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Monday, May 20, 2024 | Back issues
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Texas Dodges Refund Suit on Rebated Office Goods

AUSTIN (CN) - After overcharging on sales tax for office supplies accompanied by mail-in rebates, Texas does not owe more than $14.6 million in refunds, an appeals court ruled.

In several underlying class action suits, customers wanted Best Buy, OfficeMax and CompUSA to refund them the sales tax paid for amounts rebated.

The parties later settled, with the retailers agreeing to assign their refund claims to individual class members who could then pursue their own claims against Texas Comptroller of Public Accounts Susan Combs.

Those assignees had sought more than $1.6 million in refunds from CompUSA, $11 million from Best Buy and $1.99 million from OfficeMax. They sued Texas after Combs denied written claims filed by settlement-class counsel Perlmutter & Schuelke.

After a Travis County judge dismissed the suit against the state, a three-judge panel with the Third District of the Texas Court of Appeals affirmed Friday.

The trial courts in the class actions lacked the jurisdiction to appoint settlement-class counsel to also represent individual assignees in their claims against the state, according to the 31-page ruling.

"As a result, the assignees did not properly exhaust their administrative remedies because settlement-class counsel lacked authority to file individual refund claims on their behalf," Justice David Puryear wrote for the panel. "The lack of exhaustion of administrative remedies means that the assignees have not satisfied the statutory requirements for waiving sovereign immunity in a tax-refund suit."

The ruling notes that Comptroller Combs found in each decision "that (1) the tax code does not authorize a class to file a refund with the comptroller, (2) the tax code does not give the comptroller the statutory authority to grant a class-action refund, (3) the settlement class was required to submit the supporting documentation required by the comptroller for verification of the refund claim, and (4) the statute of limitations expired for claims arising from tax that was due and payable more than four years before the refund claim was filed on April 16, 2008."

A trial court's express power to administer class actions does not likewise empower it to appoint class counsel as individual counsel so that it might further the judicial-economy purpose of class actions, the panel concluded.

"First, if settlement-class counsel truly represents the hundreds of thousands of individuals on an individual (not class) basis, it is unclear how this process avoids the possibility of an 'inefficient and burdensome multiplicity of suits' or serves judicial economy," the opinion states. "Moreover, the assignees' argument highlights the inherent contradiction in their position. They concede that 'the Tax Code does not allow administrative class refund claims.' But at the same time, they are requesting that the comptroller write three checks that aggregate the refund amounts owed to the assignees for later distribution to these individuals - a process that conspicuously mimics class-action procedure, particularly in light of the provisions in the settlement agreements providing that class counsel will seek court approval to have attorney's fees deducted from the total amounts obtained from the comptroller."

The ability of assignees to pursue their refunds independently is not enhanced by the appointment of an attorney - without their knowledge or consent - to represent their individual interests before the comptroller, the panel found.

It also disagreed that an attorney's fiduciary duty to the class supports an implied power to appoint him or her as counsel to represent individual class members in other individual proceedings.

"The existence of fiduciary duties alone does not mean that the same type of relationship exists between class counsel and their class clients as exists between attorneys and individuals in non-class actions," Puryear wrote. "There are important differences between the two, not least of which is the differing responsibility for client communications."

Under Rule 42, class counsel does not have to communicate with absent class members until near the conclusion of the case, according to the ruling.

Meanwhile, Texas Disciplinary Rule of Professional Conduct Rule 1.03 requires an attorney to "keep an [individual] client reasonably informed about the status of a matter and promptly comply with requests for information," the judges added.

"Given these differences, we decline to imply that the trial courts have power to appoint class counsel to represent individual class members by filing individual claims for them seeking a different type of relief when the individuals have been provided no notice of their attorney-client relationship and no opportunity to make informed decisions about their representation," Puryear wrote. "We conclude that the jurisdiction to enter the particular orders at issue may not be implied from Rule 42 because the rule's express language contemplates only class representation, and neither the judicial-economy purpose of class actions nor the fiduciary duties owed by class counsel to the class support an implication of any additional power."

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