ACCEPTED
01-12-00264-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
7/1/2015 11:06:57 AM
CHRISTOPHER PRINE
CLERK
NO. 01-12-00264-CV
FILED IN
1st COURT OF APPEALS
IN THE COURT OF APPEALS HOUSTON, TEXAS
7/1/2015 11:06:57 AM
FOR THE FIRST DISTRICT OF TEXASCHRISTOPHER A. PRINE
Clerk
AT HOUSTON
ETC MARKETING, LTD.,
Appellant,
v.
HARRIS COUNTY APPRAISAL DISTRICT,
Appellee.
APPELLANT’S REPLY IN SUPPORT OF
MOTION FOR EN BANC RECONSIDERATION
Lynne Liberato Robert J. Myers
State Bar No. 00000075 State Bar No. 14765380
William Feldman John J. Shaw
State Bar No. 24081715 State Bar No. 24079312
HAYNES AND BOONE, LLP MYERS ✯ LAW
1221 McKinney Street, Suite 2100 2525 Ridgmar Blvd., Ste. 150
Houston, Texas 77010-2007 Fort Worth, Texas 76116
Telephone: (713) 547-2000 Telephone: (817) 731-2500
Telecopier: (713) 547-2600 Telecopier: (817) 731-2501
Lynne.Liberato@haynesboone.com RMyers@myerslawtexas.com
William.Feldman@haynesboone.com JShaw@myerslawtexas.com
Attorneys for Appellant, ETC Marketing, Ltd.
TABLE OF CONTENTS
TABLE OF CONTENTS ........................................................................................... i
TABLE OF AUTHORITIES .................................................................................... ii
ARGUMENT IN REPLY ..........................................................................................1
CONCLUSION ..........................................................................................................6
CERTIFICATE OF COMPLIANCE .........................................................................8
CERTIFICATE OF SERVICE ..................................................................................9
-i-
TABLE OF AUTHORITIES
Cases
Complete Auto Transit, Inc. v. Brady,
430 U.S. 274 (1977) ...........................................................................................3, 4
Greene v. Farmers Ins. Exch.,
446 S.W.3d 761 (Tex. 2014) ..............................................................................4, 6
Marathon Ashland Petroleum L.L.C. v. Galveston County Appraisal Dist.,
236 S.W.3d 335 (Tex. App.—Houston [1st Dist.] 2007, no pet.) .....................2, 3
Maryland v. Louisiana,
451 U.S. 725 (1981) ...............................................................................................2
Midland Cent. Appraisal Dist. v. BP Am. Prod. Co.,
282 S.W.3d 215 (Tex. App.—Eastland 2009, pet. denied),
cert. denied 131 S. Ct. 2097 (2011) ...................................................................4, 5
Peoples Gas, Light & Coke Co. v. Harrison Cent. Appraisal Dist.,
270 S.W.3d 208 (Tex. App.—Texarkana 2008, pet. denied),
cert denied 131 S. Ct. 2097 (2011) ....................................................................3, 4
Schneidewind v. ANR Pipeline Co.,
485 U.S. 293 (1988) ...............................................................................................2
Statutes and Rules
18 C.F.R. § 284.1(a)...................................................................................................2
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TO THE HONORABLE COURT OF APPEALS, EN BANC:
ETC Marketing, Ltd. respectfully files this reply in support of its motion for
reconsideration en banc.
ARGUMENT IN REPLY
HCAD’s response highlights the extraordinary circumstances that warrant
this Court’s en banc review. Contrary to HCAD’s assertions, this case does indeed
represent the first time that any Texas appellate court has found constitutional a tax
on goods in the stream of interstate commerce. And, while HCAD summarily
dismisses ETC’s substantial concerns, it ultimately does not dispute that the
panel’s decision will create a county-by-county patchwork of different rules
governing the imposition of ad valorem taxes on interstate commerce, or that the
decision will have substantial consequences for companies and consumers across
Texas.
Interstate Commerce: HCAD dedicates the first several pages of its
argument to the issue of whether the natural gas here was in interstate commerce.
(Opp. Br. at 3-6.) Nevertheless, the majority assumed, and the dissent concluded,
that the gas was in interstate commerce. (Majority at 8, 12; Dissent at 5, 14-16.) As
the dissent explained, “working gas in the pipeline [is] in interstate commerce from
the moment it [is] injected into the pipeline system.” (Dissent at 14.)
