Recent Texas Cases of Interest to Cities

Note:  Included cases are from July 11, 2016 through August 10, 2016.

Tax Exemption: Nat’l Church Residences of Alief v. Harris Cnty. Appraisal Dist., No. 01-15-00900-CV, 2016 WL 4199148 (Tex. App.—Houston [1st Dist.] Aug. 9, 2016). This is a tax exemption case where the First District Court of Appeals reversed the trial court’s order denying a religious organization’s exemption from taxation because it helped senior citizens with their housing as part of a federally-subsidized housing program.

This is a 28-page opinion, so the summary is a bit long. National Church Residences of Alief (NCR) is a non-profit 501(c)(3) which owns a 62-unit apartment complex. NCR obtained financing from the Department of Housing and Urban Development (HUD) to develop the property into low-income rental housing for either elderly or disabled persons.  Pursuant to the program, a tenant would pay a portion of the monthly rent, calculated under HUD’s formulas depending on the tenant’s income, and HUD would pay the remainder. NCR had a published eviction policy providing that if a tenant fails to pay his non-subsidized portion of the rent, they could be evicted. NCR applied for an ad valorem exemption from taxation.  Harris County Appraisal District (HCAD) took the position that NCR was not providing its residents with housing or other services without regard to the residents’ ability to pay because tenants were required to pay some rent and security deposits. NCR filed suit in district court, seeking judicial review of HCAD’s denial of its request for a property-tax exemption.  The trial court granted HCAD’s motion for summary judgment, denied NCR’s summary judgment, and NCR appealed.

Texas Tax Code Section 11.18(d)(3) states an entity is entitled to property tax exemptions if it was “providing support without regard to the beneficiaries’ ability to pay to . . . elderly persons.” NCR also claimed that it was entitled to an exemption under Section 11.18(d)(13) because it was, according to that section, “providing permanent housing and related social, health care, and educational facilities for persons who are 62 years of age or older without regard to the residents’ ability to pay.” NCR asserted the requirements tenants make some level of payment is not their policy, but is instead HUD requirements, and that NCR must follow these requirements before it can permit a resident to rent an apartment. NCR asserted no resident pays the full market value rent out of his or her own funds. Instead, the amount that each resident pays is determined by a HUD formula.  HCAD asserts NCR charged security deposits and partial rent making it ineligible for the exemption. The court of appeals utilized various statutory constructions principles in applying the Tax Code to NCR’s situation. The court held a resident’s ability to pay the deposit and other obligations is not the focus of the NCR policies, but are instead, HUD regulations. The HUD handbook makes clear that the significance of the security deposit is to protect the landlord from any costs, resulting from a tenant’s breach of the lease. The security deposit remains in a separate interest-bearing account until the tenancy ends. Should the resident comply with the lease, the security deposit is refunded. Further, the eviction policy must be viewed in light of other resolutions of NCR, including the one which held it would assist any tenant who could not pay with other forms of assistance. As a result, the court held HCAD did not show as a matter of law that NCR should be denied the exemption. However, after a long analysis of NCR’s summary judgment, the court concluded the evidence is insufficient to demonstrate it was entitled to the exemption. In other words, both parties were not entitled to summary judgment so the case is remanded for trial.*

Tort Claims Act:  City of Houston v. Roman, No. 01-15-01042-CV, 2016 WL 3748851 (Tex. App.—Houston [1st Dist.] July 12, 2016) (mem. op.). This is a Texas Tort Claims Act (TTCA) case involving a police dog bite. The First Court of Appeals held the pleadings accurately invoked a waiver of immunity and affirmed the denial of the city’s plea to the jurisdiction.

Roman’s son (G.R.) was walking with a friend to play soccer in a nearby park. Roman’s petition alleged as they walked down a back street, a police car approached them. An officer got out of the car’s passenger side door and started running toward the boys. The driver also exited the car, walked to the back of the car, and opened a door, letting a dog out. When the youths saw the dog running toward them, they fled, jumping a fence into an adjacent backyard. When the dog caught up to G.R. it attacked, biting his right arm and lacerating an artery that required surgery. In the plea, the city asserted the officers observed two youths trying to enter a back yard. They chased the boys through several yards before calling for K-9 backup.  When the boys did not respond to commands to stop, the officers released Jake, the officer’s dog.  The city contends that the K-9 officer acted intentionally when he deployed Jake and used him to track G.R. through the back yards; thus, it contends, G.R.’s injuries are the result of an intentional tort. After a hearing the trial court denied the plea to the jurisdiction and the city appealed.

