Jai Dining Services (Odessa), Inc. v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and the Office of the Comptroller of Public Accounts of the State of Texas ( 2021 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-19-00750-CV
Jai Dining Services (Odessa), Inc., Appellant
v.
Glenn Hegar, Comptroller of Public Accounts of The State of Texas, and the Office of the
Comptroller of Public Accounts of The State of Texas, Appellees
FROM THE 98TH DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-17-006931, THE HONORABLE KARIN CRUMP, JUDGE PRESIDING
MEMORANDUM OPINION
Jai Dining Services (Odessa), Inc. challenges the trial court’s order granting the
Comptroller’s plea to the jurisdiction and dismissing Jai’s claims for declaratory judgment under
the Uniform Declaratory Judgments Act (UDJA) and the Administrative Procedures Act (APA).
For the following reasons, we affirm.
BACKGROUND
In November 2017, following a hearing on written submission before the State
Office of Administrative Hearings, the Comptroller assessed Jai for $694,793.88 in sexually
oriented business (SOB) fees for 2012 through 2015. See Tex. Bus. & Com. Code § 102.052(a)
(imposing $5 fee for each customer’s entry to SOB); Hegar v. Texas BLC, Inc.,
No. 01-18-00554-CV, 2020 WL 4758474, at *1 (Tex. App.—Houston [1st Dist.] Aug. 18, 2020,
pet. denied) (mem. op.) (noting businesses that offer live nude entertainment and allow alcohol
consumption must remit to Comptroller $5 SOB fee). The next month, Jai sued the Comptroller
for declaratory relief under the UDJA and APA and requested temporary injunctive relief
preventing collection “until the Court issues its ruling.” Jai alleged that it was not an SOB but a
“bikini bar” because its dancers were not “nude,” see Tex. Bus. & Com. Code § 102.051(1)
(defining “nude”), and that the Comptroller retroactively applied its 2017 rule amendments to
conclude that Jai’s dancers, who covered their bodies with only opaque latex, were “nude,” see
34 Tex. Admin. Code § 3.722 (2017) (Tex. Comptroller of Pub. Accts., Sexually Oriented
Business Fee); see generally Badger Tavern, L.P. v. Hegar, No. 03-18-00291-CV,
2018 WL 4322383, at *1 (Tex. App.—Austin Sept. 11, 2018, pet. denied) (mem. op.) (noting
that when rule 3.722’s 2017 amendments were published in Texas Register, they were
accompanied by statement that Comptroller will apply rule “to all pending and future cases”).
Jai admitted that it had not paid the SOB fees and attached an oath of inability to pay but never
set a hearing on its inability to pay. See Tex. Tax Code § 112.108 (providing that party that files
oath of inability to pay may be excused from prepayment requirement “if the court, after notice
and a hearing,” finds that prepayment would constitute unreasonable restraint on party’s right of
access to courts).1 The Comptroller answered with a plea to the jurisdiction, asserting sovereign
immunity and requesting that Jai’s claims be dismissed because Chapter 112 of the Texas Tax
1 In 2021, the Legislature repealed Section 112.108 and significantly revised the
statutory scheme relating to taxpayers’ suits. See Act of May 24, 2021, 87th Leg., R.S., ch. 331,
§ 11, 2021 Tex. Sess. Law Serv. 682, 685 (effective Sept. 1, 2021). However, the Act expressly
provides, “The 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. § 12.
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Code is the exclusive vehicle for challenging the merits of a final tax assessment, Chapter 112
requires prepayment and a protest letter before suit and Jai did neither, the redundant remedies
doctrine bars UDJA and APA challenges to a final tax assessment, and Section 2001.038 of the
APA waives sovereign immunity only for a challenge to a rule’s validity or applicability.
A day before the hearing on the Comptroller’s plea, Jai responded and filed an
amended petition, reasserting its UDJA and APA claims and adding an ultra vires claim:
1. “Pursuant to [the UDJA], [Jai] requests determination and declaratory judgment that it
did not operate as a [SOB] during the relevant period.”
2. “[Jai] also seeks declaratory judgment that the Comptroller exceeds its statutory authority
when it assesses the SOB Fee against a taxpayer who is not an SOB pursuant to the
governing statutes.”
3. “Pursuant to [the APA], [Jai] requests determination and declaratory judgment
concerning Rule 3.722, including: a. that portions of Rule 3.722 effective after the
disputed assessment period cannot be retroactively applied; b. that portions of Rule 3.722
outlining acceptable books and records to be reviewed by the Comptroller are applicable;
c. that the Comptroller exceeds its authority when it assesses tax based on
inapplicable rules.”
