Court Opinion

ID: 4069113
Source: CourtListenerOpinion
Date Created: 2016-09-30 00:23:27.693407+00
Date Added: 2024-06-11T12:51:47.961030
License: Public Domain

ACCEPTED
                                                                                    03-14-00771-CV
                                                                                            5693499
                                                                         THIRD COURT OF APPEALS
                                                                                    AUSTIN, TEXAS
June 29, 2015                                                                 6/16/2015 12:17:11 PM
                                                                                  JEFFREY D. KYLE
                                                                                             CLERK

                           NO. 03-14-00771-CV
                                                                  RECEIVED IN
                                    In The                  3rd COURT OF APPEALS
                                                                 AUSTIN, TEXAS

                      Third Court of Appeals                6/16/2015 12:17:11 PM
                                                                JEFFREY D. KYLE
                               AT   AUSTIN, TEXAS                    Clerk

   Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby
   & Sons Store, Inc., and Rubina Noorani,
                                                             APPELLANTS
                                        VS.

   The Office of the Comptroller of Public Accounts; Glenn Hegar, in his
   official capacity as Comptroller of Public Accounts for the State of Texas;
   and Ken Paxton in his official capacity as Attorney General of the State of
   Texas,
                                                                  APPELLEES
            __________________________________________________________
                         Appeal From Cause No D-1-GN-13-4352
                     The 200th District Court Of Travis County, Texas
                        The Honorable Charles Ramsay, Presiding
            __________________________________________________________

                         APPELLANT’S REPLY BRIEF
           ___________________________________________________________

                                 SAMUEL T. JACKSON
                                 SBN 10495700
                                   P.O. BOX 670133
                              ARLINGTON, TX 76003-0133
                                 TEL: (512) 692-6260
                                 FAX: (866) 722-9685
                            COUNSEL FOR APPELLANTS

                           ORAL ARGUMENT REQUESTED
                  IDENTITY OF PARTIES AND COUNSEL

APPELLANTS:
Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby
& Sons Store, Inc., and Rubina Noorani

COUNSEL FOR APPELLANTS:
      LAW OFFICE OF
      SAMUEL T. JACKSON
      P.O. Box 170633
      Arlington, Texas 76003-0633
      TEL: (512) 692-6260
      FAX: (866) 722-9685
      Email: jacksonlaw@hotmail.com

APPELLEES:
The Office of the Comptroller of Public Accounts; Glenn Hager, in his official
capacity as Comptroller of Public Accounts of the State of Texas; and Ken
Paxton, in his official capacity as Attorney General of the State of Texas

COUNSEL FOR APPELLEES:
      JACK HOHENGARTEN
      Assistant Attorney General
      FINANCIAL LITIGATION DIVISION
      P.O. Box 12548
      Austin, TX 78711-2548
      TEL: (512) 475-3503
      FAX: (512) 477-2348/480-8327
      Email: jack.hohengarten@oag.state.tx.us

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                                       TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL........................................ 2

TABLE OF CONTENTS ................................................................. 3

TABLE OF AUTHORITIES ............................................................ 5

STATEMENT OF JURISDICTION ................................................. 12

ISSUES PRESENTED.................................................................... 12

SUMMARY OF ARGUMENTS ...................................................... 13

ARGUMENT ............................................................................... 16

    I. The absence of the reporter’s records is not dispositive of issues that are
    purely matters of law, requiring no factual findings. ................................. 16
    II. Sanadco 2 does not control resolution of the issues involved in this case
    because these issues challenge the validity of rules, the constitutionality of
    statutes and ultra vires conduct, and not the applicability, assessment,
    collection, or constitutionality of a state tax, ostensibly controlled by
    Chapter 112. ................................................................................................. 19
    III. Chapter 112’s prepayment provisions are inapplicable to petitions for
    judicial review and declaratory judgment actions because the Texas
    Supreme Court has ruled that they unconstitionally violate the Open
    Courts provision when applied to these remedies. ..................................... 23
    IV. Appellants’ pleadings provided sufficient relevant, undisputed
    allegations conclusively establishing that the administrative orders were
    void and unenforceable ab initio as a matter of law, thus, there was no final
    judgment to support the Comptroller’s collection efforts, and the trial court
    abused its discretion by failing to grant the temporary restraining
    order.............................................................................................................. 27
      A......... Appellants’ pleadings established the invalidity of the rules as a
      matter of law. ............................................................................................27
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      B. Appellants’ pleadings established the nullification of the
      administrative judgment as a matter of law. ...........................................35
      C. Appellants’ pleadings established the Comptroller’s ultra vires
      conduct as a matter of law. .......................................................................39
CONCLUSION ............................................................................ 41

PRAYER FOR RELIEF .................................................................. 42

CERTIFICATE OF COMPLIANCE ................................................ 43

CERTIFICATE OF SERVICE ......................................................... 43

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                                         TABLE OF AUTHORITIES

Cases

Ard v. Carrington,
  01-13-00067-CV (Tex.App.-Houston [1st Dist.] 3-27-2014) ................................................... 16

Bexar Metro. Water Dist. v. City of Bulverde,
  156 S.W.3d 79, 85-86 (Tex. App. — Austin 2004, pet. denied) ........................................ 17, 35

Bland Indep. Sch. Dist. v. Blue,
  34 S.W.3d 547, 554-55 (Tex. 2000) ......................................................................................... 19

Bonham State Bank v. Beadle,
  907 S.W.2d 465, 467 (Tex. 1995) ............................................................................................. 32

Cayton v. Moore,
  224 S.W.3d 440, 445 (Tex. App. — Dallas 2007, no pet.)....................................................... 16

Chenault v. Phillips,
  914 S.W.2d 140, 141 (Tex. 1996) ............................................................................................. 32

City of El Paso v. Heinrich,
  284 S.W.3d 366, 372 (Tex. 2009) ....................................................................................... 26, 38

City of Pasadena v. Gennedy,
  125 S.W.3d 687, 691 (Tex. App.-Houston [1st Dist.] 2003, pet. denied) ................................ 36

City of Sherman v. Public Util. Comm'n,
  643 S.W.2d 681, 683 (Tex. 1983) ............................................................................................. 31

Cobb v. Harrington,
  144 Tex. 360, 366, 190 S.W.2d 709, 713 (1945) ...................................................................... 32

Combs v. Entertainment Publ'ns Inc.,
  292 S.W.3d 712, 723 (Tex. App.—Austin 2009, no pet.) ................................ 21, 22, 27, 28, 33

Combs v. Texas Entm’t Ass’n, Inc.,
  287 S.W.3d 852, 864-65 (Tex. App.—Austin, 2009) ............................................................... 22

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Crane v. Richardson Bike Mart, Inc.,
  295 S.W.3d 1, 5 (Tex. App.-El Paso 2009, no pet.) ................................................................. 37

Dept. of State Health Services v. Balquinta,
  429 S.W.3d 726, 750-751 (Tex.App.-Austin 2014) ................................................................. 23

Doan v. Christus Health ArkLa-Tex,
  329 S.W.3d 907, 910 (Tex.App.-Texarkana 2010, no pet.)...................................................... 36

El Paso Hosp. Dist. v. Texas Health & Human Servs. Comm'n,
  247 S.W.3d 709, 715 (Tex. 2008). ...................................................................................... 27, 33

Eldercare Props., Inc. v. Department of Human Servs.,
  63 S.W.3d 551, 558 (Tex.App.-Austin 2001, pet. denied) ....................................................... 15

Frasier v. Yanes,
  9 S.W.3d 422, 427 (Tex.App.-Austin 1999, no pet.) ................................................................ 32

Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River Auth.,
  96 S.W.3d 519, 529 (Tex. App.-Austin 2002, pet. denied) ................................................ 27, 29

