Government Doth Not Take What it Merely Delays

The U.S. Supreme Court does not issue opinions on land use very often. But a 2002 case dealt with land development around Lake Tahoe. The decision was 6-3, and the issue in the case depends on whether you read the majority opinion, or the dissenting opinion. Both opinions are persuasive given the issue each frames, which proves the old adage “if you let me state the issue I’ll win every time.”

In any event, this case discusses the Fifth Amendment to the U.S. Constitution, which prevents government from “taking” private land without compensation. There are two types of takings:

(1) physical, i.e. the actual, physical occupation and possession by the government, and

(2) regulatory, where the landowner is denied the right to realize the value of a tract of land because of governmental regulation.

Cases about physical takings date back to the origination of the Constitution; regulatory takings didn’t exist until a US Supreme Court case in 1922.

Here, the governmental entity in charge of the development of about 500 square miles around Lake Tahoe, known as the Tahoe Regional Planning Agency, imposed a moratorium on all development for about 3 years while it tried to come up with a global land use plan that met all the requirements of its charter (agreed upon by California and Nevada).

Immediately upon completion of the global plan, the district court slapped an injunction on all development because it decided the agency failed to meet the requirements of its charter, which injunction extended the moratorium for about 3 more years. This is where the majority and dissent parted ways. The majority didn’t think this additional three years was important. The dissent looked at the same situation and found a total of about 6 years where a landowner could do nothing on their land. Imagine having a nice tract of land where the government forbid you to build on it for 6 years. Would that feel like a “taking” to you if you owned that land?

Before landing in the U.S. Supreme Court, this case had been to the District Court at least 4 times, and the Court of Appeals 4 times. That the parties in this case were “contentious” is an understatement.

But the Supreme Court did not use this case to break new ground. It simply restated its rule that cases where a plaintiff alleges the government has taken their property via regulations are decided on a case-by-case basis, considering these factors:

(1) the character of the action; and
(2) the nature and extent of the interference with rights in the parcel as a whole.

Anything less than a total taking of an entire parcel must go through this test. In these situations, the courts are to weigh and balance the effect on the land.

The most interesting quote in the majority opinion is the following: “Land use regulations are ubiquitous and most of them impact property values in some tangential way-often in completely unanticipated ways. Treating them all as per se takings would transform government regulation into a luxury few governments could afford.” Ah yes, but wouldn’t it be nice if governments would at least act like it was a luxury to be appreciated and dealt with carefully?

Honorable mention is this quote: “Mere fluctuations in value during the process of governmental decisionmaking, absent extraordinary delay, are ‘incidents of ownership. They cannot be considered as a “taking” in the constitutional sense.’” Just another one of the many benefits of being a landowner.

The dissent, by the way, had no trouble finding that 6 years was a taking, and concluding that the landowners were entitled to compensation.

Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency, Case No. 00-1167, US Supreme Court, Decided April 23, 2002

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In Condemnation, Sometimes the Land Taken Isn’t the Only Cost

Back in 2001, Whataburger ate the State’s lunch in a condemnation case. It recovered for the land taken, lost profits, impairment of access, and costs to raze and rebuild the building to comply with roadway set back regulations, totaling over $1.5 million, for 8,421 square feet of land (that’s $178 a foot). Here’s the skinny on damages available in condemnations, and why commercial lease provisions on condemnation are so important thereto.

Years ago, Whataburger set up one of its signature shops at the corner of U.S. Highway 90A and Interstate 610 in Houston. The lot had 41,777 square feet, but when the State decided to widen Highway 90A, Whataburger was not exactly happy with the prospect of losing 8,421 square feet (just over 20%) of this lot. And of course the State didn’t want the back portion of the lot, it wanted Whataburger’s parking lot and both entrances to the burger joint. Even worse, the new property line caused a portion of the restaurant building to extend beyond the 25 foot setback line. Compliance required Whataburger to raze the entire building and rebuild it on the back portion of the lot.

