Governmental entities in Texas like school districts, municipalities, hospital districts, and counties rely heavily on property taxes to finance their operations. Mineral interests are real property interests, and when a producing well is drilled the owners of rights to production from the well, both the working interest and the royalty owners, are subject to being levied a property tax on the value of their interests. When those property taxes are not paid, the taxing districts can file suit to foreclose their tax lien securing payment of the tax.
It has become the practice of some taxing districts to hire private law firms to file tax suits to collect taxes. Multiple small delinquent tax accounts are combined into one suit. The attorneys handling the case charge a flat fee per account to handle the matter and are responsible for trying to locate and serve the defendants with the lawsuit. In many cases, the delinquent taxes go back years and the taxing authorities have no current address for the royalty owners. So many named defendants are served by publication notice in a local newspaper or posting notice at the county courthouse. If the defendants do not answer, a default judgment is entered and the sheriff of the county is ordered to sell the royalty interests at a public sale.
Mitchell v. Map Resources, Inc. involves such a delinquent tax sale. In 1998, the Pecos-Barstow-Toyah Independent School District and the Reeves County Hospital District filed suit to foreclose tax liens against a some 673 defendants for delinquent taxes on royalty interests. One of the named defendants was Elizabeth Mitchell. The taxing authorities’ lawyers filed an affidavit seeking the court’s permission to serve the named defendants by posting, saying that each defendants is “either nonresident(s) of the State of Texas, absent from the state or transient,” and that “the names or residences of the owner or owners of the land or lots involved in said suit … are unknown and cannot be ascertained after diligent inquiry ….” Based on that affidavit, the court authorized service of the suit on the defendants by posting notice of the suit at the Reeves County courthouse. The court appointed an attorney ad litem to represent the defendants served by posting who had not appeared or answered.
In February 1999, the court signed a “Statement of Evidence” prepared by the attorneys for the taxing entities:
The Court then proceeded to inquire into the sufficiency of the diligence exercised in attempting to ascertain the residence or whereabouts of the defendants cited by posting. Plaintiffs’ witness, being sworn, testified to a search of the public records of the County and where such records showed the address of any Defendants, citation was issued for personal service on such Defendants at such address in an attempt to secure service thereof, but was unserved, except to the extent recited in the judgment in this cause. The witness further testified that an inquiry was made of the persons in possession of the land and those persons in the community who might reasonably be expected to know the whereabouts of such defendants.
The Court concluded that diligent inquiry had been made and entered judgment awarding foreclosure of the taxing authorities’ liens on the properties and that they be sold under auction. Ms. Mitchell’s mineral interests were purchased at the tax sale by Pecos Bend Royalties, BR Properties Joint Venture, and Tommy Vascocu, who later conveyed a portion of their interest to Map Resources, Inc.
Elizabeth Mitchell died in 2009. In 2015 the heirs of Elizabeth Mitchell sued Map, Pecos Bend Royalties, BR Properties Joint Venture and Tommy Vascocu to set aside the judgment. They alleged that eight warranty deeds recorded in Reeves County between November 1983 and December 1983 showed Ms. Mitchell’s current address and were easily discoverable by a search of the public records. They contended that the testimony relied on by the court as to the due diligence of the lawyer for the taxing authorities in seeking her address was false, and that the judgment against her was void because it violated her right to due process under the 14th Amendment to the US Constitution and Article I, Section 19 of the Texas Constitution. The trial court ruled against the Mitchell heirs, and they appealed to the Court of Appeals in El Paso.
The Mitchells’ appeal was heard before a panel of the Court consisting of Justices Gina Palafox and Yvonne Rodriguez, and Chief Justice Jeff Alley. Justice Palafox wrote the opinion of the Court, Justice Alley wrote a concurring opinion, and Justice Rodriguez wrote a dissenting opinion. The Court affirmed the trial court’s judgment dismissing the Mitchells’ case.
The Court’s opinion relied for its conclusion on the “no-extrinsic-evidence rule”. When a judgment has been entered and has become final, this rule holds that “on grounds of public policy” and “in order to protect property rights” a party challenging the judgment will not “be allowed to show by evidence dehors [outside] the record that the judgment was rendered without any service whatever upon him.” Since the deeds relied on by the Mitchells to prove that the taxing authorities could have located and served Ms. Mitchell were “outside the record” of the original tax suit, they are not admissible evidence in their suit to set aside the judgment.
Justice Alley’s concurring opinion calls the facts of the case “troubling.” He notes that the suit sought to foreclose on more than 1,200 properties and named 673 property owners, 152 of which were listed as “unknown.” He noted that the identity of the witness who testified to due diligence in seeking addresses for the defendants is not stated in the record, nor are any citations for personal service for any of the 673 defendants found in the file. The list of taxes due showed that Elisabeth Mitchell owed $940.20. Justice Alley concluded that, if the Mitchell deeds are considered, the Mitchel children had asserted a viable due process claim. But he concluded that the Court was bound by the no-extrinsic-evidence rule as announced by the Texas Supreme Court–although he noted that the Supreme Court itself has cast doubt on the efficacy of the rule and had cited a comment from the Restatement (Second) of Judgments that the “modern rule” allows admission of extrinsic evidence in a collateral attack on a final judgment. In his concurrence, Justice Alley said “I am reluctant for an intermediate court to create an exception to a 125-year old doctrine based on the few paragraphs of briefing on this issue garnered in the briefing presently before the Court.”
Justice Rodriguez would reverse the trial court’s judgment. Pointing out additional defects in the record, she concluded that the case “suffers from a substituted service process that does little more than pay lip service to the constitutional protections of Due Process.” Her opinion does not address the no-extrinsic-evidence rule.
The case is now pending before the Texas Supreme Court on application for writ of error.
Our firm is handling a similar suit attacking a tax judgment and foreclosure after notice by publication. The facts in our case show that the lawyer representing the taxing authorities hired two landmen to do the due-diligence search for addresses of the defendants named in the tax suit. Like the Mitchell case, these landman received a flat fee to try to locate each defendant. But they received a fee only for those owners who could not be located. And the landmen purchased the royalty interests sold at auction after the judgment was entered. Their fees, along with the attorneys’ fees and costs, were in turn paid out of the proceeds from the auction, and the balance was paid to the taxing districts. And our client’s identity, like Ms. Mitchell’s, could easily be located because she was listed in the tax rolls as paying taxes on other royalty interests she owned in other wells on the same property. The same lawyer who represented the taxing authorities in the Mitchell case represented the taxing authorities in our case and filed hundreds of tax suits very year on behalf of various taxing authorities over a period of years. Our discovery showed that the landmen in our case did not in fact conduct diligent searches, as they testified in the tax suit.
Mitchell gives the Supreme Court a good opportunity to re-examine the efficacy of the no-extrinsic-evidence rule.