Grey Wolf Drilling Company v. William L. Endris

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

CA 03-860

GREY WOLF DRILLING COMPANY

VERSUS

WILLIAM L. ENDRIS, DIRECTOR
OF FINANCE, FOR THE SALES &
USE TAX DEPARTMENT OF THE
VERNON PARISH SCHOOL BOARD

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APPEAL FROM THE
THIRTIETH JUDICIAL DISTRICT COURT,
PARISH OF VERNON, NO. 66,345,
HONORABLE JOHN C. FORD, DISTRICT JUDGE

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JIMMIE C. PETERS
JUDGE

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Court composed of Ulysses Gene Thibodeaux, Oswald A. Decuir, and Jimmie C.
Peters, Judges.

REVERSED AND REMANDED.

Stephen H. Myers
Post Office Box 51222
Lafayette, LA 70505
(337) 266-2225
COUNSEL FOR PLAINTIFF/APPELLEE:
Grey Wolf Drilling Company

Robert R. Rainer
Frederick Mulhearn
Ranier, Anding & McLindon
8480 Bluebonnet Blvd, Suite D
Baton Rouge, LA 70810
(225) 766-0200

COUNSEL FOR DEFENDANT/APPELLANT:
The Vernon Parish School Board
Through its Sales And Use Tax Department

PETERS, J.

This litigation arises from a suit by Grey Wolf Drilling Company, L.P. (Grey

Wolf)1 to recover taxes paid under protest to the Vernon Parish School Board. In its

suit, Grey Wolf named as defendant the Director of Finance for the Sales and Use Tax

Department of the Vernon Parish School Board (School Board). The School Board

appeals rulings of the trial court that had the effect of requiring it to return the taxes

paid under protest. For the following reasons, we reverse the trial court judgments

and remand the matter for further proceedings consistent with this opinion.

DISCUSSION OF THE RECORD

The Vernon Parish School Board, through its Sales and Use Tax Department,

is the single collector for sales and use taxes levied by all political subdivisions within

Vernon Parish, pursuant to La.Const. art. VII § 3(B). Based on the results of an audit

conducted for the periods of January 1996 through December 1999, the School Board

issued Grey Wolf a sales and use tax assessment totaling $117,040.442 on two drilling

rigs, Rig 519 and Rig 521.

At the time the rigs were brought into Vernon Parish, they were owned by Grey

Wolf Drilling Company, a Texas corporation. Grey Wolf Drilling Company brought

Rig 519 into Vernon Parish on March 1, 1996, and removed it from the parish on July

3, 1996. It brought Rig 521 into Vernon Parish on April 26, 1997, and removed it

from the parish on June 26, 1997.

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As is explained in this opinion, the actual owner of the drilling rigs that are the subject of
this litigation is Grey Wolf Drilling Company, L.P., a subsidiary of Grey Wolf, Inc. All of the
pleadings refer to the plaintiff as Grey Wolf Drilling Company without regard to the initials that
follow. For the purposes of this opinion, we will assume that Grey Wolf Drilling Company, L.P.
and Grey Wolf Drilling Company are one and the same.
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The record reflects that Grey Wolf paid $63,568.86 in taxes, $37,579.35 in interest, and
$15,892.23 in penalties. During the course of the litigation, the School Board conceded that a
portion of the assessment attributable to 1996 had prescribed, and that portion of the assessment was
returned to Grey Wolf.

On June 27, 1997, Grey Wolf Drilling Company merged with Drillers, Inc., a

wholly owned subsidiary of D I Industries, Inc. As a result of the merger, Grey Wolf

Drilling Company ceased to exist. Drillers, Inc. then changed its name and operated

under the name of Grey Wolf Holding Company. Thereafter, on October 10, 1997,

D I Industries, Inc. changed its name to Grey Wolf, Inc. Thus, as of that date, Grey

Wolf Holding Company became a wholly owned subsidiary of Grey Wolf, Inc.

Sometime after this name change occurred, the parent company apparently formed

Grey Wolf Drilling Company, L.P. which, according to the answers to the

interrogatories found in the record, is the current owner of Rig 519 and Rig 521.