Well, the State couldn’t swallow Whataburger’s outrageous demands for compensation, and Whataburger couldn’t stomach the State’s ridiculous insult of an offer, so, Whataburger did the only thing it could do in the face of condemnation: file a protest and have a hearing before a special commissioner’s court. And at this hearing Whataburger didn’t fare too bad, obtaining an award for $620,000.

Commissioner’s Court proceedings can be fairly informal. They are sometimes made up of 3 or so individuals with varying amounts of real estate expertise. The “chief” can and does swear all witnesses. The governmental entity condemning the land begins by presenting the overall project, and then discussing the particulars of the tract of land at issue. Often, the project engineer is the designated witness on this topic.

Next comes the government’s appraiser(s), who testify as to the “fair market value” of the land taken. In cases such as Whataburger, there are also financial types and CPAs perhaps, to testify as to how much money the business will lose because of the condemnation, and how much it will take to rebuild the building.

After that, the landowner whose land is being condemned, in this case Whataburger, gets to take its turn calling witnesses and presenting evidence, and its case usually focuses solely on all the many ways this horrible, intrusive, inconvenient project is going to harm them financially. Basically, if you get in this position, you wrap yourself in the Texas flag and our state’s glorious Constitution, and recite Article 1, Section 17, which says that no person’s property

“…shall be taken, damaged or destroyed for or applied to the public use without adequate compensation being made.”

And you have to stick to certain types of damages. It’s not enough to say “this roadway expansion is really inconvenient in this lifetime, so pay up.” Inconvenient enhancements are “simply an incident of city life and must be endured,” says Texas courts. Plus, increased access to property often makes it more valuable. So, property owners cannot recover for increased traffic, noise, dust, diversion of traffic, circuity of travel, reduced visibility by the public, etc.

But property owners are entitled to full compensation for any involuntary taking of property. This includes the obvious–real property–but it also includes all other tangible and intangible property connected to the real property, including any damage to the land not condemned (called the “remainder”).

Ah, but I digress. Back to the story. After the special commissioners hear all the evidence put on by the government and the landowner, they come to an agreement among themselves on the fair market value of the property taken, and award that money to the landowner. This can take a very short amount of time, sometimes measured in minutes. If either the landowner or the government is unwilling to accept their decision, they appeal the case to a “regular” Texas civil district court.

In Whataburger’s case, both Whataburger and the State were not satisfied with the award, so BOTH parties appealed the special commissioners’ award. The lawyers for one of the parties was later hailed as brilliant, while the lawyer for the other party got handed the keys to the doghouse, and it was the State on the losing end here. The district court held a trial to determine the value of the property taken, which it does as though nothing has happened before (in other words, the special commissioners court decision meant nothing, their decision wasn’t even considered, and the court started from scratch). And instead of a measly $620,000, the court awarded Whataburger $1,255,622.80, plus prejudgment interest, plus an additional $268,524 for “lost profits arising from the State’s impairment of access.” That’s an increase of about $904,146.80 and change.

Well, at this point the State figured they’d been whipped pretty good, and it decided to only appeal the $268,524 “lost profits” part of the award. To recover lost profits as a damage to the remainder, a party must prove one of the following three things:

1. a total but temporary restriction of access;
2. a partial but permanent restriction of access; or
3. a temporary limited restriction of access brought about by an illegal activity or one that is negligently performed or unduly delayed.

Whataburger chose Door No. 1, a total but temporary restriction of access. Whataburger was out of business for 9 months because it had to raze its building and rebuild it set back further from the road. Therefore, it said, the State temporarily restricted access to its business and caused 9 months worth of lost profits. The State had a rather ingenious twist on this: no physical barrier barred access to the property, and since the State never restricted physical access to the property, there was no damage to the remainder. How would you feel about that if you were Whataburger? Well, the Court of Appeals put the State in its place by merely stating the obvious:

A building that has been razed and no longer exists cannot be entered. Accordingly, while no physical barrier prevented ingress or egress upon the remaining land, we find Whataburger was effectively denied access to the Improvements thereon.

