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FILED IN THE SUPREME COURT OF TEXAS 11 August 18 P4:18 BLAKE. A.

HAWTHORNE CLERK

No. 11-0589
In the Supreme Court of Texas
IN RE ALLCAT CLAIMS SERVICE, L.P. AND JOHN WEAKLEY,

Original Proceeding

RESPONSE TO ORIGINAL PETITION

GREG ABBOTT Attorney General of Texas DANIEL T. HODGE First Assistant Attorney General BILL COBB Deputy Attorney General for Civil Litigation DAVID C. MATTAX Director of Defense Litigation JONATHAN F. MITCHELL Solicitor General

DANICA L. MILIOS Deputy Solicitor General State Bar No. 00791261 BILL DAVIS Assistant Solicitor General State Bar No. 24028280 KEVIN VAN OORT Deputy Chief, Financial and Tax Litigation Division State Bar No. 20449890 P.O. Box 12548 (MC 059) Austin, Texas 78711-2548 [Tel.] (512) 936-1700 [Fax] (512) 474-2697 danica.milios@oag.state.tx.us COUNSEL FOR DEFENDANTS

IDENTITY OF PARTIES AND COUNSEL


Plaintiffs: Allcat Claims Service, L.P. and John Weakley Counsel for Plaintiffs: James F. Martens State Bar No. 13050720 Jmartens@textaxlaw.com MARTENS, SEAY, & TODD 301 Congress Avenue, Suite 1950 Austin, Texas 78701 Tel.: (512) 542-9898 Fax: (512) 542-9899

Defendants: Susan Combs, Texas Comptroller of Public Accounts and Greg Abbott, Attorney General for the State of Texas

Counsel for Defendants: Danica L. Milios Deputy Solicitor General State Bar No. 00791261 danica.milios@oag.state.tx.us Bill Davis Assistant Solicitor General State Bar No. 24028280 bill.davis@oag.state.tx.us OFFICE OF THE ATTORNEY GENERAL P.O. Box 12548 (MC 059) Austin, Texas 78711-2548 Tel.: (512) 936-1700 Fax: (512) 474-2697 Kevin Van Oort Deputy Chief, Financial and Tax Litigation Division State Bar No. 20449890 kevin.vanoort@oag.state.tx.us OFFICE OF THE ATTORNEY GENERAL P.O. Box 12548 (MC 029) Austin, Texas 78711-2548 Tel.: (512) 463-8897 Fax: (512) 477-2348

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TABLE OF CONTENTS
Identity of Parties and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii Index of Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Statement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Statement of Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Issue Properly Presented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Summary of the Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 I. The Franchise Tax Is Constitutional Because the Bullock Amendment Imposes No Limitation on the Legislatures Ability To Tax Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A. The Plain Text of the Bullock Amendment Prohibits Only Taxes Imposed on Natural Persons, Not Business Entities . . . . . . . . . . . 4 The Explanatory Phrase Concerning a Persons Share of Partnership Income Does Not Change the Meaning of the Bullock Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Plaintiffs Contention That the Franchise Tax Is an Income Tax Is Beside the Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

B.

C.

II.

Plaintiffs Disparate-Treatment and Attorneys-Fees Claims Fall Outside the Courts Grant of Jurisdiction in House Bill 3, and Should Be Dismissed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 A. Plaintiffs Disparate-Treatment Claim Challenges Comptroller Action, Not the Constitutionality of the Franchise Tax . . . . . . . . . . 7 Plaintiffs Claim for Attorneys Fees Likewise Falls Outside the Scope of the Courts Grant of Jurisdiction . . . . . . . . . . . . . . . . . . . . 8 iii

B.

Prayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Certificate of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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INDEX OF AUTHORITIES
Cases Fed. Land Bank v. Bismark Lumber Co., 314 U.S. 95 (1941) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91 (Tex. 1999) (per curiam) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Intercontinental Group Pship v. KB Home Lone Star L.P., 295 S.W.3d 650 (Tex. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Love v. Wilcox, 28 S.W.2d 515 (Tex. 1930) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Neeley v. W. Orange-Cove Consol. Indep. Sch. Dist., 176 S.W.3d 746 (Tex. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2 Universal Frozen Foods Co. v. Rylander, 78 S.W.3d 588 (Tex. App.Austin 2002, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . 6