Jai also reasserted its request for a temporary injunction preventing collection of the SOB fees
“until the Court issues its ruling in the above-requested declaratory judgment.” In both its
amended petition and response to the plea, Jai relied on this Court’s opinion that had issued after
Jai’s original petition and the Comptroller’s plea. See Hegar v. EBS Sols., Inc., 549 S.W.3d 849,
858 (Tex. App.—Austin 2018) (EBS I), rev’d sub nom. EBS Sols., Inc. v. Hegar, 601 S.W.3d 744(Tex. 2020) (EBS II). Jai argued that in EBS I, “the court of appeals explicitly stated that
taxpayers can bring declaratory judgment actions against the Comptroller,” that “Section
112.108 has been deemed unconstitutional,” and that “taxpayers may avail themselves of the
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option of seeking declaratory relief without prepaying.”2 After the hearing, the trial court issued
an order granting the Comptroller’s plea and dismissing Jai’s claims “asserted in its First
Amended Petition for Declaratory Judgment and Injunction.” Jai appeals from this order.
During this appeal, the Texas Supreme Court reversed EBS I, see EBS II,
601 S.W.3d at 760 (holding that “section 112.108 as amended is constitutional as applied to EBS
and allows it to seek judicial review of its tax assessment without full prepayment of taxes, so
long as it satisfies the jurisdictional requirements of the inability-to-pay exception”), and we
requested supplemental briefing. Jai now requests that this Court “remand this proceeding so
that [Jai] has the opportunity to submit an oath of inability to pay” and “obtain a finding” that the
prepayment requirement is an unreasonable restraint on its right of access to the courts. Jai
argues that “[t]he interest of justice dictates” that this Court remand because “EBS II changed the
law of the land”; that the unconstitutionality of the prepayment requirement “was the controlling
law of this jurisdiction” until EBS II; that the “failure to give [Jai] this opportunity would be a
violation of the Open Courts [constitutional] provision,” as applied to these circumstances; and
that “[a]bsent remanding the case to allow [Jai] an opportunity to avail itself of § 112.108, this
Court must decide the question expressly avoided in EBS II—the constitutionality of Chapter
112’s prepayment prerequisites, as it applies to taxpayers who do not seek access to the courts
through the inability-to-pay exception.” The Comptroller responds that “[d]espite having the
2 Jai reads EBS I expansively without addressing its limited holding. See Hegar v. EBS
Sols., Inc., 549 S.W.3d 849, 858 (Tex. App.—Austin 2018) (“[T]axpayers who are not seeking a
return of any tax money paid may pursue a permissible declaratory-judgment action seeking
relief other than a return of money provided that the suit is not otherwise barred by sovereign
immunity. . . . [C]ourts have further clarified the scope of sovereign immunity and the role that
declaratory-judgment actions may serve in challenging governmental actions. Those
explanations are consistent with the limited nature of the option of seeking the types of
permissible declaratory relief discussed above.” (emphases added)), rev’d sub nom. EBS Sols.,
Inc. v. Hegar, 601 S.W.3d 744 (Tex. 2020).
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opportunity to amend and doing so in the trial court, Jai did not plead a claim for permanent
relief under the Tax Code”; that Jai instead “made a strategic decision to proceed only with its
ultra vires causes of action and those claims seeking declaratory relief under the UDJA and
APA—even after the jurisdictional problems with the claims were raised by [the Comptroller]”;
and that “section 112.108 applies only as an exception to the prepayment requirements of the
Tax Code—with no impact on . . . sovereign immunity to causes of action outside of Tax Code
chapter 112.”
DISCUSSION
Sovereign immunity implicates subject matter jurisdiction, and as subject matter
jurisdiction is a question of law, we review a trial court’s grant of a plea to the jurisdiction de
novo, applying traditional principles of statutory interpretation to determine whether sovereign
immunity has been waived. See EBS II, 601 S.W.3d at 749. When the relevant facts are
undisputed, as here, we consider whether the plaintiff’s alleged facts affirmatively demonstrate a
trial court’s subject matter jurisdiction; if the pleadings affirmatively negate the existence of
jurisdiction, then we may affirm without allowing an opportunity to replead. Texas Dep’t of
Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226–27 (Tex. 2004).
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 [under chapter 112]—protests, injunctions, and refunds,” which
generally require some form of prior prepayment unless the taxpayer relies on Section 112.108.
