Court Opinion

ID: 4382685
Source: CourtListenerOpinion
Date Created: 2019-03-30 07:39:59.305938+00
Date Added: 2024-06-11T14:22:49.900803
License: Public Domain

In the
                     Court of Appeals
             Second Appellate District of Texas
                      at Fort Worth
                  ___________________________
                       No. 02-17-00448-CV
                  ___________________________

 TEXAS WORKFORCE COMMISSION AND THE TEXAS COMPTROLLER OF
               PUBLIC ACCOUNTS, Appellants

                                 V.

 TAUFIQ AHMED; ZIKREEL AHMED; BANK OF AMERICA, N.A.; MAYFAIR
STATION, LLC; AMERICAN BUSINESS LENDING, INC.; INLAND AMERICAN
ARLINGTON RIVERVIEW LIMITED PARTNERSHIP; CITY OF FORT WORTH;
  FORT WORTH INDEPENDENT SCHOOL DISTRICT; TARRANT COUNTY;
 TARRANT COUNTY COLLEGE DISTRICT; TARRANT COUNTY HOSPITAL
   DISTRICT; TARRANT REGIONAL WATER DISTRICT; AND UNKNOWN
    MEMBERS, SUCCESSORS, AND ASSIGNS OF MURRAY INVESTMENT
                       COMPANY, Appellees

               On Appeal from the 236th District Court
                        Tarrant County, Texas
                   Trial Court No. 236-B42882-11

                Before Gabriel, Kerr, and Pittman, JJ.
                Memorandum Opinion by Justice Kerr
                           MEMORANDUM OPINION

      Two lienholders—the Texas Workforce Commission (TWC) and the Texas

Comptroller of Public Accounts—appeal from the trial court’s final judgment

disbursing all the excess proceeds of a tax-lien-foreclosure sale to a third lienholder,

IA America Arlington Riverview Limited (IA America). See Tex. Tax Code Ann.

§§ 34.03–.04. The trial court rendered its judgment after a hearing at which TWC and

the Comptroller were not present. TWC and the Comptroller complain in two issues

that the trial court erred by denying their post-default-judgment motion for new trial

because IA America did not properly serve them with its petition to disburse excess

proceeds and because they established their right to a new trial under Craddock v.

Sunshine Bus Lines, 133 S.W.2d 124, 126 (Tex. 1939). The Comptroller additionally

complains in a separate issue that because all service on its behalf in this suit has been

to the Attorney General, a separate agency, it has never been properly served with

citation or any document in the suit. Because we hold that the trial court rendered its

excess-proceeds judgment after insufficient statutory notice, we reverse the judgment

and remand the case to the trial court for a new trial.

                                      Background

      Various local taxing authorities (the City of Fort Worth, Tarrant County, Fort

Worth Independent School District, Tarrant Regional Water District, Tarrant County

Hospital District, and Tarrant County College District) filed a petition to recover

delinquent property taxes from Taufiq and Zikreel Ahmed by foreclosure. The
                                            2
petition also named several lienholders as defendants, including IA America and two

State entities:

       • the “State of Texas, (lienholder, in rem only), . . . having acquired its interest

in the subject property through [TWC], an agency thereof, . . . upon whom service

may be obtained by serving J. Ferris Duhon, Legal Counsel, 101 E. 15th Street,

Austin, Texas 78778” and

       • the “State of Texas, (lienholder, in rem only), . . . having acquired its interest

in the subject property through the Comptroller . . ., an agency thereof, . . . upon

whom service may be obtained by serving Greg Abbott, Attorney General for the

State of Texas or his designee for service of process, 300 West 15th Street, Austin,

Texas 78701.”

       The Tarrant County District Clerk served citation on TWC, the Attorney

General of Texas, and IA America by certified mail; the return-receipt cards

confirming service are included in the clerk’s record. But neither TWC, nor the

Attorney General, nor IA America filed an answer, and none of those named and

served defendants appeared at the tax-lien-foreclosure hearing. The trial court

rendered judgment allowing the taxing entities to hold a foreclosure sale to recover

the delinquent taxes. A note on the judgment indicates that it was mailed to the

defaulting defendants.

