### TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03
- 18
- 00397
- CV

Appellant, Texley Incorporated d/b/a Glamour Girls // Cross
- Appellant, Glenn Hegar, in

his Official Capacity as Texas Comptroller of Public Accounts

v. Appellee, Glenn He gar, in hi s Official Capacity as Texas Comptroller of Public Accounts //

Cross
- Appell ee , Texley Incorporated d/b/a Glamour Girls

FROM THE 250TH DISTRICT COURT OF TRAVIS COUNTY NO. D
- 1
- GN
- 18
- 001834, THE HONORABLE JAN SOIFER, JUDGE PRESIDING

O P I N I O N

T axpay er T exley Incorporated d/b/a Glamour Girls (Texley) challenges the district court ’ s order sustaining the Comptroller ’ s plea to the jur isdiction and dismissing all but one of Texley ’ s claims challenging a tax assessment

. On cross

- app e al, the Comptroller ch allenges an order enjoining its efforts to collect the disputed assessment. Because the district court did not have the benefit of re cent precedent from the Supreme Court of Te xas, see generally EBS Sols., Inc. v. Hegar , 601 S.W.3d 7 50 (Tex. 202 0) , w e wil l reverse both orders and remand the case

.
BACKGROUND

Texley has operated a bar and l ounge in the H ouston area since 2001

. Before the lounge opened, Texley obtained a municipal permit that would allow Texley to operate the2

lounge a s a sexually o riented business pursuant to certain local ordinances

. T hat permit allowed the lounge to provide entertainment featuring nude performers

. In May of 2007, for reasons not rele vant here, the Ci ty of Houston notif i ed Texley that it would revo k e the permit

. The Cit y allegedly informed Texley that it could continue to operate the lounge and prov ide live entertainment but said that Texley ’ s entertainers would have to maintain the coverage provided by a bikini top and bottom at all time s . Accord i ng to Texley, it has o perated the lounge

— which it refers to as a “ bikini bar ”

— in this m anner since the revocation of the permit

.

In 2015, the Comptroller levied a n assessment o f o v er $1. 4 million against Texley for allegedly operating the loung e as a s ex ually oriented busi nes s from Ja nuary 1, 2008 , t hrough September 1, 2015. See Tex. Bus. & Com. Code § 102 .052(a) ( “ A fee is imposed on a sexually oriented business in an amount equal to $5 for each entry by each customer admitted to
the business

. ” ). T h e C ompt ro ller subseque ntl y reduced the assessment to approximately $1.15 million. Texley denied it had operated a sexually oriented business during the period at issue but began paying the tax under protest. Texley even tually stopped making payments,

aver ri ng tha t it was unable to do so.

Texley ’ s protest was ultimately transferred to an administrative law jud ge (ALJ) at the State Off

i ce of Administr ative Hearings (SOAH). Over the course of the contes ted

- case hearing, Texley complained o f cert ai n disco very irr egularities on the Comptroller ’ s part and objected to the admission of much of the Comptroller ’ s evid en ce. As relevant here, t he ALJ

ove rrule d those objections but assured Texley that he would take Texley ’ s concerns into account whe n eval uating “ t he w eigh t of the evidence. ” After reviewing the competing arguments and the evidence , t he ALJ issued a proposal for decis ion holding that the Comptroller had s atisfied its burden to sh o w that Tex ley w as opera ting a sexua l l y oriented business a nd recommend ing that3

“ the assessment a gainst [Texley] should be upheld in it s entirety. ” The Comptroller adopted t he proposal with only minor revisions

.