Fulton v. Finch,
  162 Tex. 351, 356, 346 S.W.2d 823, 827 (1961) (orig. proceeding) .......................................... 37

HCA Healthcare Corp. v. Texas Dep't of Ins.,
 303 S.W.3d 345, 352 (Tex. App. — Austin 2009, no pet.) ...................................................... 34

Hill v. Board of Trs.,
  40 S.W.3d 676, 679 (Tex. App. — Austin 2001, no pet.) ........................................................ 34

Howell v. Texas Workers' Comp. Comm'n,
  143 S.W.3d 416, 442 (Tex.App.-Austin 2004, pet. denied) ..................................................... 15

In re Garza,,
   126 S.W.3d 268, 271 (Tex. App.-San Antonio 2003, orig. proceeding). ........................... 37, 39

In re Humphreys,
   880 S.W.2d 402, 404 (Tex. 1994) ............................................................................................. 35

Logal v. United States,
  195 F.3d 229, (5th Cir. 1999) ................................................................................................... 39

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Montemayor v. City of San Antonio Fire Dept.,
 985 S.W.2d 549, 551 (Tex.App.-San Antonio 1998, pet. denied) ............................................ 32

Montrose Mgt. Dist. v. 1620 Hawthorne, Ltd.,
 435 S.W.3d 393, 410-11; fn. 16 (Tex.App.-Houston [14th Dist.] 2014) .................................. 26

Office of the Attorney Gen. v. Buhrle,
  210 S.W.3d 714, 717 (Tex. App. —Corpus Christi 2006, pet. denied) .................................... 16

Office of the Attorney General of Texas v. Duran,
  13-13-00423-CV (Tex.App.-Corpus Christi 5-28-2015) .......................................................... 16

R Commc'ns, Inc. v. Sharp,
  875 S.W.2d 314 (Tex. 1994) ......................................................................................... 14, 24, 25

Risk Management Strategies, Inc. v. Texas Workforce Commission,
  03-13-00560-CV *6 (Tex.App.-Austin 5-22-2015).................................................................. 17

Rutherford Oil v. Land Office of Tex.,
  776 S.W.2d 232, 235 (Tex.App.-Austin 1989) ......................................................................... 15

Sanadco, Inc. et. al. v. Texas Comptroller of Public Accounts, et. al.,
  No. 03-11-00462-CV (Tex. App.—Austin, September 26, 2013)............................................ 30

Sanadco, Inc. v. Office of the Comptroller,
  2015 WL, 1478200 at *10 (Tex. App.—Austin March 25, 2015)..................................... passim

Simon v. York Crane & Rigging Co.,
  739 S.W.2d 793, 795 (Tex. 1987) ............................................................................................. 13

Southern Canal Co. v. State Bd. of Water Engineers,
  318 S.W.2d 619; 159 Tex. 227 (Tex. 1958) ............................................................................. 36

State Bd. of Ins. v. Republic Nat'l Ins. Co.,
  384 S.W.2d 369, 372 (Tex.Civ.App. — Austin 1964, writ ref'd n.r.e.) .................................... 36

State v. Crawford,
  262 S.W.3d 532 (Tex.App.-Austin 2008, no pet.) .................................................................... 39

Subaru of America v. David McDavid Nissan,
  84 S.W.3d 212, 224 (Tex. 2002) ............................................................................................... 22

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Tex. Logos, L.P. v. Tex. Dept. of Transp.,
  241 S.W.3d 105, 123 (Tex. App.-Austin 2007, no pet.) ........................................................... 27

Texas Dep't of Parks & Wildlife v. Miranda,
  133 S.W.3d 217, 226 (Tex. 2004) ................................................................................. 16, 19, 35

Texas Dep't of Pub. Safety v. Salazar,
  304 S.W.3d 896, 903 (Tex.App. Austin 2009, no pet.) ...................................................... 23, 28

Texas Dep't of Transp. v. Sunset Transp., Inc.,
  357 S.W.3d 691, 705 (Tex.App. Austin 2011, no pet.) ............................................................ 23

Texas Dept. of Banking v. Mount Olivet Cemetery Ass'n,
  27 S.W.3d 276, 282 (Tex.App.-Austin 2000, pet. denied) ....................................................... 32

Texas Entm’t Ass’n, Inc. v. Combs,
  431 S.W.3d 790, 795 (Tex. App.—Austin 2014, pet. denied).................................................. 22

The Allee Corporation v. Texas Department of Motor Vehicles,
  03-13-00096-CV, *6-7 (Tex.App.-Austin 11-21-2014). .......................................................... 35

The Pea Picker, Inc. v. Reagan,
  632 S.W.2d 674, 677 (Tex.App.-Tyler 1982, writ ref'd n.r.e.) ................................................. 32
Walker v. Packer,
 827 S.W.2d 833, 840 (Tex. 1992) ............................................................................................. 16
Watts v. Hancock,
 05-12-01635-CV *2 (Tex.App.-Dallas 6-18-2014) .................................................................. 16

Weck v. Sharp,
 884 S.W.2d 153, 154 (Tex. 1994) ................................................................................. 14, 23, 24

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Statutes
Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-.011 ..................................................................... 21
Tex. Civ. Prac. & Rem. Code Ann. § 37.002 ............................................................................... 32
Tex. Civ. Prac. & Rem. Code Ann. § 37.004 ............................................................................... 31
Tex. Civ. Prac. & Rem. Code Ann. § 51.012 ............................................................................... 12

Tex. Gov’t Code Ann. § 22.220(a) ............................................................................................... 12
Tex. Gov’t Code Ann. § 2001.003(6) ........................................................................................... 28
Tex. Gov’t Code Ann. § 2001.004…………………………………………………………. 38
Tex. Gov’t Code Ann. § 2001.005 ................................................................................................ 33
Tex. Gov’t Code Ann. § 2001.035(a) ..................................................................................... 28, 38
Tex. Gov't Code Ann. § 2001.038 ........................................................................................ passim
Tex. Gov’t Code Ann. § 2001.145(a) ........................................................................................... 34
Tex. Gov’t Code Ann. § 2001.171 ................................................................................................ 34
Tex. Gov’t Code Ann. § 2001.173 ................................................................................................ 35
Tex. Gov't Code Ann. § 2001.173(a) ............................................................................................ 35
Tex. Gov’t Code Ann. § 2001.174 ................................................................................................ 35
Tex. Gov’t Code Ann. § 2001.176(a) ........................................................................................... 34

Tex. Tax Code Ann. § 111.104 ..................................................................................................... 33
Tex. Tax Code Ann. § 111.105 ..................................................................................................... 33
Tex. Tax Code Ann. Chapter 112 .......................................................................................... passim

Rules
Tex. R. App. P. 37.3(c) (1) ........................................................................................................... 16

Constitutional Provisions
Tex. Const. art. V, § 6 (a) ............................................................................................................. 12

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                                       In The
                        Third Court of Appeals
                                  AT   AUSTIN, TEXAS

Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby & Sons Store,
Inc., and Rubina Noorani,
                                                                         APPELLANTS
                                          VS.

The Office of the Comptroller of Public Accounts; Glenn Hegar, in his official capacity
as Comptroller of Public Accounts for the State of Texas; and Ken Paxton in his official
capacity as Attorney General of the State of Texas,
                                                                           APPELLEES
              __________________________________________________________
                           Appeal From Cause No D-1-GN-13-4352
                       The 200th District Court Of Travis County, Texas
                          The Honorable Charles Ramsay, Presiding
              __________________________________________________________

                            APPELLANTS’ REPLY BRIEF
             ___________________________________________________________

TO THE HONORABLE THIRD COURT OF APPEALS:

      Appellants, Sanadco Inc. and Mahmoud A Isba, Et Al, (collectively,

Sanadco), pursuant to Tex. R. App. P. 38.4, submit this Reply to Appellees’

Responsive Brief filed on May 26, 2015, and request consideration of the following:

      Appellees have mischaracterized this accelerated appeal as governed by

Sanadco, Inc. v. Office of the Comptroller, 2015 WL, 1478200 (Tex. App.—Austin

March 25, 2015) (mem. op.) recently decided by this court in Case No. 03-11-00462-

CV from the trial court’s judgment in Cause No. D-1-GV-10-000902. (Sanadco 2).

