o r th e a mo u n t r e qu ir e d to b e w it h h e ld to th e e xte n t o f

the value of the purc hase pr ice.” Id. § 111.020(b) ( West 2002). HIB a rgues that its liability under
se c tio n 1 11 .0 20 (b ) i s li mit e d to the va lue of the purc ha se pr ic e , w hic h, a c c or din g to t he bil l of sa le contained in the r ecor d, was $25,000. HI B, how ever , overlooks the dist ri ct cour t’s sanctions order ing that HI B “ may

not oppose” the State’ s claims that i t “a cq u i red the [convenience store] b u siness . . . subsequent to the liability periods shown by

the comptroller c ertificates . . . for consideration in excess of the amounts shown in the cer tificates.” HI B ha s not challeng ed the district
c o u rt ’ s s an c t i o n s o na

p p e a l
. W e t h e r e f

o r e m u s ta f

f i r m t h e d i s t r i c tc o u rt ’ s j u d g m e n th o l d i n g H IB jointly and seve rally

liable for the full amount of the tax liability , including the amount in excess of the purc ha se pr ic e of the c onve nie nc e sto re . We o ve rr ule HI B ’s le g a l and

fa c tua l su ff

ic ie nc y iss ue s.
Harish B hag wana ni Finally , we c onclude that the evidence is leg ally and fa ctually

sufficie nt to support the ind ivi du a l li a

bil ity of HI B ’s pr e sid e nt, Ha

ri sh Bhagwan ani. Th e State a sse rt e d li a bil ity a s to B h a g w an an i i n d i v i d

u a l l y b a s e d

o na v e i l

- p i e r c i n g th e o r

y. Th e c ourt wi ll “ pie rc e the c or po ra te ve il” or disreg ard the corpor ate f iction, and hold an individual share hold e r li a b le “whe n the cor

porate form has bee n used as pa

rt of a bas ically

unfair de vice to ac hieve a n inequitable re sult.” Cas tle be rry
v . Branscum , 721 S.W .2d 270, 271 (Tex. 1986). Among other situations, courts will pierce the
c or po rate ve il w he n th e c or

po ratio n is us e d as a me ans of pe rp e tr a tin g fr a

ud or wh e n th e c or

po rate13

fiction is resorte d t o as a m ea n s o f evading an existi ng leg al obligation. Id. a t 27 2. Court s have c on sis te ntl y

pie rc e d th e c or

po ra te ve il w he n a

n in de bte d c or

po ratio n tr ans fe rs a sse ts t o another corpor ation to avoid a judg ment or debt . S e e Lov e v . S

tat e , 9 72 S.W .2d 114, 120 (Tex. App.—Austin 1998, no pet.) ( f o r me r c o r p o r a te d ir e c to r s in d iv id

u a ll y li a b le f o r p enalties assessed a g ainst corpor ation when they transfe rre d indebted cor porations assets to anothe r compa ny that th e y c on tr oll e d in or de r t o avo id p ay ingpe na lti e s) ; Klein v. Sporting Goods, Inc. , 772 S.W .2d 173, 176 (Tex. App.—Houston [14t h Dist.] 1989, writ denied) (cor porate share h o l d er liable for corpor ation’s debts whe n he incor porate d new c ompany

to avoid f o r e c losed corpor ation’s cr editors). I n d e te rm ini ngwh e the r t o p ie rc e the c or po ra te ve il a nd ho ld B h a gw a

n a n i i n d i v i d u a lly liable, the district cour

t could have c onsidered the fac tors found in Section 111.024 of the tax code. Section 111.024 provides that “[a] per son who acquir es a business or the a ssets of a business fr om a taxpay er throug h a fr audul en t transfe r or a sham transa ction is liable for a ny tax, penalty , and interest owed by the taxpay er.” Tex. Tax Code Ann. § 111.024(a ) (West 2002). Under this section,
a transfe r of a business or the a ssets of a business is consider ed to be a fra udulent transfe r or a

sham transac tion if the tax pay er ma de the tra nsfer “with i n t en t t o evade , hinder, de lay , or pre vent the coll ec t i o n of any

tax, penalty , or intere st owed by the taxpay er.” Id . § 111.024(b). Among the fac tors that a fa ct-finde r may consider in de termining the taxp ay er ’s i ntent, are whether “the ta xpay e r’ s b us ine ss an d the tr ans fe re e ’s bu sin e ss ar e e sse nti a lly op e rate d a s a sin g le bu sin e ss e nti ty at th e same location,” id. § 111.024(c) (4), a nd whether

“bef ore the transfe r or the tr ansac tion
occur red, the taxpay er had either been subjected to or apprised of

impending c ollection action by the comptroller or

by the attorne y

g ener al.” Id . § 111.024(c) (5).Bha g wana ni and HIB a l s o complain that there was no e vidence to support the district 2 court’s injunction pr ohibiting them from c ontinuing in the business of makingtaxable sales in the State of Texas. Section 111.011(a) of the tax code a llows the State to bring suit to enjoin taxpay ers wh o f a il o r r e fu se to r e mit

ta xes t hat are du e fr om t

he ir bu sin e ss fro m con ti nu ingin t hat bu sin e ss un til the ta xes due are pa id . See Te x. Ta x Co de Ann. § 11 1. 01 1( a ) (We st 20 02 ). B e c a us e the re is su ffici ent e vid e nc e tha

t H I B and B ha g wa na ni a re lia ble fo r t he ta xes s ou g ht, the dis tr ic t c ourt did not err in issuing the injunction. 14

He re , B ha g wa

na ni a dmi tte d th a t H I B c on tin ue s in the same bu sin e ss p re vio us ly conducte d by Noora

ni a nd conducts the business under the same name, at the same location, using t h e s a m e t e l e p h o n e n u mb e r . F u rt h e r m o r e , t h e r e c o r d r e f

l e c t s t h a t N o o r an i s o l d

t h e b u s i n e s s t o H IB thirty -eig ht day s after

it was prese nted with the audit results. Bhag wana ni admitted that he owns the controlling interest of H I B’ s stock and is in control of the company ’s financ ial aff airs and the rec ord
re fl e c ts t hat B ha g wa

na ni s ig ne d th e bil l of s a le a s H I B ’s pr e sid e nt. We c on c lud e tha t th e re is l e g a lly andfact ual ly

su ffi cie nt evi den ce t o sup po rt a fi nd in g th at Bhagwanan i u sedhi s co rpo rat e for m, HI B,
a s a sh a m to pe rp e tuate a

fraud—i.e . to a vo id t

he pa y me nt o f t a xes. Ac c or din g ly , w e ov e rr ule Bha g wana

ni’s leg al and f

actua l sufficienc y

issue. 2
CO NC LU SION Be cause the appe llants did not satis fy the Craddock re qu ir e me nts e nti tli ngthe m to have the de fa

ult jud g me nt a g a ins t th e m se t a sid e , w e c on c lud e that th e dis tr ic t c ourt did no t a bu se its dis c re tio n in

ov e rr uli ngthe ir

mot ion fo r ne w tri a l. F ur the rm or e we c on c lud e that th e re is l e g a lly15

and fa c tua lly su ff ic ie nt e vid e nc e to su

pp or t the jud g me nt a g a ins t a ll of the a pp e lla nts
. Ac c or din g ly
we a ff ir m th e dis tr ic t c ourt ’s jud g me nt.

_____________ _ _ _ _ _ _ _ _ _ _ _ _ _ __________________ Bob Pembe rton, J ustice Be fore J ustices Patterson, Pember ton and Waldrop Affir med Filed: Apr il 24, 2008