Texley sought ju dicial review of the Comp t roller ’ s f inal order under C hapter 1 1 2 of the Tax Code

. I n addition t o br inging its c laim under C hapter 112 of the Tax Code, Texley: ( 1) alleged that the Comptroller had engaged in ultra vires conduct by attempting to collect the
assessment; ( 2) sought a d e claration, unde r Section 37.003 of t he Civil Practic e a nd R emedies
C ode (the UD JA), that the Comptroller had no authority to collect the tax; ( 3) sought a declaration, under the UDJA, that Section 112.101 of the T ax Code is u nconstitutional to the

ex t ent it “ preclud es Texley from obtai ning ju dicial review of t ax liability ” ; ( 4 ) sought a declaratio n, under Section 2 001.038 of the Government Code , that certain r egulations apply to the Comptr oller during a contest ed

- case hearing; and 5) s o ught an injunct ion “ restraining the Comptroller f

r om att em p ting to collect o n the assesse d f ee until there is a de cision on the merits

. ” Texl ey did not pay the assessment before bringing suit , see EBS Sols

. , 601 S.W.3d at 750 ( “ [ T] he taxpayer normally mu s t meet some pre payment prerequisite prior to bringing th e t ax suit. ” (citing Tex. Tax Cod e § § 1 12.001, .051, .101 ) ), but instead filed an oath of inability to pay
t axes or post bond , s ee id

. ( “ In section 1 12.108, the Legislature c arved out an exception to the prepayment prerequisite

. ” (citi ng Tex. Tax Code § 11 2

. 1 08 ) )

.

In resp onse to the s uit, the Comptroller raised a plea to the jurisdiction, emphasizing Texley ’ s failure to make full payment of the amount assessed and a rguing that Texley ’ s claims , wit h the excepti on of its challenge to the constitutionality o f Section 112.101,

“ are not aut horiz ed by statute and, the refore, are barred by sovereign immunity. ” Th e district
court sustained the plea, dismissing “ all of [Texley ’ s] c laims for lack of subject

- matter juris dic tion except for its constitutional challe ng e to Texas Tax Cod e section 112 .101. ” In a4

se parate order , the district court awarded Texley the requested injunction, prohib iting “ the Comptroller from taking action in f urtherance of collecting o r enforcing Sex ually Oriented Busin ess Fees, penalties o r i nterest for the a ssessment per iod o f January 1 , 2008 thro ugh September 30, 2015. ” T exley timely appealed from the order sustaining the plea to the jurisdiction , and the C omptroller timely appeale d from the or der awarding the injunc tion.

T EXLEY ’ S APPE AL Texley challenges the dis trict court ’ s order sustaining the Comptroller ’ s plea to the jurisdict ion. “Immunity from suit bars a suit against the State unless the Legislatu re expressly c onsents to t he suit.” Texas Nat. Res. Conserva tion Comm ’ n v. IT

- Dav y , 74 S.W.3d 849 , 85 3 (Tex. 2002)

. A st ate agency may assert sovereign immunity “thro ugh a plea to the jurisdiction or other procedural vehicle, such as a motion for summary judgment” or a Rule 91

m o tion. Alamo Heights Indep. Sch. Di st. v. Clark , 544 S.W .3 d 755, 770 (Tex. 2 018); Ci ty of
Austin v. Liberty Mut. Ins. , 431 S.W.3d 817, 822 (Te x. App.

— Austin 2014, no pet.)

. When a governmental entity challenges jurisdiction on im munity grounds , the plain t iff “must affirmatively demonstrate the court ’ s jurisdic ti o n by alleging a v alid waiver o f immun ity.” See Ry der Integr

ated Logistics, Inc. v. Fayette County , 453 S.W.3d 922, 927 (Tex. 2015) (p er curiam) (qu oting Dall as Area Rapid Transit v . Whitley , 104 S. W.3d 540, 542 (Tex. 2003) ). We review the disposition o f a plea t o t he juri sdiction de n ovo. C ity of Houston v. Hous ton Mun. Emps. Pension Sys ., 549 S.W .3d 566, 575 ( Tex. 2018).5 As the source of the district cour t ’ s jurisdiction over i ts suit for injunction, Texle y ’ s live petition points to Chapter 112 of th e T a x Code

. 1 With C hapter 112, “ t he Legi slat ure has waived the State ’ s sovereign immunity as to t hree types of tax challen g es

