Court Opinion

ID: 4680905
Source: CourtListenerOpinion
Date Created: 2021-04-26 07:19:31.565057+00
Date Added: 2024-06-11T08:03:58.050493
License: Public Domain

Affirmed and Memorandum Opinion filed April 20, 2021.

                                            In The

                        Fourteenth Court of Appeals

                                   NO. 14-20-00110-CV

KENNETH D. SMARTT A/K/A KENNETH DAIR SMARTT, JR., Appellant

                                               V.
                          THE STATE OF TEXAS, Appellee

                      On Appeal from the 250th District Court
                               Travis County, Texas
                      Trial Court Cause No. D-1-GN-18-002098

                    MEMORANDUM                          OPINION

       In this breach-of-contract action, appellant Kenneth Smartt a/k/a Kenneth
Dair Smartt Jr., the guarantor of two tax-settlement agreements, challenges the
summary judgment granted in favor of the plaintiff, the State of Texas.1 Smartt

       1
         The case is before this Court on transfer from the Third Court of Appeals in Austin
pursuant to a docket-equalization order issued by the Supreme Court of Texas. See TEX. GOV’T
CODE ANN. § 73.001. Because this is a transfer case, we apply the precedent of the Third Court of
Appeals to the extent it differs from our own. See TEX. R. APP. P. 41.3.
maintains that he owes nothing because when the taxpayers breached the settlement
agreements, the State wrote that it “cancelled” the contracts. According to Smartt,
this language voided the settlement agreements, including his guarantees, while
leaving in place the release of the taxpayers’ debts. But, in stating that the
agreements were “cancelled,” the State merely informed Smartt that it was
terminating its own future performance and resorting to its remedies for breach—
including its right to collect the debts from Smartt. Thus, we affirm the trial court’s
judgment.

                                  I. BACKGROUND

      Smartt’s businesses Xoticas Laredo, L.P., and Xoticas Rio Grande Valley,
L.P., were liable to the State of Texas for payment of sexually oriented business fees,
penalties, and interest; we refer to these businesses as “the Taxpayers.” Each
Taxpayer entered into a settlement agreement with the Comptroller of Public
Accounts of the State of Texas. Each agreement required the respective Taxpayer to
make installment payments on the debt and remain current in all tax filings, failing
which the full assessment, less any payments, would become immediately due, along
with any additional penalties and interest. Smartt guaranteed the Taxpayers’
performance and signed the agreements both as the limited partner in each Taxpayer
and as the guarantor.

      The Taxpayers breached the agreements, and Devin Bailey, the Manager of
the Comptroller’s Austin Enforcement Office, sent Smartt two letters, each
concerning one of the two Taxpayers. The letters informed Smartt that, due to each
Taxpayer’s breach of its respective settlement agreement, “the agreement is now
cancelled” and the entire tax liability was due.

      Smartt did not pay the debts, and the State, acting through the Office of the
Attorney General, sued him under the Tax Code and for breach of contract. Smartt
                                          2
asserted the affirmative defenses of waiver, release, estoppel, and cancellation and
rescission. In addition, he counterclaimed for specific performance of the settlement
agreements.

       The State filed a hybrid motion for traditional summary judgment on its own
claims and for no-evidence summary judgment on Smartt’s affirmative defenses.2
The State’s motion was supported by authenticated copies of the settlement
agreements, the Comptroller’s certification of the amount of taxes, penalties, and
interest currently owed, as well the amount by which interest would continue to
accrue each day, and evidence of attorney’s fees. Smartt’s response was supported
only by copies of the settlement agreements and of the two letters from Bailey.

       The trial court granted the State’s motion, and after Smartt noticed the nonsuit
of his counterclaim, the trial court rendered final judgment for the State in the
amount of $1,513,418.58, plus interest, costs, and attorney’s fees, and allowed
Smartt’s motion for new trial to be overruled by operation of law.

       In a single issue, Smartt argues that the trial court erred in rendering summary
judgment against him.

                                 II. STANDARD OF REVIEW

       We review both traditional and no-evidence motions for summary judgment
de novo. See Boerjan v. Rodriguez, 436 S.W.3d 307, 310 (Tex. 2014) (per curiam).

       To prevail on a traditional motion for summary judgment, the movant must
show that there is no genuine issue of material fact and that it is entitled to judgment
as a matter of law. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211,

       2
         Smartt also filed his own motion for partial summary judgment on an unpleaded claim
for declaratory relief and for unspecified damages. He does not appeal the trial court’s denial of
his motion.