The court first held the actions of the K-9 officer sound in negligence. A defendant may be liable for negligence in handling an animal if he fails to exercise reasonable care to prevent the animal from injuring others. “Intentional conduct may give rise to liability for negligence when the actor does not exercise reasonable care; thus, while Schmidt may have intended to use Jake to locate G.R., a claim may sound in negligence if G.R. was injured by the failure to use reasonable care in controlling Jake during the search.”  Roman alleges and has adduced some evidence that the K-9 officer failed to exercise reasonable care in controlling Jake. The record does not establish that the K-9 officer intended to use Jake to injure G.R., but only to locate him.  As a result, Roman properly plead a negligence claim. Next, the city asserts Roman admitted his claim was a failure to leash Jake so is a non-use of property claim for which immunity remains. However, the panel asserted it previously observed that “the police dog’s purpose was to assist in the officer’s performance of his police duties, which the officer was carrying out [at the time of the attack.]” Jake was assisting the officer in his duties by helping to track and locate G.R. As a result, this is not a non-use case but a case alleging the negligent use of property, i.e. Jake the dog. The trial court properly denied the plea.*

Takings:  City of Laredo v. Northtown Development, Inc., No. 04-15-00736-CV,  2016 WL 4211825 (Tex. App—San Antonio Aug. 10, 2016) (mem. op.). This is a takings case based on an alleged reverter in public property where the Fourth Court of Appeals reversed the denial of the city’s plea to the jurisdiction and dismissed the case.

Northtown Development, Inc. and Gateway Centennial Development Co. (Northtown) conveyed land to a utility district to build a wastewater treatment plan. It contained a reverter that if the property ever stopped being used for a public purpose, the property would revert back to Northtown.  The utility district was eventually annexed by the city which assumed the waste water treatment plant and the property with the reverter. By 2011, the city had constructed a new wastewater treatment plant on the property. The original plant was built on the western side of the property, while the new plant was built on the eastern side.  Northtown took the position the city had abandoned the old plant on the western side which therefore reverted back to Northtown. The city asserted it had a force main, transmission lines, and other facilities still on the western side, it has plans to build a bigger plant by 2030 on the western side to accommodate growth, and that the reverter language was only triggered if the entire parcel was abandoned.   Northtown sued for declaratory judgment and for a taking under the Texas Constitution. The city filed a plea to the jurisdiction which was denied. The city appealed.

The court first held Northtown’s declaratory judgment claim was nothing more than a recasting of its takings claim. A plaintiff cannot circumvent immunity by recasting a claim for monetary value as a declaratory judgment. Because Northtown’s sole purpose for obtaining a declaration that the possibility of reverter in the deed was triggered was to obtain a money judgment, the city’s immunity is not waived. Next, the court focused on only one of four arguments made by the city – that the reverter language is only triggered by complete abandonment of the property. The court analyzed the language within the deed carefully. Reading the plain language of the deed, the possibility of reverter addresses the use of the “tract” of land and upon the expiration of the use as to the “tract” of land, the determinable fee terminates and “title to the entirety” of the “tract” reverts to Northtown. The court held the deed only provides for a possibility of reverter of the “entirety” of the property in the event none of the property is used for purposes of operating a wastewater treatment plant or public purpose.  Since it is undisputed the eastern portion of the property operates the new plant, Northtown’s takings claim fails as a matter of law. The trial court should have granted the plea.  The order is reversed and the court rendered judgment for the city.*

Hotel Occupancy Tax:  AKAL IX Mgmt., LLC v. City of McKinney, No. 05-15-01242-CV, 2016 WL 3902734 (Tex. App.—Dallas July 14, 2016) (mem. op.). This an appeal by AKAL IX Management, LLC (AKAL) following the trial court granting the City of McKinney’s motion for partial summary judgment.

As an owner of a hotel located in McKinney, Texas, AKAL is required to pay the city a tax on its revenues. On October 4, 2012, AKAL filed a petition for reorganization under the United States Bankruptcy Code (code). AKAL listed the city in its schedules as holding a claim a in the amount of $37,251 in unpaid hotel taxes.

