Court Opinion

ID: 5130864
Source: CourtListenerOpinion
Date Created: 2021-12-02 07:14:56.684893+00
Date Added: 2024-06-11T08:23:20.580821
License: Public Domain

§
    GLENN HEGAR, COMPTROLLER OF
    PUBLIC ACCOUNTS OF THE STATE
                                                       §
    OF TEXAS and KEN PAXTON,
                                                                           No. 08-20-00229-CV
    ATTORNEY GENERAL OF THE
                                                       §
    STATE OF TEXAS,
                                                                              Appeal from the
                                                       §
    Appellants,
                                                                            353rd District Court
                                                       §
    v.
                                                                         Of Travis County, Texas
                                                       §
    SPACE CITY MANAGEMENT,
                                                                           (D-1-GN-19-005242)
    L.L.C.,
                                                       §
    Appellee.
                                                       §

                                               OPINION

         Appellants, Glenn Hegar, Texas Comptroller of Public Accounts of the State of Texas and

Ken Paxton, Attorney General of the State of Texas (collectively, “Appellants”), appeal the trial

court’s partial denial of its plea to the jurisdiction. 1 Appellee, Space City Management, L.L.C.

(d/b/a “Colette”), maintain constitutional challenges as applied to Section 102.051 of the Texas

Business and Commerce Code and Section 3.722 of the Texas Administrative Code, and to the

investigative tactics of Appellants. TEX.BUS.&COM.CODE ANN. § 102.051; 34 TEX.ADMIN.CODE

ANN. § 3.722.

1
  This case was transferred from the Austin Court of Appeals pursuant to the Texas Supreme Court’s docket
equalization efforts. See TEX.GOV’T CODE ANN. § 73.001. We follow the precedent of the Austin Court of Appeals to
the extent they might conflict with our own. See TEX.R.APP.P 41.3.
       In Issue One, Appellants argue the trial court did not possess jurisdiction over Colette’s

ultra vires claims. Colette counters, sovereign immunity does not bar ultra vires claims based on

violations of constitutional rights. In Issue Two, Appellants argue the trial court did not possess

jurisdiction over Colette’s injunctive relief claims. Colette maintains jurisdiction is proper because

it is not required to exhaust administrative remedies before seeking relief of constitutional

violations.

                                         BACKGROUND

                                       Factual Background

       Colette is a private, alternative lifestyle “swingers club” that provides a meeting place for

its members. It does not sell alcohol and is open to the public, so long as each member signs and

adheres to a membership agreement. All members must sign a membership agreement upon

entrance; the membership agreement contains several contractual provisions and outlines the

prohibition of cell phone usage beyond the lobby, as well as cameras, video, and audio equipment.

       Comptroller agents inspected Colette on April 23, 2017, October 20, 2017, and

November 30, 2018, at each of which visit they indicated Colette was not a SOB (“Sexually

Oriented Business”) under Section 102.051 and Section 3.722. TEX.BUS.&COM.CODE ANN.

§ 102.051; 34 TEX.ADMIN.CODE ANN. § 3.722. In November of 2018 and May of 2019, Colette

alleges unidentified individuals, employed either by the Texas Comptroller or the Harris County

Sheriff’s Department, signed the membership agreement, entered the establishment, and

videotaped at least two members of Colette engaged in sexual activity. Colette and the members

at issue did not consent to this “search and videotaping.” Oral depositions of Deputy “TB” and

Deputy “AC” confirm these officials visited Colette and did not possess warrants. Deputy TB

stated he did not believe a warrant was required because he paid the entrance fee like everyone

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else. Deputy TB described “it’s open to anybody with an I.D. and money. There was no vetting

that went on. There’s no card that they gave you. There’s nothing to say, okay, fill out this

application for membership. . . . As a matter of fact, one of the investigators [who was admitted

into Colette] didn’t even have an I.D.” Deputy AC also confirmed he did not have a warrant in

November 2018 when he visited Colette because he “walk[ed] into a business that’s open to the

public, which I was just a normal everyday patron entering it.” During Deputy AC’s deposition, a

narrative was read aloud:

       Narrative: On Thursday, November 1, 2018, I, Sergeant E. Thomas . . . was
       employed by the Harris County Sheriff’s Office as a sergeant investigator assigned
       to the vice unit. On the aforementioned date, the vice unit initiated an undercover
       investigation, was conducted to ascertain if illegal activities, namely, prostitution
       and any violations of state law and the Occupations Codes was occurring at the
       business.