And a business is property, so an owner can be compensated for lost profits resulting from the government’s “denial of access” to the business, as damage to the remainder.

So remember, when you face condemnation, consult an experienced counselor who knows where to look in order to maximize the dollar value of your condemnation award. It may just be that the actual dirt being taken is only a portion of what you are entitled to collect.

For Lessees in commercial leases, make sure any commercial lease you sign includes the ability of you, as the lessee, to be involved in condemnation proceedings, and collect any portion of the condemnation award that you are entitled to. In the Whataburger example, if the land was owned by someone else, the landowner would not have collected the $268,524 in lost profits, because it would not have lost that money. And depending on the lease terms, neither would Whataburger as tenant. Things could even get worse–the lease could also have required Whataburger to continue paying rent during the 9 months when the building didn’t exist. Condemnation provisions in commercial leases are therefore one of the most important parts to consider and fully negotiate.

State of Texas v. Whataburger, Inc., Fourteenth Court of Appeals (Houston), Case No. 14-00-00203-CV, Decided September 6, 2001

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15950 Dallas Parkway, Suite 400
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Land Use: Houston’s Stripper and SOB Regulations Cut the Mustard

Local governments with police powers can regulate land use in nearly any way they want. If that land use regulation forces a change in its current use, well, they “amortize” the change over a few months or years, as in they delay the effective date of the new zoning. If the new zoning regulation reduces the fair market value of the land itself, the city must pay the landowner for that reduced value. That’s a “taking.” But government can still totally regulate land use.

Think about this for a moment. If, for example, your business owns the land on which it sits and operates, and the governing authority, a city perhaps, decides they want to have something else there instead, then they can change the zoning of the land and force your business to move or just shut down. This can cost some serious money that cannot be recovered. Do you sell the real property to a developer so they can build to the new specs, or do you do it yourself? Do you just shut down the business, or do you buy or rent another tract of land and relocate? Decisions, decisions, and none of them particularly good choices. Talk about getting stripped down.

Standing in the way of such extreme power is the First Amendment “freedom of speech.” If you can fit your land use into freedom of speech, or perhaps freedom of religion, then you have a chance to overcome the massive governmental zoning power. Sexually Oriented Businesses (SOBs) support free speech, in fact the more the….well, less. The lesson of this case is that if the government can do it to an SOB, you can be relatively sure they can do it to any other type of business. At the end of this article I have some practical suggestions for how to deal with land use regulation disputes and negotiations.

Houston first began its attempts to regulate SOBs in 1977 with city ordinances. Now, keep in mind that Houston does not have a full blown, formal zoning code. Cities are required by state law to follow a specific procedure to draft and enact “zoning regulations”. While these ‘97 SOB regulations have the effect of a zoning ordinance, they’re not part of a comprehensive land use plan. This is a mere city ordinance that governs SOBs, and no more.

Why do I mention this? Because the SOBs argued that these ‘97 regs were “zoning ordinances”, and as such were illegal because Houston didn’t follow the right process in writing and enacting them. The Court just said, in effect, “the regs may look like a duck, walk like a duck, and talk like a duck, but that doesn’t mean they’re a duck.” It’s the least persuasive part of the whole opinion. But then all of us professionals get stumped when we have to deal with “land use” in the city of Houston.

Well, twenty years after its first regulations, Houston was still at it. These ‘97 Houston SOB regulations amendments:

1. Increased the minimum distance from 750 feet to 1,500 feet between an SOB and a protected land use (e.g school, church);
2. Added public parks to the list of protected land uses;
3. Added amortization provisions (forced change in land use within a certain period of time)
4. Added requirements regarding interior lighting, design and layout; and
5. Required the licensing (and conspicuous display of same) of entertainers and managers.

As you might guess, the clubs, their owners, the managers and entertainers all saw these new regulations as decreasing the amount of money there was to make in this highly lucrative industry, and forcing them to incur costs to comply with these new rules. Plus, for the entertainers, where in the world are they supposed to wear their license? “Houston, we have a problem.”