EBS II, 601 S.W.3d at 749–50 (citing Tex. Tax Code §§ 112.001, .051, .101, .108). Section
112.108 provides:
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Except for a restraining order or injunction issued as provided by this subchapter,
a court may not issue a restraining order, injunction, declaratory judgment, writ of
mandamus or prohibition, order requiring the payment of taxes or fees into the
registry or custody of the court, or other similar legal or equitable relief against
the state or a state agency relating to the applicability, assessment, collection, or
constitutionality of a tax or fee covered by this subchapter or the amount of the
tax or fee due, provided, however, that after filing an oath of inability to pay the
tax, penalties, and interest due, a party may be excused from the requirement of
prepayment of tax as a prerequisite to appeal if the court, after notice and hearing,
finds that such prepayment would constitute an unreasonable restraint on the
party’s right of access to the courts. The court may grant such relief as may be
reasonably required by the circumstances. A grant of declaratory relief against
the state or a state agency shall not entitle the winning party to recover
attorney fees.
Tex. Tax Code § 112.108. Here, Jai does not assert a claim for permanent relief under Chapter
112; rather, Jai asserts only a UDJA claim, an ultra vires claim, an APA claim, and a request for
a temporary injunction under Chapter 112. We consider each claim in turn.
Recently, we have determined that sovereign immunity has not been waived for
the type of UDJA claim Jai asserts and that the redundant remedies doctrine bars the type of ultra
vires claim Jai asserts. See Hegar v. Alam, Inc., No 03-18-00044-CV, 2021 WL 1031342, at *1,
*3 (Tex. App.—Austin Mar. 18, 2021, no pet.) (mem. op.) (holding that sovereign immunity
barred plaintiff’s UDJA claim that it “did not owe the fee imposed by the Comptroller because
its business is not a sexually oriented business”); Hegar v. CSG Forte Payments, Inc.,
No. 03-19-00325-CV, 2020 WL 7233605, at *7 (Tex. App.—Austin Dec. 9, 2020, no pet.)
(mem. op.) (holding that district court lacks jurisdiction over ultra vires claims related to
Comptroller’s tax assessment because relief for such claims “would be declarations establishing
that [plaintiff] is not liable for the tax assessment imposed by the Comptroller,” this “is
essentially the same relief” available under Chapter 112, and therefore plaintiff “already has a
statutory channel by which to obtain the relief it seeks, and any remedies it could obtain through
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an ultra vires suit against the Comptroller would be redundant”); see also Patel v. Texas Dep’t of
Licensing & Regul., 469 S.W.3d 69, 79 (Tex. 2015) (“Under the redundant remedies doctrine,
courts will not entertain an action brought under the UDJA when the same claim could be
pursued through different channels.”). Applying these precedents, we conclude that the trial
court did not err in dismissing Jai’s UDJA and ultra vires claims.
As to the APA claim, Section 2001.038 provides, “The validity or applicability of
a rule . . . may be determined in an action for declaratory judgment if it is alleged 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.” Tex. Gov’t Code § 2001.038(a). In its response to the
Comptroller’s plea, Jai stated that it is “asserting a proper ‘applicability’ challenge: amended
portions of [rule] 3.722 effective on January 29, 2017 are not applicable to assessment periods
due and payable prior to that date.” We have noted that “a rule ‘applicability’ challenge
authorized by Section 2001.038 is limited to determining whether a rule is capable of being
applied to or is relevant to a factual situation, as distinguished from a challenge to the rule’s
application (i.e., ‘how the rule should be applied’ to particular facts or ‘the specific
outcome after a rule’s application.’).” Texas Alcoholic Beverage Comm’n v. D. Hous., Inc.,
No. 03-13-00327-CV, 2017 WL 2333272, at *2 (Tex. App.—Austin May 25, 2017, pet. denied)
(mem. op.) (quoting LMV-AL Ventures, LLC v. Texas Dep’t of Aging & Disability Servs.,
520 S.W.3d 113, 124 (Tex. App.—Austin 2017, pet. denied)). However:
[T]he remedy afforded by section 2001.038 is limited to declarations concerning
the rule—that the rule is null and void, in the case of a validity challenge, or that
the rule did not impose a right, duty, or obligation on the plaintiff, in the case of
an applicability challenge—and does not in itself provide relief with respect to the
underlying statutes or other law.
