### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-18-00291- CV

Badger Tavern, L.P ., Appellan t

v. Gle nn H egar, C om ptroller of P ubl ic Acc ounts of The State of Texas; and th e Off

ice of the Com ptroller of P ubl ic Acc ounts of The State of Texas, App ellees

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 345 TH JUDICI AL DISTRICT NO. D-1 -GN-1 7-0 0341 5, H ONO RAB LE K ARIN CRUMP , JUDGE P RESIDING

M E M O R A N D U M O P I N I O N This is an interlocutory

appea l br oug ht by Ba dg er Tave rn, L .P., c omplaining of the trial court’s partial g rant of the plea to the jurisdiction filed by the Comptroller of Public Acc ounts and the Office of t he C omptroller of Public Acc ounts (collec tively , Comptroller). B adg er Ta vern

co m p lains that its dismiss ed claim alleg ed a valid Administrative Procedur e Act (AP A) ru l e challeng e to a “pronounc ement” by the Comptroller in the Texas Reg ister that the Comptroller will
retroa ctively enfor ce its amende d rule 3.722(i)(4) , perta ining to the rec ord-ke eping require ments for the collection of fee s imposed on sexually oriented businesses. See Tex. Gov’t Code § 2001.038(a) ( a u th o r iz in g r

u le

- c h a ll e n g e s u it ) ; 3 4 T e x. A d mi n . Co d e § 3

. 7 2 2 ( i) ( 4 ) ( Co mp tr o ll e r o f Pu b li c A c c o u

n ts , Sex ually Oriente d Business Fe e). We will reve rse the trial court’s partial g rant of the Comptroller’s plea to the jurisdiction and r emand the dismissed ca use to the trial cour

t for fur ther proc eeding s.BACK GR OUND Ba dg er Tave rn opera tes a Dallas strip club, which is subject to the pay ment of a sexually oriented business (SOB) fee

. See Tex. Bus. & Com. Code § 102.052(a) (“A fee is imposed

on a sexually oriented business in a n amount equal to $5 for eac h entry by eac h customer admitted
to the business.”). This proce eding conce rns the Comptroller’s 2017 amendments to its rule 3.722 that administers the SOB fee , specific ally the rec o rd -kee ping require ments to which SOBs are subject. The amende d rule provides: “Rec ords require d by the comptroller must be kept for at least four y ear s afte r the date on which the rec ords are prepa re d , an d throug hout any period in which any tax, fee , penalty , or interest may be assessed, collecte d, or re fu n d ed b y t he comptroller or in which an administ rative hear ing or judicial proce eding s is [si c] pending , unless the comptroller authorizes in writing a

shorter r etention per iod.” See 34 Tex. Admin. C ode § 3.722(i)( 4). Prior to 2017, the rule made no ref ere nces to periods during which an administrative hear ing or judicial proce eding is pending , simply requiring rec ords to be retained for at least four
y ear s: “Rec ords require d by the comptroller must be kept fo r at l ea s t fo ur y ear s afte r the date on

w h ic h th e r e c o r d s a

r e p r e p a r e d

. ” S e e 3 3 T e x. Re g . 4 9 0 7 ( 2 0 0 8 ) , a m e n d e d b y 4 2 T e x. Re g . 2 1 9 ( 2 0 1 7 )

. When the 2017 amendments wer e ad o p t ed and published in the Texas Reg ister, they wer e

acc ompanied by the following statement from the Comptroller: “Retroact i ve application. One
commentator reque sted clar ification on whether the Comptroller wi l l apply the amendment
retroa ctively

. The comptroller will a pply the revised section [rule 3.722] to a ll pe nding and future

case s. . . . [T] he re cord- keeping require ment is a proper construction of the statute and a rticulates what has alway s been the law si nce 2011, when the L eg islature ame nded Ta x Code, § 111.0041.”

2See 42 Tex. Reg. 219, 223 (2017) ( adopting amendments); see also Tex. Tax Code § 111.0041(b)

(“A taxpay er is re quired to kee p rec ords .

