City of Magnolia v. Magnolia Bible Church

629 S.W.3d 471 (Mem)

CITY OF MAGNOLIA, Appellant

v.MAGNOLIA BIBLE CHURCH; Magnolia's First Baptist Church ; Believers Fellowship; and Ken Paxton, Attorney General of Texas, Appellees

NO. 03-19-00631-CV

Court of Appeals of Texas, Austin.

December 18, 2020

David Klein, Gabrielle Smith, James F. Parker III, Lloyd Gosselink Rochelle & Townsend, P.C., 816 Congress Ave., Suite 1900, Austin, TX 78701, for Appellant.

Alexander Hernandez, Anthony Lucisano, Cornelius M. Sweers, Jonathan Havens, Travis Gray, and Aaron M. Streett, Baker Botts L.L.P., 98 San Jacinto Blvd., Suite 1500, Austin, TX 78701, Darren Lee McCarty and Natalie D. Thompson, Office of the Attorney General, Office of the Solictor General, P.O. Box 12548 (MC 059), Austin, TX 78711, Jeremiah Dys, First Liberty Institute, 2001 W Plano Pkwy., Ste. 1600, Plano, Tx 75075-8608, for Appellees.

Before Chief Justice Rose, Justices Baker and Triana

OPINION

PER CURIAM

This is an interlocutory appeal from an order granting a motion for new trial. Chief Justice Rose and Justice Triana filed concurring opinions concluding that order should be affirmed. Justice Baker filed a dissenting opinion concluding that the trial court's order should be reversed. Accordingly, this Court affirms the district court's order.

Concurring Opinion by Chief Justice Rose

Concurring Opinion by Justice Triana

Dissenting Opinion by Justice BakerCONCURRING OPINION

Jeff Rose, Chief Justice

This is an interlocutory appeal from an order granting a motion for new trial in the City of Magnolia's suit to validate an ordinance establishing a new water rate and surcharge on "Institutional/Non-Profit/Tax-Exempt" entities. The City brought the suit under the Expedited Declaratory Judgment Act (EDJA) and provided notice by publication as authorized by the EDJA. See Tex. Gov't Code § 1205.043 (providing for notice by publication); see generally id. §§ 1205.001–.152 (EDJA). Appellees Magnolia Bible Church, Magnolia's First Baptist Church, and Believers Fellowship (collectively, "the Churches") sought a new trial on the grounds that the City's newspaper notice violated the Churches' due-process rights and, alternatively, that good cause existed to vacate the final judgment under Rule 329. See Tex. R. Civ. P. 329 (motion for new trial after notice by publication). I concur with the Court's decision to affirm the district court's order granting a new trial because, on this record and under the particular circumstances of this case, the notice by publication denied the Churches due process.

BACKGROUND

In March 2018, the City adopted an ordinance relating to the City's water-system rates. See Magnolia, Tex., Ordinance O-2018-003 (Mar. 13, 2018).¹ Before adopting the ordinance, the City had two categories for water users—residential and commercial—and the Churches were considered commercial. The ordinance created a new category of water user, the "Institutional/Non-Profit/Tax-Exempt accounts," which was made up of "schools," "churches," certain governmental facilities, and "parks." See id. The users in this new category would pay a 50% surcharge to the in-city water rate and other fees. See id.

The Churches opposed the new category and surcharge.² In July 2018, the Churches sent a letter to the City complaining that the "Institutional/Non-Profit/Tax-Exempt" rate class was discriminatory and stating their intent to "pursue remedy of this wrongful and unequitable policy through available legal recourse and actively seek legislation to reverse this and avoid other cities following suit." Thereafter, a representative of the Churches attended a September 2018 City Council meeting to reiterate their concern with the ordinance and to emphasize that they would bring legal action if it was not reversed.

Based in part on this opposition, the City filed suit in Travis County District Court in November 2018 under the EDJA for declaratory judgment regarding the legality and validity of the surcharge on the newly created rate category. See Tex. Gov't Code. § 1205.021(2). The petition explained that the "Rate and Surcharge are being challenged by customers of the City." The City published notice of the suit in the Austin American-Statesman and the Houston Chronicle on November 21 and November 28, 2018, as required by the EDJA. See id. § 1205.043. The City did not directly notify the Churches of the EDJA suit.