— protests, injunctions, and refun ds

— conferring exclusive , original jurisdiction on the district courts of Travis County. ” EBS Sol s. , 601 S. W.3 d at 75 0 ( citing Tex . Tax Co de §§ 112.001, .051,

. 101, .108 ; In re Nestle USA, Inc ., 359 S.W.3d 207 , 208

– 09 (T e x. 2 012) (orig. proceeding) ; R Commc ’ ns , Inc

. v. Sharp , 875 S.W.2d 314 , 318

– 19 (Tex . 1994) ). “ For each of these suits, the taxpayer norma lly must meet some p r e payme nt pr ere quisite prior to bring ing the tax suit. ” Id. (citing Tex. Tax Code §§ 112.001, .0 51, .101 )

. “ F or a pr otes t or refund suit, the taxpayer must first pay the amount al legedly owed in taxes and fees, accompanied by a statem ent as to whic h type o f cha ll eng e t he taxpayer makes. ” I d

. (citing Tex. Tax Code §§ 112.051, .151 ). “ For a suit

see king a statuto ry injuncti o n, the taxpayer elects to either pa y the taxes, fees, and penalties allegedly owed or file a ‘ good and sufficient bond ’ equal t o twic e the a mo unt of taxes, fees, and
pena lties allegedly owed. ” Id. ( quoting Tex. Tax Code § 112.101 (a) )

. These p repayment

r e quirements are jurisdictional

. S ee id

.

Yet “ the Legislat ure [has] carved out an exception to the prepayment pre requisite, all owing c e rtain t axp ayer s to challenge a tax a ssessment without meeting the prepayment prerequisite. ” Id

. (citing Tex. Tax Code § 112.108 )

. This narrow exception is set forth in the latte r part of Section 112.108 ’ s general prohibition on suit s for injuncti ve and d eclar atory rel i ef :

1 The Comptroller a rgues that Tex ley ’ s Chapter 112 claim is n ot before th is Court, but th e o rde r dismissing that claim is before this Court, s ee Tex. Civ. Prac. & Rem. Code § 5 1.0 14(8) , and we cannot undert ake revie w of the order without reference to the claim, see Hegar v. Auto haus LP , 514 S.W.3d 897, 906 (Tex. App.

— Aust in 2017 , pet. denie d ) (ex pla ini ng implications of relief avai lable through Chapter 112 of the Tax Code for jur is diction over claim s brought un der UD JA).6

Except for a rest raining order or injunction issued as provided by this subchapter, a court may no t issue a r e straining order, injunction , declaratory judgment, writ of mandamus or prohibition, order requiring the p ayment of taxe s or f e e s int o the reg i str y or custody of th e court, or other similar legal or equitable relief against the sta te or a state agency rela t ing to the applicability, a ssessment, col lection, or constitutionality of a tax or fee covered by this su bchapter or th e amou n t of t he tax or fee due, provided, ho wever, that after filing an oath of inability to pay the tax, penal ties, and inte rest due, a party may be excused from t he requirement of prepa yment of tax as a prerequisite to appeal if the court, after notice a nd hea r i ng, f

inds that suc h prepayment would constitute an unreasonable restraint on the party ’ s right of acces s to the court s .
Tex. Ta x Code § 112.108 (emphasis a dded). By filing its o ath of inability to pay, Texley seeks to avail itself o f this excepti on to t h e gen eral rul e req uir ing prepayment.

T he Supreme Court of Texas recently clarified the procedure the di strict court

m ust use to e valuate its juri sdiction ov er a suit for injunctio n when the taxpayer has n ot paid the
amount a ssessed by the Comptroll er . S e e gene rally EBS Sol s. , 601 S.W.3d 744

. In EBS Solutions , the ta xpayer sought judicial review of a tax a ssessment unde r Chapter 1 1 2 after
pre paying on ly part of the asse ssment

. Id . at 747. In response to the taxpaye r ’ s petition for

r elief, the Com ptroll e r rais ed a plea to the jurisdiction , a rguing that the taxpayer could not invoke the district court ’ s jur isdiction unde r Chapter 1 1 2 without first prepaying t he entire assessment. See id