But for the existence of the First Amendment, all of these new regulations are perfectly legal and enforceable. So if you own a piece of real estate, the government can make you do all of these things with your land, including requiring you (or your tenants) to operate in particular ways at particular locations.

Now, here at the outset, let’s look at some of the creative names these SOB joints use. I mean, this is just too much fun to pass up. There’s “Dee & Dee Enterprises, Inc.”, for the well endowed (if it was a cattle brand, we’d call it the “Double D”–see how this works?), there’s “BJ’s 24 Hour Newsstand”, with more stimulation and stamina than Viagra, “The Trophy Club” for sportsmen, or perhaps the place where former trophy wives perform, “Studz News”, lest we think women are the only ones working, “Dong Kyong Modeling Studio”, enough said, and finally, making this list by international reputation alone, it’s “Trumps, Inc., d/b/a/ Rick’s Cabaret.” Ever wonder what suit is trumps? Maybe it’s the lack of a suit in this instance.

Let’s start with the most controversial part of this, the so-called amortization provision. Houston generously gave the businesses affected by the new distance regulations a whopping 180 days following the adoption of these new regs, to move to a new location that was in compliance. Six months, that was all. And the Fifth Circuit said “we don’t see a problem there, especially considering this litigation has given them a longer time period anyway” and didn’t really discuss it in more detail. Now THAT’s power.

More substantively, the legal test for these sort of “free speech” restrictions has three parts:

1. Is the ordinance a time, place and manner regulation?
2. Is the ordinance aimed at (A) the content of sexually-oriented speech (content based) or (B) the “speech’s” secondary effects on the community (content neutral)?
3. Is the ordinance designed to serve a substantial governmental interest, leaving open reasonable alternative avenues of communication?

In this case the answers were “yes”, “B” and “yes,” resulting in “Houston, you’re good to go.”

These new regulations affect the time, place and/or manner of the regulated acts. BUT they are not censorship. They don’t restrict what the entertainers and managers can, and cannot, do. This is a critical conclusion, because if the regulations were “content based,” they would be subjected to much greater court scrutiny.

What are the “secondary effects” of SOBs, you ask? Well, this is the key that opened the Pandora’s box of success for all of the modern era SOB regulation. It started with a 1995 U.S. Supremes case that came out of Los Angeles, no less. There, the city conducted formal studies of all sorts of factors, most importantly including crime rates and property values in different areas of the city. LA was able to “show,” through cold statistics, the hot influence of strip joints and other SOBs. Crime rates were higher in the areas around them, and they caused property values to decrease.

Both of these are “bad”, and government has a legitimate reason to reduce crime and protect its citizens’ property values, and so SOB regulations designed to do that are A-O-K. Cities don’t even have to show that the regs actually work as thought, just that they really think they will work. Cities are even allowed to experiment, and to change the rules in the course of experiments until something does work. Imagine owning a business being the subject of an experiment. Apply a constantly changing set of rules, with all the costs the changes impose, and you can see that SOBs may have a legitimate gripe on this particular point.

And so LA forced SOBs to disperse throughout the city. After that decision allowing LA’s SOB regs to stand, other cities followed LA’s example, including Houston. In fact the Houston ordinance also asserts that SOBs “can exert dehumanizing influences on churches, schools and day care centers…”, and they added auto theft, opportunities for prostitution, transmission of sexually transmitted diseases, and neighborhood blight, as additional causes for legitimate city concerns.

Next, we come to the “substantial governmental interest” and “alternative avenues of communication” test. This where things get a bit interesting. As for alternative avenues, the SOBs claimed that these new regs were designed to put them out of business because “there’s just no place to move.” But Houston countered with some statistics of its own. It could show that when the ‘97 ordinances were enacted, there were 128 SOBs in Houston, and under the ‘97 ordinances, there were at least 1,362 actual conforming SOB sites. ‘Nuff said.