A disposition of an unidentified investigative report was also read aloud during the deposition, “It

says: No violations of the Harris County Sexually Oriented Business Regulations, Case will be

closed.”

       According to Colette, it was informed by Harris County agents and employees about the

existence of the video and it serving as the basis for the Comptroller’s position that Colette is a

SOB; the video was characterized as depicting “nudity in plain view” and “sex in plain view[.]”

Colette alleges this case has not proceeded to a final tax determination, and that it has not received

a written determination that it is a SOB or that it is subject to the SOBF (“Sexually Oriented

Business Fee”) statute and rules.

       Colette filed the underlying lawsuit in response to the Comptroller’s SOB assessment. In

its original petition for declaratory judgment and ancillary relief, Colette argued: the Comptroller

could not rely on an illegal search, its members’ right to privacy was violated, it was not a SOB,

Section 102.051 of the Texas Business and Commerce Code and Section 3.722 are unconstitutional

                                                  3
as applied, and requested injunctive relief to enjoin the enforcement of Section 102.051 and

Section 3.722 and the use of the illegally obtained video, and orders compelling the Comptroller

to produce a copy of the video. In response, Appellants filed a plea to the jurisdiction asserting

sovereign immunity. The trial court partially granted the plea to the jurisdiction, dismissing

Colette’s applicability challenges for lack of jurisdiction, while denying the remainder of the plea.

Appellants appeal the trial court’s denial of the plea to the jurisdiction as to the ultra vires and

injunctive claims.

                                     Procedural Background

       Colette commenced the underlying lawsuit against Glenn Hegar, Texas Comptroller of

Public Accounts of the State of Texas, Ken Paxton, Attorney General of the State of Texas, Jesus

Vela, and Harris County by filing its original petition for declaratory judgment and ancillary

injunctive relief. It subsequently dropped Harris County as a named defendant in its notice of non-

suit. Appellants answered to the suit with a plea to the jurisdiction, asserting sovereign immunity

and requesting Colette’s claims be dismissed because it failed to plead cognizable APA and ultra

vires claims and failed to follow the statutory prerequisites under the Tax Code. Colette thereafter

filed a motion for summary judgment. In Appellants’ responses to Colette’s motion for summary

judgment, and in their brief—and first amended brief—in support of their plea to the jurisdiction,

Appellants raised the issue of ripeness as a threshold matter. Appellants maintained the issue of

ripeness throughout the trial level, each time arguing there is no injury due to the absence of a

decision by the Comptroller regarding Colette’s SOB status. Appellants have now abandoned the

issue of ripeness on appeal.

       On July 30, 2020, the trial court held a remote hearing and denied Colette’s motion for

summary judgment. At that same hearing, the trial court granted in part and denied in part the plea

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to the jurisdiction; it granted Appellants’ plea to the jurisdiction as to the applicability challenge

under Section 2001.038 of the APA, and denied the plea as to all other claims. This appeal

followed.

                                                  DISCUSSION

    In two issues, Appellants challenge the trial court’s denial of the plea to the jurisdiction as to

Colette’s ultra vires and injunctive relief claims. In Issue One, Appellants argue the trial court did

not possess jurisdiction because Colette’s ultra vires claims concern acts within the Comptroller’s

authority, seek retrospective relief, and are redundant to the relief it could obtain under the Tax

Code. In Issue Two, Appellants maintain the trial court did not possess jurisdiction for Colette’s

injunctive relief claims because it failed to adhere to the statutory prerequisites of a Tax Code

injunctive suit.

                                    Standard of Review & Law Background

         Sovereign immunity implicates a court’s subject matter jurisdiction. EBS Solutions, Inc. v.

Hegar, 601 S.W.3d 744, 749 (Tex. 2020). We review a trial court’s decision of a plea to the

jurisdiction de novo, applying traditional principles of statutory interpretation to determine

whether sovereign immunity has been waived. Id. “Although the trial court generally lacks

jurisdiction to hear a taxpayer’s challenge to a tax assessment, . . . the Legislature has waived the

State’s sovereign immunity as to three types of tax challenges—protests, injunctions, and

refunds—conferring exclusive, original jurisdiction on the district courts of Travis County.” Id. at

749-50; see TEX.TAX CODE ANN. §§ 112.108 2, 112.001.

