### 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. 03-16-00724- CV

Ranna & Com pany, L LC, Appellan t

v. Texas Com m ission on En vironm ental Quali ty, Appellee

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 345 TH JUDICI AL DISTRICT NO. D-1 -GN-1 3-0 0132 2, H ONO RAB LE O RLINDA NARANJO , JUDGE P RESIDING

M E M O R A N D U M O P I N I O N

T h is is an appeal from the j udg ment of t he dis trict court of Travis Count y in a s u i t for judicial revie w of a decision of the Ex ecutive Direc tor (the Direc tor) of the Texas Commi ssion

on Environmental Quality (the Ag ency ). Appellant is Ranna & Company , L L C (Ranna)

. This Court will affirm the judg ment of the district cour t. By Ag ency rule a municipal utilit y district must obtain the Direc tor’s approva l befor e spending tax reve nue to re i m b u rse a develope r for acquisition of fac iliti es. See 30 Tex. Admin. Code § 293.83(b) (2018) (Texas Comm’n on Envt’l Quality , District Use of Surplus Funds for Any Purpose and Use of Maintena nce T ax R evenue for Cer tain Purposes). I n 2009, For t Be nd County Municipal Utility District No. 2 (the District) soug ht approva l to use up to $800,000 in tax reve nue to obtain either an ease ment or fee simple title to a 4-ac re detention pond ly ing within a 28-ac re trac t.The Ag ency rec eived materia l from both the District and the l andowner, Ranna.

After revie w, the application was approve d in the sum of $37,551 as pay ment either for an ease ment

on the pond or for

fee owner ship. Displeased with the sum appr oved, Ranna soug ht r eview of the Direc tor’s decision in the district court of Travis County

. After hear ing, the district court rende red judgme nt affir

ming the de cision of the Dire ctor. I n 1994, J amal Nickmar d boug ht the involved 28-ac re trac t from the Fe dera l Deposit I nsuranc e Corporation for $80,000. I n making the purc hase, N ickmard w as ac ting f or his mother, A la m T a jg a r d o u n , p u r s u a nt to a s ta tu to r y d u r a b le p o w e r o f a

tt o r n e y . A f te r th e p u r c h a s e , h e tra

n s f e r r e d title to his mother. Over the ne x t s ev er al y ea rs, Nickmar d, acting for his mother, sol d six parc els from the trac t vary

ing in siz e from over five acr es to just under one acr e. Finally , only two parc els

rema ined, a twe lve-a cre trac t and the four -ac re de tention pond.

After a potential sale of the twelve- acr e trac t fell throug h, Nickmar d d ec i d ed to try to develop the trac t by his own eff orts. L acking capital, he turned to a family friend, a business associ at e an d a man of means, J essie Sanusi. Not experience d in the business of subdividing l an d , S an u s i h ad no taste for taking on the projec t alone. He wave red until Nickmar d ag ree d t o work with him as a “deve lopment consultant.” Sanusi then committed himself and his funds to the projec t. Sanusi formed Ranna in 2000 to acquire t he trac t and develop it into what beca me “Riverwa y Estates.” The District’s detention require ments for the Riverway Estates inclu d ed the four- acr e pond. Ranna’s proof was that Nickmar d, acting for his mother, ag ree d to sell the four- acr e pond to Ranna for $800,000. I n September 2003, Ranna executed a prom i s s o ry n ote pay able to

2Tajg ardoun, secur ed by a deed of trust. Shortly afte r the closing , there was a flurry of transac tions

substitut ing othe r collate ral to sec ure the $800,000 purcha se-money loan. Nickmar d beca

me much more than a “deve lopment consultant” to Sanusi and Ranna in the purcha se of the detention pond. He was also the attorney and ag ent for his mother Tajg ardoun, the seller of the proper

ty

. He was the person wh o co n du ct ed the neg otiations for both the buy er and the seller in the transac tions. Nickmar d was the consultant that Ranna used in all of its dealing with his mot her.

