The Fifth Circuit Court of Appeals reversed a Southern District Court of Texas judgment in a property rights case Tuesday that involved an apartment complex severely damaged by a hurricane.
The city of Houston denied the owners of the Arbor Court apartment complex a repair permit in 2017 in the aftermath of Hurricane Harvey. The city cited a provision in its municipal flood control ordinance.
The owners then sued the city, arguing its denial violated the Fifth Amendment and amounted to an unconstitutional taking of the multimillion-dollar property.
After a bench trial, the district court ruled in favor of the city and deemed that, despite the permit denial, the property still had economic life.
The 15-building, 232-unit, multifamily complex in the Greenspoint neighborhood has remained idle after being shuttered in 2017. The property owners have held on to the former apartment complex for low-income families in the hope that redevelopment might become feasible or to sell it for its residual value.
However, the Fifth Circuit disagreed with the district court. The appellate court concluded that the city’s regulatory action deprived Arbor Court’s owners of all economically viable use of the property. The court wrote that the district court erred by ruling otherwise.
Judge Stuart Kyle Duncan wrote the majority opinion for the panel, which included Judges James Dennis and Don Willett.
“We agree with DMAC that the City’s application of § 19-19 of the flood ordinance (and the resulting denial of a repair permit) deprived DMAC of ‘all economically beneficial use’ of Arbor Court and constitutes a categorical taking under Lucas,” Judge Duncan wrote.
A Lucas taking occurs when a regulation deprives a property owner of all economically beneficial use of the property. The appellate court explained that this standard was met here because both Arbor Court’s and the city’s experts and respective witnesses agreed that, because of the permit denial, Arbor Court had no current economically viable use.
City and federal officials deemed the area too prone to flood for building.
Judge Dennis disagreed with the majority and wrote a dissenting opinion in which he agreed with the district court. He cited the district court’s conclusion rejecting DM Arbor’s claim under Lucas.
“These conclusions of law and the balance of the district court’s opinion refute the majority’s opinion and demonstrate why the district court’s decision is correct and should be affirmed,” Judge Dennis wrote.
The case has been remanded to the Southern District of Texas for further proceedings to compensate DM Arbor.
Counsel for DM Arbor did not immediately respond to requests for comment.
Chaiken & Chaiken principal Kenneth Chaiken, who is now retired, posted on LinkedIn about the case, calling it his “last hurrah as a trial lawyer.” Chaiken represented DM Arbor, along with Baker Botts partner Aaron Streett and senior associate Christopher Tutunjian.
“Most of all, I thank Doug Hickok and Morgan Cox, principals of the entity that owns the affected property, for their fortitude and commitment to pursuing justice to a conclusion, in a manner that allowed us to achieve this incredible outcome and important addition to the Fifth Circuit’s property rights jurisprudence,” Chaiken wrote in his post.
Counsel for the city of Houston did not immediately respond to requests for comment.
Attorneys for the city of Houston were Donald Hightower and Kenneth Soh.
The case is DM Arbor Court Limited v. The City of Houston, Texas, 23-20385.