                                                3
215–16 (Tex. 2003). If the movant carries this burden, the burden shifts to the
nonmovant to raise a genuine issue of material fact precluding summary judgment.
Lujan v. Navistar, Inc., 555 S.W.3d 79, 84 (Tex. 2018) (citing Centeq Realty, Inc. v.
Siegler, 899 S.W.2d 195, 197 (Tex. 1995)). We construe the evidence in the light
most favorable to the non-movant by crediting evidence favorable to the nonmovant
if a reasonable juror could and disregarding contrary evidence unless a reasonable
juror could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d
844, 848 (Tex. 2009).

      In a no-evidence motion for summary judgment, the movant asserts that there
is no evidence of one or more essential elements of the claim or defense for which
the nonmovant bears the burden of proof at trial. TEX. R. CIV. P. 166a(i); Timpte
Indus., Inc. v. Gish, 286 S.W.3d 306, 310 (Tex. 2009). The burden then shifts to the
nonmovant to present evidence raising a genuine issue of material fact as to the
elements specified in the motion. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572,
582 (Tex. 2006). We will affirm a no-evidence motion for summary judgment when
(a) there is a complete absence of evidence of a vital fact, (b) the court is barred by
rules of law or of evidence from giving weight to the only evidence offered to prove
a vital fact, (c) the evidence offered to prove a vital fact is no more than a mere
scintilla, or (d) the evidence conclusively establishes the opposite of the vital fact.
See City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex. 2005).

                                   III. ANALYSIS

      Nearly all of Smartt’s arguments, both at trial and on appeal, are based on the
same two premises. First, he asserts that the settlement agreements waived, released,
or otherwise eradicated all tax liability and claims under the Texas Tax Code.
Second, he maintains that Bailey’s letters “cancelling” the settlement agreements
canceled, waived, rescinded, or otherwise eliminated any contractual liability under

                                          4
those agreements. Smartt therefore concludes that he does not owe the contested
amounts to the State under the terms of the Tax Code or of the contracts. Both of
these premises are mistaken.

A.    The Settlement Agreements Did Not Eliminate Liability Under the Tax
      Code.
      When construing a contract, our primary objective is to effectuate the written
expression of the parties’ intent. Pathfinder Oil & Gas, Inc. v. Great W. Drilling,
Ltd., 574 S.W.3d 882, 889 (Tex. 2019). To do so, we “consider the entire writing in
an effort to harmonize and give effect to all the provisions of the contract so that
none will be rendered meaningless,” bearing in mind that specific contract
provisions control over general ones. Id. (quoting Coker v. Coker, 650 S.W.2d 391,
393 (Tex. 1983) (emphasis omitted)). We may not “consider only the parts favoring
one party and disregard the remainder.” Wilson, 168 S.W.3d at 811.

      When the parties entered into the settlement agreements in January 2016, the
Taxpayers had outstanding liabilities arising from the failure to pay “sexually
oriented business fees” during a particular time period. A “sexually oriented business
fee” is a tax as defined by Title 2 of the Tax Code. See TEX. TAX. CODE ANN.
§ 101.003(13) (“‘Tax’ means a tax, fee, assessment, charge, or other amount that the
comptroller is authorized to administer.”); TEX. BUS. & COM. CODE ANN. § 102.052
(sexually oriented business fee of $5 per entry per customer to be recorded daily);
TEX. BUS. & COM. CODE ANN. § 102.053 (sexually oriented business must remit the
fees quarterly to the comptroller and file reports with the comptroller as the
comptroller requires); TEX. BUS. & COM. CODE ANN. § 102.056 (“The provisions of
Subtitle B, Title 2, Tax Code, apply to the administration, payment, collection, and
enforcement of the [sexually oriented business fee].”); Tex. Entm’t Ass’n, Inc. v.
Combs, 431 S.W.3d 790, 799 (Tex. App.—Austin 2014, pet. denied) (“We conclude
that the sexually-oriented-business tax is a general excise tax rather than an
                                          5
occupation tax.”). The tax liability for the period identified in each settlement
agreement was identified as “the Contested Matter.”

