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

NO. 03-0 7 -00 506 -CV
The State of Texas, et al., Appellan ts

v. Ess e nt ial ly Y our s In dust r ie s, Inc . a/k /a E sse nt ial ly Y our s C or p. a/k/a B urrard Capital, Inc. a F oreign Corporat ion, App ellee

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 353RD JUDICIAL DISTRICT NO. D-1- GV-03- 0041 80 , HO NORAB LE ORLI NDA NARAN JO , 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 take -n oth ingjud g me nt, fo llo wi nga be nc h tr ia l, i n a

su it by the Sta t e o f T exas and approximately 170 other g overnme ntal entities to recove r delinquent state and loc al sales taxes alleg edly owed by

Essentially

You rs I ndustries, Inc. (EY I , Inc.). The district cour

t made finding s of fact and conclusions of l aw to the e ffe ct that the taxes were not
ow e d b y EY I , I nc. , bu t inste a d s ho uld have be e n a sse sse d a g a ins t E YI , Inc .’ s c or po ra te pa re nt, Essentially

Yours Industries, Corp. (EYI , Corp.). In a sing le issue, appe llants contend that the evidenc e was leg ally

and fa ctually

insufficient to support the district cour t’s finding s that EYI , I nc., was not the correc t taxpay er. B eca use we conclude that the evidenc e wa s sufficient to support the fi nd ing , w e a ff

ir m th e dis tr ic t c ourt ’s jud g me nt. EYI , I nc., had be en incor

porate d in Nevada on Marc h 26, 1996, as a wholly owned
su bs idi ary of EY I , Co rp . E YI , C orp ., EYI Inc .’ s p are nt c omp any , h a d b e e n f or me d inEY I , Co rp .’ s sa le s a c tiv iti e s c e a se d in 20 02 . In Jun e 20 02 , EYI , Inc ., me rg e d w ith 1 Bur rand Capital, I nc. After

the merg er, B urra

nd Capital, I nc. cha

ng ed its name to Essentially Yours I ndustries, Inc., a se parate entit y from the orig inal EYI , Inc. The new EYI , Inc., was assig ned a ne w taxpay er identification number. Once the merg er ha d been c ompleted, EYI , Corp., cea sed all sales activity . These e vents o cc u rr ed af ter the a udit period ende d on J une 30, 2001, and ha ve no ef fec t on the ana ly sis in thi s case . Rigg s had completed an audit of EYI , Inc., for the immediately

prec edingperiod. The prior 2 audit is not at issue in thi s case . 2 B ri tis h Co lum

bia , Ca na da , on De c e mbe r 1 4, 19 95 . E YI , Co rp ., wa s a ne tw or k ma rk e tin g bu sin e ss,
s i m i l ar i ns t ru ct u re t o Am wa y , th at m ark et edh ea l than d we l l n e s s p ro d

u ct s th ro u gh ind e pe nd e nt d istri bu to rs in C ana da and the Un ite d St a te s. The district cour t hear d evidenc e that 1 duri ngthe a

ud it p e ri od

a t is su e —July

1, 19 98 , thr ou g h J un e 30 , 200 1— EY I , Cor p. , ma de sa le s to Texas customers throug h distributors located in Texas (and w as, there fore , responsible for collecting
and re mittin g sa le s tax) wh ile EY I , I nc ., wa s a sh e ll c or po ratio n th a t ha d n o s a le s a c tiv ity in T e xas. Kar en Rig g s conducte d the audit for the comptroller be tween July 30, 2001, and J uly 2, 2002. When she beg an the a udit, Ri g g s mailed an a

udit questionnaire addr essed to EYI , I nc. 2 At the time of

trial, Donna K eay

was a n office r of EY I , Inc., who pr epar ed the c ompany ’s financ ial statements and ove rsaw its ac counting . Duringthe audit per iod, however , Kea y had bee n the controller f

or EYI , Corp. Kea

y s completed a

n d re t u rn ed the audit questionnaire that Rig g s had addre ssed to EYI , Inc ., with information reg ardingEYI , Cor p . The c ompleted questionnaire listed the taxpay er na

me and a ddress as EYI , Corp., 201-8322 130th Stre et, Surrey BC V3W 8J 9, and listed t h e t axpay er ide ntification number 1- 860860700-0. Althoug h Kea y listed Nevada

as the state of incorpora tion, she testified at trial that this was a mistake and that the corre ct place of incorpor ationAc c or din g to a pp e lla nts : 3 Since the De fenda

nt denied that i t wa s t h e same entity that the Texas Comptroller identified and a

udited as t h e t ax p ay er , it was the State’s burde n to prove that “E s s en t i al l y