. . for more than four y ear s throug hout any period whe n

. . . an administrative hear ing is pending befor e the comptroller, or a judicial proce eding is pending , to deter mine the amount of tax, pena lty , or interest that is to be assessed, collecte d, or ref unded.”) ; Tex. Bus. & Com. Code § 1 0 2

. 0 5 6 (“ The provisions of Subtit le B, Title 2, Tax Code [entit led “Enfor ceme nt and Collection” of state taxes] apply to the administration, pay ment, collection, and enfor ceme nt of the [S OB ] fee imposed by this chapte r.”)

. For the purposes of this litigation, Ba dg er Tave rn ref

ers to the Comptroller’s statement in the Texas R egi s t er that it will “apply the revised section to all pending and future case s” as the Comptroller’ s “re troac tivity pronounce ment.” After the rule amendments wer e published, Ba dg er Tave rn filed a lawsuit ag ainst the Co mp tr o ll e r s e e k in g a d e c la r a ti o n th a t th e a me n d e d r u le is in v a li d

. S e e T e x. G o v ’ t Co d e § 2 0 0 1

. 0 3 8 ( a ) (“The validity or applicability of a rule

. . . may be deter mined in an action for decla ratory judgme nt if it is allege d t hat the rule or its threa tened application interfe res with or impairs, or threa tens to interfe re with or i mpair, a leg al rig ht or privileg e of the plaintiff.”) . Ba dg er Ta vern’ s live petition alleg ed that it “lawf

ully discarde d rec ords in relianc e on Orig inal Rule § 3.722’s four- y ear rete ntion require ment but has now bee n subjected to a retroa ctive rec ord keeping require ment” with r espec t to a tax-protest suit that was alrea dy pending at the time of the r ule’s ame ndment. Ba dg er Tave rn’s live pleading asser ted two “ca

uses of action”: (1) the Comptroller exceede d his statutory authority by promulg ating a rule that requires re t ro ac tive rec ord keeping , and (2) the Comptroller’s rec ord-ke eping rule violates the Texas Constit ution’s prohibition ag ainst
retroa ctive laws. See Tex. Const. Art. 1, § 16 (“N o . . . ex post fac to or retroa ctive law

. . . shall be

3made.” ). The trial court denied the Comptroller’s plea as to the second cause of action but g rante d

the plea a s to the first. Ba dg er Ta vern a ppeals the dismissal of its first cause of ac tion.

STANDARD OF REVIEW A plea to the jurisdiction challeng es the trial court’s authorit y to deter mine the subject matter of the action. Texas Dep’ t of Transp. v. Jones , 8 S

. W

. 3 d 636, 638 (Tex. 1999). Whether the trial court has jurisdiction is a question of law, Texas Nat. Res. Conservation Comm’n

v. IT–Davy , 74 S.W .3d 849, 855 (Tex. 2002), and we revie w the trial court’s ruling on a plea to the jurisdiction de novo, Mayhe w v. Town of Sunnyvale , 964 S.W .2d 922, 928 (Tex. 1998). I n assessing

a plea to the jurisdiction, we beg in by considering the plaintiff’s live pleading s and determine whether the fac ts alleg ed aff irmatively demonstrate that jurisdiction exis ts. Hec kman v. W illiamson Cty. , 369 S.W .3d 137, 150 (Tex. 2012). We may also consider evidenc e submitt ed to neg ate the exis tence of jurisdiction, but we need not do so here beca use the underly

ing jurisdictional fac ts are not disputed. See id. We construe the plaintiff’s pleading s liberally , taking all fac tual asser tions as true, and look to the plaintiff’s intent. Id. A plea to the jurisdiction must be g rante d if the defe ndant aff irmatively

neg ates the e x istence of

the cour t’s jurisdiction. Id.

