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City of El Paso v. Mountain Vista Builders, Inc.

Court of Appeals of Texas, Eighth District, El Paso

March 8, 2017

CITY OF EL PASO, Appellant,

         Appeal from 243rd District Court of El Paso County, Texas (TC # 2009TX430)

          Before McClure, C.J., Rodriguez, and Hughes, JJ.


          ANN CRAWFORD McCLURE, Chief Justice.

         This tax suit presents two rather straightforward questions. The first is whether a taxpayer who claims lack of notice from the taxing entity as a defense must pursue an available administrative remedy upon learning of the claimed tax liability. The second question is whether a taxpayer can avoid tax liabilities at trial based on affirmative defenses which were never raised in a defensive pleading. Under the facts of this case, we answer the first question "yes" (one must pursue administrative remedies) and the second question "no" (you can't rely on affirmative defenses you never pled). Accordingly, we reverse the judgment of the trial court and remand for a new trial.


         The City of El Paso filed suit on May 18, 2009, over property taxes allegedly owed on some twenty-six specifically identified tracts of land that were or had been owned by Mountain Vista Builders, Inc. The tax liabilities were claimed for various years between 2006 and 2008. Mountain Vista answered the suit, filing a general denial. In the years that followed, the City filed various partial non-suits over some of the specific tracts, apparently as the parties resolved the tax liabilities for specific pieces of property.

         By the time the case was eventually set for trial in April of 2015, the only remaining claims involved the 2006 taxes owed on three specific tracts of land.[1] Mountain Vista did not contest that it owned those parcels on January 1, 2006, which is the relevant date for assessing property taxes. Tex.Tax Code Ann. §32.07(a) (West 2015)(providing that generally property taxes are the personal obligation of the person who owns the property on January 1st of the year for which the tax is imposed). Instead, Mountain Vista presented testimony below that it was developing the properties by building homes, and in turn selling the developed tracts to interested buyers. For the time periods when Mountain Vista owned the properties, it forwarded any tax bill that it received to its accountant for payment. And as those home sales closed at the title company, any outstanding taxes due on the land should have been addressed before title passed to the new owners. According to Mountain Vista, the title company should have been alerted to any notice of a tax deficiency prior to closing. Mountain Vista's owner testified that he had no personal knowledge of what the title company had done with regard to identifying what taxes were due on the property at the time of closing. For the particular subdivision at issue, Mountain Vista built and sold some sixty homes and all the parcels were sold to the eventual buyers by 2010 or 2011.

         Mountain Vista also presented evidence that its procedure of paying the taxes was hampered by the El Paso Central Appraisal District (CAD) which sent some tax notices to the wrong address. Mountain Vista had apparently changed its business address in 2009 and 2011. By 2013, Mountain Vista sent a certified letter to the CAD providing a correct address for all its tax notices. But even as late as 2015, some tax notices were delivered to the wrong address. Mountain Vista learned of the claimed delinquent tax bills on these properties from its bank around 2011. By that time, all the properties had been sold. The title company that closed the sales had gone out of business.

         At the bench trial, the City objected to much of this evidence. The City contended below that any claim of lack of notice must be first be presented to the CAD, and failing that, Mountain Vista failed to exhaust its administrative remedies which denied the district court jurisdiction over that defense. Mountain Vista agreed that it never filed any formal protest with CAD. The City also contended that Mountain Vista's general denial would not support any of its apparent arguments which were in the nature of affirmative defenses and therefore must be specifically pled. The trial court overruled each of these objections and eventually entered a take nothing judgment against the City. The trial court made specific findings of fact and conclusions of law which support that judgment on somewhat intertwined grounds.

         First, the trial court entered findings supporting Mountain Vista's contention that the taxing authority was sending tax notices to the wrong address. Second, the court entered a number of findings supporting Mountain Vista's claim that when any developed property was sold, the title company would have obtained from the City an amount shown as due, and would have paid that amount from the closing funds. According to the findings, the CAD published the amount of any tax due. The title company which handled the closing on the property asked the City for any amounts of tax due. The City would have responded and the title company would have been paid any amounts claimed as due. Finding of Fact No. Nine specified that the City "allowed the closing on each and every parcel without indicating there was any other amount outstanding."[2] The trial court further found that no penalties and interest were due because the disputed taxes had been paid. The court expressly found any claim for additional amounts was "waived."

         We view the findings of fact and conclusions of law as addressing four possible defenses which the trial court accepted: (1) the taxes were already paid; (2) the City failed to provide notice of the tax due (and thus cannot claim penalties and interest); (3) the City's conduct vis-à-vis the closing sale conducted by the title company waived its right to seek additional sums; or (4) the City's conduct vis-à-vis the closing process estopped it from claiming any additional taxes.

         The City brings three issues for review. It first contends that any claim of lack of notice must have been raised to the CAD in an administrative proceeding, and because Mountain Vista failed to do so, the district court had no jurisdiction over that defense. Second, the City claims that any evidence or finding based on an unpled affirmative defense is improper. Finally, in Issue Three, it attacks the portion of the trial court's judgment taxing costs against the City. Mountain Vista has not favored us with a brief. We sustain all three points and reverse and remand for a new trial.


         The Texas Tax Code provides detailed administrative procedures for a property owner to contest its property taxes. See Tex.Tax Code Ann. §§ 41.01-.71 (West 2015); Cameron Appraisal District v. Rourk, 194 S.W.3d 501, 502 (Tex. 2006). Appraisal review boards, such as the CAD, have exclusive jurisdiction over protests. Roark, 194 S.W.3d at 502; Tex.Tax Code Ann. § 42.09(a). This administrative review process is intended to "resolve the majority of tax protests at this level, thereby relieving the burden on the court system." Harris County Appraisal Dist. v. ETC Marketing, Ltd.,399 S.W.3d 364, ...

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