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      This appeal, however, is from the trial court’s judgment in Cause No. D-1-

GN-13-004352 involving different parties and different audit periods. Although

Sanadco, Inc. and Mahmoud Isba are common to both appeals, their contested audits

are for different auditing periods and, more importantly, they fully engaged in the

administrative proceedings and exhausted their administrative remedies.

      Of major concern to this court in Sanadco 2 was Sanadco’s failure to

challenge the audits before their right to administrative remedies had expired,

forcing the State to initiate a collection suit. Sanadco, fn. 9 (“Sanadco sought

injunctive relief from liability for the tax long after completion of the administrative

process and the deficiency assessment had become final . . . .”). The court reasoned:

“The facts here are distinguishable from those cases in which the taxpayers sought

declarations of the validity or constitutionality of rules and statutes and their

threatened enforcement prior to finality of an agency determination.” The court

therefore held that the trial court lacked jurisdiction over Sanadco's counterclaims

due to their noncompliance with the prerequisites of Chapter 112. (op. *12).

      In the instant case, all parties were fully engaged in the administrative process

and have timely filed Petitions for Judicial Review, thereby deferring the finality of

the administrative judgments. Subaru of America, Inc. v. David McDavid Nissan,

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Inc., 84 S.W.3d 212, 227-28 (Tex. 2002) (op. on reh'g). The issue therefore is

whether Chapter 112 applies to cases in which a petition for judicial review was

timely filed contemporaneously with a challenge to the validity of the audit results.

Accordingly, this case presents issues not addressed in Sanadco 2, and should now

be considered.

                       STATEMENT OF JURISDICTION

      The Court of Appeals is authorized to exercise jurisdiction in this cause
pursuant to TEX. CONST. ART. V, § 6 (a); TEX. GOV’T CODE ANN. § 22.220 (a), and
TEX. CIV. PRAC. & REM. CODE ANN. § 51.014 (a) (4).

                               ISSUES PRESENTED

   Issue No. 1.   Is the absence of the court reporter’s records dispositive of
      matters that are purely questions of law?

   Issue No. 2.    Is the application of Chapter 112 to petitions for judicial
      review and declaratory judgments unconstitutional as a burden on
      Plaintiffs’ access to the courts?

   Issue No. 3.   Is Sanadco 2’s jurisdictional determination applicable to
      cases engaged in the administrative process?

   Issue No. 4.    Are petitions for declaratory judgment “suits challenging the
      applicability, assessment, collection, or constitutionality" of a state tax
      and thereby subject to Chapter 112.108?

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                          SUMMARY OF ARGUMENTS

      The primary issue presented by this appeal is whether the audits are invalid

due to the Comptroller’s failure to follow the adoption procedures mandated by the

APA, the constitutional infirmity of various tax code statutes and rules, and/or his

ultra vires conduct. Plaintiffs assert that his collection efforts are premature because

they are not supported by final judgments. If so, the Comptroller was without

authority to continue his collection efforts and the trial court’s failure to grant

Plaintiffs’ temporary injunction was an abuse of discretion. Accordingly, the order

denying such relief must be reversed, and judgment rendered for Plaintiffs.

      The reviewing court may consider Plaintiffs’ appellate points that do not

require the reporter's record for decision. See Tex. R. App. P. 37.3(c). For all other

issues, the court presumes the evidence supported the trial court's decision. See

Simon v. York Crane & Rigging Co., 739 S.W.2d 793, 795 (Tex. 1987). The issues

presented by this appeal are purely matters of law to be determined de novo without

the necessity of factual findings, and the court may therefore adjudicate them

without a reporter’s record. Consequently, the absence of the reporter’s record is not

dispositive of the issues raised by this appeal.

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      The Comptroller’s insistence on applying Tex. Tax Code Ann. Chapter 112’s

prepayment requirements to Plaintiffs’ claims for injunctive relief are meritless for

three reasons. First, Chapter 112’s application to petitions for judicial review and

other injunctive relief has been declared unconstitutional as an abridgment upon

access to the courts. R Commc'ns, Inc. v. Sharp, 875 S.W.2d 314, 314 (Tex. 1994);

Weck v. Sharp, 884 S.W.2d 153, 154 (Tex. 1994).

      Second, suits pursuant to the APA or the UDJA are not protest suits or suits

for   refund    “challenging     the   applicability,   assessment,    collection,   or

constitutionality" of a state tax. Instead, they challenge the validity of agency rules,

official misconduct and the constitutionality of tax statutes. Plaintiffs timely filed

petitions for judicial review of the Comptroller’s adverse decisions, and declaratory

judgment actions pursuant to Tex. Gov’t Code Ann. § 2001.038 to determine the

validity of the audits, none of which requires the initial filing of a protest or refund

suit. They contend that the audits supporting the judgments are invalid,

unenforceable and/or void because the comptroller failed to adopt the auditing

procedures in accordance with the Administrative Procedure Act (APA) and certain

statutes are unconstitutional. The fact that the Comptroller’s right to collect taxes

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may be implicated by an adverse decision does not change their basic character, nor

convert them to Chapter 112 suits.

      Third, section 2001.038 is the exclusive remedy for testing the validity of an

administrative rule — which includes a challenge to the constitutionality of the rule.

See Tex. Gov't Code Ann. § 2001.038; Howell v. Texas Workers' Comp. Comm'n,

143 S.W.3d 416, 442 (Tex.App.-Austin 2004, pet. denied) (APA is exclusive

remedy); Local Neon Co v. Strayhorn, 03-04-00261-CV (Tex.App.-Austin 6-16-

2005); Eldercare Props., Inc. v. Department of Human Servs., 63 S.W.3d 551, 558

(Tex.App.-Austin 2001, pet. denied) (validity includes constitutionality). Chapter

112 does not provide for this type of suit.

       The purpose of the declaratory judgment action is to obtain a final declaration

of a rule's validity or its constitutionality before the rule is applied. Rutherford Oil

v. Land Office of Tex., 776 S.W.2d 232, 235 (Tex.App.-Austin 1989). The court’s

refusal to enjoin enforcement of the audit permits the comptroller to collect the

assessments before the validity of the audits can be determined, thereby defeating

the purpose of the statute. The Comptroller’s attempt to impose Chapter 112’s

prepayment requirements is therefore without merit, and the court’s judgment is an

abuse of discretion.

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                                  ARGUMENT

        I.   The absence of the reporter’s records is not dispositive of issues
             that are purely matters of law, requiring no factual findings.

      When an appellant fails to file the recorder’s record, the reviewing court may

consider and decide only those issues that do not require a reporter's record. See Tex.

R. App. P. 37.3(c) (1); Watts v. Hancock, 05-12-01635-CV *2 (Tex.App.-Dallas 6-

18-2014). The question posed by Appellee’s contentions, is whether this appeal

raises issues that may be considered and decided by this court without benefit of the

reporter’s records.

      The Comptroller correctly contends that the court’s decision whether to issue

an injunction “is discretionary, not to be disturbed absent a clear abuse of discretion”.

However, a trial court has no discretion, when determining what the law is, which

law governs, or how to apply the law. Walker v. Packer, 827 S.W.2d 833, 840 (Tex.

