Hall v. Texas (In re Charles Ryan Hall XXX-Xx-2250 12670 Hwy 155 Tyler S., TX 75703)
| Decision Date | 01 February 2016 |
| Docket Number | Case No. 10-60280,Adversary No. 14-6015 |
| Parties | IN RE: CHARLES RYAN HALL xxx-xx-2250 12670 Hwy 155 South, Tyler, TX 75703 Debtor CHARLES RYAN HALL Plaintiff v. STATE OF TEXAS, by and through its agency, THE TEXAS COMPTROLLER OF PUBLIC ACCOUNTS Defendant |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
Upon trial of the complaint in the above-referenced adversary proceeding, the Court issues the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, as incorporated into adversary proceedings in bankruptcy cases by Fed. R. Bankr. P. 7052.
1. Plaintiff Charles Ryan Hall ("Hall") filed a voluntary petition for relief under Chapter 7 in this Court on March 18, 2010 under case no. 10-60280.3
2. Jason R. Searcy (the "Trustee") served as the duly-appointed Trustee for the Chapter 7 bankruptcy estate.4
3. The Texas Comptroller of Public Accounts (the "Comptroller") filed a proof of claim in the bankruptcy case asserting the existence of an indebtedness which was either secured or enjoyed a priority unsecured status.5
4. An Order of Discharge was entered in Hall's favor on July 9, 2010.6
5. After the entry of the discharge order, Hall was the successful bidder at a public auction conducted by the Trustee of the non-exempt personal property assets of the bankruptcy estate.7
6. The Trustee did not sell any real property as a part of the asset sale because the real property on which Debtor's business was conducted was protected by a homestead claim to which no exemption challenge was made.8
7. Hall subsequently objected to the proof of claim of the Comptroller9 and the Comptroller filed its response to that objection.10
8. On October 3, 2013, a hearing was held regarding the Debtor's objection to the Comptroller's claim. An Order was entered dismissing the Debtor's Objection due to lack of standing.11
9. Following the administration of the bankruptcy case, the Trustee was discharged and the bankruptcy case was closed on May 14, 2014.12
10. On May 2, 2014, the State of Texas filed a lawsuit in Texas state district court against the Debtor and his new company, All Natural Stone and Grass, Inc.13
11. The Debtor formed All Natural Stone and Grass, Inc. following his discharge and after purchasing the non-exempt assets at an auction conducted by the Trustee in the bankruptcy case.14
12. Charles Ryan Hall operated a landscape supply and services business, beginning in 2000, under the name Charles Ryan Hall, LLC (the "LLC").
13. The LLC conducted business under the name "All Natural Grass and Stone."15
14. During all relevant periods, the business of the LLC was located on Hall's homestead property at 12670 State Hwy. 155 South, in Smith County, Texas.
15. The LLC operated from April 2000 through December 2009.16
16. In December 2005, the Comptroller began auditing the LLC for sales and use tax.17
17. On December 8, 2008, the Comptroller concluded its audit, and issued a tax assessment against the LLC in the amount of $318,685.49. These assessed taxes, penalties and interest covered a period from March 1, 2002 through October 21, 2005.18
18. The LLC disputed the audit assessment and requested a redetermination of the liability through the State's administrative hearings process, occurring through the auspices of the State Office of Administrative Hearings ("SOAH"). The Comptroller granted the request for a redetermination hearing on December 9, 2008.19
19. At the end of December 2008, the Comptroller's Tax Division issued its Position Letter with regard to the LLC issues, and instructed the LLC how to respond.20 The Tax Division contended that, due to his conflicting registration permits, Hall should bear some individual liability because it was unclear that the generically-titled "All Natural Grass & Stone" was operated by the LLC throughout the audit period.
20. SOAH conducted the administrative hearings on the LLC assessments. The matter was evaluated by SOAH administrative law judge, Victor Simonds, based on the parties' written submissions.
21. Judge Simonds issued a Proposal for Decision in August 17, 2009.21 The Proposal for Decision upheld the Comptroller's audit assessment against the LLC after giving effect to certain changes to which the Comptroller had agreed.22
22. However, the Proposal for Decision held that the tax assessment against Hall individually should be dismissed because "there is no evidence that Petitioner Hall made any sales."23
23. The LLC filed an exception to this Proposal for Decision on August 31, 2009. The Tax Division issued its response to the filed exception on or about September 15, 2009.24
24. On November 9, 2009, the Comptroller issued its decision and adopted the Proposal for Decision, including the dismissal of all tax assessments against Hall individually.25
25. On November 10, 2009, the Comptroller issued an amended audit assessment and the tax assessment became final on December 2, 2009.