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State v. BP Am. Prod. Co., 290 S.W.3d 345, 362 (Tex. App.—Austin 2009, pet. denied); see also
Texas Logos, L.P. v. Texas Dep’t of Transp., 241 S.W.3d 105, 123 (Tex. App.—Austin 2007, no
pet.) (“The relief provided under section 2001.038 does not extend to invalidating either
TxDOT’s protest order or its ultimate contract award, but only the rules by which the protest was
conducted.”). And “the purpose of section 2001.038 is to obtain a final declaration of a rule’s
validity [or applicability] before the rule is applied.” Texas Mut. Ins. v. Texas Dep’t of Ins., Div.
of Workers’ Comp., 214 S.W.3d 613, 622 (Tex. App.—Austin 2006, no pet.) (citing Charlie
Thomas Ford, Inc. v. A.C. Collins Ford, Inc., 912 S.W.2d 271, 275 (Tex. App.—Austin 1995,
writ dism’d)); see also Hon. Bob E. Shannon & James B. Ewbank, II, The Texas Administrative
Procedure and Texas Register Act Since 1976—Selected Problems, 33 Baylor L. Rev. 393, 424
(1981) (“The reason the petitioner wishes a judicial declaration of the applicability of a rule is to
avoid the process of administrative adjudication and the resulting costs of litigation.”).
Here, Jai did not file its Section 2001.038 claim until after the Comptroller had
applied the rule in assessing Jai’s SOB fees for 2012 through 2015. And after the Comptroller’s
assessment, Jai did not bring one of the “three types of tax challenges [under chapter 112]—
protests, injunctions, and refunds.” EBS II, 601 S.W.3d at 750. At this juncture, Jai’s requested
declaratory judgment under the APA as to whether the rule in question applies to pre-2017 tax
assessments would have no legal effect outside the context of a challenge to and judicial review
of the Comptroller’s assessment. Cf. Texas Logos, 241 S.W.3d at 123–24 (“At this juncture,
Texas Logos’s section 2001.038 challenge to the validity of those rules would amount to a mere
abstract, advisory opinion.”); Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River Auth.,
96 S.W.3d 519, 529 (Tex. App.—Austin 2002, pet. denied) (“Even if the district court should
declare the validity or applicability of the Amendment, that court could not revive FOCL’s
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appeal in a context in which a declaratory judgment—brought under either the APA or under the
Uniform Declaratory Judgments Act—would have legal effect.”); Charlie Thomas Ford,
912 S.W.2d at 275 (“A declaratory judgment, as to the validity or applicability of the rule in
question, cannot have legal effect outside the context of [appellee’s] contested case and its suit
for judicial review of the Commission’s final order in the case.”). We therefore conclude that
there is no justiciable controversy to establish the trial court’s jurisdiction over Jai’s APA claim
and that the trial court did not err in dismissing the claim. See Texas Logos, 241 S.W.3d at 123(“[S]ection 2001.038, like other causes of action, requires the existence of a justiciable
controversy to establish the district court’s subject-matter jurisdiction.”).
As to the temporary injunction, Jai requested a temporary injunction to prevent
“the Comptroller from collecting the alleged SOB Fee liabilities against [Jai] until the Court
issues its ruling in the [requested UDJA and APA] declaratory judgment.” “The purpose of a
temporary injunction is to preserve the status quo of the subject matter of a suit pending a final
trial of the case on its merits.” Camp v. Shannon, 348 S.W.2d 517, 519 (Tex. 1961). But given
that we have concluded that the trial court did not err in dismissing Jai’s UDJA and APA claims
and that therefore the trial court has “issue[d] its ruling in the [UDJA and APA] declaratory
judgment,” Jai’s request for temporary injunction is moot. Cf. In the Estate of Sheshtawy,
478 S.W.3d 82, 85 (Tex. App.—Houston [14th Dist.] 2015, no pet.) (holding that final judgment
rendered moot any issue on appeal relating to request for temporary injunction); Perry Bros., Inc.
v. Perry, 734 S.W.2d 211, 212 (Tex. App.—Dallas 1987, no writ) (“[A] temporary injunction
generally expires upon rendition of a final judgment by the trial court.”).