DISCUSSIO N I n one i s s u e, Ba dg er Tave rn contends that the trial court err ed in g ranting the Comptroller’s plea to the jurisdiction as to its first cause of action. Specifica lly , it arg ues that “the
retroa ctivity pronounce ment in the Texas Reg ister is a rule that may be ch all eng ed” and that the trial co u rt has jurisdiction to hear the merits of its statutory validity challeng e to that “rule ” in

4addition to its constitutional validity challe n ge. As pleade d in its live petition, Ba dg er Tave rn’s

claim that the re t ro ac t i v i ty pronounce ment is invalid rests on its asser tion that the “re troac tive imposit ion of rec ord keeping require ments contra venes the s p ec i fic statutory lang uag e” of the Business and Commerce Code (which authorizes the SOB fee and deleg ates to the Comptroller the authority to s et by rule the rec ord-ke eping require ments) beca use “ther e is no lang uag e [i n the Business and Commerce Code] permitting the Comptroller to impose retroa ctive re co rd k eeping require ments.” The Comptroller r esponds that (1) B adg er Ta vern did not pl ead in its live petition that the retroa ctivity pronou n ceme nt was a rule and thus cannot appea l that unasser ted claim; (2) even if Ba dg er Tave rn’s pleadings co u l d b e construed to have g iven fair notice of that claim, the retroa ctivity pronounce ment does not constitute a ru l e u n d er applicable law; and (3) in any event, Ba dg er Tave rn is not making a true validity or applicability challeng e but mere ly an “as applied” or “application” challeng e for which the APA does not waive the Comptroller’s immunit y .

We first addre ss whether Ba dg er Tave rn adequately pleade d its challenge to the
retroa ctivity pronounce ment as a rule and whether the pronounce ment constitutes a rule for section 2 0 0 1

. 0 3 8 p u

r p o s e s . O u

r r e v ie w o f B a d g e r T a

v e r n ’ s li v e p e ti ti o n le a d s u s to c o n c lu d e th a t it p r o v id e d fair notice to the Comptroller of Ba dg er Tave rn’s challeng e to the retroa ctivity pronounce ment. See Tex. R. Civ. P. 47(a) (re quiring pleading setting forth claim for relief to contain “a short statement of the cause of action sufficie nt to g ive fair notice of the claim involved”); Hay s Cty. v. Hays Cty. W ater Planning P’ship , 69 S.W .3d 253, 258 (Tex. App.—Austin 2002, no pet.) (“ Fa ir notice

u n der the rules is met if an opposing attorney can asce rtain the nature and the basic is s u es o f t h e controve rsy from the pleading s.”); see also Creedmoor-M aha W ater Supply Corp. v. Texas Comm’n

5on Envtl. Quality , 307 S.W .3d 505, 5 1 2 (Tex. App.—Austin 2010, no pet.) (noting that appellate

courts construe pleading s liberally and look to pleade r’s intent in deter mining whether plaintiff has
met initial burde n of alleg ing fac ts tha t a ffirma tively demonstrate trial court’s jurisdiction). I n the “F actua l Ba ckg round” section of its live p eti tion, Ba dg er Tave rn alleg ed that “[t] he Comptroller provided in the Amended Ru le § 3.722’s publication in the Texas Reg ister that it will apply

r e tr o a c ti v e ly

. ” U n d e r th e s e c ti o n e n ti tl e d “ F ir s t Ca u s e o f A c ti o n , ” B a d g e r T a v e r n ma d e th e f

o ll o w in g rele vant alleg ations:

• The Comptrolle r s t at ed in the Amended Rule § 3.722’s publication that the rec ord keeping require men t s trac k the require ments of Tex. Tax Code § 111.0041, which re quires taxpay ers to kee p rec ords for at least four y ear s or when an administrative hear ing or judicial proce eding is pending

. [citation omitted]

• The Comptroller provided in the Amended Rule § 3.722’s publication in the Texas Re g ister that it will apply retroa ctively : “[t] he comptroller will apply the revised section to all pending and future case s.” 42 Tex. Reg

. 223 (2017). Thi s provision in the Rule pub lication is itself a Rule under the definition of “rule ” in Tex. Gov’t Code § 20 0 1.003(6), beca use it is a “state ag ency s ta te me n t o f g e n e r a l a

p p li c a b il it y th a t
. . . im p le me n ts , in

te r p r e ts , o r p r e s c r ib e s law or policy ” and beca use it is a “state ag ency statement o f g ener al applicability that

. . . descr ibes the proce dure o r prac tice require ments of a state ag ency .” [citation omit ted & emphasis adde d]

• Th e retroa ctive imposit ion of rec ord keeping require ments contra venes the specific statutory lang uag e. There is no lang uag e permitting the Comptroller to impose retroa ctive rec ord keeping require ments.
. . . The statutes at issue shou ld not be construed to allow ret roact ive appl ication absent a plain statement of the L eg islature’s intent to do s o . [citation omitted & emphasis adde d]

