Dearl Gene Foxworth v. State of Texas and the Attorney General of Texas, on Behalf of the Texas Employment Commission ( 1994 )

foxworth IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN









NO. 3-93-154-CV





DEARL GENE FOXWORTH,

APPELLANT

vs.





STATE OF TEXAS AND THE ATTORNEY GENERAL OF TEXAS, ON BEHALF OF THE TEXAS EMPLOYMENT COMMISSION,

APPELLEES

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT

NO. 476,730, HONORABLE JOHN K. DIETZ, JUDGE PRESIDING

Appellee, the State, on behalf of the Texas Employment Commission (TEC) brought a collection action in Travis County district court to collect unemployment contributions assessed by the TEC against appellant, Dearl Gene Foxworth, d/b/a TCB Trucking. ⁽¹⁾ Foxworth filed a written denial and a counterclaim alleging that the State deprived him of property without due process and seeking damages and attorney's fees. After hearing the evidence, the trial court rendered judgment for the State, denied the counterclaim, and signed a TEC certification of delinquent unemployment contributions, penalties and interest due. We will affirm.

BACKGROUND

Under an operating agreement, Foxworth leased his trucks to Southwestern Motor Transport, Inc. (SMT), an interstate carrier. Foxworth provided the truck drivers under this agreement, and also paid a clerical worker to assist him in his operation. The tax department of the TEC determined that Foxworth was the employer of both the truck drivers and the clerical worker. See Labor Code § 201.021. Foxworth sought a discretionary administrative hearing, which the TEC granted. 40 Tex. Admin. Code § 301.13 (1989) (since amended). The TEC found that these workers were Foxworth's employees, rather than independent contractors, and assessed unemployment contribution payments plus penalties against Foxworth.

The State brought a collection suit in district court, submitting a certified delinquency statement as to the amount of contributions and penalties owed. Act of May 25, 1967, 60th Leg., R.S., ch. 287, § 5, 1967 Tex. Gen. Laws 683, 694-95 (Tex. Rev. Civ. Stat. Ann. art. 5221b-12(b), since amended, repealed, and codified) (hereinafter "Former Art. 5221b-12(b)"). ⁽²⁾ Foxworth answered by written denial, and specifically alleged that (1) the drivers and clerical worker were independent contractors; (2) the State is estopped from claiming employer status because the TEC previously decided that the workers were independent contractors; and (3) the TEC deviated from a long-standing policy established by earlier decisions that truck drivers in circumstances such as this one were independent contractors. In his counterclaim, Foxworth sought damages and attorney's fees, alleging that the acts of the TEC and its agents deprived Foxworth of property without due process.

The district court heard the evidence, rendered judgment for the State, and denied Foxworth's counterclaim. In its findings of fact and conclusions of law, the district court concluded in part that: (1) Foxworth was an employer under the Unemployment Compensation Act; (2) the State has sovereign immunity from suit and from liability for attorney's fees; and (3) the State is not estopped to claim that Foxworth is an employer. Foxworth appeals, urging five points of error.

DISCUSSION

In his first point of error, Foxworth argues that no evidence supports the trial court's findings that Foxworth had a right to control and direct the performance of the truck drivers and the clerical worker. We first address the standard of review. The State brought a collection action against Foxworth in district court. Former Art. 5221b-12(b). In this action, the State supports its petition with a certification of delinquent unemployment contributions, penalties, and interest issued and certified by the TEC. This statement operates as prima facie evidence that the amount stated is owed and delinquent, unless the defendant files an affidavit denying that all or part of the contribution, penalty, or interest is due and stating the details relating to this denial. Labor Code § 213.034. This collection proceeding is an original action, rather than an appeal of an administrative hearing. See Welker v. State, 647 S.W.2d 767, 770 (Tex. App.--Austin 1983, no writ) (holding that state is required to prove its allegations by a preponderance of the evidence); see also Dickerson-Seely v. Texas Employment Comm'n, 784 S.W.2d 573, 576 (Tex. App.--Austin 1990, no writ).

