Kinder Morgan Sacroc, LP v. Scurry County

          On Appeal from the 132nd District Court Scurry County, Texas Trial Court Cause No. 26387

          Panel consists of: Bailey, C.J., Stretcher, J., and Wright, S.C.J. ^[5]

          OPINION

          JOHN M. BAILEY CHIEF JUSTICE

         This appeal arises out of a proceeding wherein several governmental entities are seeking to have mineral interests reappraised by the county appraisal review board. Appellees, Scurry County, Snyder Independent School District, Scurry County Junior College District d/b/a Western Texas College, and Scurry County Hospital District d/b/a Cogdell Memorial Hospital, each filed a challenge to the appraisal roll for mineral interest property located in Scurry County, including the mineral interests of Appellants, Kinder Morgan SACROC, LP; Kinder Morgan CO2 Co., LP; Kinder Morgan Production Co., LP; and Kinder Morgan Production Co., LLC. Appellees filed these challenges with the Scurry County Appraisal Review Board. After the Appraisal Review Board denied the challenges, Appellees filed a petition for review and for mandamus relief in the district court. Appellees requested that the district court "fix" the correct value of Appellants' mineral interests and require the Appraisal Review Board to reappraise the mineral interests. More than one hundred days after being served with the original petition, Appellants filed a motion to dismiss pursuant to the Texas Citizens Participation Act. Tex. Civ. Prac. & Rem. Code Ann. ch. 27 (West 2015) (the TCPA).^[1] The trial court denied the motion as untimely.

         In their first issue, Appellants assert that the trial court erred when it determined that the motion to dismiss was untimely. Alternatively, Appellants contend in their second issue that the trial court abused its discretion when it found that Appellants failed to demonstrate good cause to extend the time to file the motion to dismiss. We affirm the trial court's denial of Appellants' motion to dismiss.

         Background Facts

         Pursuant to Section 23.175 of the Tax Code, the Texas comptroller has adopted a method to appraise the value of mineral interests for purposes of assessing ad valorem taxes. See Tex. Tax Code Ann. § 23.175 (West Supp. 2018). The Scurry County Appraisal District hired Thomas Y. Pickett & Co., Inc. (Pickett) to appraise the value of the mineral interests of Appellants and other entities in Scurry County. Stephen Campbell, an appraiser with Pickett, used the method adopted by the comptroller to conduct the appraisals. To complete the appraisals, Campbell relied on information related to production and revenue that the production companies provided to the Texas Railroad Commission and to the comptroller, as well as information related to operating expenses that the production companies provided to him.

         Appellees filed petitions with the Appraisal Review Board that challenged both level of the appraisals and the exclusion of "Category G property: Oil and Gas, Mineral, and other subsurface interests" from the appraisal records. Appellees stated in the petitions that the level of appraisals for mineral interests in Scurry County between 2012 and 2018 were "erroneous, inconsistent, and insufficient" and that "property was erroneously and incorrectly omitted (in toto and ab initio) from appraisal."

         The Appraisal Review Board held a hearing on Appellees' challenges on June 21, 2018. At the hearing, Appellees indicated that they were not requesting "a complete reappraisal of all of the mineral interests in Scurry County." Rather, Appellees requested, pursuant to Sections 41.03(a)(2) and 25.21 of the Tax Code, "a reappraisal for the 2018 tax year and back appraisal for the prior five years, which would be 2013-2017, only for [Appellants.]"

         Appellees represented to the Appraisal Review Board that they hired a commercial appraiser to appraise the value of the mineral interests of the three "top producers" in Scurry County, which included Appellants. Appellees' appraiser obtained information on production and revenue from public filings made by these entities and used that information to appraise the value of the mineral interests using the method adopted by the comptroller. As to Appellants, the appraiser relied on information from public filings made by Appellants with the Securities and Exchange Commission (SEC), the Energy Commission, the Railroad Commission, and the comptroller and from information provided by Appellants to shareholders. According to Appellees, there was "not a very wide variance" in values between the appraisals done by Pickett and the appraisals done by Appellees' expert for the mineral interests of the production companies other than Appellants. However, Appellees' appraiser found a "huge variance" between his appraisal and Pickett's appraisal of the value of Appellants' mineral interests. Appellees estimated that, between 2012 and 2018, the value of Appellants' mineral interests in Scurry County was $14 billion more than the value set by the Appraisal District and that Appellants owed more than $283 million in unpaid taxes.

         Campbell, the appraiser for Pickett that appraised Appellants' mineral interests, testified about his experience appraising mineral interests, the comptroller's audits of his appraisals, and the level of consistency between specific appraisals conducted by Campbell and the comptroller or Campbell and another appraiser. He also testified about relative expenses related to different levels of oil recovery, stating that tertiary recovery was the most expensive and that Appellants' oil production in Scurry County was tertiary recovery. Campbell testified that, in his opinion, an appraisal based on information from public sources without any knowledge of the actual rate of decline in production and the actual expenses of production could "badly overstate the value" of the mineral interests.

         Appellees' attorney complained that Appellants and the Appraisal District had refused to produce the information that Appellants had provided to Campbell in the appraisal process and that, without the underlying data used by Campbell, it was impossible to determine the reason for the variance between the appraisals by Campbell and by Appellees' appraiser. To explain the variance, Appellees' counsel raised before the Appraisal Review Board the possibility of a misrepresentation by the taxpayer, a misunderstanding between Appellants and Pickett or between Pickett and the Appraisal District, an error in the estimated life of production, or the use of an incorrect discount rate. The Appraisal District's attorney argued that the Appraisal Review Board could "reach" appraisals prior to 2018 only if it found fraud by Appellants and that there had been no evidence of any fraud.

         The Appraisal Review Board denied Appellees' challenges to the appraisal roll, and on August 23, 2018, Appellees filed a petition for review and writ of mandamus in the trial court. Appellees asserted that the trial court had jurisdiction to perform a de novo review of the value of Appellants' mineral interests, "to fix the correct values," and to require the Appraisal District to reappraise and back-appraise the mineral interests.

         In their petition, Appellees cited Atascosa County v. Atascosa County Appraisal District, 990 S.W.2d 255 (Tex. 1999); In re ExxonMobil Corp., 153 S.W.3d 605 (Tex. App.-Amarillo 2004, orig. proceeding [mand. denied]); Beck & Masten Pontiac-GMC, Inc. v. Harris County Appraisal District, 830 S.W.2d 291 (Tex. App.-Houston [14th Dist.] 1992, writ denied); and Chapters 25 and 41 of the Tax Code. However, the only facts pleaded by Appellees were that Appellants' "mineral interest real property" in Scurry County "was erroneously and incorrectly omitted from appraisal for years 2018, and 2013-2017," that Appellees timely filed challenge petitions, that the Appraisal Review Board denied the petitions, and that Appellees timely sought de novo review. Appellees requested that the trial court either set the value of Appellants' mineral interests or require the Appraisal District to reappraise the "omitted (in toto or ab initio)" mineral interests for the year 2018 and back-appraise the interest for years 2013 through 2017. In their prayer for relief, Appellants requested that the trial court:

a. fix the accurate and correct appraised values of the mineral interest real property at issue in accordance with the requirements of law;

b. issue a writ of mandamus requiring the Scurry County Appraisal District and Chief Appraiser to immediately re-appraise the mineral interest real property at issue for 2018 and back-appraise the mineral interest real property at issue for years 2013-2017;

c. enter other orders necessary to preserve rights protected by and imposed duties required by the law;

d. award costs of court; and

e. and [sic] such further and other relief, whether at law or in equity, to which [Appellees] show ...