In August 2013, the city objected to the amount in AKAL’s schedules and asserted a claim in the amount of $97,302.15. AKAL included this amount in its Amended Plan of Reorganization, September 9, 2013. On October 23, 2013, the bankruptcy court confirmed AKAL’s plan and the plan became effective on November 23, 2013. The city then filed suit against AKAL seeking to recover unpaid hotel taxes from June 1, 2013 through November 25, 2013 (the post–petition, pre–confirmation taxes) and taxes due after November 25, 2013 (the post–bankruptcy taxes). The city filed a motion for summary judgment on all of its claims except the amount of attorney’s fees.

AKAL also filed for summary judgment asserting that the city’s claim for post-petition, pre-confirmation taxes and penalties were discharged in AKAL’s bankruptcy petition. AKAL argued that the city failed to assert the post-petition, pre-confirmation claim in the bankruptcy proceeding and therefore the claim was not allowed under the plan and was discharged by confirmation of the plan.

The trial court granted the city’s motion and ordered the city recover $87,776.59 for unpaid hotel occupancy tax from June 1, 2013 through April 30, 2015, plus reasonable attorney’s fees and tax penalties. AKAL’s bankruptcy plan itself provided that the holder of an administrative expense claim for a liability incurred in the ordinary course of AKAL’s business did not have to file a notice of the claim. The city’s claim for post–petition, pre–confirmation taxes and penalties related to a tax is an allowed administrative expense under the code and was for a liability incurred by AKAL in the ordinary course of its business.

Under both the code and AKAL’s plan, the city had no obligation to file a further proof of claim or a formal request for payment in order for its claim to be allowed under the plan. If the city were required to conduct daily audits and file constantly updated claims in anticipation of a confirmable order, the bankruptcy and tax systems would rapidly grind to a halt. Because the city’s claim for post–petition, pre–confirmation taxes, penalties, and audit fees was an allowed administrative expense under both the code and the plan, the court of appeals concluded that it was not discharged in AKAL’s bankruptcy proceeding.

Employment: Jordan v. Tarrant Cnty. Hosp. Dist., No. 07-16-00034-CV, 2016 WL 4135219 (Tex. App—Amarillo Aug. 2, 2016) (mem. op.). This is an employment discrimination case where the Amarillo Court of Appeals affirmed the granting of the hospital district’s summary judgment motion.

Jordan alleges Tarrant County Hospital District d/b/a JPS Health Network (JPS) failed to hire him for the position of senior psychiatric tech because of age, race, and disability. He brought claims only under federal law. The case was in state court in the Tarrant County District Court, but was transferred to the Amarillo Court of Appeals pursuant to the Texas Supreme Court’s docket equalization efforts under Texas Government Code Section 73.001.  The trial court in Tarrant County granted JPS’ motion for summary judgment and Jordan appealed.

As to race discrimination, Jordan asserts he established a prima facie case by showing the position he applied for remained open and JPS continued to seek applicants for some time. JPS contends that Jordan is required to show proof the position was filled by a person not in Jordan’s protected class.  The court held that while a prima facie case can be made when a position remains open, it cannot be said that an employer’s employment decisions were racially motivated when, as here, the employer eventually hired a qualified person from the same protected group of which plaintiff is a member. The trial court properly granted summary judgment as to race discrimination. With regard to the disability discrimination claim, Jordan suffered a broken ankle while working for JPS that “kept [him] off work” until December of 2011. However, due to Jordan’s exhaustion of personal and Family Medical Leave Act leave, JPS terminated him before his release to return to work. “While this evidence establishes that Jordan sustained an injury, it is not evidence of whether he is currently disabled within the meaning of the ADA.”  As to the age discrimination claim, the only evidence provided by Jordan is that JPS filled the position with a forty-five-year-old while he was fifty-nine at the time.  Jordan has to present some evidence to support his claim of age discrimination and this is not sufficient to establish a “but for” discriminatory motive. As a result, the trial court properly granted JPS’ summary judgment motion.*

Citizen Initiative:  City of Cleveland v. Keep Cleveland Safe, No. 09-15-00076-CV, 2016 WL 4040121 (Tex. App—Beaumont July 28, 2016). Plaintiff, Keep Cleveland Safe (KCS) filed a petition attempting to stop the city from placing an issue on the ballot for the May 2014 election regarding photographic traffic signal enforcement systems or red light cameras. The trial court permanently enjoined the city and the city appealed.