These alleg ations, construed liberally , include fac ts that sufficie ntly provided the Comptroller with fair notice of Ba dg er Tave rn’s contention that the retroa ctivity pronounce ment is an i n v al i d rule
6under the APA, and we conclude that the Comptroller’s contention that Ba dg er Tave rn is advanc ing

on appea l a pre viously

“unasse rted c laim” is without merit. W e additionally conclude that the retroa ctivity pronounce ment constitutes a ru l e that is subjec t to challeng e under se ction 2001.038. See Tex. Gov’ t Code § 2001.003(6) (def ining “rule ” to mean “a state ag ency statement of g ener al applicability that: (i) implements, interpre ts, or presc ribes law or policy ; or (ii) descr ibes the proce dures or prac tice require ments of a state ag ency ”); El Paso Hosp. Dist. v. Texas H ealth & Human Serv

s. Comm’n , 247 S.W .3d 709, 714 (Tex. 2008) (conc luding that commission’s cutoff date for submit ting paid-claims data to deter mine Medica id reimburse ment rate s was “rule ” beca use it interpre ted and applied particula r statute and aff

ecte d all hospitals rece iving Me dicaid re imbursements); Teladoc, Inc. v. T exas Med. Bd. , 453 S.W .3d 606, 620 (Tex. App.—Austin 2014, pet. denied) (con c lu d in g th a t T e xa s M e d ic a l B o a

r d ’ s pronounce ments in letter sent to health-c are business “ar e tantamount to amendments to the ex isting t ext of” rule); Combs v. Entertainment Publ’ns, Inc. , 292 S.W .3 d 7 1 2 , 721 (Tex. App.—Austin 2009, no pet.) (conc luding that letters Comptroller issued to fu n draising firm constituted “rule ” beca use they informed rec ipients of how Comptroller would enfor ce and const rue tax statute conce rning who is considere d “sale s ag ent”) ; Texas Alcoholic Bev erage Comm’n v. Amuseme nt & Music Operators of Tex., Inc. , 997 S.W .2d 651, 660 (Tex. App.—Austin 1999, pet. dism’ d w. o . j

. ) (holding that
statements contained in ag ency memoranda wer e “rule s” beca use they imposed binding instructions aff ecting private rig hts of all simil ar l y s i tuated persons). As this Court has previously noted, the supreme court has instructed u s to consider the intent of t he age ncy , the prescriptive nature of the g uidelines, and the context in which the ag ency statement was made when deter mining whether an

7ag ency statement is a rule. See Entertainment Pub l ’n s , 2 9 2 S.W .3d at 722 (citing Texas Educ.

Agenc y v. Lee per , 893 S.W .2d 432, 443 (Tex. 1994)). I n this case, the r etroa ctivity pronounce ment is a statement by the Comptroller that informs the publ ic of the C omptroller’s i n t en t i o n to apply the new rec ord-ke eping require ment to “all pending case s,” purportedly requiri n g p er s ons with administrative or judicial proce eding s alre ady pending on the date the rule was amende d to have maintained rec ords since the proce eding s beg an. The pronounce ment is aimed at pl ac i n g re gu lated SOBs on notice of the Comptroller’s
retroa ctive application of the amende d rec ord-ke eping requ i re m ents and applies g ener ally to all SOBs involved in pending proce eding s. Whil e the pronounce ment appea rs in the same publication
as t he adoption of t he amended rule itself, the pronounce ment clar ifies an a mbiguity in the text of amende d rule 3.722—i.e

. , w h e th e r SO B s w it h a lr e a d y - p e n d in g a d

mi n is tr a ti v e o r judicial proce eding s

on the date of the rule’s adoption must have kept rec ords since the time those proce eding s beg an or whether they must keep rec ords only from the date of the adopted new rule g oing forwa rd. I n other words, the retroa ctivity pronounce ment is a Comp t ro l l er statement that applies to all SOBs with pending p roce eding s that interpre ts the new rule and presc ribes the Comptroller’s policy with resp ec t t o retroactive rec ord keeping