Foxworth argues that there was no evidence to support the trial court's fact findings that Foxworth had the right to control and direct the performance of the services of the truck drivers and the clerical worker. However, under the definition of employment in the Texas Unemployment Compensation Act, Foxworth had the burden to establish that the drivers and clerical worker were not under his control. Employment is defined in part:

"Employment" means a service, including service in interstate commerce, performed by an individual for wages or under an express or implied contract of hire, unless it is shown to the satisfaction of the commission that the individual's performance of the service has been and will continue to be free from control or direction under the contract and in fact.

Labor Code § 201.041. ⁽³⁾ At trial, Foxworth agreed that he had paid the drivers and clerical worker, and in its fact findings numbers two and six, the trial court specifically found that Foxworth paid the drivers and clerical worker wages for their services. Foxworth does not challenge these findings. Therefore, Foxworth had the burden to show that the workers were free from his control or direction under both his contract and in fact. Merchant v. State, 379 S.W.2d 924, 925 (Tex. Civ. App.--Austin 1964, no writ). Because Foxworth has the burden of proof on this issue, we treat his point of error that Foxworth established freedom from control or direction as a matter of law. See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989).

Filed findings of fact occupy the same position as the verdict of the jury. McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986). Because Foxworth challenges the legal sufficiency of an adverse finding for which he has the burden of proof, we first examine the record for evidence that supports the court's findings, while disregarding all opposing evidence. Sterner, 767 S.W.2d at 690. If there is no evidence to support the fact findings, then we examine the entire record to see if the contrary proposition is established as a matter of law. Id.; Holley v. Watts, 629 S.W.2d 694, 696 (Tex. 1982).

As recognized in the definition of employment, the test to determine whether a worker is an employee or an independent contractor is whether the employer has the right to control the progress, details, and methods of operations of the employee's work. Thompson v. Travelers Indem. Co., 789 S.W.2d 277, 278 (Tex. 1990) (applying test in workers' compensation case); Guinn v. State, 551 S.W.2d 783, 786 (Tex. Civ. App.--Austin 1977, writ ref'd n.r.e.); Barnett v. Texas Employment Comm'n, 510 S.W.2d 361, 363 (Tex. Civ. App.--Austin 1974, writ ref'd n.r.e). Some examples of this type of control by an employer include when and where to begin and stop work, the regularity of hours, the amount of time spent on particular aspects of the work, the tools and appliances used to perform the work, and the physical method or manner of accomplishing the end result. Thompson, 789 S.W.2d at 279. Other relevant factors include the right to hire and discharge and including workers on social security and income tax withholding rolls. United States Fidelity & Guar. Co. v. Goodson, 568 S.W.2d 443, 446 (Tex. Civ. App.--Texarkana 1978, writ ref'd n.r.e.).

The evidence showed Foxworth's control over the drivers. Drivers submitted their applications to Foxworth who investigated their driving records and kept them on file. Foxworth provided the trucks for his drivers and kept a log to track the drivers' location. He also provided workers' compensation insurance for the drivers.

At trial, a standard contract between Foxworth, d/b/a TCB Trucking, and the drivers was admitted into evidence as part of State's exhibit 3. The contract gives Foxworth the right to control many details of the drivers' work. It provided that TCB would withhold federal, state, and local taxes. TCB decided who would be the first and second driver of a team and designated that the first driver would be responsible for all receipts and paper work. Fuel and cash receipts were to be submitted to TCB. The contract provided that all trips would begin and end in San Antonio or Dallas. It further provided that TCB had the option to provide drivers with cash advances, would reimburse them for motel expenses for lay overs, and pay for certain fees in the event of loading or unloading hauls. In addition, the drivers were required to make mandatory check calls to TCB, and failure to make such calls would result in their termination. Foxworth agreed that some of the above provisions in the contract were not required by the Department of Transportation, and thus were not merely safety rules.