       Under the subheading “General Terms,” the settlement agreements state, “The
Comptroller . . . releases and discharges Taxpayer, and Taxpayer’s predecessors,
successors, assignees, employees, agents, and attorneys from all known and
unknown claims, suits, and causes of action related to the Contested Matter in issue.”
Under “Specific Terms,” the parties stated,

              If the Taxpayer fails to remit the required payments, or if
       Taxpayer is not reporting its current taxes, the full assessment, less any
       payments, will immediately become due and payable with any
       additional penalties and accrued interest. No notice of default shall be
       required to be given to the Taxpayer.
Thus, the General Terms of the agreements released the Taxpayers’ liability for the
Contested Matters, and the Specific Terms unambiguously provided an exception to
that release if the Taxpayers breached the agreements. The Specific Terms of each
agreement further provided, “Guarantor Kenneth D. Smartt agrees to guarantee
performance, including full payment of Taxpayer’s obligation under this Agreement,
contingent only upon Taxpayer defaulting on any provisions of this Agreement.”

       In sum, the Taxpayers’ failure to perform as agreed had two contractual
consequences. First, the taxes that were the subject of each Taxpayer’s agreement
were no longer to be treated by the State as released,3 but instead became
immediately due (reduced by any payments and increased by any additional
penalties and accrued interest). Second, Smartt, as each Taxpayers’ guarantor,
became liable for those taxes.

       3
         Cf. Mustang Pipeline Co., Inc. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004)
(per curiam) (“It is a fundamental principle of contract law that when one party to a contract
commits a material breach of that contract, the other party is discharged or excused from further
performance.”).

                                               6
       Smartt urges us to interpret the settlement agreements to give effect only to
the “release” language of the contracts’ General Terms while ignoring the Specific
Terms altogether. But courts must enforce unambiguous contracts as written, giving
effect to all of a contract’s provisions so that none are rendered meaningless or
superfluous. In re Davenport, 522 S.W.3d 452, 457 (Tex. 2017) (orig. proceeding).
The agreements’ plain language dictates the conclusion that, far from waiving,
releasing, or canceling the Taxpayers’ tax liability if they failed to pay as agreed, the
agreements expanded the group who could be held liable for the taxes to include
Smartt.

B.     Bailey’s Letters Did Not Eliminate Smartt’s Contractual Liability as
       Guarantor.
       The other argument central to Smartt’s appeal is his contention that Bailey’s
letters eliminated Smartt’s contractual liability as the Taxpayers’ guarantor. The two
letters provided as follows, each differing only in its identification of the Taxpayer
at issue and the amount of that Taxpayer’s liability:

       On January 1, 2016 you entered into a payment agreement with this
       office for delinquent Sexually Oriented Business Tax. The terms of the
       agreement included timely payment of a monthly installment as well as
       the timely filing and payment of all subsequent reports due this office.
       Because of your failure to pay the subsequent reports, the agreement is
       now cancelled. The entire amount of the liability, $[xxxxxx] is now due
       in full. This amount includes tax, penalty, and interest through February
       27, 2018.
       Please send your payment of $[xxxxxx] immediately to prevent further
       collection alternatives as provided by state law. . . .4
Smartt’s argument that the letters eliminated his contractual liability rests entirely
on a misunderstanding of the statement, “the agreement is now cancelled.”

       4
          Xoticas Laredo’s stated liability was $529,234.20, and Xoticas Rio Grande Valley’s
stated liability was $919,472.58.

                                             7
      To understand the meaning of the word “cancelled” as used in Bailey’s letters,
one need only recall that when one party materially breaches a contract, the non-
breaching party has a choice. See Gen. Growth Props., Inc. v. Prop. Tax Mgmt., Inc.,
614 S.W.3d 386, 393 (Tex. App.—Houston [14th Dist.] 2020, no pet.); Advanced
Pers. Care, LLC v. Churchill, 437 S.W.3d 41, 46 (Tex. App.—Houston [14th Dist.]
2014, no pet.). If the non-breaching party waives the breach and instead treats the
parties’ contractual obligations as continuing, then the non-breaching party must
continue to abide by the contract’s terms; its own non-performance will not be
excused. See Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707, 708–09 (Tex. 1982).
If the non-breaching party does not waive the breach, then its own performance is
discharged. See Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196
(Tex. 2004) (per curiam).