. Acc ording ly , the retroa ctivity pronounce ment meets the APA’s def

inition of a “rule.” See Tex. Gov’t Code § 2001.003(6). We there fore turn to a consideration of whether Ba dg er Taver n is making a proper validity challeng e to the retroa ctivity pronounce ment. Section 2001.038 authorizes only actions for decla ratory judgme nt to deter

mine either the “validity ” or “applica bility ” of a rule “if it is alleg ed that the rule or its threa tened application i n t erf ere s with or impairs, or threa tens to interfe re with

8or impair, a leg al rig ht or privileg e of the plaintiff.” Tex. Gov’ t Code § 2001.038(a) ; see LMV-AL

V e n tu r e s , LL C v . Te

x a s D e p ’ t o f A g in g & D is a b il it

y S e r v s . , 5 2 0 S. W. 3 d 1 1 3 , 1 2 5 ( T e x. A p p . — Au s ti n 2017, pet. denied)

. Ba dg er Tave rn conce des that it is not challeng ing the “a p p l i ca b i l i ty ” of the rule but only its “validity .” The Comptroller responds that Ba dg er Tave rn’s contention that the rule exceeds the Comptroller’s statutory authority is not a proper “validity ” challeng e but is, instead,

an improper “applica

t i o n ” ch alleng e, for which section 2001.038 does not waive immunit y . See LMV-AL , 520 S.W .3d at 124. We disag ree with the Comptroller.

We g lean from Ba dg er Tave rn ’s live petition that its primary alleg ation is that the Comptroller, as expressed in the retroa ctivity pronounce ment, now re quires SOBs with judicia l or administrative proce eding s pending on the date of the rule’s amendment (including Ba dg er Tave rn) to ha ve kept rec ords from the date that the proce eding s beg an throug h the amendment date even if the previous four- y ear rete ntion require ment expired during that time, without any prior notice that such rec ords must be kept. I t c ontends that the Comptroller’s statement that it will apply the new 1 rule retroa ctively

—as manifested in the retroa cti v ity pronounce ment—exceeds the Comptroller’s statutory authority , “contr avene s the specific statutory lang uag e,” and “imposes additional burdens, conditions, and restric tions in excess of or inconsistent with the statutory require ments.” I t further contends that the “statutes at issue should not be construed to allow re troac tive application absent

a plain statement of the L eg islature’s intent to do so.” These alleg ations that the Comptroller promulg ated retroa ctive rules in the absenc e of express statutory au t h o ri t y permitting such rules

Ba dg er Tave rn alleg ed in its live petition that “Plaintiff lawfully discar d ed rec ords in 1 relianc e on Orig inal Rule § 3.722’s four- y ear rete ntion require ment” and “is i m p ac t ed by the retroa ctive extension of the per iod for which r ecor ds must be kept.” 9constitute challeng es to the validity of the rule at issue. See O ffice of Pub. Util. Counsel v. Public Util. Comm’n , 131 S.W .3d 314, 321 (Tex. App.—Austin 2004, pet. denied) (“To establish the rule’s fac ial invalidity , a cha lleng er must show that the rule: (1) contra venes specific statutory lang uag e; ( 2 ) r u n s c o u n te r to th e g e n e r a l o b

je c ti v e s o f th e s ta

tu te ; o r ( 3 ) im

p o s e s a d d it io n a l b u

r d e n s , c o n d it io n s ,
or restric tions in excess of or inconsistent with the rele vant statutory provisions.”). We conclude that Ba dg er Tave rn’s first “ca

use of action” alleg es a proper challeng e to the validity of the retroa ctivity pronounce ment. Acc ording ly , we sustain B adg er Ta vern’ s sole issue.

CONCLUSION We conclude t h at the trial court err ed in g ranting the Comptroller’s plea to the jurisdiction as to Ba dg er Tave rn’s first cause of action and, acc ording ly , reve rse the t ri al court’s partial g rant of the Co m p t ro l l er ’s p lea to the jurisdiction and rema nd this cause to the trial court for f urther pr ocee dings.

__________________________________________ David Pury ear , J ustice

Be fore J ustices Pury ear , Pemberton, and B ourland Reverse d and Remande d Filed: September

11, 2018

10