The "Independent Contractor Operating Agreement" between Foxworth and S.M.T., the carrier, also recognizes Foxworth's right of control over the drivers. The agreement provides that the contractor, Foxworth, shall retain all responsibility for "hiring, setting the wages, hours and working conditions and adjusting the grievances of, supervising, training, disciplining, and firing all drivers," and that the drivers "shall remain the employees of Contractor." Thus the operating agreement recognizes Foxworth's right to control the drivers under the contract, which the definition of employment expressly requires Foxworth to negate. See Newspapers, Inc. v. Love, 380 S.W.2d 582, 591 (Tex. 1964) (essential inquiry in existence of master-servant relationship is whether employer has contractual right to control details of work to be performed).

With respect to the clerical worker, Foxworth agreed at trial that he told her which duties to perform, such as answering the phone, preparing the payroll, and filing. He testified that she worked approximately from nine to five for about three years and received an hourly wage. He agreed that he had the right to change the methods she used and direct her on how she worked. On a TEC questionnaire, introduced into evidence, Foxworth wrote that he directed the clerical worker how to fill out the payroll and what filing system to use.

The evidence is legally sufficient to support the trial court's adverse findings that Foxworth had the right to control and direct the performance of the drivers and clerical worker. Therefore, Foxworth did not establish as a matter of law that the clerical worker and drivers were free from such control both under the contract and in fact. We overrule Foxworth's first point of error.

In Foxworth's second point of error, he argues that the trial court erred in finding the drivers to be his employees because there was substantial evidence of an established industry standard that owner-operators like Foxworth use independent contractors to drive the trucks they lease to carriers like SMT. He contends that the testimony of Santiago H. Villafranco, Terrence Charles Turner, N.B. Luker, and his own testimony establish this standard. Because this collection action is an original action, we will treat this point as a challenge to the factual sufficiency of the evidence. In reviewing a factual sufficiency challenge, we must consider, weigh, and examine all of the evidence in the record, and set aside a finding only if it so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986).

Foxworth relies on Interstate Commerce Commission rulings and "section 530(a)(2) of the Revenue Act of 1978" to further establish that governmental agencies recognize established industry standards. However, ICC rulings and IRS provisions do not control the district court's decision under the Texas Unemployment Compensation Act. Foxworth does not argue that the Texas Unemployment Compensation Act contains any such safe-harbor provisions which recognize an industry standard and absolve the taxpayer of liability for reasonable reliance upon this standard.

Foxworth also relies on an oral ruling of a case by a bankruptcy judge in the Western District of Texas in a "Motion of Debtors for Determination of Tax Liability to Texas Employment Commission," and attaches the transcription to his brief. Foxworth argues that the judge relied on industry standard in holding that truck drivers were independent contractors. The State correctly argues that unpublished opinions shall not be cited as authority by counsel. Tex. R. App. P. 90(i). Moreover, Foxworth relies merely on the mental processes of the judge announced orally to the parties, and the judge cites no authority for this belief. Furthermore, the majority of the judge's explanation weighs the factors for and against finding the drivers as employees.

Finally, we are not persuaded that Foxworth established such an industry standard. Foxworth recognizes in his brief that whether a worker is an employee or independent contractor is a fact-intensive determination dependent upon several factors. Villafranco, Turner, and Luker all answered yes when asked if a large number of people use drivers that they view as independent contractors. However, the testimony did not establish their familiarity with Foxworth's operation. Villafranco stated, "I didn't get involved in the day-to-day operations of Foxworth's business." Turner testified that he had never driven for Foxworth; he also stated that while he currently owns trucks and leases them, he does not use independent contractors. Luker testified about SMT's operations as a carrier, but did not establish his knowledge of Foxworth's business or how Foxworth worked with SMT. We conclude that the evidence is insufficient to establish that Foxworth's business followed any industry standard. We overrule his second point of error.

