District Judge Ernie Armstrong said he will rule by early next week on motions raised by attorneys involved in a lawsuit between four Scurry County taxing entities and the Scurry County Appraisal District (SCAD) and Kinder Morgan.
Attorneys for SCAD and Kinder Morgan argued this morning in Armstrong’s court that the judicial court is not the proper venue for a taxing entities’ claim of mineral value fraud by the company.
Scurry County, Snyder ISD, Western Texas College and the Scurry County Hospital District filed a lawsuit in 132nd Judicial District Court challenging a June Appraisal Review Board (ARB) decision not to reappraise Kinder Morgan mineral values from 2012-18. District Judge Ernie B. Armstrong heard from Kinder Morgan attorney Jack Shepherd, SCAD attorney Kirk Swinney and Brent Lemon, who is representing the taxing entities.
Swinney and Shepherd both said that a claim of fraud Lemon wrote in a Nov. 13 court filing was the first time that charge was leveled and should be considered a “new cause of action” that the ARB did not consider during the June hearing.
Lemon contended that fraud is not a new claim, but did admit that his notice of appeal for the June hearing was “inadequate.” However, he said the court has jurisdiction because two Tax Code criteria were met — the entities were part of the procedure through him and the issues in the notice were addressed and the ARB made a ruling. The next step for the entities was to file a lawsuit in district court.
Lemon said during the ARB hearing, he had an expert use “sworn public filings” by Kinder Morgan to determine mineral values. He told Armstrong that he has attempted to get confidential information from Kinder Morgan to help present evidence that errors occurred in determining the values.
“The difference in values (between Thomas Y. Pickett and Company and Lemon’s expert Louis Posgate) is circumstantial evidence that fraud occurred,” he said. “We told the ARB that we need documents to prove our case. This court does have jurisdiction because it went through the process”
Shepherd and Swinney argued that fraud was not mentioned in local court filings until a Pecos County hearing on Nov. 8. Shepherd said during a hearing in that case, which is similar to the Scurry County case, that Lemon “said we don’t need a fraud claim” to take the case to court.
“One week later, in the Scurry County case, plaintiffs filed a petition that Kinder Morgan provided fraudulent information to the Scurry County Appraisal District,” Shepherd said.
Shepherd read transcripts of the ARB hearing, noting that Lemon stated “we don’t know where these errors occurred” in determining the company’s mineral values.
Swinney said Lemon was on a baseless mission.
“What the plaintiff needs is to have Kinder Morgan’s Walter Knight to have a Perry Mason moment and break down on the stand and say he left the information out. That is not going to happen here,” he said. “There is a challenge system in place. You have to do it right.”
Shepherd focused his arguments on the June notice of appeal, which stated the taxing entities were challenging all mineral values in Scurry County from 2012-17.
“No individual taxpayers were mentioned,” he said. “Fraud was not listed as a grounds for the challenge in front of the ARB. That board needs to hear all the evidence and make a decision before it goes to the judicial system.”
Lemon said his Nov. 13 filing that included the word fraud did not change the “bones” of his petition.
“If you flesh out all of the petitions, there is nothing wrong with them. We asked for the same things,” he said.
In the original petition, Lemon requested all data used to set the mineral values for the years in question. Those figures include gross oil production, net revenue interest, net oil production, starting gross oil price, escalation rate, oil price, gross income, operating expense details, severance taxes, net income, discount factor and discounted cash flow.
If Armstrong denied Kinder Morgan and SCAD’s plea, he wrote in an order setting the hearing that a second hearing would be held on Lemon’s motion to the timeliness of Kinder Morgan’s motion to dismiss. If that dismissal request is denied, Armstrong wrote that he would hear Lemon’s request for discovery on the case.
Lemon’s services will be at no cost to the entities unless future settlements are reached in the matter. If that occurs, Lemon will receive 20 percent of any settlement. U.S. Consults, LLC, would also receive 20 percent of any settlements reached in the lawsuits.
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