Now for “governmental interest,” and here is where it gets really interesting. Houston’s new rules required entrances to “entertainment rooms” to be free from obstacles or obscurities, including doors. How in the world could there be a governmental interest in keeping sight lines good in a strip joint? The SOBs were legitimately upset about this because doors are needed to maintain a “different musical ambience in each of the rooms….The purpose of the door is thus to minimize ambient noise.” But said the Court:

the First Amendment protects topless dancing from clothing, not musical accompaniment from ambient noise.

And finally, of course, the SOBs objected to having their entertainers and managers wear their licenses. Houston won on this too, because the Court bought the argument that Vice Cops need to be able to determine quickly, from a distance, and without being intrusive, whether entertainers or managers had licenses or not, and who (if any) was engaging in or permitting any illegal behavior.

If the occurrence of illegal behavior in SOBs is more of a revelation for you, consider the testimony of some of Houston’s finest Vice Cops in support of these regs. Apparently, dancers ask patrons (including Vice Cops, it turns out) to give them money to tip the staff in the area of the club, so the staff/management will literally look the other way while they do their table or lap dance. That way, they can get a little more carried away with their “performance” than the law allows. Doors and other obstructions aid their desire for privacy.

And a couple of Vice Cops got dang near assaulted in these joints. One testified that 2 dancers had a conversation right in front of him about whether the manager was “cool” with their moves, and it was settled by the manager himself, who assured them all of his hipness. Then, the 2 dancers “were willing to perform sex acts on me at the club”–right then and there. “They wanted to go through with it. I had to get out of it and did not want to go through with it.” That was his exact testimony.

Yet another Vice Cop said he watched as a couple of dancers “along with another dancer engaged in sex with one another as well as [indicating they were] willing to engage in sex with [individuals] who they thought were my business partners, but were other police officers.”

You just gotta feel for the lack of luck on the part of these entertainers, don’t you? In any event, this sort of bad behavior also supports the “no doors, obstructions or obscurities” policy as well. And so, now there are just no secrets inside a Houston SOB anymore. Everything’s out in the open. Literally.

And Houston Vice can now walk in, quickly check the licenses without obstruction, catch the 9:30 show, and be out by………midnight. All in a hard day’s work. And that’s the naked truth about a very lengthy 64 page court opinion. If the government can do it to SOBs, they can do it to your business.

How do you counteract this power? Well, I’ve been there and done that (with mainstream businesses, not strip clubs). I’ve testified before planning commissions, P&Z boards, and city councils. There are three rules.  First rule: pay attention to politics. Not just local networking, but understanding the goals of the political bodies and persons with whom you have to deal. Get to know the city’s agenda for land use and development. Develop and emphasize the positives of your operation, like its creation of employment and payment of wages. Show the positive impact your business will have on their tax base, just to name a couple of specific examples.

Rule No. 2. If you are not a seasoned veteran at this, hire one.

And Rule No. 3: on the front end, before you buy or lease property, check the zoning to make sure the land use will be compatible with current regulations. Every major Texas city other than Houston has a master plan for land use. Many of them are available online. Get it and review it. Condition purchases and leases on obtaining appropriate zoning to allow you to do what you want how you want (or use a feasibility period to figure this out).

Bottom line, zoning regulations are negotiable–their drafting, figuring out how they apply, and in the enforcement. It’s all negotiable. And while zoning power is almost absolute, there are limits to the exercise of that power, both procedural and substantive, and there are times when you may be entitled to compensation for the government’s actions.

Land use is one of the hottest, most rapidly growing areas of the law. It will continue to be, as cities and suburbs try to fight urban blight and suburban and exurban sprawl. And anytime you get involved in a land use dispute, remember Rule No. 2.

N.W. Enterprises, Inc., et al. v. City of Houston, Case No. 98-20255, U.S. Court of Appeals for the 5th Circuit, November 25, 2003.

