Pecos Cnty. Appraisal Dist. v. Iraan-Sheffield Indep. Sch. Dist.

672 S.W.3d 401

PECOS COUNTY APPRAISAL DISTRICT and Kinder Morgan Production Company, LLC, Petitioners,

v.IRAAN-SHEFFIELD INDEPENDENT SCHOOL DISTRICT, Respondent

No. 22-0313

Supreme Court of Texas.

Argued February 2, 2023

OPINION DELIVERED: May 19, 2023

James Robert Evans Jr., Leander, for Petitioner Pecos Co. Appraisal District.

Tracey Rice, Houston, Gwen J. Samora, for Amicus Curiae Texas Oil & Gas Association.

George Scott Christian, for Amicus Curiae Texas Taxpayers and Research Association.

James Leader Jr., Houston, Michael Heidler, Austin, Harper Estes, Midland, Ethan Nutter, Leslie Mason, Austin, Benjamin Jack Shepherd, Christopher Vasil Popov, Houston, for Petitioner Kinder Morgan Production Co., LLC, Individually and as Successor in Interest to Kinder Morgan Production Co., LP.

Robert Nathan Grisham II, D. Brent Lemon, Dallas, for Respondent.

Justice Blacklock delivered the opinion of the Court.

"Taxation shall be equal and uniform." TEX. CONST. art. VIII, § 1 (a). Taxable property "shall be taxed in proportion to its value, which shall be ascertained as may be provided by law." Id. § 1 (b). In furtherance of these constitutional commands, the Legislature has "provided by law" a detailed and comprehensive statutory regime governing the ascertainment of the value of taxable property. The centerpieces of that regime are the appraisal districts, which are "established in each county" and "responsible for appraising property" for taxation based on neutral principles of property valuation. TEX. TAX CODE §§ 6.01(a), (b) ; 23.01(a), (b), (f), (h); 23.0101–.013.

Appraisal districts may employ outside firms to assist with appraisals, but they may not pay such firms a fee that "is contingent on the amount of or increase in appraised, assessed, or taxable value of property appraised." Id. § 25.01(b). In this way, and in others as well, the Legislature has taken steps to insulate the appraisal process from the "pernicious incentives to maximize recovery" that are created when the personal income of those in a position to influence our tax system is linked to higher taxation. Kinder Morgan SACROC, LP v. Scurry County , 622 S.W.3d 835, 843 (Tex. 2021).

Today's case asks whether a school district may retain a lawyer on a contingent-fee basis to prosecute litigation designed to increase the appraised value of property so as to generate more tax receipts for the school district. We conclude that no statute expressly authorizes a school district to do so. We further conclude that authority for such an arrangement cannot be implied from a school district's express authority to bring litigation regarding appraisals.

A political subdivision's general authority to bring litigation and to hire lawyers may in some instances entail the implied power to pay those lawyers a contingent fee. Implying such a power in the tax-appraisal context, however, would be inconsistent with the comprehensive statutory framework governing property taxation, which vests appraisal districts with the responsibility to neutrally appraise property and guards against personal financial incentives to maximize appraised values. The law has long acknowledged that contingent-fee arrangements creating a personal profit motive to maximize taxation may be "unfair and unjust to the public." White v. McGill , 131 Tex. 231, 114 S.W.2d 860, 863 (1938). The Legislature has expressly authorized such arrangements only for the collection of delinquent taxes that have already been imposed but remain unpaid. TEX. TAX CODE § 6.30. It has not done so with respect to litigation seeking to increase appraisal values, and we find no valid basis on which to imply such authority.

Because the school district in this case lacked legal authority to engage its attorney on a contingent-fee basis to bring this appraisal litigation, the district court correctly granted the defendants’ Rule 12 motion challenging the attorney's authority to represent the school district. However, dismissal of the school district's case with prejudice was not the proper remedy under Rule 12. The school district must be afforded the opportunity to adjust its contract with its attorney or to substitute other counsel if it wishes to continue prosecuting this lawsuit. The case is remanded to the district court for that purpose.

I.

Iraan-Sheffield ISD, located in Pecos County, employed attorney D. Brent Lemon to pursue claims regarding the Pecos County Appraisal District's allegedly inaccurate valuation of Kinder Morgan's mineral interests. The school district's contract with Mr. Lemon promises to compensate him as follows:

Twenty percent (20%) of all total and gross payments, funds, compensation, or value (including agreement for future payments) received by Clients from any source related to or paid on behalf of Kinder Morgan, Inc., its predecessors, affiliates, or subsidiaries related in any way to the Claim.