Yo u rs I n d

u s t ri es , I n c. , ” w as t h e c o rr ec tt ax p ay er . I f t h e t ri al co urt j u d ge had agree d with the State, and dete rmined that the de fenda nt was the same taxpay er that was audited by the Texas Comptroller, then the burden was on t h e d ef en dant to prove, by

conclusive e vidence , t h at t he Comptroller’s de termination of tax due wa s in c or re c t. The Com ptroller’s determination of t ax due, or liability , is not at issue in thi s appea l. The sole issue to be dete rmined is whether EYI , Inc., is the cor

rec t tax pay er. 3 fo r E YI , Co rp ., wa s B ri tis h Col umb ia , Cana da
. Th e dis tr ic t c ourt he ard e vid e nc e that, a s th e a

ud it proce eded, K eay

continued to provide infor mation reg ardingEYI , Corp. On J uly 25, 2002, afte r R igg s had complete d the audit, the comptroller issued a Texas Notification of Audit Results to EYI , Inc., showinga total audit def iciency of $160,278.98. On Octobe r 9, 2003, appe llants f iled suit a g ainst EYI , Inc., to c ollect the audit def iciency . Following
a be nc h tr ia l on

June 11 , 2 00 7, th e di stric t c ou rt , a s n ote d, e nte re d a

take -n oth ingjud g me nt i n favor of EYI , I nc. I n a sin g le po int

of e rr or , a pp e lla nts argue that th e e vid e nc e wa s le g a lly and fa c tua lly insufficient to support the dist rict cour t’s finding that EYI , Inc., wa s not the same taxpay er who had been a udited. Wh i l e conc edingthat it had the burde n of provingthat EYI , Inc., wa s the corr ect taxpay er, a

ppellants contend that the “over whelming ” evidence at trial showed that EY I , Inc., wa s the ta xpay e r t

hat ha d b e e n a

ud ite d a nd ult imate ly

su e d b y a pp e lla nts
. 3 Whe n a par

ty c ha lle ng e s the le g a l su ff ic ie nc y of the e vid e nc e su

pp or tin g an a dv e rs e finding on an issue on which it has the burden of proof, that party must demonstrate on appe al that4

the evidenc e conc lusively established, as a

matter of la

w, all vi tal fac ts in support of the issue. Do w Ch e m. Co. v . F

ra nc is , 4 6 S
. W
. 3 d237, 241 (Tex. 2001). In conductinga leg al suffic iency revie w of the e vidence , a cour t must consider all of the e vidence in the light most favor able to the fac t finding and indul g e every rea sonable inferenc e that would support it. City of Keller v. W ilson , 168 S.W .3d 802, 822 (Tex. 2005).

When a par

ty attacks the fac tual s u ff

i ci ency of an a dverse finding on an issue on wh ic h h e ha s th e burd e n of pr oo f, he mus t de mon str a te on a pp e a l th a t th e a dv e rs e fi nd ingis a g a ins t the gre at weight and pr eponder ance of the e vidence
. Do w Ch e m. Co. v . F ra nc is , 46 S.W .3d 237, 241 (Tex. 2001). The c ourt of appeals m ust consider a nd weig h all of the e vidence , and ca n set aside a finding only

if the evide nce is so we ak or if the finding is so ag ainst t h e gre at we i gh t and preponde ranc e of the evidenc e that it is clear ly wrongand unjust. Id. As they had the bur den of proof at trial, a ppellants must show either that the e vidence conclusively

establishes as a

matter of la

w that EYI , I nc., was the corr ect taxpay er or that this finding is s o a g a ins t th e g re a t w e ig ht a nd pr e po nd e ra

nc e of the e vid e nc e that it

is c le arl y wr on g and

un jus t. See Dow Chem. Co. , 46 S.W .3d at 241.