2
  The Legislature repealed Section 112.108 in 2021 and revised the statutory scheme relating to taxpayers’ suits. See
Act of May 24, 2021, 87th Leg., R.S., ch. 331, § 11, 2021 TEX.GEN.LAWS 682, 685 (effective Sept. 1, 2021). The Act,
however, provides, “[t]he changes in law made by this Act apply only to a suit to dispute an amount of tax, penalty,
or interest that becomes due and payable on or after the effective date of this Act. A suit to dispute an amount of tax,
penalty, or interest that became due and payable before the effective date of this Act is governed by the law as it
existed immediately before the effective date of this Act, and the former law is continued in effect for that purpose.”
Id. at § 12 [Emphasis added].

                                                           5
       Although Appellants have not raised the issue of ripeness on appeal, it is our duty and

within our authority to do so. See MRC Permian Co. v. Point Energy Partners Permian LLC, 624

S.W.3d 643, 664 (Tex.App.—El Paso 2021, pet. filed)(“A lack of subject matter jurisdiction

cannot be waived, can be raised at any time, and may be considered by a court sua sponte. []

Ripeness is one component of subject matter jurisdiction that a court should consider when

determining whether it has jurisdiction over a case.”).

       As a threshold matter, ripeness is a component of subject matter jurisdiction. Harris Cty.

Appraised Dist. v. Boyaki, No. 14-18-00017-CV, 2019 WL 1526431, at *5 (Tex.App.—Houston

[14th Dist.] 2019, no pet.)(mem. op.). While standing hinges on who may bring an action, ripeness

examines when an action may be brought. Lazarides v. Farris, 367 S.W.3d 788, 802 (Tex.App.—

Houston [14th Dist.] 2012, no pet.). Ripeness requires a concrete injury and is invoked to

determine whether a dispute has matured to the point that warrants a decision. City of Houston v.

Commons at Lake Houston, Ltd., 587 S.W.3d 494, 499-500 (Tex.App.—Houston [14th Dist.]

2019, no pet.). The inquiry focuses on whether the case involves uncertain or contingent future

events that may or may not occur as anticipated, or may not occur at all. Id. When determining

whether a suit for declaratory judgment presents a ripe controversy, “the declaration sought must

actually resolve the controversy.” Sw. Elec. Power Co. v. Lynch, 595 S.W.3d 678, 685 (Tex.

2020)[Internal quotations omitted]. A case is not ripe when the plaintiff’s injury depends on

contingent or hypothetical facts, or on events that have yet come to pass. Id. “The essence of the

ripeness doctrine is to avoid premature adjudication . . . [and] to hold otherwise would be the

essence of an advisory opinion, advising what the law would be on a hypothetical set of facts.”

Robinson v. Parker, 353 S.W.3d 753, 756 (Tex. 2011)[Internal quotations omitted].

                                                 6
       The intersection of the Texas Business and Commerce Code and the Texas Administrative

Code provide for an imposition of a per customer fee on sexually oriented businesses.

TEX.BUS.&COM.CODE ANN. § 102.051; 34 TEX.ADMIN.CODE ANN. § 3.722.

       Section 102.051 defines a sexually oriented business as follows:

       (2) ‘Sexually oriented business’ means a nightclub, bar, restaurant, or similar
       commercial enterprise that:

               (A) provides for an audience of two or more individuals live nude
               entertainment or live nude performances; and

               (B) authorizes on-premises consumption of alcoholic beverages, regardless
               of whether the consumption of alcoholic beverages is under a license or
               permit issued under the Alcoholic Beverage Code.

TEX.BUS.&COM.CODE ANN. § 102.051. The Texas Administrative Code, adopted by the Texas

Comptroller, provides the same definition:

       (4) Sexually oriented business--A nightclub, bar, restaurant, or similar commercial
       enterprise that:

               (A) provides for an audience of two or more individuals live nude
               entertainment or live nude performances; and

               (B) authorizes on-premises consumption of alcoholic beverages, regardless
               of whether the consumption of alcoholic beverages is under a license or
               permit issued under the Alcoholic Beverage Code.