Fr om 2003 forwa

rd, Nickmar d was vice- president, secr etar y , and trea surer of Ranna

as well as the majority owner of the company . I n a deposition in a lawsuit then pending , Nickmar d

was asked if his mother had rec eived any pay ments from Ranna f

or the sale of the detention pond. Nickmar d responde d that she had r ece ived no money to date, but that she would be paid. Sanusi testified on deposition in the lawsuit that th ere was nothing in writing obligating Ranna

to make pay

ments of any

dollar amount to T ajg ardoun f or purc hase of

the pond. He a nswere d, “I t’s verba l [ sic] . . . I can’ t think of any written.” Sanusi testified further t hat there

was nothing in writing setting out the terms of the oral agree ment betwee n Ranna and Tajg ardoun. Sanusi later filed a

n aff idavit with the Direc tor rec anting this testim ony . I n this Court, Ranna asser ts by its first issue that the district court err ed in conducting

a substantial-evidenc e revie w of the case . Ranna advanc es three arguments in support of the issue, the first being , “De novo revie w applies to construction of statutes/rules.” In support of its asser tion, Ranna c ites sever al ca ses and the Code Construction Act setting out stock r ules of construc tion. More to the point, the Ag ency agree s that statu t es and ag ency rules are revie wed de novo by the court in the sense that the term descr ibes the court’s authority to substitute its leg al 3judgme nt for that of the ag ency ’s on the proper construction of statutes or rules. See, e.g. , Railroad

Comm’n v. Texas Citi

zens for a Safe Future & Clean W ater , 336 S.W .3d 619, 624–25 (Tex. 2011). This conce pt is an integ ral pa rt of substantial-e vidence revie w. See id. Ran n a i s m i s t aken, howeve r, i f i t is claiming that it was entitl ed to a trial de novo. A trial de no v o i s o n l y available , if at all, by specific statutory authorization. Tex. Gov’t Code § 2001.175. Otherw ise, consideration of ag ency decisions or order s is by substantial-evidence revie w, whether the statute authorizing revie w states that as the standard or is silent as to the scope of re view. Id. § 2001.174.

Texas Water Code section 5.351(a) provides: “A person aff ecte d by a ruling , order , decision, or other act of the commission may file a petition to revie w, set aside, modify , or suspend the act of the commission.” Be cau s e s ec t i o n 5.351(a) does not specify a standard of revie w, substantial evidence revie w is mandated. See Tex. Gov’t Code § 2001.174.

Ra n na argues next that “De novo revie w applies beca use the [Age ncy ] did not conduct a contested- case hear ing.” Ranna has not shown the Court a statute or rule requiring the Ag ency to aff

ord a contested- case hear ing on a municipal district’s reque st for approva l o f a reimburse ment amount. I n absenc e of such authority , Ranna had no rig ht t o a co ntested-c ase hear ing. See Texas Dep’t of Ins. v. State Farm L loyds , 260 S.W .3d 233, 243 (Tex. App.—Austin 2008, no pet.). Ranna contends that it is “not possible” to conduct a substantial-evidenc e revie w of

an ag ency decision made without a contested- case hear ing. To the contra ry , the Supreme Court and this Court have rec ently con cl u d ed that substantial-evidenc e revie w may be aff orded on such a

4rec ord. See Texas Comm’n on Envt’l Quality v. City of W aco , 413 S.W .3d 409, 424–25 (Tex. 2013); Sierra Club v. Texas Comm’n on Envt’l Quality , 455 S.W .3d 214, 233 n.9 (Tex. App.—Austin 2014, pet. denied) ; Texas Comm’n on Envt’l Quality v. S i er r a Club , 455 S.W .3d 228, 235–36 (Tex. App.—Austin 2014, pet. denied)

.

Ranna next claims the Ag ency ’s failure t o af fo rd i t a hear ing was a denial of due proce ss. I n support of its contention, Ranna states, “the lack of the opportunity to develop a rec ord that could overc ome the substantial-evidenc e standa rd may rise to the leve l of being a violation of proce dural due proce ss and, for that rea son, arbitra ry .” The Supreme Court of the United States has articulated the due-pr ocess standard for administrative proce eding s: “[D]i ffe renc es in the orig in and function of admi nistrative ag encie s ‘pre clude wholesale transplantation of the rules of proce dure, trial and revie w which have evolved from the history and experience s of courts.’

. . . The judicial model of an evidentiary hear ing is neither a require d, nor even the most eff ective, method of decision making in all circ umstances. The

essenc e of due proce ss is the require ment that ‘a person in jeopar dy of serious loss (be g iven) notice of the case ag ainst him and an opportunity to meet it.’” Matthews v. Eldridge , 424 U.S. 319, 348–49 (1976) (interna l citations omitted) (quoting Jo i n t Anti-Fascist Comm. v. McG rath , 341 U.S. 123, 171–172 (1951) (F rankf

urter, J ., concur

ring ) and Fede ral Commc’n Comm ’n v. P ottsville Broad. Co. , 309 U.S. 134, 143 (1940)).