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CREDITS

Enviropinions are original writings of Mark McPherson.
© 2014, Mark McPherson. All rights reserved.
15950 Dallas Parkway, Suite 400
Dallas, TX 75248
214-722-7096 Office
214-540-9866 Facsimile
mark@texasenvironmentallaw.com
www.TexasEnvironmentalLaw.com

Inverse Condemnation: Altering Existing Right of Way

We all know what condemnation is; when the government shows up to “take” your land and use it for some public purpose, like a roadway. It’s pretty obvious when it happens, and it usually begins with a formal written notice from the government. Well, there is another type of condemnation, known as “inverse condemnation.” This is easier to identify than define, kind of an “I know it when I see it” type of condemnation. George and Patricia Delany found out what it meant, to the whopping tune of $497,637.80 coming their way (courtesy of your state tax dollars). When the government alters the use of an existing right of way (as in a roadway ceases to exist), and as a result, there is a “material and substantial impairment of access” to a tract of land, the owners of that tract have just felt the brunt of “inverse condemnation.”

Nearly $500,000 for “taking” some value from some land? When not even one inch of land was actually physically taken? I had to read it to believe it myself.

George and Patricia Delany lived in Galveston County near I-45. Also nearby was Johnny Palmer Road. And there was this little connector road that connected the northbound frontage road of I-45 to Johnny Palmer Road. The Delanys would apparently travel across their land, into the right-of-way easement area of the connector road (which, coincidentally, the State condemned years in the past), and then onto the pavement of the connector road itself. The Delanys’s property did not join the I-45 right of way or its frontage road.

As you may have guessed by now, the State decided to redesign the exit ramps within the existing right of way for the northbound frontage road. As part of this project, the little connector road was “removed” and in its place the State planted grass and stored construction materials. This left the Delanys with no access from their land to any road, street or highway of any sort.

“No problem” said the State, “we’ll build you a driveway to one.” But the Delanys were less than impressed with that plan, a plan they considered unreasonable, ridiculous, and dangerous. This left the Delanys with really only one option, and that was to sue for “inverse condemnation.”

The first issue was whether there was an unconstitutional “taking” of property without just compensation. Texas law holds that direct physical invasion of property is not required. An access easement–even one that is created by law, as opposed to being a formal, written easement–may be “taken” the same as dirt. So ingress and egress rights may be taken.

Next, in access rights cases, courts look to see whether there has been a “material and substantial impairment of access.” If so, it’s a taking. Here, the entire right of access to the only roadway, that little connection road, was completely obliterated. “Complete” is definitely “material and substantial impairment.” In fact, in this case the Court concluded that the State abandoned the connection road’s right of way when it converted the road from an actual roadway to a construction service supply yard.

So now we have a Texas case that directly holds the State liable for damages to property when it materially and substantially impairs the access rights to that property by simply altering the use of an existing right of way. Them’s some pretty strong property rights.

And so we move on to the damages. Five Hundred K. How? Well, in this case they measured damages to the property as being the difference between the fair market value of the Delany’s property as determined before the “taking,” and after. Subtract “after” from “before” and there you have it.

But here’s where it gets a little tricky. Remember the State wanted to construct that driveway, which would have given the Delanys access to a roadway. They rejected it because they didn’t like the idea. At trial, the Delany’s expert said, basically, that no reasonable person would “accept tremendous liability in building a driveway anywhere from 240 to 590 feet in length to this roadway…No reasonable, prudent person would consider using this property with the liability inherent in such a fashion.” And the trial judge agreed.

This one issue, more than anything, is what stuck in the State’s throat. They just couldn’t get to this conclusion on their own. Without the driveway concept, we have here a piece of land with no access to any roadway. That’s a pretty worthless piece of land. What would you pay for a piece of land you couldn’t get in to nor out of, assuming we’re not talking about hunting? Exactly, say the Delanys.

But wait. The land wasn’t worth $500,000. It seems that number includes an award of money to the Delanys as a sanction upon the State’s lawyers. The Delanys took the depositions of Frances Willison and Marty Kobs. Kobs was a lawyer, but he wasn’t acting as counsel in this case. He was deposed because he was the program manager, assistant administrative director and/or supervisor of the litigation support section.