1992). A trial court's failure to analyze or apply the law correctly constitutes an abuse

of discretion. Id.; Cayton v. Moore, 224 S.W.3d 440, 445 (Tex. App. — Dallas 2007,

no pet.); Office of the Attorney Gen. v. Buhrle, 210 S.W.3d 714, 717 (Tex. App. —

Corpus Christi 2006, pet. denied); Ard v. Carrington, 01-13-00067-CV (Tex.App.-

Houston [1st Dist.] 3-27-2014). Office of the Attorney General of Texas v. Duran,

13-13-00423-CV (Tex.App.-Corpus Christi 5-28-2015).

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      This court has stated “whether sovereign immunity has been waived

implicates subject-matter jurisdiction. Texas Dep't of Parks & Wildlife v. Miranda,

133 S.W.3d 217, 226 (Tex. 2004).” “Whether a court has subject-matter jurisdiction

is a question of law, which is reviewed de novo, when disputed facts relevant to the

jurisdictional inquiry are not presented. See id. (subject-matter jurisdiction is

determined as matter of law on pleadings and when evidence relevant to

jurisdictional inquiry is undisputed).” Risk Management Strategies, Inc. v. Texas

Workforce Commission, 03-13-00560-CV *6 (Tex.App.-Austin 5-22-2015) (quoting

Bexar Metro. Water Dist. v. City of Bulverde, 156 S.W.3d 79, 85-86 (Tex. App. —

Austin 2004, pet. denied)). Thus, when the appellant’s pleadings are devoid of

relevant factual disputes, the court may consider the claims raised by those pleadings

de novo, without the court reporter’s record because they are not dependent on the

trial court’s factual findings or evidence presented at trial.

      Appellants contended that the trial court abused its discretion by refusing to

enjoin the Comptroller from engaging in its enforcement activities in the absence of

a valid final judgment. Appellee’s assertions that a recorder’s record is necessary to

determine whether Plaintiffs met their burden of proof of probable injury and

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probable right to recovery is misguided—if the underlying judgment is invalid or

unenforceable, there is no need for this determination.

         Throughout these proceedings, neither their responses in their answers nor in

this appeal, have the appellees ever once disputed any of the relevant factual

allegations in Appellants’ pleadings or in their briefs. Nor could they because the

provisions of AP92 and AP122 (the memos) are included on their website1, and in

their responses to the appeals, and they have never claimed that they were properly

adopted. Moreover, they have judicially admitted their existence, use and refusal to

adopt the memos in their pleadings as shown in the following excerpts:

                 See, State Officials’ Motion for Protection and to Stay All Discovery,
         p. 2 (“AP92 and 122 are internal staff memoranda that provide guidance to
         audit staff about how and when to use such estimates.”). 2 In the same pleading,
         they acknowledged that the memoranda had not been properly adopted. (“The
         court erred, however, in concluding the memos are rules which must be
         implemented through the APA’s formal rulemaking process as shown by the
         State Officials’ motion for rehearing and reconsideration in banc.”). Id. at p.3.3

                 In its Motion for Rehearing, the issue for review was,

1
    http://comptroller.texas.gov/taxinfo/audit_memos/
2
  (CR, 104 ¶3)
3
  (CR, 105 ¶8)

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                  Are internal staff memos that provide audit guidance to agency
                  auditors—here, AP 92 and AP 122—formal “rules” as that term is
                  defined in the Administrative Procedure Act?

State Officials’ Motion for Rehearing and Reconsideration En Banc, at p.2. 4

                  “As already noted, while agency rules must be adopted pursuant to
         proper APA procedures, internal memos directing audit staff are not rules and
         do not require formal adoption.” Id. at p.12.5

         The remaining claims involve the constitutionality or construction of tax

statutes and determining whether the Comptroller acted without statutory authority

by implementation or authorization of the use of the void and unenforceable memos.

Accordingly, the relevant factual allegations necessary for resolution of Appellant’s

claims are undisputed, and the absence of the reporter’s record is not dispositive of

these purely legal claims.

          II.     Sanadco 26 does not control resolution of the issues involved in
                  this case because these issues challenge the validity of rules, the
                  constitutionality of statutes and ultra vires conduct, and not the

4
  (CR, 133)
5
  (CR, 144)
6
  Sanadco 2, Sanadco, Inc. v. Office of the Comptroller, 2015 WL, 1478200 at *10 (Tex. App.—Austin March 25,
2015) (mem. op.) refers to this court’s decision on rehearing holding that the trial court was without jurisdiction.
Appellees’ brief refers to this opinion as “Sanadco 1”. Sanadco 1, Sanadco, Inc. v. Office of Comptroller of Public
Accounts of Texas, No. 03-10-00462-CV, 2013 Tex. App. LEXIS 12013 at * 13 (Tex. App.—Austin Sept. 26,
2013)6 refers in this brief, to the initial determination that AP92 and AP122 were rules, but was replaced by Sanadco
2.

    ACCELERATED APPEAL REPLY BRIEF, SANADCO,
                                                                                                                 19
    ET AL
              applicability, assessment, collection, or constitutionality of a
              state tax, ostensibly controlled by Chapter 112.

       A plea to the jurisdiction often may be determined solely from the pleadings

and sometimes must be. See Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554-55

(Tex. 2000). Such a determination is reviewed de novo. Miranda, 133 S.W.3d at

226. If the facts relevant to jurisdiction are undisputed, the court should make the

jurisdictional determination as a matter of law based solely on those undisputed

facts. Id. at 228.

       Sanadco 2 held, as a matter of law, that the trial court was without jurisdiction

over Sanadco’s and Isba’s claims because they had not engaged in the administrative

review process, and had not raised their defensive issues and cross-claims until the

Comptroller’s decision had become final. The court failed, however, to specifically

rule on its jurisdiction over the remaining petitioners, stating:

              It is undisputed that Sanadco did not engage in an administrative
       redetermination proceeding or meet any of the statutory requirements for a
       refund claim or protest suit. Sanadco may not attempt to avoid those
       administrative and procedural requirements by merely filing counterclaims to
       a collection suit brought by the Comptroller.

Sanadco, Inc. v. Office of the Comptroller, 2015 WL, 1478200 at *10 (Tex. App.—

Austin March 25, 2015) (mem. op.) (Sanadco 2).

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                                                                                     20
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        This language clearly suggests that a suit filed during the administrative

process invokes the court’s jurisdiction without meeting the requirements for a

refund claim or protest suit. The court reiterated this view, asserting:

               Sanadco had two adequate, available remedies upon the Comptroller's
        deficiency determination: (1) a redetermination proceeding or (2) payment of
        the taxes and pursuit of the Chapter 112 refund or protest procedures.
        However, Sanadco elected not to pursue either remedy.

Sanadco 2 at *11.

        At the time of the October 14, 2014 hearing (CR 340), the pleading on file

was Plaintiffs’ Second Amended Petition, filed on August 6, 2014 (CR 284). When

the November 11, 2014 judgment was entered however (CR 340), the live pleading

on file was Plaintiffs’ Third Amended Petition filed on October 17, 2014 (CR 314).

Both petitions alleged three causes of action: (1) the validity of agency rules pursuant

to Tex. Gov’t Code Ann. § 2001.038 (CR 291-292, ¶¶ 33-38); (2) the ultra vires

conduct of an Agency official, (CR 292-296, ¶¶ 39-57); and (3) the constitutionality

of certain state statutes (CR 296-299, ¶¶ 58-73), both pursuant to the Uniform

Declaratory Judgments Act (UDJA), Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-

.011.