The Ag ency res p onds, corr ectly , that Ranna was not deprive d of an opportunity to make a rec ord or to be heard. Ag ency staff solicited materia l from R anna, specifica lly reque sting documentation of costs for the sale of the proper ty to Ranna. Ranna responde d. Much of the rec ord

5consi s t s o f i t s filings. Fur ther, Ranna had an opportunity to be hear d on written submissi on of documents, af

fidavits, and ar g ument. By its second issue Ranna claims, in eff ect, that the Dire ctor e rre d in failing to use the $800,000 purcha se price as the reimburse ment to Ranna for its acquisition of the detention pond.

The c ontrolling Ag ency

rule provide s in pertinent par t as follows:

I f a district acquir es such a site, as descr ibed in subsection (b) of this section, which is outside the 100-y ear floodplain, from a deve loper within the district or subsequent o wn er o f develope r reimbursa bles, the price shall be deter mined by adding to th e price paid by the deve loper for such land or ease ment in a bona fide transaction between unrelated parties the deve loper’s a ctual taxes and intere st paid to the date of acquisition by the district.

. . . Provided, howeve r, if the ex ec u t i v e direc tor deter mines that such price appea rs to exceed the fair marke t v al u e of such land or ea s ement, the executive direc tor may require an appra isal to be obtained by t h e district from a qualified independe nt appra iser and pay ment to the s el ler may be limit ed to the fa ir marke t value of suc h as shown by the appr aisal . . . .

3 0 Tex. Admin. Code § 293.51(c) (1) (Texas Comm’n on Envtl. Quality , L and and Eas em en t Acquisition) (empha ses supplied).

The Direc tor was not persua ded that the sale of the detention-pond trac t was betwee n “unre lated parties.” The rec ord supports the Direc tor’s position. Alan B. Mckie, Ranna’s eng ineer , made no distinction among Ranna, Tajg ardoun, and Nickmar d as the develope r. Nickmar d was the majority owner of Ranna and serve d as its vice president, secr etar y , and trea surer . I n the sale of the detention-pond trac t, he repr esente d the seller, his mother, and the buy er, his corpor ation, and he did the neg otiations for both sides. The Direc tor could have conclude d that Nickmar d probably acc epted confide nces from, and enlisted on, both sides. I t is the omnipresent J amal Nickmar d, in the middle of eve ry thing, that make s this a transac tion among r elated pa rties.

6L ikewise, Ranna’s documentation, or lack there of, did not persua de the Direc tor that

the $800,000 transac tion was bona fide. The Ag ency reque sted a HUD closing statement that was

never supplied. I nstead, Ranna sent two unsworn page s it termed the buy er’ s an d seller’ s closing statement. Four day s afte r the closing , other collater al was substitut ed for the detention-pond trac t to secur e the $ 8 0 0 , 0 0 0 p romissory note. Acc ording to the Har ris County Appra isal District, the substitut ed collater al was valued at $138,080. I n an eff ort to show partial pay

ment of the $800,000 note, Ranna filed with the Direc tor a let t er fr o m Prosperity Ba nk containing two lines of text decla ring that on J une 6, 2010, its customer, Rhino Global I nvestments, rec eived a wire deposit for $394,380.62 and that Rhino had transfe rre d that sum to Nickmar d’s acc ount. This transac tion

occur red in 2010, almost se ven y ear s afte r the $800,000 transac tion. In addition, the Ba nk’s letter g a v e n o in f o r ma ti o n a b o ut wh a t th e d e p o s it w a s f

o r . T h e D ir e c to r d id n o t a c t u n r e a s o n a b ly in d e c li n in g to be per suaded that Ranna’s doc uments demonstrated that a bona f ide transa ction had occ urre d. By its final issue, Ranna cl ai m s t h at the Direc tor err ed in failing to addre ss in the decisi o n ce rt ain reimbursa ble items such as leg al fee s, loan-c losing costs, and eng ineer ing costs. Ranna re quests this Court “to remand” this matter to the Ag ency for de termination of these items. Although the focus of

the District’s application wa s the cost of the de tention pond, the District rec og nized the other reimbursa ble items a

nd committed in its application to r eimburse Ranna for these it ems pursuant to “standa rd reimbursement proc edure s.” Acc ording ly , this claim did not become an issue for the Direc tor’s deter mination, nor has Ranna shown this Court any rec ord cite showingthat it raised this matter in district court.

The judg ment is affirme d.

7__________________________________________ Bob E. Shannon, Justice Be fore J ustices Pury ear , Bour land, and Shannon* Affir med Filed: May

24, 2018 * Be fore Bob E. Shannon, Chief J ustice (r etired) , Third Court of Appe als, sitting by assig nment. See Tex. Gov’t Code § 74.003(b).

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