In any event, all through his deposition the State’s lawyer objected and instructed Kobs not to answer various questions asked by the Delanys’ lawyer. This was a bozo move. The State’s lawyers wouldn’t even let Kobs testify about the existence or non-existence of a road in front of the Delany’s property! Bozo does a handstand.

But wait. It gets worse. In Frances’ deposition, which ran only some 76 pages, the State’s lawyer made 95 objections to the form of the question asked. That’s a 1.25 objections per page average, which the Court obviously thought was quite a bit too much. “Frivolous” was the Court’s term.

And so our tax dollars went to pay a lawyer (who not only lost the case but also got the State a sanction) to defend the State against one of our own, necessitated by their need to connect with the world outside their plot of land. But at least we have a written opinion giving us yet another example of inverse condemnation.

If you think you’ve been bitten by the inverse condemnation bug, you should perhaps start with figuring out your damages. Work backwards from there. What caused the damages? How much value has your property lost? Talk to a real estate agent/broker. Just because you can’t “touch” the damage doesn’t mean it’s not there. Talk to your lawyer. It’s up to you to protect your property. In other words, don’t expect a letter from the State stating they are going to perform an “inverse condemnation” on your land.

State of Texas v. Delany, Case No. 14-03-00052-CV (Tex. App.-Houston [14th Dist.], decided March 16, 2004).

Enviropinions are original writings of Mark McPherson.
© 2014, Mark McPherson. All rights reserved.
15950 Dallas Parkway, Suite 400
Dallas, TX 75248
214-722-7096 Office
214-540-9866 Facsimile
mark@texasenvironmentallaw.com
www.TexasEnvironmentalLaw.com

Public Taking: Quarries, Nuisances, and One Mean City

Vulcan Materials Company faced off with the City of Tehuacana in beautiful Limestone County, Texas, over its rights to mine limestone. It seems the residents of Tehuacana had no problem with this idea until it went from theory to practice. Of course, by then, Vulcan had sunk a lot of money into the project, so walking away just wasn’t an option. They faced off in federal district court. Could Vulcan mine, or not? If not, could Vulcan require Tehuacana to pay them for “taking” their mining rights? And what difference does it make to you? It makes a difference because sometimes a city’s zoning laws and ordinances constitute a “taking” of your land, for which you are entitled to just compensation.

It was David vs. Goliath, only the big bad bully turned out to be the tiny city of Tehuacana, Texas, population 300. How did the vaunted Vulcan Materials Company, the largest U.S. maker of road construction projects, become the figurative David? Here’s the scoop.

In 1993, Smith Crushed Stone leased limestone quarry rights on three tracts just outside Tehuacana’s city limits, and four other adjacent tracts within the city limits. These four tracts were about 48 acres in size, about 2/3 to 3/4 of a mile wide. In October of 1997, Vulcan purchased the assets of SCS in Limestone County, including the limestone quarry leases on these 7 tracts.

As part of its due diligence, to make sure it was getting what it paid for, Vulcan hired a local lawyer named Bobby Reed to determine whether any Tehuacana city ordinances would prevent Vulcan from quarrying on these tracts. Reed met with the mayor and city secretary, both of whom advised him that the city had no ordinances to that effect, and that none were in the planning stages. Reed gave Vulcan the green light, and the purchase was completed.

In early 1998, Vulcan began planning active quarrying on the tracts inside the city. It invested quite a bit of money to determine access points and ramp sites, clear land, and strip overburden. In October of that same year, it sought and obtained permission from the Texas Railroad Commission to construct berms. Vulcan began to prepare for a blast (a “shot”) to loosen limestone in the quarry, and conducted test shots on November 25 and 26, 1998, right around Turkey Day.