        The Sanadco 2 court excluded these causes of action from its holding where

there was no final administrative judgment, stating:

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              We limit our holding to cases in which a taxpayer seeks relief from a
      tax assessment that has become a final liability and is no longer subject to
      review through administrative procedures; we do not hold that Chapter 112
      preempts every suit challenging a Comptroller rule or tax statute's
      constitutionality. . . See Combs v. Entertainment Publ'ns Inc., 292 S.W.3d
712, 723 (Tex. App.—Austin 2009, no pet.) (affirming trial court's denial of
      plea to jurisdiction in suit in which taxpayer sought declaratory and injunctive
      relief to prevent Comptroller from implementing allegedly invalid rule).

Sanadco 2, n.9 at *12.

        Here, unlike Sanadco, each of these plaintiffs alleged that they were

currently engaged in the administrative process and awaiting a hearing before

SOAH. (CR 288-289, ¶¶ 22-26). They also alleged that the court had jurisdiction

over their petitions for judicial review subject to the results of the administrative

proceedings. (CR 287, ¶ 13); Accordingly, there was no final liability determination,

see, Subaru of America v. David McDavid Nissan, 84 S.W.3d 212, 224 (Tex. 2002),

and the cases remained subject to review through administrative procedures, and are

excluded from the Chapter 112 requirements because they are not final judgments.

      In support of this limitation, the court cited Texas Entm’t Ass’n, Inc. v. Combs,

431 S.W.3d 790, 795 (Tex. App.—Austin 2014, pet. denied) (citing Combs v. Texas

Entm’t Ass’n, Inc., 287 S.W.3d 852, 864-65 (Tex. App.—Austin, 2009), rev’d on

other grounds, 347 S.W.3d 277 (Tex. 2011)) (on remand, citing with approval its

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previous       opinion   holding   that   declaratory-judgment   action   challenging

constitutionality and implementation of new tax statute was not preempted by

Chapter 112 of Tax Code); Combs v. Entertainment Publ’ns Inc., 292 S.W.3d 712,

723 (Tex. App.—Austin 2009, no pet.) (affirming trial court’s denial of plea to

jurisdiction in suit in which taxpayer sought declaratory and injunctive relief to

prevent Comptroller from implementing allegedly invalid rule). See Sanadco 2, *13,

n. 9.

        If Appellants have raised valid challenges to the agency’s rules under the

APA, then the court need not determine whether the Plaintiffs have properly alleged

ultra vires claims pursuant to the UDJA because section 2001.038 of the APA

establishes the trial court's subject-matter jurisdiction for both claims. See Dept. of

State Health Services v. Balquinta, 429 S.W.3d 726, 750-751 (Tex.App.-Austin

2014); Texas Dep't of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691, 705

(Tex.App. Austin 2011, no pet.); see also Texas Dep't of Pub. Safety v. Salazar, 304
S.W.3d 896, 903 (Tex.App. Austin 2009, no pet.) (where plaintiff asserted section

2001.038 rule challenges and UDJA ultra-vires claims turning on same underlying

statutory-authority issues).

        III.    Chapter 112’s prepayment provisions are inapplicable to
                petitions for judicial review and declaratory judgment actions
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                                                                                    23
 ET AL
                 because the Texas Supreme Court has ruled that they
                 unconstitionally violate the Open Courts provision when
                 applied to these remedies.

         For over three decades, it has been unconstitutional to require compliance

with the Chapter 112 prepayment provisions to petitions for judicial review of

contested administrative proceedings.7 When discussing the constitutionality of the

statutes authorizing judicial review of tax assessments, the supreme court held that

“conditioning a taxpayer's right to initiate judicial review on the payment of taxes

or the posting of a bond equal to twice the alleged tax obligation violates the open

courts mandate." Tex. Const. art. I, Sec. 13; R Commc'ns, Inc. v. Sharp, 875 S.W.2d
314, 314 (Tex. 1994).

         The prepayment provisions and the ban on declaratory judgments, "mean that

a taxpayer is financially restricted in its ability to get to court." Id. at 317-18.

Accordingly, the court determined that section 112.108 is unconstitutional and void.

Id. at 318. In Weck v. Sharp, 884 S.W.2d 153, 154 (Tex. 1994) the court determined

that because the prohibition in section 112.108 against declaratory-judgment actions

7
 R Commc'ns, Inc. v. Sharp, 875 S.W.2d 314, 314 (Tex. 1994); Weck v. Sharp, 884 S.W.2d 153, 154 (Tex. 1994);
Richmont Aviation, Inc. v. Combs, 03-11-00486-CV (Tex.App.-Austin 9-12-2013); Rylander v. Bandag Licensing
Corp., 18 S.W.3d 296 (Tex. App.-Austin 2000, pet. denied); FM Express Food Mart, Inc. v. Combs, No. 03-12-
0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex. App.-Austin Mar. 15, 2013, no pet.) (mem. op.).

    ACCELERATED APPEAL REPLY BRIEF, SANADCO,
                                                                                                           24
    ET AL
and other similar remedies was invalid, the trial court could consider the taxpayer's

declaratory claim and remanded the case. Id.

      This Court has emphasized this constitutional ruling on at least four occasions.

See Richmont Aviation, Inc. v. Combs, 03-11-00486-CV (Tex.App.-Austin 9-12-

2013) (reaffirming its prior decisions finding section 112.108 was unconstitutional);

Rylander v. Bandag Licensing Corp., 18 S.W.3d 296 (Tex. App.-Austin 2000, pet.

denied) (concluding that section 112.108 violated open-courts provision and

imposed unreasonable financial barrier to court access even though it excused

prepayment for indigent taxpayers); FM Express Food Mart, Inc. v. Combs, No. 03-

12-0144-CV, 2013 Tex. App. LEXIS 2744, at *17 n.6 (Tex. App.-Austin Mar. 15,

2013, no pet.) (mem. op.) (stating that this Court previously determined that

amended version of section 112.108 was unconstitutional); Local Neon Co. v.

Strayhorn, No. 03-04-00261-CV, 2005 Tex. App. LEXIS 4667, at *17 n.6 (Tex.

App.-Austin June 16, 2005, no pet.) (mem. op.) Page-11 (relating that Comptroller

"concedes on appeal that this Court held section 112.108 unconstitutional").

      This court has not wavered from this conclusion even after In re Nestle USA,

Inc., 359 S.W.3d 207 (Tex. 2012) was decided. In footnote 3 of Richmont, it stated:

           Specifically, the Comptroller urges that the supreme court overruled
      Bandag in In re Nestle. In Nestle, the court did discuss the restrictions

 ACCELERATED APPEAL REPLY BRIEF, SANADCO,
                                                                                   25
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      imposed by section 112.108 and discussed the amendment to the provision
      excusing prepayment in certain circumstances. Id. at 210-11 & n.38. . .
      However, the court did not mention Bandag or our determination that the
      amended version was also unconstitutional, nor did the court expressly state
      that the amendment cured the constitutional infirmity. See id.; see also FM
      Express Food Mart, Inc. v. Combs, No. 03-12-0144-CV, 2013 Tex. App.
      LEXIS 2744, at *17 n.6 (Tex. App.-Austin Mar. 15, 2013, no pet.) (mem. op.)
      (explaining that although the supreme court in Nestle explained that statute
      was amended in response to determination that statute violated open-courts
      provision, supreme court "did not address whether it did so successfully").
      Accordingly, we do not agree with the Comptroller's assertion that our
      determination in Bandag has been overruled.

Richmont Aviation, Inc. v. Combs, 03-11-00486-CV, *11, n.3.

      Nestle did not overrule R Commc'ns, Inc. or its progeny’s assessment of

Chapter 112’s unconstitutionality or its applicability to ultra vires claims because

these issues were not presented to the court.

            Petitioners do not argue that the limitations of these actions is
      unconstitutional, as did the taxpayers in R Communications, 875 S.W.2d at
      314-315. Nor do petitioners contend that an ultra vires suit against the
      Comptroller is outside chapter 112's provisions. See City of El Paso v.
      Heinrich, 284 S.W.3d 366, 372 (Tex. 2009).