Consultants retained by Mr. Lemon criticized the Appraisal District's valuation of Kinder Morgan's property as far too low. Lemon demanded the Appraisal District reappraise the properties, but the Appraisal District declined. On the school district's behalf, Lemon challenged the appraisal before the Appraisal Review Board pursuant to section 41.03 of the Tax Code.

Section 41.03 authorizes appraisal challenges by taxing units only on certain enumerated grounds, one of which is "an exclusion of property from the appraisal records." Id. § 41.03(a)(1). The school district's challenge to Kinder Morgan's appraisal relied on this provision, which on its face applies only to challenges to the "exclusion of property" from appraisal, not challenges to the amount of an appraisal. The parties argued below, and to some extent continue to argue in this Court, over whether section 41.03(a)(1) authorizes the school district's challenge. This merits question is not properly before us in this appeal from a dismissal under Texas Rule of Civil Procedure 12. We therefore do not resolve it.¹

The Appraisal Review Board denied the school district's challenge. The school district appealed that decision to district court, as permitted by section 42.031(a) of the Tax Code. It named Kinder Morgan and the Appraisal District as defendants.² When Kinder Morgan asked Mr. Lemon to identify the source of his authority to represent the school district, he provided the above-quoted contract.

Kinder Morgan then filed a motion under Rule 12 alleging that Mr. Lemon lacks authority to represent the school district because the school district has no power to hire attorneys on a contingent-fee basis for this appraisal litigation. The motion also asked the court to strike the school district's pleadings. Kinder Morgan simultaneously filed a plea to the jurisdiction, arguing that if the pleadings were struck as requested, the time for filing the appeal in district court had expired and the court therefore lacked jurisdiction.³ Among other arguments, the school district responded that section 6.30(c) of the Tax Code authorized Mr. Lemon's representation. The district court agreed with Kinder Morgan. It struck the school district's pleadings and rendered judgment dismissing the suit with prejudice.

The court of appeals reversed. 645 S.W.3d 827, 843 (Tex. App.—El Paso 2022). It concluded that section 6.30(c) of the Tax Code authorizes the contingent-fee arrangement between Mr. Lemon and the school district. Id. at 840–41.

II.

Kinder Morgan refers to Mr. Lemon as a "tax ferret."⁴ Not to be outdone, Lemon calls Kinder Morgan a "tax cheat" and "the progeny of Enron." Name-calling aside, this case does not turn on whether it is accurate to call Lemon's agreement with the school district a "tax ferret contract." This colorful terminology does not aid our review of the legal questions presented, which turn primarily on the relevant provisions of the Tax Code, none of which use mammalian metaphors.

A.

Any action of a political subdivision, including a school district, "must be grounded ultimately in the constitution or statutes." Guynes v. Galveston County , 861 S.W.2d 861, 863 (Tex. 1993). Political subdivisions "possess only such powers and privileges as have been expressly or impliedly conferred upon them." Wasson Ints., Ltd. v. City of Jacksonville , 489 S.W.3d 427, 430 (Tex. 2016) (quoting Payne v. Massey , 145 Tex. 237, 196 S.W.2d 493, 495 (1946) ). While a political subdivision's express authorities are those that appear expressly in the Constitution or statutes, its implied authorities are only those that are "reasonably necessary to make effective" the expressly granted powers. State v. Hollins , 620 S.W.3d 400, 406 n.28 (Tex. 2020) (quoting Tri-City Fresh Water Supply Dist. No. 2 v. Mann , 135 Tex. 280, 142 S.W.2d 945, 947 (1940) ). Authority will not be implied lightly. We have explained that the "reasonably necessary to make effective" standard encompasses those powers that are "indispensable" or "essential" to the exercise of expressly granted powers. Id. at 406 (quoting Foster v. City of Waco , 113 Tex. 352, 255 S.W. 1104, 1105–06 (1923) ). Any reasonable doubt concerning the existence of an implied power is resolved against the political subdivision. Id. (quoting Foster , 255 S.W. at 1106 ).

The school district first contends that section 6.30(c) of the Tax Code expressly authorizes Mr. Lemon's contingent-fee agreement. Section 6.30(c) states:

The governing body of a taxing unit may contract with any competent attorney to represent the unit to enforce the collection of delinquent taxes. The attorney's compensation is set in the contract, but the total amount of compensation provided may not exceed 20 percent of the amount of delinquent tax, penalty, and interest collected.

The court of appeals held that this statute authorizes the school district to retain Lemon on a contingent-fee basis to bring this litigation. 645 S.W.3d at 841. We disagree.

As always, our analysis of the statute "begins with the statutory text." In re Geomet Recycling LLC , 578...