Statutes, Rules, and Constitutional Provisions TEX. BUS. & COMM. CODE 15.16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 TEX. BUS. ORG. CODE 152.056 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 TEX. CIV. PRAC. & REM. CODE 37.009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 TEX. CONST. art. V, 3(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii TEX. CONST. art. VIII, 24(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim TEX. GOVT CODE 311.005(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 TEX. GOVT CODE 311.032 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

TEX. GOVT CODE 2001.038 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 TEX. NAT. RES. CODE 33.171 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 TEX. NAT. RES. CODE 61.019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 TEX. TAX CODE 171.001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 TEX. TAX CODE 171.101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Other Authorities Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 1-27, 2006 Tex. Gen. Laws 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 21, 2006 Tex. Gen. Laws 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 24, 2006 Tex. Gen. Laws 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 24(a), 2006 Tex. Gen. Laws 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii, 1, 3, 7, 8 Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 24(b), 2006 Tex. Gen. Laws 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii, 1

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STATEMENT OF THE CASE


Nature of the Case: This is an original petition challenging the validity of the Texas franchise tax, Chapter 171 of the Texas Tax Code, as it applies to limited partnerships, as a violation of Article VIII, 24(a) of the Texas Constitution. The enacting legislation, 24 of House Bill 3 of the 2006 third called legislative session, confers exclusive and original jurisdiction on the Court to rule on constitutional challenges to the legislation and sets a deadline of 120 days for the Court to rule on the challenge. Allcat Claims Service, L.P. John Weakly Susan Combs, Comptroller of Public Accounts Greg Abbott, Attorney General of Texas

Plaintiffs: Defendants:

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STATEMENT OF JURISDICTION
This lawsuit challenges the constitutionality of the Texas franchise tax, as amended by House Bill 3 in the 2006 third called legislative session. Section 24 of House Bill 3 grants the Court exclusive and original jurisdiction over a challenge to the constitutionality of [House Bill 3] or any part of [it], as well as the power to issue injunctive or declaratory relief in connection with the challenge. Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 24(a), 2006 Tex. Gen. Laws 1, 40. It also requires the Court to rule on the challenge within 120 days from the date the petition is filed. Id. 24(b). The Legislature intended that this important issue of first impression be resolved quickly through an original action in this Court to bring swift certainty regarding the constitutionality of the challenged provision and its ultimate ramifications for the schoolfinance system. Defendants share the belief that this Courts speedy resolution would be beneficial to all concerned. If the Court concludes that 24 of House Bill 3 is consistent with the Courts jurisdiction as provided in Article V, 3(a) of the Texas Constitution, the Court should request expedited briefing on the merits of Plaintiffs Issue 1. See generally Love v. Wilcox, 28 S.W.2d 515, 522 (Tex. 1930) (original proceeding). Plaintiffs Issues 2 and 3, however, do not challenge the constitutionality of the franchise tax and are, therefore, outside the scope of 24(a)s grant of exclusive and original jurisdiction. The Court should dismiss Issues 2 and 3 without further briefing.

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ISSUE PROPERLY PRESENTED


The Texas Constitution forbids the Legislature to impose a tax on the net incomes of natural persons, including a persons share of partnership and unincorporated association income unless the tax is approved by a majority of the registered voters voting in a statewide referendum held on the question of imposing the tax. TEX. CONST. art. VIII, 24(a). The franchise tax is imposed on business entities, not on the net incomes of natural persons. Does the Texas franchise tax violate Article VIII, 24(a) of the Texas Constitution to the extent it is imposed on a limited partnership?

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No. 11-0589

In the Supreme Court of Texas


IN RE ALLCAT CLAIMS SERVICE, L.P. AND JOHN WEAKLEY

Original Proceeding

RESPONSE TO ORIGINAL PETITION


TO THE HONORABLE SUPREME COURT OF TEXAS: In Neeley v. West Orange-Cove Consolidated Independent School District, the Court ordered the Legislature to overhaul the States system of school finance, concluding that the system then in effect imposed an unconstitutional state property tax. 176 S.W.3d 746, 79798 (Tex. 2005). The Court set a deadline of June 1, 2006 for the Legislature to bring the system into compliance. Id. at 799. A critical piece of that overhaul was House Bill 3, which restructured the States franchise tax and broadened the base of businesses that are subject to it. Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 1-27, 2006 Tex. Gen. Laws 1, 1-41. Anticipating that challenges to the newly structured tax would arise, the Legislature included in House Bill 3 a provision granting this Court exclusive and original jurisdiction to consider challenges to the constitutionality of the tax, or any part of it. Id. 24(a). And the Legislature imposed a 120-day deadline for the Court to issue its decision. Id. 24(b).

