Appaloosa Development, LP and Lubbock Water Rampage v. City of Lubbock, Texas ( 2014 )

In The
Court of Appeals
Seventh District of Texas at Amarillo
No. 07-13-00290-CV
APPALOOSA DEVELOPMENT, LP
AND LUBBOCK WATER RAMPAGE, LLC, APPELLANTS
V.
CITY OF LUBBOCK, TEXAS, APPELLEE
On Appeal from the 99th District Court of Lubbock County, Texas
Trial Court No. 2011-559,102, Honorable William C. Sowder, Presiding
August 11, 2014
MEMORANDUM OPINION
Before CAMPBELL and HANCOCK and PIRTLE, JJ.
Appellants, Appaloosa Development, LP, and Lubbock Water Rampage, LLC
(collectively, “Appaloosa”), appeal a final judgment following a bench trial in which the
trial court concluded that Appaloosa take nothing by their inverse condemnation suit.
We will affirm.
Factual and Procedural Background
Appaloosa Development, LP, is a Texas limited partnership that was formed for
the primary purpose of buying land for commercial development. The primary owners
of Appaloosa are John Michael Freyburger and his wife.
In 2009, Appaloosa became interested in purchasing a thirteen acre tract of land
(the property) in Lubbock. Lubbock Water Rampage is a water park that occupies
approximately five to six acres of the land with the remainder of the land being
undeveloped. Appaloosa’s interest in the land was to develop the undeveloped portion
of the land with commercial properties. When the property was annexed into the city in
1999, it was designated a “transition district,” which is not a zoning classification. As a
transition district, the only acceptable use of the property was for single-family
residences.1 However, based on his due diligence review of the potential purchase of
the property, Freyburger determined that the undeveloped property was likely to be
zoned as commercial property. On this basis, Appaloosa purchased the property on
April 29, 2009, for $500,000. Appaloosa then paid $200,000 to West Texas & Lubbock
Railroad, Inc. for a permanent railroad crossing to allow access to the property across
the railroad tracks.
In late July or early August 2009, Appaloosa filed an application to have the
property zoned. The application was filed with the City’s Planning and Zoning
Commission seeking classification of the property as “Interstate Highway Commercial
District” (IHC) property, which would allow commercial development of the property.
1
Since the water park was already operating when the property was annexed into the city, it is
classified as a legal nonconforming use of the property.
2
Appaloosa’s requested zoning classification was supported by the city’s Planning
Director.
In September of 2009, the City’s Planning and Zoning Commission heard the
application and approved it. The Commission’s approval led to the application being
considered by the City Council. Prior to consideration by the City Council, eight written
objections to the proposed IHC classification were received by the City Council. The
objections to the proposed classification came from neighboring residents that objected
on the bases of increased noise, traffic, and crime in their neighborhood; decreased
property values; and ill effects from increased urbanization. At the conclusion of a
contentious meeting, the City Council unanimously voted to deny the application.
After the City Council denied Appaloosa’s application for classification of the
property as IHC property, Appaloosa brought suit against the City for inverse
condemnation. After a bench trial, the trial court entered a take-nothing judgment
against Appaloosa. Appaloosa filed a request for findings of fact and conclusions of law
and such were entered by the trial court. Appaloosa filed a motion for new trial that was
overruled by operation of law. See TEX. R. CIV. P. 329b(c). Appaloosa timely filed
notice of appeal.
By its appeal, Appaloosa presents four issues. Appaloosa’s first issue contends
that the trial court erred when it failed to make sufficient findings to support its
conclusion that the City did not unlawfully take or damage the property. By its second
issue, Appaloosa contends that the trial court erred when it found and concluded that a
regulatory taking cannot occur when the City denies a zoning request. Appaloosa’s
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third issue contends that the trial court erred when it failed to conclude that the City’s
refusal to approve commercial zoning for the previously unzoned property resulted in an
unlawful taking of the property. By its fourth issue, Appaloosa contends that the
evidence was factually insufficient to establish that the denial of Appaloosa’s zoning
request advanced a legitimate governmental interest. To properly address each of the
issues raised by Appaloosa, we will analyze each within our analysis of the takings
claims brought forward by Appaloosa on appeal.
Appaloosa’s Claims
By its suit, Appaloosa alleged three separate theories to support its claim of
inverse condemnation. The first of these theories is that the City’s denial of
Appaloosa’s zoning request constituted a regulatory taking pursuant to Penn Cent.
Transp. Co. v. New York City, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978).
Appaloosa’s second theory is that the City had an improper or self-interested motive in
denying the zoning request, which was made actionable by State v. Biggar, 873 S.W.2d
11 (Tex. 1994). Appaloosa’s third theory, which is not argued in this appeal, is that the
City’s zoning decision removed all of the value of the undeveloped portion of the
property. See Lucas v. S.C. Coastal Council, 505 U.S. 1003, 112 S. Ct. 2886, 120
L. Ed. 2d 798 (1992).
Penn Central Claims
When assessing whether a regulatory taking has occurred, we look at the three
Penn Central factors: (1) the economic impact of the regulation on the claimant, (2) the
extent to which the regulation has interfered with investment-backed expectations, and
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(3) the character of the governmental action.2 Penn Cent., 438 U.S. at 124; Sheffield
Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660, 672 (Tex. 2004). In making this
assessment, we are directed to look at the property as a whole, rather than in discrete
segments. City of Houston v. Trail Enters., Inc., 377 S.W.3d 873, 879 (Tex. App.—
Houston [14th Dist.] 2012, pet. denied) (citing Penn Cent., 438 U.S. at 130-31).