HCAD, however, argues that goods are not in interstate commerce unless
movement “from another state has actually begun and is going on,” and that ETC
provided no evidence that its gas was “actually moving to another state.” (Opp. Br.
at 3-4.) HCAD’s argument ignores controlling law and draws an artificial
distinction between gas in one part of the pipeline system and gas elsewhere in that
same system. As the dissent recognized, storage and transportation cannot
“realistically be separated.” (Dissent at 5, 14.) The Supreme Court has agreed. See
Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 308 (1988) (gas storage facilities
are regulated by FERC “since those facilities are a critical part of the transportation
of natural gas and sale for resale in interstate commerce.”); Maryland v. Louisiana,
451 U.S. 725, 754-55 (1981) (“[T]he flow of gas from the wellhead to the
consumer, even though ‘interrupted’ by certain events, is . . . a continual flow of
gas in interstate commerce.”). Federal regulations likewise recognize that
“transportation” of natural gas “includes storage.” 18 C.F.R. § 284.1(a). The gas
temporarily located at the Bammel facility is in the stream of interstate commerce.
No justice on the panel concluded otherwise.
For that reason, HCAD’s extensive reliance on this Court’s decision in
Marathon Ashland Petroleum L.L.C. v. Galveston County Appraisal District, 236
S.W.3d 335 (Tex. App.—Houston [1st Dist.] 2007, no pet.) is misplaced. (See,
e.g., Opp. Br. at 2-3, 5, 6, 9, 11.) In that case, the court held that petroleum
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products held in Marathon’s refinery tanks before shipment to consumers could be
taxed by local authorities because those products had “not yet entered the stream
of interstate commerce” and were instead “part of the general mass of property in a
state” that was “subject to state taxation in the usual way.” Marathon Ashland, 236
S.W.3d at 338 (emphasis added); see also id. at 336, 343. Because Marathon’s
petroleum products were not yet in interstate commerce, the court concluded that
the Complete Auto test did not apply. Id. Here, in contrast, the natural gas is in the
stream of interstate commerce even while it is at the Bammel facility. HCAD’s ad
valorem tax may therefore be upheld only if it satisfies all four prongs of the
Complete Auto test.1
Complete Auto Test: Because the natural gas is in interstate commerce, the
only remaining issue is whether ETC’s temporary storage of natural gas in
interstate commerce can be subject to local taxation under the Complete Auto test.
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). The ad valorem tax at
issue fails to satisfy even one of the Complete Auto prongs. (Mtn. for
Reconsideration En Banc at 8-17; Br. of Amicus Curiae Valero Marketing &
1
Marathon is also distinguishable because in that case Marathon Ashland Petroleum
exercised “complete control” over the physical movement of the petroleum products in its
refinery. 236 S.W.3d at 341. ETC, in contrast, does not control the movement and storage of the
natural gas temporarily located at the Bammel facility. See Mtn. for Reconsideration En Banc at
2; see also Peoples Gas, Light & Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208,
215 (Tex. App.—Texarkana 2008, pet. denied), cert denied 131 S. Ct. 2097 (“Unlike the
taxpayer in Marathon Ashland Petroleum, L.L.C., Peoples does not maintain any control over the
physical movement of the gas.”).
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Supply Co. at 10-12; see also Dissent at 16-24.) The tax must satisfy all four
prongs of Complete Auto to be constitutional. Complete Auto, 430 U.S. at 279.
Existing Texas Authority: Under existing Texas authority, the natural gas
at issue here would not be subject to local ad valorem taxes. Peoples Gas, Light &
Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208 (Tex. App.—
Texarkana 2008, pet. denied), cert. denied 131 S. Ct. 2097 (2011); Midland Cent.
Appraisal Dist. v. BP Am. Prod. Co., 282 S.W.3d 215, 224 (Tex. App.—Eastland
2009, pet. denied), cert. denied 131 S. Ct. 2097 (2011). Those decisions are
materially indistinguishable from this case. (See Dissent at 10-19, 22-24; Mtn. for
Reconsideration En Banc at 9-14.)
Policy Considerations: HCAD also argues that this Court should not
consider the broad repercussions of the majority’s decision because those
arguments are “alarmist” and “unsupported,” even though those same concerns
were voiced by both the dissent and by amicus curiae Valero. (Opp. Br. at 1 n.10.)
They further suggest that this Court should ignore those concerns because they
were not raised to the trial court. (Id.) But “parties are free to construct new
arguments in support of issues properly before the Court.” Greene v. Farmers Ins.