      By writing, “Because of your failure to pay the subsequent reports, the
agreement is now cancelled,”5 Bailey communicated that the State was not waiving
the breach and instead considered its own contractual obligations terminated. See
Cancel, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining “cancel” as “[t]o
terminate a promise, obligation, or right” as in “the parties canceled the contract.”);
see also Advanced Pers. Care, 437 S.W.3d at 46 (“[U]pon the Buyer’s breach of the
Settlement Agreement, the Sellers had a choice. If they were to treat the contract as
terminated, then the breach would excuse them from any further performance.”).

      No reasonable reading of Bailey’s letter supports an inference that the State
“cancelled” Smartt’s liability. Cf. Wilson, 168 S.W.3d at 824 (in reviewing
summary-judgment evidence, courts indulge “every reasonable inference” in the
nonmovant’s favor) (emphasis added). This is underscored by the words that

      5
          Emphasis added.

                                          8
immediately follow the word “cancelled”: “The entire amount of the liability,
$[xxxxxx] is now due in full.” Further, the State could cancel its own further
performance as a result of the Taxpayers’ breach, but the settlement agreements did
not give any party the right to cancel the contracts altogether, nor does Smartt
contend otherwise. To the contrary, he acknowledges that the State “was not
contractually permitted” to cancel the agreements.

      We conclude that Bailey’s letters are reasonably susceptible to only one
interpretation: due to the Taxpayers’ breach of the settlement agreements, the State
considered the Taxpayers’ entire tax liability, penalties, and interest immediately
due and collectible from Smartt. Thus, the trial court properly rejected the contention
that Bailey’s letters canceled Smartt’s contractual liability as the Taxpayers’
guarantor.

C.    Smartt’s Remaining Arguments Similarly Lack Support.
      Our rejection of Smartt’s two central premises eliminates most of his
remaining arguments. His remaining contentions are either unpreserved,
unsupported by authority, or based on a misreading of another contract provision.

      1.     The State Proved the Amount Owed.

      Smartt argues that the State failed to prove the total amount owed because the
State relied on a comptroller’s certificate pursuant to Texas Tax Code section
111.013. The statute provides that “[i]n a suit involving the establishment or
collection of a tax imposed under Title 2 or 3” of the Texas Tax Code, such a
certificate is prima facie evidence of the stated amount of tax, penalties, interest, and
delinquency, after all just and lawful offsets have been allowed. See TEX. TAX. CODE
ANN. § 111.013. The certificate is presumed correct, and if unrebutted, establishes
the amounts due as a matter of law. See Kawaja v. State, No. 03-05-00491-CV, 2006
WL 1559343, at *2 (Tex. App.—Austin June 8, 2006, no pet.) (mem. op.). The

                                           9
presumption applies in a suit against a taxpayer’s guarantor just as it does in a suit
against the taxpayer. See State v. Hunter, No. 14-18-00678-CV, 2020 WL 4211241,
at *5 (Tex. App.—Houston [14th Dist.] July 23, 2020, no pet.) (mem. op.).

       Smartt did not attempt to rebut the certificate; however, he asserts that the
presumption does not apply because the suit against him was not “a suit involving
the establishment or collection of a tax” inasmuch as the State “waived all tax
claims.” His arguments that the State waived all tax claims are the same arguments
we have already rejected. Because the settlement agreements did not release the
Taxpayers’ tax liability if the Taxpayers breached the agreements, the State’s claims
under the Tax Code were not waived.

       In the course of this argument, Smartt asserts that the State should be
characterized as a private litigant in this suit. He reaches this conclusion by relying
on cases that address conditions under which the State waives immunity from
liability for certain offsetting claims. But, there are no offsetting claims; Smartt
nonsuited his counterclaim for specific performance and attorney’s fees. And the
cases on which he relies concern conditions under which the State’s sovereign
immunity from others’ claims is or is not waived.6 Sovereign immunity is not at
issue in this case, and the authorities Smartt cites have no bearing on the State’s
claims against Smartt or its ability to rely on the Comptroller’s certificate.

       Smartt also asserts that the certificate (a) is unreliable because it was not made
near the time when the Taxpayers’ tax liabilities first accrued, (b) contains
unspecified inaccuracies, and (c) is inadmissible hearsay. Because the record does

       6
        See, e.g., State ex rel. Best v. Harper, 562 S.W.3d 1 (Tex. 2018); State v. Elliott, 212 S.W.
695 (Tex. App.—Galveston 1919, writ ref’d); Tex. S. Univ. v. State St. Bank & Tr. Co., 212 S.W.3d
893 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) (sub. op. on denial of reh’g).