Nestle USA, Inc., 359 S.W.3d 207 at 211- 212, n. 39.

      These are the precise allegations raised in Appellants’ petitions, which

challenged the validity of AP92 and AP122, and the constitutionality of various tax

statutes, as well as the comptroller’s ultra vires conduct. Other courts have likewise

 ACCELERATED APPEAL REPLY BRIEF, SANADCO,
                                                                                   26
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limited the application of Nestle. See, Montrose Mgt. Dist. v. 1620 Hawthorne, Ltd.,

435 S.W.3d 393, 410-11, n. 16 (Tex.App.-Houston [14th Dist.] 2014) (Nestle does

not apply to ultra vires claims).

      Accordingly, Appellants’ failure to comply with Chapter 112’s requirements

present no obstacle to consideration of the claims raised by this appeal.

       IV.   Appellants’ pleadings provided sufficient relevant, undisputed
             allegations conclusively establishing that the administrative
             orders were void and unenforceable ab initio as a matter of law,
             thus, there was no final judgment to support the Comptroller’s
             collection efforts, and the trial court abused its discretion by
             failing to grant the temporary restraining order.

             A. Appellants’ pleadings established the invalidity of the rules as a
                matter of law.

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                                                                                 27
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§ 2001.038 is not controlled by Chapter 112.

   "[S]ection 2001.038 is a grant of original jurisdiction and, moreover, waives

sovereign immunity." Tex. Logos, L.P. v. Tex. Dept. of Transp., 241 S.W.3d 105,

123 (Tex. App.-Austin 2007, no pet.). The APA gives the district court jurisdiction

to resolve two issues: "(1) whether a rule is valid, and/or (2) whether a rule is

applicable." Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River Auth., 96
S.W.3d 519, 529 (Tex. App.-Austin 2002, pet. denied). "[The APA] authorizes

declaratory relief when determining the validity or applicability of a rule, if the

plaintiff alleges `that the rule or its threatened application interferes with or impairs,

or threatens to interfere with or impair, a legal right or privilege of the plaintiff.'" El

Paso Hosp. Dist. v. Tex. Health & Human Servs. Comm'n, 247 S.W.3d 709, 713

(Tex. 2008) (quoting Tex. Gov't Code Ann. § 2001.038(a)).

   Appellants further assert that suit under Section 2001.038 is not a suit filed under

Chapter 112 because its purpose is to determine the validity of the audit procedure,

and not to challenge the propriety of a tax assessment, potentially bringing it into the

purview of Chapter 112. See, Combs v. Entertainment Publications, Inc., 292
S.W.3d 712 (Tex. App. 2009) (“Entertainment did not seek declaratory relief

regarding the tax itself, but regarding the validity of the rule promulgated by the

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                                                                                        28
 ET AL
Comptroller in violation of the APA, for which the legislature has expressly

permitted suit by a declaratory-judgment action”). When an agency promulgates a

rule without complying with the statutory rule-making procedures, the rule is invalid

and may be challenged in the absence of exhaustion of administrative remedies. See

APA § 2001.035(a); El Paso Hosp. Dist., 247 S.W.3d at 715.

      Since suit pursuant to Section 2001.038 is pursuant to an original grant of

authority, it is filed without regard to Chapter 112 mandates, and is therefore

sufficient to invoke the court’s jurisdiction without compliance with Chapter 112.

The administrative judgment is void and unenforceable

      To establish entitlement to a declaratory judgment pursuant to § 2001.038, the

challenged procedure or document must be a rule as defined by the Administrative

Procedure Act (APA). Tex. Gov’t Code Ann. § 2001.003(6). The           jurisdictional

inquiry concerns whether the Comptroller's memos constitute rules under the

APA and, if so, whether that rule or its threatened application interferes with or

impairs Plaintiffs’ legal rights or privileges. Combs v. Entertainment Publ'ns, Inc.,
292 S.W.3d at 720.       Accordingly, to ascertain its jurisdiction, the trial court

necessarily had to determine whether the memos were rules.

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                                                                                  29
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         In making this determination, the trial court was not required to delve into the

merits of the claims, see Texas Dep't of Pub. Safety v. Salazar, 304 S.W.3d 896, 903

(Tex.App.-Austin 2009, no pet.) — nor would such an inquiry be proper. See Bland

Indep. Sch. Dist., 34 S.W.3d 547; Hendee, 228 S.W.3d at 366.” Texas Dept. Of

Transp. v. Sunset Transp., 357 S.W.3d 691, 702 (Tex.App.-Austin 2011). Section

2001.038 only authorizes a district court to resolve whether an administrative rule is

valid or whether an administrative rule is applicable. Friends of Canyon Lake, Inc.

v. Guadalupe-Blanco River Auth., 96 S.W.3d 519, 529 (Tex.App.-Austin 2002, pet.

denied).

         The court’s assumption of jurisdiction over this claim necessitates the

conclusion that it was determined that the memos were rules. A rule is invalid and

unenforceable unless the Comptroller promulgates and adopts it in accordance with

the requirements of the APA. Tex. Gov’t. Code Ann. §§ 2001.035,8 2001.0049 and

8
 § 2001.035. Substantial Compliance Requirement; Time Limit on Procedural Challenge
(a) A rule is voidable unless a state agency adopts it in substantial compliance with Sections
2001.0225 through 2001.034.
9
 § 2001.004 Requirement to Adopt Rules of Practice and Index Rules, Orders, and Decisions
In addition to other requirements under law, a state agency shall:
(1) adopt rules of practice stating the nature and requirements of all available formal and informal
procedures;
(2) index, cross-index to statute, and make available for public inspection all rules and other written
statements of policy or interpretations that are prepared, adopted, or used by the agency in
discharging its functions; and

    ACCELERATED APPEAL REPLY BRIEF, SANADCO,
                                                                                                   30
    ET AL
2001.00510. It is undisputed that neither AP92 nor AP122 were promulgated

pursuant to APA requirements, and were therefore invalid and unenforceable as a

matter of law. Gov’t Code §§ 2001.023-.037.

     Appellants’ claims are buttressed by this court’s holding in Sanadco 1 where this

issue was addressed and the court held, “we conclude that the directives in AP 92

and AP 122 are in fact rules. For that reason, we must also conclude that the district

court had jurisdiction over Sanadco’s claim that AP 92 and AP 122 were invalid

rules and that, therefore, the district court erred by dismissing Sanadco’s first

counterclaim”. Sanadco, Inc. et. al. v. Texas Comptroller of Public Accounts, et. al.,

No. 03-11-00462-CV, *14 (Tex. App.—Austin, September 26, 2013). Although this

court reversed that decision on other grounds, the reasoning in this case gives a

strong basis for the conclusion that the memoranda are rules, and the district court’s

jurisdiction was therefore invoked by plaintiffs’ claim.

(3) index, cross-index to statute, and make available for public inspection all final orders,
decisions, and opinions.
10
  § 2001.005 Rule, Order, or Decision Not Effective Until Indexed
(a) A state agency rule, order, or decision made or issued on or after January 1, 1976, is not valid
or effective against a person or party, and may not be invoked by an agency, until the agency has
indexed the rule, order, or decision and made it available for public inspection as required by this
chapter.
(b) This section does not apply in favor of a person or party that has actual knowledge of the
rule, order, or decision.

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                                                                                                31
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       In the absence of enforceable audits, there is nothing to support the

enforcement activities. Thus, there is no need to establish probable injury or probable

right to recovery from the unenforceable order as Appellees contend. The trial court

therefore abused its discretion by permitting continuation of the unenforceable

enforcement activities by denying the temporary injunction.

Appellants entitled to ruling on declaratory judgments before enforcement

activities commenced.