Plaintiffs suit triggers the start of the Courts 120-day clock. Plaintiffs ask the Court to hold that the Legislatures attempt to address the deficiencies identified in West OrangeCove run afoul of Article VIII, 24(a) of the Texas Constitution (the Bullock Amendment), by imposing a tax on the net incomes of natural persons. Pet. at 5-12. The Court should reject Plaintiffs claims and uphold the constitutionality of the franchise tax. The Court should reject Plaintiffs Bullock Amendment claim (Issue 1) because the franchise tax is imposed on business entities, not the net incomes of natural persons. The other claims identified in Plaintiffs original petition (Issues 2 and 3) should be dismissed without further briefing because they are not encompassed in House Bill 3s grant of jurisdiction.

SUMMARY OF THE ARGUMENT


The Court should uphold the constitutionality of the franchise tax. Article VIII, 24(a) of the Texas Constitution prevents the Legislature from imposing a tax on the net incomes of natural persons, including a persons share of partnership and unincorporated association income, unless the tax is approved by a majority of the registered voters voting in a statewide referendum. It does not, however, prevent the Legislature from taxing business entities. And it does not prevent the application of the franchise tax to limited partnerships simply because a natural person has an ownership interest in the business. Even though the franchise tax is not imposed on natural persons, but only business entities, Plaintiffs assert that it runs afoul of the Bullock Amendment anyway because its

application to a partnership effectively decreases the value of each partners ownership interest in the partnership. The assertion that a tax on a business decreases the overall value of the business may be true. But it is entirely beside the point. The Bullock Amendment does not hamstring the Legislature in the manner suggested by Plaintiffs. It prohibits a net income tax imposed on natural persons, not a tax on the business ventures of natural persons. Alternatively, even if the Court agrees with Plaintiffs contention that the franchise tax cannot constitutionally apply to limited partnerships, the relief Plaintiffs seek is overly broad. They cannot obtain invalidation of the tax in all applicationsonly natural persons can claim the benefit of the Bullock Amendment. Thus, if the Court concludes that the tax is invalid as to Plaintiffs, it should grant declaratory and injunctive relief to prevent the application of the tax only to limited partnerships, not the entire statute in all its applications. TEX. GOVT CODE 311.032. The Court lacks jurisdiction to consider Plaintiffs remaining claims (regarding disparate treatment and for attorneys fees). The Courts special grant of authority under 24(a) of House Bill 3 to consider the constitutional challenges to the statute does not encompass challenges to the Comptrollers application of the statute. And nothing in the Courts grant of jurisdiction authorizes a fee award against the State. The Court should dismiss Issues 2 and 3 for lack of jurisdiction without further briefing.

ARGUMENT
I. THE FRANCHISE TAX IS CONSTITUTIONAL BECAUSE THE BULLOCK AMENDMENT IMPOSES NO LIMITATION ON THE LEGISLATURES ABILITY TO TAX BUSINESSES. Plaintiffs complain that the franchise tax is unconstitutional as applied to limited partnerships under the Bullock Amendment. To reach this conclusion, Plaintiffs ignore the text and purpose of the Bullock Amendment, and they point to irrelevant definitions and case law dealing with income taxes. A. The Plain Text of the Bullock Amendment Prohibits Only Taxes Imposed on Natural Persons, Not Business Entities.

The Bullock Amendment states: A general law enacted by the legislature that imposes a tax on the net incomes of natural persons, including a persons share of partnership and unincorporated association income, must provide that the portion of the law imposing the tax not take effect until approved by a majority of the registered voters voting in a statewide referendum held on the question of imposing the tax. TEX. CONST. art. VIII, 24(a). Plainly put, the provision protects the people of Texas from the imposition of a tax on their net personal income unless they specifically consent to the imposition of such a tax. The franchise tax is not imposed on natural persons. It taxes the total revenue (after subtracting allowable amounts) of taxable entities while that revenue is still maintained in the entitys coffers. TEX. TAX CODE 171.001; .101. The franchise tax does not, therefore, run afoul of the Bullock Amendment.