26. The final assessments against the LLC included state and local taxes in the aggregate amount of $177,597.13, interest in the amount of $68,082.56 and penalty in the amount of $17,759.70, for a grand total of $263,439.39.26
27. The final 2009 assessment did not assess any sales and use taxes against Hall in his individual capacity.27
28. The LLC ceased operations in January 2010, and Hall began operating that month as a sole proprietor a similar-type landscape business with a similar name from the same premises.28
29. On February 10, 2010, Comptroller Enforcement Officer Wendy Steele visited the business premises of the sole proprietorship and issued to the Comptroller on that date a "Request for §111.024 Fraudulent Business Transfer," seeking to assess tax liability against Hall individually under a successor liability theory based upon the apparent transfer of the LLC assets to Hall in his individual capacity.29
30. On February 12, 2010, in response to Steele's request, the Comptroller assessed Hall in his individual capacity for the LLC's audit liability and the LLC's unpaid taxes, in a total amount of $289,738.10.30
31. This "Texas Notice of Tax/Fee Due" was based upon a "Jeopardy Determination" under Texas Tax Code § 111.022.31
32. That Jeopardy Determination assessed the LLC tax liability against Hall individually on the basis of successor liability "due to [his] acquisition of a business, Charles Ryan Hall LLC, with outstanding liabilities through fraudulent transfers or sham transaction[s]."32
33. This successor liability assessment against Hall encompassed the tax liabilities that had been assessed against the LLC for the period beginning March 2, 2002 through December 31, 2009.33
34. On March 2, 2010, Jim Echols, a Tyler attorney retained by Hall, submitted a "formal request" to the Comptroller for a hearing contesting the Jeopardy Determination and its successor liability basis.34
35. On March 18, 2010 (the "Petition Date"), Hall filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in this Court under case no. 10-60280.
36. Mr. Echols was Hall's attorney of record in his Chapter 7 bankruptcy case before this Court.
37. Hall listed the Attorney General of Texas - Taxation Division and the Texas Comptroller of Public Accounts in his bankruptcy schedules. Individual taxing authorities of multiple municipalities and counties were also listed.35
38. On July 9, 2010, Hall was granted a discharge in his individual Chapter 7 case.36
39. After the filing of his voluntary Chapter 7 petition, Hall continued to operate a landscape supply company as a sole proprietorship from the location formerly utilized by the LLC.
40. Hall filed all required state sales tax returns with, and tendered all required sums to, the Comptroller through 2010.37
41. At all times subsequent to the filing of his voluntary Chapter 7 petition, Hall continued to pursue his administrative remedies to set aside the Jeopardy Determination and the assessment of tax against him individually based upon successor liability.
42. On February 28, 2013, the Tax Division issued its Position Letter in response to Hall's challenge to the Jeopardy Determination and the imposition of successor liability.38
43. Hall, acting through his attorney Echols, filed a reply to the Position Letter on March 14, 2013, contending all collection activity should cease as a result of Hall's receipt of a bankruptcy discharge.39
44. In its response to Hall's reply issued on April 18, 2013, the Tax Division rejected the contention that the bankruptcy discharge had any effect upon the successor liability assessment made against Hall and Hall was notified through his attorney that he was required to make an election as to whether his challenge would be heard by an administrative law judge through either oral or written submission, or whether he desired to dismiss his hearing altogether.40
45. On July 2, 2013, Hall filed an objection to the proof of claim for $431,860.76 which had been filed by the Comptroller in his bankruptcy case;41 however, this Court subsequently dismissed that claim objection for Hall's lack of standing.42
46. On July 5, 2013, Hall submitted a Supplement to Position Letter to the Comptroller. This submission outlined generic descriptions of the events surrounding the Chapter 7 bankruptcy case and asserted that the Jeopardy Determination "claim imposed by the [C]omptroller on Charles Ryan Hall, individually, is a successor liability claim and is therefore dischargeable."43 No legal authorities accompanied these assertions.
47. On September 3, 2013, the administrative law judge from the State Office of Administrative Hearings, in a 13-page opinion, issued his "Proposal for Decision" in which he rejected Hall's request for redetermination of the Jeopardy Determination and the assessment of successor liability with detailed findings of fact and...
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