       After the property was sold at foreclosure and the taxing authorities were made

whole, the Constable deposited $39,965.37 in excess proceeds with the District Clerk.
                                            3
Thereafter, in January 2016, the District Clerk notified most of the defendants,

including TWC, that an excess existed. But nothing in the record shows that the

District Clerk notified either the Comptroller or the Attorney General of the excess

proceeds’ deposit. See Tex. Tax Code Ann. § 34.03(a)(3) (requiring the clerk to notify

the Attorney General of any excess-proceeds deposit if a state agency represented by

the attorney general is named as an in rem defendant in the underlying tax-lien-

foreclosure suit).

       IA America filed a Petition for Claim of Excess Proceeds in the same trial-

court cause number on February 19, 2016, but the record does not show that it served

the petition on any party to the underlying tax-lien-foreclosure proceeding. On

October 6, 2017, IA America’s attorney filed a notice of trial setting for December 13,

2017; the certificate of service indicates that it was “served upon the Plaintiff and

Defendant via electronic notification,” but it does not list all the multiple plaintiffs

and defendants.

       On October 26, 2017, the attorney ad litem for one of the defendants1 filed a

motion to distribute the excess funds to IA America. In that motion’s certificate of

service, the ad litem twice listed the “State of Texas (Lienholder, In Rem Only),” once

through Duhon at TWC’s address and once through the Attorney General at the

       The trial court appointed the ad litem for “The Unknown Members,
       1

Successors, And Assigns Of Murray Investment Company (Lienholder, In Rem
Only).”

                                           4
Attorney General’s address. The same day, the ad litem filed a notice of hearing

notifying “all parties” that the trial court had set the “Motion for Excess Proceeds”

for a hearing on November 13, 2017. He listed the same two State contacts in the

certificate of service attached to that notice.

       No representative appeared for TWC or the Comptroller at the hearing. The

trial court signed an order authorizing the District Clerk to distribute $900 to the ad

litem, a check for court costs to the District Clerk, and the remaining excess proceeds

to IA America’s attorney’s trust account.

       Fourteen days later, TWC and the Comptroller filed an answer to IA America’s

petition, a motion for rehearing, and alternatively a motion for new trial. The State

entities argued that the disbursement order was not final because it did not dispose of

all parties but that if it did, then they were entitled to a new trial because IA America

did not serve them with its petition. The Comptroller added that because the

Comptroller is a separate agency from the Attorney General’s office, it had never been

properly served even with the initial tax-foreclosure suit. Alternatively, both entities

argued that they met the Craddock elements for obtaining a new trial.2 133 S.W.2d at

       2
         Under this well-established standard, a defendant is entitled to a new trial if, in
its motion for new trial, it establishes that (1) its nonappearance was not intentional or
due to conscious indifference, but was instead the result of an accident or mistake;
(2) it has “set up” a meritorious defense; and (3) granting the motion will not unduly
delay or otherwise injure the nonmovant. Dolgencorp of Tex., Inc. v. Lerma, 288 S.W.3d
922, 925 (Tex. 2009).

                                             5
126. The trial judge did not rule on the motion for rehearing and allowed the new-trial

motion to be overruled by law. See Tex. R. Civ. P. 329b(c).

       TWC and the Comptroller filed this appeal and submitted a joint brief. No

appellee has filed a brief.

        Neither IA America’s Petition nor the Ad Litem’s Hearing Notice
             Was Served Timely Under Tax Code Section 34.04(b)

       In their motion for new trial, TWC and the Comptroller asserted that (1) they

never received a copy of IA America’s petition for excess proceeds and (2) although

TWC and the Attorney General received the ad litem’s hearing notice, they did not

receive that notice at least 20 days before the scheduled excess-proceeds hearing.

       Tax code section 34.04(b) requires an excess-proceeds claimant to serve a copy

of its petition in accordance with rule 21a “on all parties to the underlying action not

later than the 20th day before the date set for a hearing on the petition.”3 Tex. Tax

Code Ann. § 34.04(b); Tex. R. Civ. P. 21a. Notice properly sent according to rule 21a

raises a presumption of receipt, but notice must be proved when challenged. Mathis v.