. at 748. The taxpayer filed an oath of inabilit y to pay pursu ant to S ectio n 112.108 , an d the district cour t held a hearing and found that full payment would constitute an “ unreasonable

r estraint ” o n the taxpayer ’ s a ccess to t he courts

. See id

. It then ove rruled the p lea to the jurisdiction. See id. On appeal, th is Cou rt agre ed w ith th e Comptroller ’ s interp retation of Chapter 112 but held that the taxpayer , on remand, could seek injun ctive and decl aratory rel i ef through the U DJA. See Hegar v. EBS Sols., Inc ., 549 S.W.3d 849, 858 (Tex. App.

— Austin
20 18 , pet. grant ed ), r ev ’ d , 6 01 S .W.3d 744 ( 2020)

.7 The Suprem e Court of Texas , however, reje ct ed both this Court ’ s holdings and the Comptroller ’ s characterization of the dis trict court ’ s jur isdiction. See 601 S.W.3d at 760

– 61

. While the high court ackno w ledge d tha t Ch apter 112 ’ s w aiv e r of sov ereign immunity “ norma lly ” requires the taxpayer to make payment under protest before bringing suit, see i d

. at 750, it went on to hold that the taxpay er had invoked juris diction over its challenge by avail ing itself of Section 1 12 .108 ’ s exc ept ion to t h e g eneral prepayment requ irement , see id. at 761

. The
Court explained :
Under section 112.108, a taxpayer is excused from the prepayment prereq uisites ot herwise required to waive the State ’ s sovereign immunity only if: ( 1) the ta xpaye r file s a n oa th of i n abil ity to pay the tax, pe nalties, and interest due; (2) a hearing is set and notice provided; (3) the trial court conducts a hearing; and (4 ) t he trial c ourt finds that “ pre payment would constitute an unreasonable restra int on th e par ty ’ s r igh t of a c cess to t he courts. ”

Id . at 760

– 61 (qu oting Tex. Tax C ode § 112.108 ). Finding these criteria satisfied in the taxpayer ’ s case, the Supreme Court r ejected th e Comptrol ler ’ s juri sdic tional arguments and the taxpayer ’ s as - app lied chall enge to th e co nst itu t iona l ity of Section 112.108 ’ s res triction on suits for injunctive and declaratory relief. See i d . at 760.

In this case, as in E

BS S olutions , the tax payer soug ht judicial review o f a n
assessment under Chapter 112 without firs t paying t he e ntire amou nt ass e ssed

. Also like in EBS
S olutions , the ta xpayer filed an oath of in ability to pay. But in absence of the high court ’ s guidance in EBS Solutions , which had not y et been decided, the district court did not hold a hearing on the alleged ab il ity to pay o r dete r mine whet her “ pre payment would constitute an

unrea sonable restraint o n [Texley ’ s] right of access to the courts

. ” See id

. Th ose procedures are mand atory onc e a taxpayer files an oath of inability to pay

. See id. at 76 2 ( “T he oath si mp ly lea ds to t he ne x t st e ps i n the process. ”). Thi s Court has no power to hold such a hearing or make8

such a finding. See Texas Nat ’ l Bank v. Karnes , 717 S.W.2d 901, 90 3 (Tex. 19 86)

. As such, both parties have acknowledged that remand for the hearing an d deter min atio n is a p prop r iat e here. 2 Accordingly, because the district court did not follow the procedures the Supreme Cour t requires in cases like these, we will rever se the dis trict court ’ s order sustaining the plea to the jurisdiction and re mand the c a se for readju dicati o n of tha t plea following a hea ring o n T exley ’ s alleged inability to pay the disputed tax assessment. See White v. Davis , 475 S.W.3d 783 (Tex. 2015) (remanding for reconsideration und er intervening precedent) ; N orth Am. Consu ltants, In c . v. M acLenna n , No. 13

- 0 0

- 28 9

- CV, 2000 WL 34410008 , at *4 (Tex. App.