B.

The Explanatory Phrase Concerning a Persons Share of Partnership Income Does Not Change the Meaning of the Bullock Amendment.

Plaintiffs contend that even though the Bullock Amendment does not directly prohibit application of the franchise tax to businesses, its explanatory clause, including a persons share of partnership and unincorporated association income, implicitly precludes the imposition of a tax on a partnership. Their logic goes as follows: A partner owns a share of the partnership. The franchise tax decreases the value of the partnership, and thus the partners share of it. Therefore, Plaintiffs claim, the franchise tax is a tax on the partners net income and cannot stand because it was not approved by the voters. Pet. at 9-13. Plaintiffs argument is wrong for several reasons. First, it attempts to write into the Bullock Amendment a separate category of business income that cannot be taxed without voter approval. But, as a matter of grammar, the explanatory phrase is not its own category. It is an example of one possible type of income that could contribute to a natural persons net income. Fed. Land Bank v. Bismark Lumber Co., 314 U.S. 95, 100 (1941) (the term including . . . connotes simply an illustrative application of the general principle); TEX. GOVT CODE 311.005(13). The phrase necessarily assumes that the persons share of partnership income has been distributed. Otherwise, it would not be considered net income of the person, but would remain the property of the partnership. Second, and relatedly, the Bullock Amendment protects only a persons net incomenot gross incomefrom taxation without voter approval. Before income becomes net income of a natural person, it must be distributed to the person, other sources of income 5

must be added, and all deductible expenses must be subtracted. It is only after these calculations are made that a person arrives at his or her net income, and it is this amountand this amount onlythat the State of Texas cannot tax without voter approval. To say that a persons share of a limited partnership is equivalent to his or her net income thus misses the mark entirely. A persons share of partnership income, whether allocated or not, is merely a part of what makes up a persons gross income. The Bullock Amendment does not insulate limited partnership income, as a category, from taxation.1 Finally, and on a very basic level, Plaintiffs argument must fail because if Plaintiffs are right and any reduction in a partnerships value is an indirect tax on the net income of its partners, then the State of Texas cannot impose any tax on any business entity, including corporations. Sales tax, motor-fuel tax, severance tax, and hotel-occupancy tax (to name just a few) could all have the effect of lowering the value of a business. All businesses are ultimately owned by natural persons. But that does not mean that the tax on the business is a tax on the net incomes of its owners. It is a tax on the business.

1. Plaintiffs argument in this respect seems to emanate from the fact that partnership income is allocated (passed through) to the partners for federal income tax purposes. But federal tax law is not binding on Texass construction of its own tax laws, much less its constitution. See Universal Frozen Foods Co. v. Rylander, 78 S.W.3d 588, 592 (Tex. App.Austin 2002, no pet.). Texas has chosen to treat partnerships as distinct business entities, not as the aggregate of the partners. TEX. BUS. ORG. CODE 152.056 (A partnership is an entity distinct from its partners.). It is therefore immaterial that a partner is credited with the partnerships held income for federal tax purposesboth because Texas is not bound by that determination and, in any event, because that distribution contributes to the partners gross income, and is thus not equivalent to his or her net income.

C.

Plaintiffs Contention That the Franchise Tax Is an Income Tax Is Beside the Point.

Plaintiffs insist that the franchise tax is an income tax. Whether it is or is not (according to the Legislature, it is not, Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 21, 2006 Tex. Gen. Laws 1, 38) makes no difference. The Bullock Amendment does not speak to income taxes generally. It limits the imposition of a tax on the net incomes of natural persons. So whether the franchise tax is properly viewed as a business income tax or a business franchise tax, it is still not imposed on natural persons, but on businesses. It therefore does not run afoul of the Bullock Amendment. II. PLAINTIFFS DISPARATE-TREATMENT AND ATTORNEYS-FEES CLAIMS FALL OUTSIDE THE COURTS GRANT OF JURISDICTION IN HOUSE BILL 3, AND SHOULD BE DISMISSED. The Courts original jurisdiction in this matter is specifically conferred and limited by 24(a) of House Bill 3. The Court is authorized to rule on a challenge to the

constitutionality of House Bill 3 or any part of it. Section 24(a) does not authorize the Court to consider claims that the Comptrollers implementation of the franchise tax violates the Constitution, nor does it contemplate an award of attorneys fees. Both claims should be dismissed. A. Plaintiffs Disparate-Treatment Claim Challenges Comptroller Action, Not the Constitutionality of the Franchise Tax.