In December 2018, a month after the Travis County suit was filed, the Churches sent another letter to the City complaining that the new institutional water rate violated the Texas Constitution, the Tax Code, and the Texas Religious Freedom Restoration Act (TRFRA), Tex. Civ. Prac. & Rem. Code §§ 110.001 –.012, and that the rates were arbitrary and discriminatory. The letter threatened legal action if the City failed to repeal the new water rates. The letter did not reference the City's EDJA action.

The City amended its Travis County EDJA petition in January 2019 and republished notice of the suit in the Austin American Statesman and the Houston Chronicle on January 16 and January 23, 2019. See Tex. Gov't Code § 1205.043. Again, the City did not directly notify the Churches about the suit, and the Churches never made an appearance in the action. The Attorney General, who is required to be notified in an EDJA action, see id. § 1205.042, appeared at the bond-validation hearing but raised no objections to the City's rate, explaining that his office had "worked very closely with [the City's] counsel" to provide guidance and that if his office knew of any people "who object or have concerns, [it would] work with them." Ultimately, the Travis County District Court validated the bonds on February 7, 2019, stating: "The Revenues pledged to secure the Bonds are legal and valid, including specifically the Rate and Surcharge"; "The imposition of the Rate is legal and valid"; "The imposition of the Surcharge is legal and valid"; and "The Bonds are legal and valid."

The Churches did not initially file suit as threatened in their letter. Instead, they sought recourse through the legislative process, championing two companion bills that did not pass during the 86th legislative session. See Tex. S.B. 2322, 86th Leg., R.S. (2019) (proposing a bill "relating to rates established by municipalities for water and sewer services."); Tex. H.B. 4114, 86th Leg., R.S. (2019)(same).

After failing to obtain legislative relief, the Churches sued the City in May 2019 in Montgomery County District Court, seeking declaratory judgment under the Uniform Declaratory Judgments Act (UDJA), see Tex. Civ. Prac. & Rem. Code §§ 37.001 –.011, that the institutional water rate is void because it is a tax on a tax-exempt entity; is a discriminatory, arbitrary rate; and is a substantial burden on the Churches' free exercise of religion in violation of TRFRA. In response, the City sent the Churches a letter informing them of the final judgment in the EDJA suit and threatening to seek to have the Churches held in contempt if they did not dismiss the Montgomery County suit. The Churches in turn filed a motion for new trial in the EDJA suit, asserting that the City's notice by publication violated their right to due process under Mullane v. Central Hanover Bank & Trust Co. , 339 U.S. 306, 313, 70 S.Ct. 652, 94 L.Ed. 865 (1950), because they had no actual notice of the pending EDJA suit and because the City arguably had notice of their intentions to seek legal recourse. The Churches filed their motion under Texas Rule of Civil Procedure 329, which allows a motion for new trial, filed within two years of judgment, in cases where judgment was rendered on service of process by publication. See Tex. R. Civ. P. 329 (authorizing grant of new trial upon showing of good cause). The City opposed the motion, observing that the bonds had already been issued bearing the statement that they were "validated and confirmed by a judgment" that "perpetually enjoins the commencement of any suit [challenging] the provision made for the payment of the principal and interest." The City also challenged the district court's jurisdiction, arguing that the time limitations for filing a motion for new trial under Rule 329 do not apply to EDJA cases because Rule 329 conflicts with "the provisions for speedy resolution set forth in the EDJA"; the district court lost plenary power over the suit such that the Churches cannot be granted "named party" status in the EDJA suit and thus lacked standing to seek a new trial; and in the alternative, the Churches had no legitimate due-process claim because the suit did not adjudicate their private rights and they were not entitled to special notice. The Attorney General issued a statement supporting the Churches' motion for new trial, asserting that judgments under the EDJA, while intended to be "binding and conclusive," are nonetheless subject to the Texas Constitution and TRFRA, which "override other statutes to protect religious freedom." Based on the "incredibly unique and troubling facts" of the case, the Attorney General explained that due process required the City to have provided the Churches with actual notice of the EDJA suit. After a hearing, the district court granted the motion for new trial on the ground that failure to provide the Churches with individual notice of the EDJA suit deprived them of due process and, alternatively, that the Churches are entitled to a new trial under Rule 329. This interlocutory appeal ensued.³

DISCUSSION

On appeal, the City argues that the district court lacked subject-matter jurisdiction to grant a new trial because the district court's plenary power had expired thirty days after its final judgment. More specifically, the City contends that the Churches' filing of a motion for new trial under rule 329—allowing a motion for new trial within two years after a judgment following citation by publication, see Tex. R. Civ. P. 329(a) —did not extend the district court's plenary power because the EDJA scheme for expedited disposal of ca...