— Corpus Christi
Dec. 7, 2000 , no pet. ) (remanding for “ compliance with ” procedures set for th in inte rvening precedent) ; First Bank v. Shiflett , 843 S.W.2d 610, 618 & n .1 (Tex. App.

— Ho uston [ 14th D i st.] 1992 , writ den ied ) ( gathering author ity an d explaining that correct disposition in such cases is reversal and remand , not vacation a nd remand ).

T HE COMP TROLLER ’ S CROSS
- APPE AL The Comptroller challenges the district cou rt ’ s order enjoin ing i ts colle c tion efforts. A temp orary injunction is an extraordinary remedy designed to preserve the status quo of the subject of litigation pending trial on the merits. Butnaru v. Ford Mot or Co ., 84 S.W.3d 198 , 204 (Tex. 2002); Wallin g v. Metca lfe , 86 3 S.W .2d 56, 5 7 (T e x. 1993 ). Altho ugh the party seeking an injunction is not required to establish it will prevail at trial, it must establish: (1) a

2 Texley urges t his Court to dec ide th e question of abilit y to pay as a matter of law, but we decline to do so. In addition t o c larif yi ng the procedure required to evaluate a challenge to a n assessment where the ta xpayer has fi led an o ath of i nabili ty to pay, the high co urt ’ s an al y sis in EB S Solutions also bear s o n the v iab ility of Texley ’ s UDJA claim an d its const itutional chal len ge. T h e d istrict court should have the first opportunity to consider those implicat io ns for this c ase. See Mansi ons in the Forest, L.P. v. Mo ntgomery C ounty , 365 S.W.3d 314, 317 (Tex. 2 012) ( “ [J] udicial decision

- making is more accurate w hen trial cour ts have th e first opportunity to consider and rule on error. ” ).9

cause of action again st the defendant; (2 ) a probable right to the relief sought; and (3 ) a proba ble,
imm inent , and i rrepa r able injury in t he interim if the inju nction is not granted. Butnaru , 84 S.W.3d at 204; Walling , 863 S.W.2d at 58

. We review an order granting a tempora ry injunction for cl ear abuse of discretion

. Walling , 863 S.W.2d a t 58

. A court ab uses its dis c reti o n when it acts w ithout regard for gove rning legal princip les. Downer v. Aquamarine Operators,
Inc

. , 701 S.W.2d 238, 241

– 42 (Tex. 1985)

.

In this case, t he district court g r anted inj unctive relief based on Texley ’ s
const itutional challen ge to Sectio n 112

. 101 of the Tax Cod e. That section provi des:
(a) An action for a restraining order or injunction that prohibits the assessment or collection of a tax or fee imposed by this title or collected by the comptroller under any law, inc luding a loca l tax c o llec t ed by the comptrol ler, or a statutory pe nalt y assessed for the failure to pay the tax or fee may not be brought against the public official charged with t he duty of collectin g the tax or fee or a representative of the pub lic offic ial unle ss th e appli c ant f or the order or in

junction has first: ( 1) filed with the attorney general not later than the fifth day before the date the action is filed a statement o f the grounds on whi ch the order or injunction is sought; and (2) either: (A) pa id to the p u blic o fficial who collec ts the tax or fee all tax es, fees, and penalties then due by the applicant to the state; or (B) filed with the public official who c ollects the tax or f ee a good and sufficient bond to guarantee the pa yment o f the taxe s, fe es, a n d pe n al ties in an amount equal to twice the amo un t of the taxes, fees, and penalties then due and that may reasonably be expected to become due during the peri od the order or inju nction is in effect. (b) The amount and terms o f the b ond and th e sur eties on t h e bond authorized by Subsection (a)(2)(B) mu st be approved by and acceptable to the judge of the court granting the order or injunction and the attorney g eneral.10