Because Jai had the opportunity to replead after the Comptroller filed its plea to
the jurisdiction and did replead before the plea was granted, Jai generally would not be entitled
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to remand to replead. See Clint Indep. Sch. Dist. v. Marquez, 487 S.W.3d 538, 559 (Tex. 2016)
(noting that plaintiffs were not entitled to another opportunity to replead when they “had the
opportunity to, and did in fact, amend their pleadings in the trial court after the [defendant] filed
its plea to the jurisdiction and motion to dismiss”). Nor does Jai request an opportunity to
replead: Jai’s request is limited to remanding the proceeding so that Jai “has the opportunity to
submit an oath of inability to pay” and “obtain a finding” that requiring prepayment is an
unreasonable restraint on its right of access to the courts. Since EBS II, we have noted that this
decision has impacted litigants’ opportunities to invoke Section 112.108. See, e.g., Manana
Entm’t, Inc. v. Hegar, No. 03-19-00753-CV, 2021 WL 2587170, at *2 (Tex. App.—Austin
June 24, 2021, no pet.) (mem. op.) (“Accordingly, without the benefit of the Texas Supreme
Court’s decision in EBS [II], the trial court granted the Comptroller’s plea to the jurisdiction
without holding a hearing on Manana’s oath of inability to pay.”). And we have accordingly
reversed and remanded those cases for the trial court to reconsider the plea after conducting a
hearing on an oath of inability to pay. See id. (collecting cases). But in those cases, the litigants
had asserted Chapter 112 claims, and thus the trial court had jurisdiction to consider the oath of
inability to pay on remand. See id. at *2–3 (affirming dismissal of Manana’s UDJA claims but
holding that “[b]ecause the trial court has jurisdiction to consider Manana’s oath of inability to
pay under Section 112.108, we reverse the trial court’s dismissal of Manana’s claims under
Chapter 112 and remand for the trial court to reconsider the Comptroller’s plea after conducting
a hearing on Manana’s oath of inability to pay” (emphases added)).
In its supplemental brief, Jai claims that the EBS II Court “went on to hold that
EBS, having satisfied the prerequisites of § 112.108’s inability-to-pay exception, could proceed
with its declaratory judgment action,” citing EBS II, 601 S.W.3d at 760. But the EBS II Court
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expressly noted that EBS “did not seek a declaratory judgment action.” Id. at 751; see also id. at
748 n.1. Rather, EBS filed suit “challeng[ing] its tax assessment by seeking an injunction under
section 112.101, to prohibit the Comptroller from collecting additional taxes, and through a tax
protest suit under section 112.052, seeking recovery of tax monies prepaid.” Id. at 748 n.1.
Moreover, EBS “made two partial payments in protest” with protest letters attached before filing
suit and “requested a hearing on its oath of inability to pay, as required by section 112.108,”
before the appeal. Id. at 748. After determining that Section 112.108 is constitutional as applied
to EBS, the EBS II Court held that Section 112.108 “allows [EBS] to seek judicial review of its
tax assessment without full prepayment of taxes, so long as it satisfies the jurisdictional
requirements of the inability-to-pay exception.” Id. at 760 (emphasis added).
Here, in contrast, Jai did not seek judicial review of its tax assessment, did not
plead a Chapter 112 claim for permanent relief in its original or amended petition, and has
neither requested nor shown how, if given the opportunity to replead, it could plead a Chapter
112 claim—or any other type of claim—that would provide the trial court with jurisdiction to
consider its oath of inability to pay. Moreover, “[g]enerally, remand is a mechanism for parties,
over whose claims the trial court may have jurisdiction, to plead facts tending to establish that
jurisdiction, not for parties, over whose claims the trial court does not have jurisdiction, to plead
new claims over which the trial court does have jurisdiction.” Marquez, 487 S.W.3d at 559
(declining request for remand after noting that “jurisdictional bar arises not from a lack of factual
allegations but from the nature of the [plaintiffs’] claims” and that plaintiffs proposed changing
claims, not adding more jurisdictional facts, to cure jurisdictional defect). Finally, in the absence
of an underlying Chapter 112 claim to which the prepayment requirement would apply and that
would provide the trial court with jurisdiction to determine the prepayment exception, there is no
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need to consider a constitutional challenge to Chapter 112’s prepayment requirements, as Jai
lacks standing to raise such a challenge. See Barshop v. Medina Cnty. Underground Water
Conservation Dist., 925 S.W.2d 618, 626–27 (Tex. 1996) (noting that standing to challenge
constitutionality of statute requires that plaintiff have suffered some actual or threatened injury
under statute that unconstitutionally restricts its own rights). We therefore affirm the trial court’s
order granting the plea without providing Jai an opportunity to replead. See Marquez,
487 S.W.3d at 559.
CONCLUSION
We conclude that Jai has failed to affirmatively allege facts that invoke the trial
court’s jurisdiction over its claims and that the pleadings affirmatively negate the existence of
jurisdiction over Jai’s pleaded claims. See Miranda, 133 S.W.3d at 226–27. Nor has Jai
suggested a way it could cure these jurisdictional defects through repleading. See Marquez,
487 S.W.3d at 559; Texas A&M Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 839–40 (Tex. 2007).
Accordingly, we affirm the trial court’s order granting the Comptroller’s plea to the jurisdiction.
__________________________________________
Melissa Goodwin, Justice
Before Justices Goodwin, Kelly, and Smith
Affirmed
Filed: October 27, 2021
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