Economic Impact of the Regulation
As to the economic impact factor, Appaloosa contends that the trial court’s
findings are in conflict because the trial court found that the denial of the zoning request
did not negatively affect the value of the property while also finding that the value of the
property would have increased if the zoning request would have been granted.
However, these findings are not in conflict. The trial court found that the City’s denial of
Appaloosa’s requested zoning classification had no effect on the value of the property
since the property could continue to be used for the same purposes after the denial as it
could have been used at the time that Appaloosa purchased the property. The
economic impact of the regulation factor simply compares the value that has been taken
from the property with the value that remains in the property. Mayhew v. Town of
Sunnyvale, 964 S.W.2d 922, 935-36 (Tex. 1998) (citing Keystone Bituminous Coal
Ass’n v. DeBenedictis, 480 U.S. 470, 497, 107 S. Ct. 1232, 94 L. Ed. 2d 472 (1987)). In
2
It appears that the character of the governmental action factor has been removed from the
takings analysis by the Supreme Court’s decision in Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 543,
125 S. Ct. 2074, 161 L. Ed. 2d 876 (2005). While the Texas Supreme Court has acknowledged Lingle in
Hearts Bluff Game Ranch, Inc. v. State, 381 S.W.3d 468, 478 n.21 (Tex. 2012), it has not specifically
addressed the effect of Lingle on Texas takings jurisprudence. See Rowlett/2000, Ltd. v. City of Rowlett,
231 S.W.3d 587, 594-95 (Tex. App.—Dallas 2007, no pet.) (noting that, in light of Lingle, the continued
validity of the character of governmental action factor “may be subject to further consideration by the
Texas Supreme Court.”). Because the continuing relevance of this factor is unclear, in an abundance of
precaution, we will address the factor in our analysis.
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this case, the trial court found that there was no value taken from the property by the
City’s denial of Appaloosa’s zoning application. These findings are supported by
evidence in the record. The loss of anticipated gains or potential future profits should
not generally be considered in the analysis of this factor. Id. at 936. Essentially,
Appaloosa’s contention is that the trial court erred by not finding the loss of anticipated
profit resulting from the denial of the application.3 However, such lost profits are not a
proper consideration. See Mayhew, 964 S.W.2d at 936.
Appaloosa cites cases in support of its proposition that a regulatory taking can
occur when the government refuses to rezone property, grant a variance, or allow
development. While a regulatory taking can occur under these circumstances, none of
these cited cases support Appaloosa’s contention in the present appeal. In both
Mayhew and Taub v. City of Deer Park, the Texas Supreme Court found that the city’s
refusal to rezone property did not constitute a taking. See Mayhew, 964 S.W.2d at 938-
39; Taub, 882 S.W.2d 824, 826 (Tex. 1994). In Westgate, Ltd. v. State, the Court found
that future regulation, specifically plans to condemn property, did not constitute a taking
even though the articulated plans to regulate in the future affected the current value of
the claimant’s property. See 843 S.W.2d 448, 452-53 (Tex. 1992). Finally, while a
regulatory taking was actually found in City of Sherman v. Wayne, it was only found
because the regulation in that case constituted the “‘extraordinary circumstance’ when
no economically viable use is permitted.” 266 S.W.3d 34, 44 (Tex. App.—Dallas 2008,
no pet.) (quoting Rowlett/2000, 231 S.W.3d at 592). As previously mentioned,
3
Appaloosa cites Sheffield for the proposition that lost profits are a relevant factor to consider in
assessing the value and the severity of the economic impact rezoning had on the property. See 140
S.W.3d at 677. While this is true, profits lost due to an unfavorable rezoning and anticipated gains that
would have been derived by a favorable zoning are not the same consideration.
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Appaloosa does not present an issue challenging the trial court’s ruling on Appaloosa’s
no-value theory.
Investment-Backed Expectations
The existing zoning of the property at the time it was acquired is the primary
factor in determining whether the regulation interferes with investment-backed
expectations. Mayhew, 964 S.W.2d at 937-38. As in the analysis above, the City’s
denial of Appaloosa’s zoning application had no effect on the permitted uses of the
property and, therefore, the property lost no value. The only loss that occurred was the
loss of anticipated gains and future profits that would have been derived if the City had
approved Appaloosa’s zoning application. In fact, the evidence in this case establishes
that, due to the continued growth in the profitability of the water park, the property has
actually increased in value since the City denied Appaloosa’s application.