T h e f o l l o w i n g e v i d e n c e s u

p p o rt s th e d i s tr i c tc o urt ’ s f i n d i n g th a tE Y I, C o r

p . , n o tE Y I, I nc., wa s the taxpay er a

udited by Rigg s for the July

1, 1998 throug h J une 30, 2001 audit per iod:

• Kea

y completed a

nd returne d the audit questionnaire , referr ing to the taxpay er a s EYI , Corp., and li s t i ng EYI , Corp.’s taxpay er ide ntification number a s 1-860860700-0.

• F ra

nc his e ta x re tur

ns ha d be e n fil e d for ta x y e ars 20 00 and 20 01 in t he name of EYI , Corp., 201-8322 130th Street, Surre y BC V3W 8J 9, taxpay er ide n ti f ic a ti o n nu mb e r 1

- 8 6 0 8 6 0 7 0 0

- 0
. N o f r an c h is e tax r e tu

r n s h a d been5 filed for EYI , I nc. Rigg s, the State’s witness, testified that if EY I , Inc., had any sales ac tivity during the audit period, it should have, likewise, bee n filing fra nchise tax returns. The re was no evidenc e that any fra nchise tax return had e v e r b e e n f

il e d b y E Y I , In c . In a le tt e r d a te d Janu ar y 2 6 , 1999, the comptroller infor

med Dennis Mee , CFO of E YI , Corp., that EYI , Inc., had no t f ile d f ra nc his e ta x re tur

ns .

• I n r e sp on se to R ig g s’ s r e qu e st fo r inf or matio n ne e de d to c omp le te the a ud it, Kea y sent a fax to Rigg s on behalf of E YI, C o rp . , attachingEYI , Corp.’s product list. There was no re fer ence to EYI , Inc.

• A letter fr o m Keay to Rigg s on J uly

12, 2001, confirme d their mee ting on J uly 30 and 31 and r efe rre d to EYI , Corp., as the taxpay er.

• Rigg s desig nated the taxpay er as EYI , Corp., in the audit plan she pre pare d.

• Th e e le c tr on ic fu

nd s tr ans fe r f

or m c omp le te d b y

EY I , Co rp ., a llo wi ngit t o transfe r funds e lectronic ally to the comptroller , listed EYI , Corp., taxpay er identification number 1- 860860700-0, as the tax pay er.

• The e mploy er identification number on E YI , Corp.’s fe dera l income tax returns f or tax y ear s 2000 throug h 2002 was 860860700. Rigg s testified that the perma nent Texas tax pay er ide ntification number is the fe dera l income tax number with t he number one adde d to the front and a zero adde d to the end. Attempting to contr overt t h is e v id e n c e , a

p p e ll a nts r e f e r u s to monthly

sales tax returns repor t i n g s al es u n d er the name of EYI , Inc. The se for

ms were mailed to the taxpay er w ith the
name “ EY I , Inc .” pr e pr int e d o n th e fo rm s b y the c omp tr oll e r. Ac c or din g t o Keay , s he sim ply “didn’t notice” that the name w as inco rrect when she completed a nd returne d the forms. F urther, the forms a ctually

enter ed into evidenc e as e x hibits are not fr om t he a ud it p e ri od . T he se fo rm s
and the re late d te sti mony

c omp ri se the tot a lity

of app ell ant s’ e vid e nc e that c ou ld a rgua bly support their position.Ac c or din g to Rig g s’ s te sti mony , th e ta xpay e r’ s n ame c ou ld h ave be e n c or re c te d at any

tim e 4 during the audit per iod
. S i m i l ar l y , even a fter E YI , I nc., asse rted its argument that it was not the corr ect taxpay er, the re is no evide nce of any attempt by

appellants to cor

rec t or amend the ir petition to a dd EY I , Co rp ., a s a

de fe nd ant. 6 T h e r e w a s e v i d e n c e o f

c o n f u s i o no nb o ths i d e s a s t o w h i c he n t i ty
— E Y I, In c . , o r