In points three and four, Foxworth alleges that the TEC made an earlier ruling that Foxworth's drivers were independent contractors. He also claims that previous TEC decisions established a policy that drivers in situations similar to Foxworth's were independent contractors. He argues that the trial court therefore erred in finding that the drivers were employees because there is no evidence of any reasonable basis for the TEC's deviation from its established policy, and to render judgment for the State results in a retroactive application of a change in TEC policy, upon which Foxworth reasonably relied.

We have reviewed the documents in the record that Foxworth relies upon to establish that the TEC previously found his drivers to be independent contractors. The documents establish that the TEC did not make benefits chargeable against one driver, D.A. Bunch. Nowhere in its "Notice of Decision of Potential Chargeback," does the TEC state that Foxworth's drivers are independent contractors, or even that Bunch in particular is an independent contractor.

Moreover, even if Foxworth erroneously relied upon the TEC notice as a representation that his drivers were not employees, estoppel does not run against a governmental unit when it is exercising governmental powers. Leeco Gas & Oil Co. v. Nueces, 736 S.W.2d 629, 630 (Tex. 1987); City of Hutchins v. Prasifka, 450 S.W.2d 829, 835 (Tex. 1970); Dillard v. Austin Indep. Sch. Dist., 806 S.W.2d 589, 594 (Tex. App.--Austin 1991, writ denied); In re Water Rights of Cibolo Creek Watershed, 568 S.W.2d 155, 158 (Tex. Civ. App.--San Antonio 1978, no writ) (claimant's assertion that water commission's agents made certain representations to him would not estop the state from denying his irrigation rights).

We have also reviewed the three TEC decisions attached to his brief that Foxworth relies upon to establish that the TEC departed from a long-standing policy that truck drivers in similar situations as Foxworth's are necessarily independent contractors. ⁽⁴⁾ These decisions do not set forth or establish any long-standing policy. Rather, they demonstrate that each case requires a fact-specific inquiry to determine whether the individual or business meets the definition of employment under the Unemployment Compensation Act. Each decision weighs the evidence for and against the existence of control over the workers, and the facts in each decision are distinguishable from Foxworth's relationship with his drivers and S.M.T. We overrule Foxworth's third and fourth points of error.

Foxworth argues in his fifth point that the trial court erred in holding that sovereign immunity barred his claim against the State for damages and attorney's fees. Foxworth contends that sovereign immunity does not apply because the actions of the agents of the TEC, acting in their official capacity, deprived him of his property without due process of law.

Foxworth states in his brief, "The assessment of the taxes, penalty, and interest for the years Appellant had a reasonable basis for believing he was operating lawfully is the action which deprived Appellant of property without due process." He argues, as he did in his third and fourth points of error, that he reasonably relied upon the trucking industry norms and the prior history of the TEC's decisions in believing that his drivers were independent contractors. Therefore, he concludes that the TEC's acts of filing tax liens against him and garnishing his business bank account during the pendency of the collection suit deprived him of property without due process of law.

In overruling Foxworth's third and fourth points of error, we have already held that the TEC decisions upon which Foxworth relies do not establish a long-standing policy that Foxworth's drivers were independent contractors, and that Foxworth has not established an industry standard or a provision in the Texas Unemployment Compensation Act which recognizes such a standard. Therefore, the TEC did not "retroactively apply" an "ad hoc decision" to appellant which deprived him of his business.