34 TEX.ADMIN.CODE ANN. § 3.722. The imposition and calculation of fees of a sexually oriented

business are set out in Section 3.722(d)(1): “A $5.00 fee is imposed on a sexually oriented business

for each entry by each customer admitted to the business.” Id. Sexually oriented businesses must

also comply with reporting and recording requirements. See id. at § 3.722(d)-(f). The Texas

Comptroller is responsible for the administration, payment, collection, and enforcement of these

fees and requirements. TEX.BUS.&COM.CODE ANN. § 102.056 (citing TEX.TAX CODE ANN.

§ 111.001).

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                                              Ripeness

   Central to the resolution of this interlocutory appeal is whether a final decision as to SOB status

has been issued by the Comptroller. The parties’ positions have not always been consistent. Colette

maintains the Comptroller “presents no evidence from the record that this case has proceeded to a

‘final tax determination’ because it has not. Only preliminary assessments have been made for

which the deadline to appeal have not run.”

   In their brief in support of the plea to the jurisdiction, Appellants stated, “[a]lthough Colette

claims to seek a return of money paid, it has not paid any sexually-oriented business (‘SOB’) fees,

the Comptroller has not assessed it any SOB fees, nor has the Comptroller issued a Decision

holding that it is or is not a SOB.” Appellants also stated, “Colette has not yet received a

Comptroller Decision or any assessments mandating it to remit SOB fees, and as such it may or

may not receive a Comptroller Decision holding that it is a SOB.” Also attached to Appellants’

brief in support of their plea to the jurisdiction, and part of the designated record on appeal, is the

declaration of Emily Tipton, a Program Specialist in the Tax Litigation Division of the Comptroller

of Public Accounts. The declaration has a certificate of service date of March 20, 2020. Tipton

declared:

       3. I have reviewed the business records and systems of the Comptroller as they
       involved reports, returns, and audit activity for [Colette] (‘Taxpayer’).

       4. The Comptroller has not issued a deficiency assessment for sexually-oriented
       business fee liability to Taxpayer.

       5. The Comptroller has not issued a jeopardy determination for sexually-oriented
       business fee liability to Taxpayer.

       6. The Comptroller has not conduced an audit for sexually-oriented business fee
       liability for Taxpayer.

       7. The Comptroller has not issued a tax refund denial for sexually-oriented business
       fee liability to Taxpayer.

                                                  8
       8. The Comptroller has not issued a Comptroller Decision regarding Taxpayer’s
       sexually-oriented business fee status.

In Appellants’ reply brief, they now assert, “[Colette’s] contention that ‘this case has [not]

proceeded to a ‘final tax determination’’ is disingenuous at best. . . . As noted earlier, the

Comptroller issued [Colette] its SOB assessment on July 13, 2020.” Aside from this contention,

there is nothing in the record to support the Comptroller’s issuance of a final decision or

determination as to Colette’s SOB status.

       The sole evidence in the record as to any SOB assessments is the Tax Litigation Division

of the Comptroller of Public Accounts declaration, in which Tipton states no decision by the

Comptroller has been issued regarding Colette’s SOB status or fees. Without a final decision or

determination as to Colette’s SOB status, the issue of ripeness becomes paramount. Determining

whether administrative action is ripe requires evaluation of the issues’ fitness for judicial decision

and the hardship to the parties of withholding court consideration. Nat’l Park Hospitality Ass’n v.

Dep’t of Interior, 538 U.S. 803, 803 (2003). We rely on the only evidence within the record—that

no final decision by the Comptroller has been made. Accordingly, we see no actual, existing

hardship to the parties. The crux of this appeal is a contingent decision by the Comptroller and a

hypothetical injury that has yet to occur. Accordingly, this Court lacks jurisdiction over this suit.

As to Appellants’ remaining issues, we do not reach them. See TEX.R.APP.P. 47.1.

                                          CONCLUSION

       For these reasons, we dismiss for lack of jurisdiction.

November 29, 2021
                                               YVONNE T. RODRIGUEZ, Chief Justice

Before Rodriguez, C.J., Palafox, and Alley, JJ.

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