Both rigs were brought into Louisiana and used by Grey Wolf to explore for

oil and gas. Relying on a Vernon Parish ordinance, the School Board sought to collect

the use tax on the drilling rigs pursuant to a provision allowing a use tax to be

imposed when things brought into the jurisdiction would have been subject to a sales

tax when acquired by the owner and when no sales tax was paid. Grey Wolf paid the

amount claimed by the School Board under protest and, on November 27, 2000, filed

a petition against the School Board for redetermination of the taxes due and for refund

of any overpayment.

The School Board reconvened against Grey Wolf, seeking the recovery of

attorney fees arising from the litigation. Grey Wolf responded to the reconventional

demand by filing a motion to strike the attorney fee request, asserting that because it

paid the taxes under protest, an action for attorney fees did not exist. Grey Wolf later

filed an exception of no cause of action, raising the same defense asserted in the

motion to strike.

On July 9, 2001, Grey Wolf filed a motion for summary judgment asserting that

because it acquired the rigs as a result of a merger, sales or use taxes could not be

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imposed. Additionally, Grey Wolf asserted that, even assuming the merger did not

preclude the imposition of sales or use taxes in all cases, the acquisition of the rigs in

this instance constituted an isolated or occasional sale, upon which no tax should have

been imposed.

The trial court considered the motion to strike and exception of no cause of

action at a January 15, 2002 hearing and considered the motion for summary judgment

on September 10, 2002. At the completion of each hearing, the trial court took the

issues under advisement and, on February 25, 2003, filed its written reasons for

judgment in the trial record granting the exception of no cause of action and the

motion for summary judgment.3 The trial court signed a judgment on April 23, 2003,

granting the exception of no cause of action and the motion for summary judgment,

as well as the motion to strike. The School Board appealed both judgments. Grey

Wolf answered the appeal, seeking an order requiring the School Board “to

immediately return the taxes paid under protest, with all interest from the date of

judicial demand.”

OPINION

The Louisiana Supreme Court discussed the law governing a motion for

summary judgment in Babin v. Winn-Dixie, Louisiana, Inc., 00-0078, pp. 3, 4 (La.

6/30/00), 764 So.2d 37, 39-40, as follows:

A motion for summary judgment will be granted “if the pleadings,
depositions, answers to interrogatories and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to
material fact, and that mover is entitled to judgment as a matter of law.
La.Code Civ. P. art. 966(B). This article was amended in 1996 to
provide that “summary judgment procedure is designed to secure the
just, speedy, and inexpensive determination of every action . . . The

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The trial court issued separate written reasons for judgment on the issues raised in the two
hearings. However, in doing so, the trial court did not mention disposition of the motion to strike.

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procedure is favored and shall be construed to accomplish these ends.”
La.Code Civ. P. art. 966(A)(2)

Grey Wolf is both the plaintiff and the moving party in the motion for summary

judgment. Thus, Grey Wolf has the burden of establishing that there is no material

factual dispute and that it is entitled to judgment as a matter of law. “Once the motion

for summary judgment has been properly supported by the moving party, the failure

of the non-moving party to produce evidence of a material factual dispute mandates

the granting of the motion.” Id.

In granting the summary judgment, the trial court recognized that the School

Board had the right to impose a use tax on property brought into the parish from

another state if the property was subject to a sales tax when acquired by the owner in

the other state. The trial court also recognized that if a sales tax could not be imposed

in the state where the property was acquired, a use tax could not have been imposed

by the School Board when the property arrived in Vernon Parish.

As one basis for concluding that Grey Wolf was entitled to summary judgment,

the trial court concluded that the construction of a drilling rig results from a contract

to build and, therefore, was not a sale wherein a sales tax could be imposed. We find

this conclusion to be erroneous as La.R.S. 47:301(12) specifically includes within the

definition of a sale the fabrication of tangible property.