Lockwood, 166 S.W.3d 743, 745 (Tex. 2005). Nothing in the record shows that IA

America served its petition for excess proceeds in compliance with rule 21a; thus, no

       3
        Although the legislature chose not to require new service of citation with a
petition to claim excess proceeds under section 34.04, the 20-day requirement does
roughly correspond with the time for filing an answer when properly served with
citation in a separate suit. See Tex. R. Civ. P. 99(b).

                                           6
evidence exists that TWC and the Comptroller received the required statutory notice

that IA America had filed an excess-proceeds petition.4 See id. at 745–46.

      Although TWC admits that on October 30, 2017, it received the ad litem’s

hearing notice on the excess-proceeds petition, its legal assistant’s affidavit stated that

this was insufficient time for its General Counsel’s office to log the suit into TWC’s

central log and for its Regulatory Integrity Division to then evaluate the case and refer

it to the Attorney General for representation.5 She stated that TWC followed its

normal process and forwarded the hearing notice to the Attorney General, requesting

representation, on November 15, 2017.

      The Comptroller attached an affidavit from its Assistant General Counsel for

Agency Affairs stating that the Comptroller has no record of being served with

process for the initial tax-foreclosure suit, nor any record of receiving IA America’s

petition for excess proceeds.

      4
        For this reason, we need not address the Comptroller’s second issue arguing
that the service of citation of the initial tax-foreclosure suit on the Attorney General
could not be effective against it because it had not yet requested representation. See
Tex. R. App. P. 47.1. As noted above, the Comptroller has now filed an answer in the
suit.
      5
        The legal assistant also opined that if the Regulatory Integrity Division had
properly forwarded the District Clerk’s notice of excess proceeds to the Attorney
General––its usual procedure that, inexplicably, the Division did not follow here—the
Attorney General would have timely filed a claim to the excess proceeds on TWC’s
behalf instead of TWC’s having to respond to IA America’s petition.

                                            7
      Moreover, the face of the record shows that the ad litem did not serve the

hearing notice at least 20 days ahead of time. The notice’s certificate of service recites

that the ad litem faxed it6 on October 26, 2017, 18 days before the hearing. Thus,

even if the hearing notice’s service could be construed as evidence of the petition’s

service under section 34.04(b), it was nevertheless untimely so that TWC and the

Comptroller have proved the first required Craddock element. Cf. In re Marriage of

Parker, 20 S.W.3d 812, 818–19 (Tex. App.––Texarkana 2000, no pet.) (holding that

defaulting party satisfied first Craddock element by showing that he received less than

45 days’ reasonable notice of trial under rule 245); Blanco v. Bolanos, 20 S.W.3d 809,

811–12 (Tex. App.––El Paso 2000, no pet.) (reversing trial court’s post-answer default

judgment in restricted appeal when face of record showed that Bolanos did not give

Blanco the required 45 days’ notice of the trial setting under rule 245); Platt v. Platt,

991 S.W.2d 481, 484 (Tex. App.––Tyler 1999, no pet.) (reversing post-answer default

judgment for new trial when evidence showed petitioner mailed trial-setting notice

one week before trial); see also Levine v. Shackelford, Melton & McKinley, L.L.P., 248
S.W.3d 166, 169 (Tex. 2008) (per curiam) (holding that even negligence will suffice to

meet the first Craddock element).

      6
         Only one fax number appears on the certificate of service—that of Stephen
Meeks, the taxing authorities’ counsel who filed the initial tax-lien-foreclosure
petition; the remaining named defendants, including TWC and the Attorney General,
are listed only by address.

                                            8
      TWC and the Comptroller set up a meritorious defense that as lienholders, they

are statutorily entitled to claim at least part of the proceeds. See Tex. Tax Code

Ann. § 34.04(c)(3). And they alleged in their motion that they are prepared to conduct

a new trial “at the [c]ourt’s earliest convenience” and that IA America will not be

prejudiced because it has notice of both liens. See Dir., State Emps. Workers’ Comp. Div.

v. Evans, 889 S.W.2d 266, 270 (Tex. 1994). Accordingly, we conclude that both TWC

and the Comptroller met all three Craddock elements to be entitled to a new trial. We

therefore sustain their first and third issues, reverse the trial court’s judgment, and

remand this case for a new trial. See Tex. R. App. P. 43.2(d).

                                                       /s/ Elizabeth Kerr
                                                       Elizabeth Kerr
                                                       Justice

Delivered: March 28, 2019

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