Appaloosa contends that because the trial court failed to make any findings
relating to investment-backed expectations, even though such findings were specifically
requested by Appaloosa, Appaloosa is prevented from properly presenting its case to
this Court. While the trial court’s findings did not expressly refer to “investment-backed
expectations,” the trial court included a number of findings that relate to this factor,
including the increasing net income and value of the property since Appaloosa
purchased the property, and the lack of any detrimental effect of the denial of
Appaloosa’s application on the value of the undeveloped portion of the property. As
such, we conclude that the trial court made sufficient findings relating to Appaloosa’s
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investment-backed expectations to allow Appaloosa to properly present its case to this
Court on appeal.
Character of the Governmental Action
While Appaloosa focuses its challenge of the character of the governmental
action on its claims under Biggar, which will be addressed in more detail below, we will
note here that there was significant evidence presented to support the appropriateness
of the character of the City’s denial of Appaloosa’s zoning application. Neighbors of the
property objected to Appaloosa’s application on the bases of increased noise, traffic,
and crime in their neighborhood; decreased property values; and ill effects from
increased urbanization. Such considerations present legitimate reasons for
governmental zoning decisions. See Mayhew, 964 S.W.2d at 938-39; Weatherford v.
City of San Marcos, 157 S.W.3d 473, 484 (Tex. App.—Austin 2004, pet. denied).
For the foregoing reasons, we cannot conclude that the trial court erred in
entering a take-nothing judgment on Appaloosa’s Penn Central claims.
Biggar Claims
A cause of action exists for inverse condemnation where the government acts to
gain an unfair advantage against an economic interest of an owner. 4 See Biggar, 873
4
As discussed in footnote 2 above, claims relating to a governmental entity’s improper actions
have been removed from the takings analysis by the Supreme Court’s decision in Lingle, 544 U.S. at 543.
While the Texas Supreme Court has acknowledged Lingle in Hearts Bluff, 381 S.W.3d at 478 n.21, it has
not specifically addressed the effect of Lingle on Texas takings jurisprudence. See Rowlett/2000, 231
S.W.3d at 594-95 (noting that, in light of Lingle, the Texas Supreme Court may need to further consider
whether inquiries into the legitimacy of governmental actions have any place in takings jurisprudence).
Because the continuing viability of claims under Biggar is unclear, in an abundance of precaution, we will
address Appaloosa’s claims in our analysis.
8
S.W.2d at 13 (citing City of Austin v. Teague, 570 S.W.2d 389, 393 (Tex. 1978)). The
reason that such an action is recognized is to prevent the government from adjusting
the value of just compensation through regulation and, as such, rendering the
constitutional taking clause protection meaningless. See id. at 14. The government
must act as a neutral arbiter. See id. Governmental actions specifically designed to
decrease the value of property for the purpose of decreasing the compensation that will
be required when the property is subsequently taken gives rise to a claim for inverse
condemnation. See id.
Appaloosa contends that the City specifically targeted Appaloosa by its zoning
determination, and that such targeting can be a factor in a takings claim. See Hearts
Bluff, 381 S.W.3d at 488. However, we reiterate that the City did not rezone the
property or otherwise specifically target the property. Rather, the City simply denied
Appaloosa’s zoning application when the City received multiple objections from
neighboring residents. These objections have been recognized as providing a
legitimate basis for governmental zoning decisions. See Mayhew, 964 S.W.2d at 938-
39; Weatherford, 157 S.W.3d at 484.
Appaloosa further contends that other property along the Marsha Sharp Highway
and in close proximity to the property has been zoned IHC, which indicates that the City
impermissibly sought an unfair economic advantage against Appaloosa. However,
Appaloosa fails to point to evidence that would establish sufficient similarities between
the properties to lead to an inference that the City’s denial of Appaloosa’s zoning
application was not for a legitimate purpose. In addition, the City points to nearby
property, specifically the Ullom tract, that is also zoned residential. Consequently, such
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comparisons do not give rise to an inference that the City attempted to gain an unfair
advantage against Appaloosa in denying its zoning application.
Finally, Appaloosa contends that the trial court’s findings that the City’s denial of
Appaloosa’s zoning application is based on concerns of residents that live in the
adjacent neighborhood are factually insufficient. For these findings to be factually
insufficient, they must be against the great weight and preponderance of the evidence.
See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001) (per curiam).
Appaloosa points to a couple of the specific objections of the neighboring residents and
then contends that there is evidence in the record that would mitigate these effects.
However, the record evidence supports the validity of many of the neighboring
residents’ concerns, and the record evidence does not establish that these mitigating
factors would resolve the neighboring residents’ objections. As such, the evidence is
factually sufficient to support the trial court’s findings that the City’s denial of
Appaloosa’s zoning request was legitimately based on the objections of neighboring
residents.
For the foregoing reasons, we cannot conclude that the trial court erred in
entering a take-nothing judgment on Appaloosa’s Biggar claims.
Conclusion
Having found no error in the issues raised by Appaloosa in this appeal, we affirm
the judgment of the trial court. See TEX. R. APP. P. 43.2(a).
Mackey K. Hancock
Justice
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