“Sale” means any transfer of title or possession, or both, exchange,
barter, conditional or otherwise, in any manner or by any means
whatsoever, of tangible personal property, for a consideration, and
includes the fabrication of tangible personal property for consumers who
furnish, either directly or indirectly, the materials used in fabrication
work, and the furnishing, preparing or serving, for a consideration, of
any tangible personal property consumed on the premises of the person
furnishing, preparing or serving such tangible personal property. A
transaction whereby the possession of property is transferred but the
seller retains title as security for the payment of the price shall be
deemed a sale.

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(Emphasis added.)

The trial court also agreed with Grey Wolf’s argument that the School Board

was improperly attempting to tax a merger transaction, concluding that “a merger of

companies does not precipitate a taxable event in the nature of a sale of assets owned

by one of the merging companies.” In its brief to this court, Grey Wolf asserts that

when business entities merge, the merger wipes out any use tax liability in connection

with property purchased prior to the merger. We disagree. Louisiana Revised

Statutes 12:115(E) provides that the surviving entity is responsible for the liabilities

of all businesses involved in the merger.

The surviving or new business, nonprofit or foreign corporation
shall be responsible for all of the liabilities and obligations of each of
the business, nonprofit and foreign corporations merged or
consolidated, in the same manner as if such surviving or new corporation
had itself incurred such liabilities or obligations; but the liabilities of
such constituent corporations or of their shareholders, members,
directors or officers shall not be affected, nor shall the rights of the
creditors thereof, or of any persons dealing with such corporations, be
impaired by such merger or consolidation; and any claim existing, or
action or proceeding pending, by or against any of such constituent
corporations may be prosecuted to judgment as if such merger or
consolidation had not taken place, or the surviving or new corporation
may be proceeded against, or substituted, in place of such constituent
corporation.

(Emphasis added.)

As previously stated, during the entire time the rigs remained in Vernon Parish,

they were the property of Grey Wolf Drilling Company. The day after Grey Wolf

Drilling Company removed Rig 521 from Vernon Parish, the merger process began

when that company merged with Drillers, Inc. Sometime thereafter, the current owner

of the rigs, Grey Wolf Drilling Company, L.P., emerged through the merger process.

We need not address whether the merger activity in this litigation precipitated a

taxable event because the taxable event at issue had already occurred—the acquisition

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of the rigs by Grey Wolf Drilling Company. If, while the property of Grey Wolf

Drilling Company, the rigs were subject to a use tax because of the Vernon Parish

activity, the new rig owners, created through the merger process, would be responsible

for that unpaid use tax as required by La.R.S. 12:115(E). Thus, the various mergers

are not relevant to the primary question, which is whether the activity of Grey Wolf

Drilling Company in bringing the rigs into Vernon Parish between March 1, 1996, and

June 26, 1997, constituted a taxable event.

Analysis of this issue requires an examination of the pertinent provisions of the

applicable tax laws. In this case, the School Board is authorized to levy sales and use

tax pursuant to La.Const. art. 6 § 29(A), which provides in pertinent part:

Sales Tax Authorized. Except as otherwise authorized in a home
rule charter as provided for in Section 4 of this Article, the governing
authority of any local governmental subdivision or school board may
levy and collect a tax upon the sale at retail, the use, the lease or rental,
the consumption, and the storage for use and consumption, of tangible
personal property and on sales of services as defined by law, if approved
by a majority of the electors voting thereon in an election held for that
purpose.

The purpose of a sales and use tax scheme is to make all tangible personal property

used or consumed within the state subject to a uniform tax burden irrespective of

whether it is acquired in the state, making it subject to the sales tax, or acquired from

without the state, making it subject to the use tax at the same rate. Chicago Bridge &

Iron Co. v. Cocreham, 317 So.2d 605 (La.1975), cert. denied, 424 U.S. 953, 96 S.Ct.

1427 (1976).