(c) The ap plication for the restraining order or injunction must s tate under the oath o f th e a pplicant or the ag ent or attorney of the a pplicant that: (1) the statement required by Subsection (a)(1) has been filed as provided by that subsection ; and (2) the pay ment of taxes, fees, and penalties has been made a s prov ided by Sub secti on ( a )(2) ( A) or a bond has been approved and filed as provided by Subsection (a)(2)(B) and Subsection (b). (d) The public official shall deliver a payment or bond required by Subsect ion (a)(2) to the comptroller. The comptroller sh all dep osit a pay ment made u nder Su bsection (a)(2)(A) to the credit of each f und to which the tax, fee, or penalty is allocated by law. A payment made under Subsection (a)(2)(A) bears pr o rata interest. Th e pro rata interest is the amount of interest tha t would be due if the amoun t had be en placed into the suspense account of t he comptroller

. Tex. Tax Code § 112.101. Texley asked the district court to dec lare this section

“ unconstit utional to the exten t [it] represent [s] an unconstitutional bar to TEX LE Y ’ s right
to ac cess judi c i al re dr ess, unconstitutional bar to access to the courts, precludes TEXLEY from obtaining judicial review of tax liability by means of a declaratory action, v iolates the
open - cou rts provision and imposes unreasonable financial b arrier to court a ccess . ”

B ase d on its own arguments and the governing legal au thority , Texley cannot establish a probable right to the declaration sought

. The open - courts clause provi des, “ All courts sha ll be open, and every p erson for an injury done hi m, in his lands, goods , pe rs on or r eputation, shall have r emedy by due course of law. ” See Tex. Const. art. I, § 13. The Supreme Court of
Texas has explained that this clause prohibits , as relevant here , “ unreasonable financial barrier s ”
to judicial revi ew. Cent ral Appr aisal Dis t. v. La l l , 924 S.W.2d 686, 692 ( Tex. 1996)

. Texley
h as filed an oath of inability to pay as outlined in S e ction 112.10 8 of the Tax Code , seeking to avail itse lf of the prepayment exception discussed in EBS Solutions and thereby ob tain judicial

r eview of th e dispu ted assessment wit hout first paying that asse ssment or posting bond

. See EBS11

Sol s. , 601 S.W.3d at 760

– 61. If it prevails with these argu ments , the di stric t cou rt wil l ha ve no choi ce but to afford Texley the judicial rev iew it seeks with out r equi ri ng prep ayment , see id. , there b y eliminating the comp lained

- of “ bar ” to “ judicial redress

. ” I f Texley does not pr evail with those argume nt s , it will be be caus e the district court found that th e statutory obligati on to pay the as sessment

— while un denia bly pr esentin g a financial predicate to judicial review

— d o es
not “ constitute an unreasonable restraint on [Texley ’ s] right of access to the courts , ” see Tex. Tax Co de § 112.108 (emphas is added) (req uiring s uch determination) . Such a finding would
pre clude Tex le y ’ s as - applied constitutional ch allenge as a matter of law

. S ee EBS Sols ., 601 S.W.3d at 754 ( noting that open - courts provision prohibits only “ unreasona ble ” fi nancial barri ers to access to courts )

. Thus, be cause Texley cannot establish a prob able ri ght to the rel ief sought through i ts constitu tional chal lenge to Section 112.10 1 of the Tax Code , it is not entitled to a tempor ary injunction pending the adjudication of t hat claim

. 3 We therefore reverse the order awarding the injunction.

C ONCLU S ION

We reverse th e order sustaining the pl ea and the order enjoi ning the Comptro ller ’ s collection ef

forts. We rem and for f urther proce edings con sistent w ith this opinion an d t he
Su preme Court ’ s holdings and reasoning in EBS Solutions , 601 S.W.3d 744.

3 We express no opinion a s to whether , on remand, Texley ca n establish a right to an injuncti on based on any of i ts other cl aims.12 _______ ___________________________________ Edward Smith , Ju sti ce Before Justices Goodwin , Baker, and Smith Reversed and Remande d Filed: October 23, 2020