                                                 10
not show that Smartt raised these objections in the trial court, they have not been
preserved for review.

       In his reply brief, Smartt argues for the first time that the certificate is
conclusory. Complaints that evidence is conclusory may be raised for the first time
on appeal. Pipkin v. Kroger Tex. L.P., 383 S.W.3d 655, 670 (Tex. App.–Houston
[14th Dist.] 2012, pet. denied). But, explained above, the legislature has declared
that a Comptroller’s certificate is prima facie evidence of the amount owed. Because
Smartt produced no evidence to rebut the certificate, the certificate alone is sufficient
proof of the amounts owed.

       We overrule Smartt’s evidentiary arguments.

       2.      Smartt Failed to Raise a Fact Issue on His Affirmative Defenses of
               Waiver, Release, and Rescission and Cancellation.
       In the no-evidence portion of the State’s motion for summary judgment, the
State argued there was no evidence to support certain elements of Smartt’s
affirmative defenses of waiver, release, and rescission and cancellation. Regarding
waiver, the State asserted there was no evidence of the Comptroller’s express
renunciation of a known right or its silence or inaction for a length of time that
showed an intention to yield the known right.7 Regarding release, the State averred
that Smartt had no evidence that the Comptroller had surrendered its legal rights

       7
          The elements of waiver are (1) an existing right, benefit, or advantage held by a party;
(2) the party’s actual knowledge of its existence; and (3) the party’s actual intent to relinquish the
right, or intentional conduct inconsistent with the right. Shannon v. Mem’l Drive Presbyterian
Church U.S., 476 S.W.3d 612, 627 (Tex. App.—Houston [14th Dist.] 2015, pet. denied). To
determine if a party has waived a right, we “examine the acts, words, or conduct of the parties, and
it must be ‘unequivocally manifested’ that it is the intent of the party to no longer assert the right.”
Rodriguez v. Villarreal, 314 S.W.3d 636, 645 (Tex. App.—Houston [14th Dist.] 2010, no pet.)
(quoting Dep’t of Protective & Regulatory Servs. v. Schutz, 101 S.W.3d 512, 516 (Tex. App.—
Houston [1st Dist.] 2002, no pet.)).

                                                  11
under the settlement agreements.8 As for rescission and cancellation, the State
maintained there was no evidence that (a) the Comptroller fraudulently induced
Smartt to enter into the settlement agreements, or (b) Smartt and the Comptroller
arrived at a mutual understanding that the Agreement was abrogated and
terminated.9

       In response, Smartt relied only on his mistaken interpretation both of the
settlement agreements’ terms and of the language in Bailey’s letters. For the reasons
previously explained, neither the settlement agreements nor Bailey’s letters waived,
released, rescinded, or canceled the State’s claims against Smartt. We therefore
conclude that Smartt failed to raise a genuine issue of material fact on these
affirmative defenses.

       3.       The State Did Not Limit Its Remedies for Breach of the Agreements.

       In Smartt’s remaining argument, he asserts that the State’s sole remedy under
the settlement agreements was to sue for specific performance. The agreements
actually say that the “Comptroller reserves the right to sue for specific performance
of this Agreement”;10 the agreements do not say that any other remedies are
unavailable or restricted, or that a suit for specific performance is the State’s
exclusive remedy for breach of contract. Moreover, “[i]t is well-settled that upon
breach of contract, a party may pursue any remedy which the law affords in addition
to the remedy provided in the contract.” Blackstone Med., Inc. v. Phoenix Surgicals,

       8
         “[A] release surrenders legal rights or obligations between the parties to an agreement.”
Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993).
       9
         See Guliver v. Shafer, No. 14-07-00217-CV, 2008 WL 123872, at *5 (Tex. App.—
Houston [14th Dist.] Jan. 15, 2008, no pet.) (mem. op.) (contract may be rescinded if it was
fraudulently induced or “if the parties arrive at a mutual understanding that the contract is
abrogated and terminated”).
       10
            Emphasis added.

                                               12
L.L.C., 470 S.W.3d 636, 653 (Tex. App.—Dallas 2015, no pet.). Thus, this
argument, too, is without merit.

      We overrule the sole issue presented.

                                   IV. CONCLUSION

      Having considered and rejected each of Smartt’s arguments, we affirm the
trial court’s judgment.

                                       /s/    Tracy Christopher
                                              Chief Justice

Panel consists of Chief Justice Christopher and Justices Jewell and Poissant.

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