Moreover, Foxworth received due process. When the tax department of the TEC determined that Foxworth was an employer of the drivers and clerical worker, Foxworth requested and was granted a discretionary, administrative hearing. 40 T.A.C. § 301.13 (1989) (since amended). Foxworth had two options: (1) he could pay the contributions and seek a refund in district court, arguing that he was not an employer, Labor Code § 213.073; or (2) he could wait until the State sought collection in district court, and challenge his employer status as a defense. See Cowan Boat Transfer v. Texas Employment Comm'n, 789 S.W.2d 405, 407 (Tex. App.--Austin 1990, writ dism'd by agr.). Foxworth chose the latter, and the evidence supported the district court's finding that the drivers and clerical worker were his employees under the Workers' Compensation Act. Former article 5221b-12(b) did not preclude the State from freezing Foxworth's assets during the pendency of this determination. See Former Art. 5221b-12(b); see also Tex. R. Civ. P. 658 ("either at the commencement of a suit or at any time during its progress the plaintiff may file an application for writ of garnishment").

Foxworth's claim sought damages and attorney's fees against the State. The State as sovereign is immune from both suit and liability. Dillard, 806 S.W.2d at 592. The Unemployment Compensation Act only permits Foxworth to argue that the contributions are not owed. See Labor Code § 213.034. It does not authorize Foxworth to bring an action for damages. Moreover, Foxworth's reliance on Chapter 104 of the Texas Civil Practice and Remedies Code is misplaced. Chapter 104 only provides for indemnification of the State's officers; it does not waive the State's immunity. Tex. Civ. Prac. & Rem. Code Ann. §§ 104.001, .002 (West Supp. 1994); § 104.008 (West 1987); see Perry v. Texas A & I Univ., 737 S.W.2d 106, 108 (Tex. App.--Corpus Christi 1987, writ ref'd n.r.e); Tex. Dept. of Human Servs. v. Methodist Retirement Serv., 763 S.W.2d 613, 614 (Tex. App.--Austin 1989, no writ). Foxworth's reliance on Camarena v. Texas Employment Comm'n, 754 S.W.2d 149 (Tex. 1988), is also misplaced. In Camarena, the supreme court awarded attorney's fees under section 106.001, which prohibited state officers from discrimination on the basis of race. See Camarena, 754 S.W.2d at 152. Section 106.002 provided an express remedy for aggrieved persons of such discrimination and authorized the court to award the prevailing party reasonable attorney's fees. Chapter 104 does not provide any similar remedy. We overrule Foxworth's fifth point of error. Accordingly, we affirm the trial court's judgment.

Jimmy Carroll, Chief Justice

Before Chief Justice Carroll, Justices Aboussie and B. A. Smith

Affirmed

Filed: January 19, 1994

Do Not Publish

1.   Unless otherwise provided, all citations to the Unemployment Compensation Act in this opinion are to the current Labor Code rather than the former law because the recent codification did not substantively change the law. Labor Code, 73rd Leg., R.S., ch. 269, § 6, 1993 Tex. Gen. Laws 987, 1273 [hereinafter Labor Code].

2.   The 1989 amendment to section 12(b) provided: "This Act takes effect September 1, 1989, and applies only to the collection of contributions, penalties, and interest owed by an employer determined by the [TEC] to be in default on or after that date. The collection of contributions, penalties, and interest determined by the Commission to be owed before that date is governed by the law in effect on the date that the contributions become due, and that law is continued in effect for that purpose." Act of June 14, 1989, 71st Leg., R.S., ch. 468, § 2, 1989 Tex. Gen. Laws 1640, 1641 (Tex. Rev. Stat. Ann. art. 5221-12(b), since repealed and codified). We read this as saying that the delinquency or default date of the owed contributions controls. The latest delinquency date on the State's certificate in its original petition is 2/1/89. Therefore, the earlier procedural provision of section 12(b) governs this appeal.

3.   Before codification, the definition was contained in section 17(g)(1) of article 5221b.

4.   See Tex. Employment Comm'n, Decisions of the Commission Involving the Tax Liability of: C&H Transportation Company, Inc. (September 7, 1977); Moss Trucking Company (TD 86-184-1086); and E & M Trucking, Inc. (TD 86-186-1086). These cases were also attached to Foxworth's Amended Answer and Counterclaim filed in the district court.