E Y I, Corp.—was be ing a

udited. At the hea

rt of the matter

is which en t i t y was a ssigne d taxpay er identification number 1- 860860700-0, which w as t h e n u m b er de signated on all forms a nd
corr espondenc e. The parties a g ree that this was the ide ntification number of the taxpay er who was audited but disag ree as t o wh et h er t h is number belong ed to EYI , Inc., or to EYI , Corp. The confusion ar ose due to a

name discr epanc y which, ac cordingto the testimony , neither pa rty noticed. Whe n Ri g g s w a s q

ue sti on e d a

bo ut t he c omp tr oll e r’ s p ro c e du res for a dd re ssi ngsu c h n ame dis c re pa nc ie s, sh e te sti fi e d that if an a ud ito r no tic e s an inc on sis te nc y , he sim ply c ha ng e s o r c or

re c ts the name in the sy stem. Here , despite the inconsistenc ies, neither pa rty noticed the pr oblem, and the pr ob le m w a s n e ve r c or

re c te d. Al tho ug h Rig g s a g re e d that “ it [is] imp or tant to the Com

ptr oll e r t o have a consistent name so that they know who they ’re dealing with” and conc edes that there w ere do c ume nts re fe rr ingto bo th EY I , Inc ., and to E YI , Co rp ., and

tha t “ it w ou ld b e the re sp on sib ili ty of the Comptroller’s of

fice , as the State a g ency t h at admini sters the sale s tax , to ge t at the
corr ect taxpay er na

me with the taxpay er numbe r,” the comptroller’ s office neither notice d nor
c or re c te d th e pr ob le m. 4

Th e re was legal ly

and fa c tua lly su ff ic ie nt e vid e nc e that E YI , Co rp ., wa s th e e nti ty with sales ac tivity in Texas, the entit y with tax pay er ide ntification number 1- 860860700-0, and the proper taxpay er. I n fac t, Rig g s ag ree d that “if Ms. Ke ay testifies that Corp., was the e ntity that was7

making the sales in Te x as and w as the e ntity that s h o u l d b e as s o ciated w ith Tax pay er N o. 186, [R igg s] would have no evidenc e to re fute tha t
. ” T h e o nly probative e vidence offe red by the S t at e— t h e f

o rm s wi t ht h e p re p ri n t edn a m e o f E Y I, Inc
. — i s i n s u ff i ci en tt o m ee tap p el l an t s ’ h i gh burden of showing that the evidenc e conc lusively proves that EYI , Inc., wa s the audited taxpay er or that the district court’s c ontrary fi n d i n gs we re a g ainst the g reat weig ht and pre pondera nce of the evidenc e. See Dow Chem. Co. , 46 S.W .3d at 241.

Appellants fur

ther a rgue that, eve n if the evidenc e was leg ally and fa ctually sufficie nt to suppor t the finding of the district cour t that EYI , I nc., wa s the audited e ntity , EYI , I nc., is estopped from deny

ing that it was the entity

in question beca

use: (1) it knowing ly

misrepre sented itself a s t h e t ax pay er or conce aled the f

act that Es se nti a lly

Yo ur s I nd

us tr ie s, Cor

p. , wa s the e nti ty that tr ans a c te d b us ine ss i n T e xas; (2 ) t he Com ptr oll e r w a s w ith out kn owled ge, or me ans of kn ow le dg e , o f t

hat f a c t; (3) EYI , I nc., intended for the Comptroller to believe it was the tax pay er making the ta xab le sa le s in

Te xas a nd int e nd e d f

or the Com

ptr oll e r to a sse ss the a

ud it l ia bil ity ag ainst it; and (4) the Comptroller re lied upon the re prese ntation to its prejudice
. As dis c us se d a

bo ve , th e dis tr ic t c ourt he ard e vid e nc e that bo th s ide s ma y have be e n c on fu se d a s to wh ic h e nti ty

—E YI , Inc ., or

EY I , Co rp .—

wa s b ein g au dit e d a

nd tha t ne ith e r p art

y no tic e d th is dis c re pa nc y wh ile the a

ud it wa s be ing c on du c te d. On thi s re c or d, we c ann ot c on c lud e that a pp e lla nts have me t their burden of conclusively establishing the elements of estoppel or that the district court’s contra ry finding s are ag ainst the g reat weig ht and pre pondera nce of the evidenc e. Be cause we f

ind the evidence lega lly

and fa ctually

sufficie nt to support the district court’s f inding that EY I , I nc., wa s not the corr ect tax pay er, we overrule appellants’ poi nt of er ror a nd
a ff ir m th e jud g me nt o f t

he dis tr ic t c ourt
.8 __________________________________________ Bob Pembe rton, J ustice Be fore Chief J ustice L aw, Justi ces Pembe rton and Waldrop Affir med Filed: August 22, 2008