       Section 2001.038 provides that "[a] court may render a declaratory judgment

without regard to whether the plaintiff requested the state agency to rule on the

validity or applicability of the rule in question.” Tex. Gov’t Code Ann. § 2001.038

(d).

       The Texas Supreme Court has held that an action for declaratory relief is

permissible, even during the pendency of an administrative proceeding, when the

issue is whether the agency is exercising authority beyond its statutorily conferred

powers. See City of Sherman v. Public Util. Comm'n, 643 S.W.2d 681, 683 (Tex.

1983). Further, the statutory language emphasized above clearly implies that section

2001.038 permits a plaintiff to bring a declaratory-judgment action challenging the

validity of an agency rule even without the initiation of administrative proceedings.

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                                                                                    32
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      The UDJA provides a basis for a claimant to obtain a declaration of rights,

status, or other legal relations under a writing or statute. See Tex. Civ. Prac. & Rem.

Code Ann. § 37.004 (West 1997); City of Waco, 83 S.W.3d at 177. The legislature

intended the UDJA to be remedial, to settle and afford relief from uncertainty and

insecurity with respect to rights, and to be liberally construed. Tex. Civ. Prac. &

Rem. Code Ann. § 37.002 (West 1997); Bonham State Bank v. Beadle, 907 S.W.2d
465, 467 (Tex. 1995).

      Declaratory-judgment actions are intended to determine the rights of parties

when a controversy has arisen, before any wrong has actually been committed, and

are preventative in nature. Cobb v. Harrington, 144 Tex. 360, 366, 190 S.W.2d 709,

713 (1945); Montemayor v. City of San Antonio Fire Dept., 985 S.W.2d 549, 551

(Tex.App.-San Antonio 1998, pet. denied). Historically, challengers to improper

governmental action have sought declaratory relief. Frasier v. Yanes, 9 S.W.3d 422,

427 (Tex.App.-Austin 1999, no pet.); see Chenault v. Phillips, 914 S.W.2d 140, 141

(Tex. 1996).

      A person seeking a declaratory judgment need not have incurred actual injury.

City of Waco, 83 S.W.3d at 175; Texas Dept. of Banking v. Mount Olivet Cemetery

Ass'n, 27 S.W.3d 276, 282 (Tex.App.-Austin 2000, pet. denied). Courts have also

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                                                                                    33
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issued declaratory judgments construing a statute before the statute is violated. See

The Pea Picker, Inc. v. Reagan, 632 S.W.2d 674, 677 (Tex.App.-Tyler 1982, writ

ref'd n.r.e.) (trial court had power to construe Open Meetings Act and determine

whether notice must be given and when meeting is required to be open).

      Appellants do not seek declaratory relief regarding the tax refund itself, but

regarding the validity of the rule promulgated by the Comptroller in violation of the

APA, construction of relevant statutes, including their constitutionality, and certain

ultra vires acts of a state official, for which the legislature has expressly permitted

suit by a declaratory-judgment action. See APA § 2001.038; Tex. Civ. Prac. & Rem.

Code Ann. § 37.001 et. seq.; Combs v. Entertainment Publ'ns, Inc., 292 S.W.3d 712,

720. Since this is not a suit for a refund or protest pursuant to Tex. Tax Code Ann.

§ 111.104 or 111.105 their requirements are not relevant to Plaintiffs’ right to seek

injunctive relief. Combs v. Entertainment Publications, 292 S.W.3d 712, 720

(Tex.App. [3rd] 2009).

      Accordingly, this Court may enter an order reversing the trial court’s order

denying the temporary injunction, and render judgment prohibiting the Comptroller

from further enforcement activities or use of these procedures in future audits until

they have complied with the APA requirements. See El Paso Hosp. Dist. v. Texas

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                                                                                    34
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Health & Human Servs. Comm'n, 247 S.W.3d 709, 715 (Tex. 2008). The court

should further render judgment that all audits performed pursuant to the procedures

mandated by AP92 and AP122, including the use of HB 11 data, are invalid pursuant

to Gov't Code § 2001.035, Gov’t Code § 2001.004 and Gov’t Code § 2001.005,

and prohibit enforcement of the resulting tax liabilities, including all taxes,

penalties and interest.

             B. Appellants’ pleadings established the nullification of the
                administrative judgment as a matter of law.

      The Administrative Procedure Act (APA) allows a party aggrieved by a final

agency decision in a contested case to seek judicial review of the agency's decision

if the party has exhausted all of its administrative remedies available within the

agency. See Tex. Gov't Code § 2001.171. To exhaust its administrative remedies, a

party must timely file a motion for rehearing with the agency. See id. § 2001.145(a).

If a motion for rehearing is not timely filed, the trial court lacks jurisdiction over a

suit for judicial review of the agency's decision. Hill v. Board of Trs., 40 S.W.3d
676, 679 (Tex. App. — Austin 2001, no pet.).

      Assuming that a timely motion for rehearing has been filed, after the motion

has been overruled, the losing party must file its petition for judicial review no later

than the 30th day after the order becomes final and appealable. See Tex. Gov't Code

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§ 2001.176(a). If the petition for judicial review is not timely filed, the trial court

lacks jurisdiction over the suit. HCA Healthcare Corp. v. Texas Dep't of Ins., 303
S.W.3d 345, 352 (Tex. App. — Austin 2009, no pet.) (holding that APA Section

2001.176(a) requirement that suit for judicial review must be filed within 30 days of

agency decision becoming final and appealable is jurisdictional). The Allee

Corporation v. Texas Department of Motor Vehicles, 03-13-00096-CV, *6-7

(Tex.App.-Austin 11-21-2014). If jurisdiction is successfully invoked, "the filing of

the petition vacates a state agency decision for which trial de novo is the manner of

review authorized by law. . . ." Tex. Gov't Code Ann. § 2001.176 (b) (3).

      Appellants’ petition for judicial review pursuant to Tex. Gov’t Code Ann. §

2001.173 and Tex. Gov’t Code § 2001.174 is for a de novo hearing to determine the

validity of the deficiency assessments sought to be collected by the Comptroller in

the contested proceeding and seeks judgment that the audit is void and

unenforceable. When disputed facts relevant to the jurisdictional inquiry are not

presented, whether a court has subject-matter jurisdiction is a question of law, and

is reviewed de novo. See Texas Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d
217, 226 (Tex. 2004) (subject-matter jurisdiction is determined as matter of law on

pleadings and when evidence relevant to jurisdictional inquiry is undisputed); Bexar

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                                                                                    36
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Metro. Water Dist. v. City of Bulverde, 156 S.W.3d 79, 85-86 (Tex. App. — Austin

2004, pet. denied). When the only issue under review involves a pure question of

law, the standard of review is de novo. In re Humphreys, 880 S.W.2d 402, 404 (Tex.

1994); City of Pasadena v. Gennedy, 125 S.W.3d 687, 691 (Tex. App.-Houston [1st

Dist.] 2003, pet. denied); Doan v. Christus Health ArkLa-Tex, 329 S.W.3d 907, 910

(Tex.App.-Texarkana 2010, no pet.).

      The only factual issue to be determined is whether Appellants timely filed the

petitions for judicial review, which is undisputed, because they are part of the court

record. The only dispute Appellees raise is whether the petitions invoked the court’s

jurisdiction in the absence of compliance with Chapter 112, which is a pure question

of law that can be determined from the information before the court.

      The sine qua non of a de novo trial is the nullification of the judgment of the

first tribunal and a retrial of the issues on which the judgment or order was founded.

When jurisdiction of the second tribunal attaches, the judgment of the first tribunal

is not merely suspended, but nullified. Texas Dept. of Public Safety v. Banks Transp.