Apparently Vulcan’s activities caused some indigestion amongst the locals. And so the city began holding public hearings on Vulcan’s activities. Numerous citizens reported the shaking of their houses, lifting furniture off the floor, rattling windows, shaking and jostling people in their homes, noise, dust, smoke, property damage, fear, and exposure to fly and throw rock. And to top it all off, back when SCS was conducting quarrying activities on the tracts outside the city, before selling to Vulcan, a 500 pound boulder was propelled by a “shot” into a city resident’s yard. What that had to do with Vulcan in 1998 is still a mystery to me.

What was the city to do? Many of its voters were up in arms. Well, it only took until December 8, 1988, for the Tehuacana city council to pass an ordinance forbidding quarrying or blasting operations within the city limits. Basically they outlawed Vulcan’s fireworks. One week later, Vulcan filed this lawsuit claiming the ordinance was a “taking” and for which they were entitled to be compensated.

The district court ruled for the city. Among other things, it said:

Although Vulcan argues that high explosives and heavy equipment are required to extract the limestone from the ground, the Court notes that neither were required to extract the stone used to build the pyramids. Obviously, while extraction of the limestone without explosives and heavy equipment may be more expensive and labor intensive, it is not impossible to operate such a quarry without violating the 1988 ordinance.

Do you think this judge ever owned a business? Suffice it to say the 5th Circuit Court of Appeals disagreed and wisely stated “…we hesitate to compare Vulcan’s land use activities to those of the ancient Egyptians”, citing the U.S. Constitution, 13th amendment.

Here’s the federal rule. If a governing body, in the exercise of its police power (i.e. zoning), enacts a regulation that goes too far in regulating private property, that governing body “takes” the property and the property owner is entitled to just compensation for that “taking.” The factors considered in determining if a regulation has “gone too far” are:

1. Whether the property was rendered wholly useless;

2. Whether the governmental burden created a disproportionate diminution in economic value or caused a total destruction of the value;

3. Whether the government’s action against an economic interest of an owner was for its own advantage.

Since the only right Vulcan had in the leased properties was the right to mine limestone, and since the ordinance prevented it from mining limestone, it was a total taking, and Vulcan was entitled to compensation for the taking of its quarry leases by Tehuacana.

Do you think Tehuacana could pay the fair market value of the quarry rights? Those two test shots back in November of 1998 loosened “only” 400-500 tons of limestone for processing, an amount that was a small percentage of what Vulcan normally retrieves and processes during one day of its normal operations.

Here’s the Texas state rule. Texas classifies takings into one of two categories: physical takings, and regulatory takings. A physical taking is when the government authorizes an unwarranted physical occupation of an individual’s property. A regulatory taking can occur in one of two ways: (1) when the regulation does not substantially advance legitimate state interests, or (2) when the regulation either denies the owner of all economically viable use of his property, or unreasonably interferes with a property owner’s rights to use and enjoy his property–a partial taking.

The city’s ordinance denied Vulcan all economically viable use of its property. It certainly interfered with the distinct investment-backed expectation of Vulcan. Game over, Vulcan wins, right?

But the city had one last argument. It claimed the quarry operation was a nuisance. Basically, this theory is that, even if the current value of property has been destroyed, or “taken”, the property owner cannot recover if the state’s nuisance laws would have prohibited the activity as a nuisance. This is often referred to as the “nuisance exception.”

The problem was, quarry activities are not automatically nuisances under Texas law. It may only become a nuisance as a result of circumstances or surroundings, maybe due to the locality in which it is carried on, or because it is conducted in an improper manner. And the 5th Circuit held that since the issue of whether or not Vulcan’s activities were, or were not, a nuisance were based on facts, it must be determined by a jury, not a judge as a matter of law. As a result, the court sent the case back to the district court and instructed it to hold a jury trial on that issue.

This case is a good example of “takings” law and the issues you face if the government regulates your land use out of existence. Just because the government says so, doesn’t mean you have to take it laying down. Protect the value of your property, and when you lose that, get your just compensation.

Vulcan Materials Co. v. City of Tehuacana, Case No. 02-51182, 5th Circuit U.S. Court of Appeals, decided May 21, 2004

Enviropinions are original writings of Mark McPherson.
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