Exch., 446 S.W.3d 761, 764 n.4 (Tex. 2014). The issue here—whether local
taxation of natural gas in interstate commerce violates the commerce clause of the
U.S. Constitution—was squarely before the trial court and the court of appeals.
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In any event, the broad repercussions of the majority’s decision cannot
simply be dismissed as “alarmist” or hypothetical. The panel’s ruling has
significant negative consequences that make immediate correction essential. As the
dissent cautions, the majority’s decision will erect a “financial barrier” around
Harris County and the other counties within this Court’s jurisdiction, see Dissent at
21, as companies seek to store their goods elsewhere. Amicus Curiae Valero
Marketing & Supply Co. warns that “the panel’s decision . . . will subject
companies to a complex patchwork regime” of tax regulations and is “bad for
Texas businesses, taxpayers, and consumers.” Amicus Curiae Valero Marketing &
Supply Co. at 13-14. The majority’s decision also raises the prospect of multiple
taxation. As the Eastland Court of Appeals recognized when striking down a
similar ad valorem tax, “if the tax in this case is upheld, then ad valorem taxes
could potentially be levied by any taxing authority on oil in transit but located, at
the time of assessment, in the portion of an interstate pipeline system within the
boundaries of that taxing authority.” Midland Cent. Appraisal Dist., 282 S.W.3d at
224; see also Mtn. for Reconsideration En Banc at 5-8. Notably, HCAD’s brief
does not even address any of the significant statewide implications of the panel’s
decision.
State Law Grounds: Finally, HCAD rejects the independent state-law
grounds for invalidating the ad valorem tax, arguing that ETC waived the issue by
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not raising it in its motion for summary judgment. (Opp. Br. at 18-20.) But the
issue was in fact raised below. See Appellant Br. at 49; Plf. Orig. Pet. at 3-8; Plf.
Mtn. for Summary Judgment at 1, 5-6; Plf. Resp. to Def. Mtn. for Summary
Judgment at 5-6; Greene, 446 S.W.3d at 764 n.4. Even HCAD concedes that “[t]he
first page of ETC’s motion for summary judgment did state the taxing units lacked
jurisdiction to tax the gas.” (Opp. Br. at 19.) The Majority addressed the merits of
ETC’s statutory argument, recognizing that ETC’s “motion for summary judgment
also included an argument that HCAD lacked jurisdiction to tax the property.” (Op.
at 2 n.1.)
CONCLUSION
ETC respectfully requests that the Court grant its motion for en banc
reconsideration and grant the relief as specified in its motion.
Respectfully submitted,
HAYNES AND BOONE, LLP
/s/ Lynne Liberato
Lynne Liberato
State Bar No. 00000075
William Feldman
State Bar No. 24081715
1221 McKinney Street, Suite 2100
Houston, Texas 77010-2007
Telephone: (713) 547-2000
Telecopier: (713) 547-2600
Lynne.Liberato@haynesboone.com
William.Feldman@haynesboone.com
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Robert J. Myers
State Bar No. 14765380
John J. Shaw
State Bar No. 24079312
MYERS ✯ LAW
2525 Ridgmar Blvd., Ste. 150
Fort Worth, Texas 76116
Telephone: (817) 731-2500
Telecopier: (817) 731-2501
RMyers@myerslawtexas.com
JShaw@myerslawtexas.com
COUNSEL FOR APPELLANT,
ETC MARKETING, LTD.
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CERTIFICATE OF COMPLIANCE
TEX. R. APP. P. 9.4(i)(3)
I hereby certify that this Reply in Support of Motion for En Banc
Reconsideration contains a total of 1,380 words, excluding the parts of the brief
exempted under TEX. R. APP. P. 9.4(i)(1), as verified by Microsoft Word 2010.
This Motion is therefore in compliance with TEX. R. APP. P. 9.4(i)(2).
Dated: July 1, 2015.
/s/ Lynne Liberato
Lynne Liberato
Counsel for Appellant,
ETC Marketing, Ltd.
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CERTIFICATE OF SERVICE
In accordance with the Texas Rules of Appellate Procedure, I hereby certify
that a true and correct copy of Appellant’s Reply in Support of Motion for En Banc
Reconsideration was served on the following counsel of record on July 1, 2015:
Counsel for Appellee
Harris County Appraisal District:
Mario L. Dell’Osso Via E-Service
Eric C. Farrar
OLSON & OLSON, LLP
Wortham Tower, Ste. 600
2727 Allen Parkway
Houston, Texas 77019-2133
/s/ Lynne Liberato
Lynne Liberato
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