Co., 427 S.W.2d 593, (Tex. Sup. 1968); Southern Canal Co. v. State Bd. of Water

Engineers, 318 S.W.2d 619; 159 Tex. 227 (Tex. 1958). Accordingly, “res judicata”

and “final judgment” are inapplicable in de novo proceedings because the original

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                                                                                   37
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administrative order that is the subject of appeal is nullified in a de novo proceeding.

State Bd. of Ins. v. Republic Nat'l Ins. Co., 384 S.W.2d 369, 372 (Tex.Civ.App. —

Austin 1964, writ ref'd n.r.e.).

      Consequently, the filing of the petition for review nullified the administrative

judgment, leaving nothing for the Comptroller to enforce pending entry of a final

judgment in the petition for review, and such enforcement activity was illegal and

premature. In the absence of a final judgment in the redetermination hearing, no tax

has yet been imposed and no tax is “due and payable” upon which a delinquency

may be predicated.

       A void order has no force or effect and confers no right; it is a nullity. See

In re Garza,, 126 S.W.3d 268, 271 (Tex. App.-San Antonio 2003, orig.

proceeding). Where the trial court (in this case the administrative judge) did

not have jurisdiction to render a judgment, the proper practice is for the

reviewing court to set the judgment aside and dismiss the cause. Fulton v.

Finch, 162 Tex. 351, 356, 346 S.W.2d 823, 827 (1961) (orig. proceeding) (If the

trial court lacks jurisdiction, the appellate court only has jurisdiction to set

the judgment aside and dismiss the cause.); Crane v. Richardson Bike Mart,

Inc., 295 S.W.3d 1, 5 (Tex. App.-El Paso 2009, no pet.).

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             C. Appellants’ pleadings established the Comptroller’s ultra vires
                conduct as a matter of law.

      Appellants sued the Comptroller seeking “a declaratory judgment . . .

declaring that the Comptroller’s memoranda, designated as AP 92, AP 122

(incorporating HB 11), are invalid administrative rules. They allege the

Comptroller acted ultra vires when he failed to perform the purely ministerial,

non-discretionary act of adopting them in accordance with the requirements

of the APA found at Tex. Gov’t Code Ann. §§ 2001.035 and 2001.004.” (CR 293

¶42). Such an allegation is sufficient to allege an ultra vires act subject to

adjudication pursuant to the Declaratory Judgment Act. City of El Paso v.

Heinrich, 284 S.W.3d 366, 372, 373 (Tex. 2009). In Heinrich, the Supreme Court

defined ultra vires suits:

            [S]uits to require state officials to comply with statutory or
      constitutional provisions are not prohibited by sovereign immunity,
      even if a declaration to that effect compels the payment of money. To fall
      within this ultra vires exception, a suit must not complain of a
      government officer's exercise of discretion, but rather must allege, and
      ultimately prove, that the officer acted without legal authority or failed
      to perform a purely ministerial act.

      These allegations fit this definition because the legislature has vested the

Comptroller with authority:

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      [T]o adopt rules that do not conflict with the laws of this state or the
      constitution of this state or the United States for the enforcement of the
      provisions of this title and the collection of taxes and other revenues
      under this title. In addition to the discretion to adopt, repeal, or amend
      such rules permitted under the constitution and laws of this state and
      under the common law, the comptroller may adopt, repeal, or amend
      such rules to reflect changes in the power of this state to collect taxes and
      enforce the provisions of this title due to changes in the constitution or
      laws of the United States and judicial interpretations thereof.

      As this is a discretionary function, the Comptroller is under no

ministerial duty to promulgate the memos as a Rule upon their publication.

They remained invalid and unenforceable, however, until they were properly

promulgated in accordance with the APA requirements. It then became the

Comptroller’s ministerial duty to submit the memos for formal adoption prior

to implementing them as auditing procedures.

      In the absence of a valid Rule, the Comptroller’s implementation of the

memos was without legal authority because of her failure to perform a purely

ministerial act. Consequently, the Comptroller engaged in ultra vires conduct

because she acted without legal authority and failed to perform a purely

ministerial act, and this Court should so hold.

       Accordingly, the collection activity is void and the comptroller should

dismiss the underlying administrative judgment and reimburse Appellants for the
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illegally collected funds, and the results of said activity should be nullified. State v.

Crawford, 262 S.W.3d 532, 546 (Tex.App.-Austin 2008, no pet.).

                                   CONCLUSION

      Each of the underlying administrative judgments upon which the Comptroller

relies to validate his collection activities are void and unenforceable as a matter of

law. They are void and unenforceable because the audit procedures upon which the

judgments are predicated were unauthorized because they were not properly adopted

in accordance with APA requirements. They are void and unenforceable because the

Comptroller engaged in ultra vires conduct when he failed to perform the purely

administrative act of adopting these new audit procedures as mandated by the APA,

and exceeded his statutory authority when he authorized the implementation and use

of the invalid memos to conduct the audits. Moreover, he exceeded his statutory

authority by authorizing the estimation of the audits, and unilaterally establishing an

irrebuttable presumption to impose the 50% penalty, in contravention of statutory

authority.

      These statutory violations are established as a matter of law by reference to

the undisputed pleadings on file at the time of the entry of the trial court’s judgment

without any additional factual findings. Since the trial court exercised jurisdiction

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over these claims, we must presume that he determined that AP92 and 122 were

rules as defined by the APA. In the absence of controverting allegations to the

contrary—indeed in the face of judicial admissions—we must also presume that he

determined that the Comptroller failed to adopt the memos properly as required by

the APA and invalidated the audits and the judgments supporting them as a matter

of law.

      Accordingly, this court should reverse and render judgment that the audits are

invalid and prohibit their enforcement and use until the rules are properly adopted.

                              PRAYER FOR RELIEF

          WHEREFORE PREMISES CONSIDERED, Appellants pray that this

 Court will reverse the trial court’s order denying the temporary restraining order

 and render judgment that the audits were invalid, and unenforceable, and order the

 comptroller to cease its enforcement efforts and reimburse all funds and property

 collected from the Appellants. In the alternative, Appellants pray the court to

 reverse the judgment of the trial court and remand it for further

 proceedings. Appellants pray for such other and further relief in law and in

 equity to which they may show themselves entitled.

                                            Respectfully submitted,

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                                            Law Office of
                                            Samuel T. Jackson
                                            PO Box 170633
                                            Arlington, TX 76003-0633
                                            Tel: (512) 692-6260
                                            Fax. 866-722-9685
                                            ATTORNEY FOR
                                            APPELLANTS

                                            By: /s/ Samuel T. Jackson
                                             Samuel T. Jackson
                                            Texas Bar No. 10495700

                       CERTIFICATE OF COMPLIANCE
       This document complies with the typeface requirements of Tex. R. App. P.
9.4(e) because it has been prepared in a conventional typeface no smaller than 14-
point for text and 12-point for footnotes. This document also complies with the
word-count limitations of Tex. R. App. P. 9.4 (i) (2) (C), because it contains 6,550
words, excluding any parts exempted by Tex. R. App. P. 9.4 (i) (1), as counted by
the computer program used to prepare this document.

                          CERTIFICATE OF SERVICE
       I hereby certify by my signature above that a true and correct copy of the
 above and foregoing instrument was served on the parties or their attorneys via
 facsimile, certified mail, return receipt requested, and/or hand delivery on August
 20, 2011, in accordance with the Texas Rules of Appellate Procedure, to the
 following:

JACK HOHENGARTEN

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 Assistant Attorney General
 FINANCIAL LITIGATION
 DIVISION
 P.O. Box 12548
 Austin, TX 78711-2548
 TEL: (512) 475-3503
FAX: (512) 477-2348/480-8327
Email: jack.hohengarten@oag.state.tx.us
ATTORNEY FOR DEFENDANTS

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