The trial court concluded as fact that the drilling rigs were manufactured in

another state. While such a fact is implied in the record, we find nothing to suggest

that this is an undisputed fact. Additionally, in its answers to interrogatories

propounded to it requesting tax payment information, Grey Wolf stated:

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Respondent objects to this Interrogatory on the basis that it is overly
broad, ambiguous, and unduly burdensome. Nevertheless, in the spirit
of cooperation and subject to the foregoing objection Rigs 519 [and 521
are] a cost center and not a single purchase. Thousands of transactions
compromise the various components . . . Parts of these components are
repaired or replaced on a continuous basis. Taxes have been paid on the
components . . . to various authorities at various times as components are
constructed, repaired or replaced. The exact number and amount can
only be determined by audit. Vernon Parish assigned Revenue Recovery
Group to conduct this audit.

This answer either carefully or inadvertently fails to state whether the rigs were

purchased by Grey Wolf Drilling Company from another drilling company, were

constructed for Grey Wolf Drilling Company by a separate entity, or were constructed

by Grey Wolf Drilling Company itself. This is an unresolved genuine issue of

material fact.

Additionally, while Grey Wolf asserts in its answers to the School Board’s

interrogatories that sales taxes were paid on materials furnished and used in the

fabrication of the rigs, it does not make it clear who actually paid the sales tax.

Specifically, Grey Wolf offered no evidence to establish that Grey Wolf Drilling

Company paid taxes on the drilling rigs prior to the merger and prior to the use of the

rigs in Vernon Parish, or that it was entitled to a credit against any use tax due for

previously paid sales taxes as provided for in La.R.S. 33:2718.2. These also are

unresolved genuine issues of material fact.

Given these unresolved genuine issues of material fact, we find that Grey Wolf

failed to carry its burden under La.Code Civ.P. art. 966(C)(2). Therefore, we find that

the trial court erred in granting Grey Wolf’s motion for summary judgment. This

decision and the required reversal based on this decision preclude consideration of the

relief requested by Grey Wolf in its answer to the appeal.

The School Board also asserts on appeal that the trial court erred in granting the

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exception of no cause of action on the attorney fee issue. In granting the exception

of no cause of action, the trial court stated that “due process of law prohibits the

taxing authority from collecting attorney’s fees on taxes which were paid under

protest where the taxpayer was procedurally correct in contesting the tax unless bad

faith was shown on the taxpayer or additional taxes were owed.” Thus, the trial court

concluded that Grey Wolf followed the proper procedure in contesting the payment

of taxes. Additionally, although the trial court did not specifically state such, it is

clear from its ultimate decision that it found that Grey Wolf did not act in bad faith in

contesting the payment of taxes. We find that the trial court erred in granting the

exception of no cause of action and the motion to strike.

Louisiana Revised Statutes 47:1512 provides the statutory authority for the

School Board to employ private counsel and provides that “[i]f any taxes, penalties

or interest due under this title are referred to an attorney at law for collection, an

additional charge for attorney fees, in the amount of ten per centum (10%) of the

taxes, penalties and interest due, shall be paid by the tax debtor.” This court addressed

a similar issue dealing with attorney fees in Lake Charles Memorial Hospital v. Parish

of Calcasieu, 98-519, p.6 (La.App. 3 Cir. 12/9/98), 728 So.2d 454, 457, writ denied,

99-0071 (La. 3/12/99), 739 So.2d 213, and it concluded that “[l]iability for these

attorney fees does not depend upon whether the fees have been incurred in a collection

case or in a defense of a taxpayer’s suit for a refund.” See also South Cent. Bell v.

Traigle, 367 So.2d 1143 (La.1978); United Companies Printing Co. v. City of Baton

Rouge, 569 So.2d 186 (La. App. 1 Cir. 1990), writ denied, 572 So.2d 73 (La.1991).

Thus, a taxing authority may collect attorney fees if it is successful in defending a

taxpayer’s suit for a refund. The trial court erred in concluding otherwise.

DISPOSITION

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For the foregoing reasons, we reverse the trial court’s grant of the exception of

no cause of action, motion to strike, and motion for summary judgment in favor of

Grey Wolf and remand the matter to the trial court for further proceedings consistent

with this opinion. We tax all costs of this appeal to Grey Wolf.

REVERSED AND REMANDED.

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