Plaintiffs disparate-treatment claim challenges a Comptroller rule that (1) treats claims adjusters, such as Plaintiffs, differently from general contractors and (2) denies certain

deductions to Plaintiffs, while allowing them to general contractors.

Pet. at 12-14.

Plaintiffs claim is only that the Comptroller should construe the franchise tax differently in this respectnot that the tax is unconstitutional. Because Plaintiffs disparate-treatment claim does not challenge the constitutionality of the franchise tax or any part of it, the claim does not fall within the Courts limited grant of authority. Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, 24(a), 2006 Tex. Gen. Laws 1, 40. Moreover, the disparate-treatment claim is a fact-based challenge to Comptroller action, which if allowed to proceed in this Court, would require the Court to preside over discovery matters and disputes, a role the Court is ill-equipped to fill. The Court should dismiss the disparate-treatment claim. B. Plaintiffs Claim for Attorneys Fees Likewise Falls Outside the Scope of the Courts Grant of Jurisdiction.

Attorneys fees are available only if authorized by statute or contract. Intercontinental Group Pship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 & n.7 (Tex. 2009). Nothing in 24(a) of House Bill 3 purports to authorize an award of attorneys fees. In their attempt to get around this obvious problem, Plaintiffs contend that the UDJAs statutory authorization of attorneys fees supports their claim. Pet. at 4, 14, 15 (citing TEX. CIV. PRAC. & REM. CODE 37.009). But this is not a UDJA action. It is an original proceeding under 24 of House Bill 3. Pet. at viii (citing 24 of House Bill 3 as the sole basis for the Courts jurisdiction). That provision contemplates declaratory or injunctive relief, but it does not authorize a fee award. 8

For that reason, fees are unavailable. See Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 9596 (Tex. 1999) (per curiam).2 The Court lacks jurisdiction over Plaintiffs claim for attorneys fees. It should dismiss the claim.

PRAYER
Assuming the Court determines it has jurisdiction over this original action, the Court should hold that the Texas franchise tax is constitutional and dismiss Plaintiffs disparatetreatment claims and request for attorneys fees. Alternatively, if the Court concludes that the franchise tax violates Article VIII, 24(a) of the Texas Constitution, the Court should strike down the statute only to the extent it would be imposed on a natural persons share of a limited partnership.

2. The same is true in other declaratory-judgment actions authorized by statutes that, like 24, do not authorize fee awards. E.g., TEX. BUS. & COMM. CODE 15.16; TEX. GOVT CODE 2001.038; TEX. NAT. RES. CODE 33.171, 61.019.

Respectfully submitted, GREG ABBOTT Attorney General of Texas DANIEL T. HODGE First Assistant Attorney General BILL COBB Deputy Attorney General for Civil Litigation DAVID C. MATTAX Director of Defense Litigation JONATHAN F. MITCHELL Solicitor General

/s/ Danica L. Milios DANICA L. MILIOS Deputy Solicitor General State Bar No. 00791261 BILL DAVIS Assistant Solicitor General State Bar No. 24028280 KEVIN VAN OORT Deputy Chief, Financial and Tax Litigation Division State Bar No. 20449890 Office of the Attorney General P.O. Box 12548 (MC 059) Austin, Texas 78711-2548 [Tel.] (512) 936-1700 [Fax] (512) 474-02697 ATTORNEYS FOR DEFENDANTS

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CERTIFICATE OF SERVICE
I certify that on August 18, 2011 a true and correct copy of this response was served on the persons identified below via CaseFileXpress, first-class U.S. mail and/or email: James F. Martens Martens Seay & Todd, G.P. 301 Congress Avenue, Suite 1950 Austin, TX 78701 Jmartens@textaxlaw.com COUNSEL FOR PLAINTIFFS, ALLCAT CLAIMS SERVICE, L.P. AND JOHN WEAKLEY

/s/ Danica L. Milios DANICA L. MILIOS

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