The City of Cleveland is a home-rule city which passed an ordinance authorizing and implementing a photographic traffic signal enforcement program. The city received a petition to ban all red light cameras from a group of citizens. The city council accepted the Red Light Ban Petition and placed the measure on the ballot as part of a charter amendment. KCS filed this lawsuit in response. KCS argued the Texas Transportation Code vests exclusive control over red light cameras with the “governing body,” making the subject outside the scope of permissible referendums and initiatives. After a bench trial the trial court issued a permanent injunction prohibiting the city from ever considering an initiative or referendum on red light cameras.

The legislature may remove, by general law, a subject matter from the initiatory process. However, the claims cannot be moot at the time of trial or appeal. The city asserts even though the May 2014 election has passed, the injunction prohibits it from ever holding such an election. KCS asserts the claim is not moot because others can still submit another initiative to ban the cameras and the subject could evade judicial review.  However, the court held the mere possibility someone else could bring an initiative on the same grounds does not mean the matter is excepted from the mootness doctrine. KCS failed to demonstrate how there is a reasonable expectation that the city will be subjected to the same action again. Additionally, even if the matter was not moot, there is no justiciable question.  “It is well settled that separation of powers and the judiciary’s deference to the legislative branch require that judicial power not be invoked to interfere with the elective process.” The trial court lacked subject matter jurisdiction to issue a permanent injunction that enjoined the election process. “Being lawfully clothed with legislative power, the City should be allowed to exercise that power and to the dictates of its legislative judgment, regardless of whether or not any particular enactment may be valid or invalid.”  Finally, a court should not “declare rights on facts which have not arisen or adjudicate matters which are contingent, uncertain, or rest in the future.”  As a result, the court dissolved the permanent injunction and dismissed the case.*

Takings: City of Magnolia v. Smedley, No. 09-15-00334-CV, 2016 WL 4045501  (Tex. App—Beaumont July 28, 2016) (mem. op.). This is a flooding case where the Beaumont Court of Appeals dismissed the plaintiff’s claims against the city under a plea to the jurisdiction.

Smedley sued the city and the city’s economic development corporations and contracted entities alleging that the defendants caused Smedley’s property to flood and retain standing water, causing damages.  Smedley alleged that until 2004, water drained off of his properties easily. In 2004, Chicken Express constructed a parking lot on the northeast side of Smedley’s property, and thereafter, in 2011, the city completed construction of the “Magnolia Stroll,” which included a walkway adjacent to the northern edge of Smedley’s property. Smedley alleged the city violated Texas Water Code Section 11.086, and that “the Defendants City of Magnolia and Chicken Express, Inc., diverted the natural flow of diffuse surface water across the land owned by them, allowing and causing the water to stream onto and over the plaintiff’s property.” Smedley alleged the city’s actions constituted a taking without just compensation.  Smedley also alleged a claim against the city under the Texas Tort Claims Act (TTCA) stating that the city and its employees were negligent in “the operation of motor driven equipment during the construction of the Magnolia Stroll resulting in property damage” and that the city is liable under the Texas Tort Claims Act because “[t]he City was performing a proprietary function by a municipality, i.e., the construction and design of a street . . . .” The city filed a plea to the jurisdiction which was granted-in-part and denied-in-part.

First, with regards to the development corporations, the court noted that while a jurisdictional issue can be raised for the first time on appeal, the court of appeals interlocutory jurisdiction must still be properly triggered. Since the development corporations filed their own pleas to the jurisdiction, got them partially denied, then filed summary judgments which were denied on the same grounds, they did not timely appeal the issues.  The city did properly trigger interlocutory jurisdiction. To defeat the city’s plea to the jurisdiction, Smedley must raise a fact issue as to intent, causation, and public use. In a takings case, “the requisite intent is present when a governmental entity knows that a specific act is causing identifiable harm or knows that the harm is substantially certain to result.” It is not enough that the act causing the harm be intentional—there must also be knowledge to a substantial certainty that the harm will occur. A taking cannot rest on the mere negligence of the government. Smedley’s evidence did not allege or portray the grade level of the easement prior to or at the time of the construction of the Magnolia Stroll, nor do they provide legally sufficient evidence that the city was substantially certain that the construction of the Stroll would cause flooding to Smedley’s property.  As a result, he failed to raise a factual dispute so the plea should have been granted as to the takings claim. Further, the court affirmed the granting of the plea as to the TTCA and Water Code negligence claims as no waiver of immunity was properly alleged.*

Zoning: Trainer v. City of Port Arthur, No. 13-15-00459-CV, 2016 WL 3911202 (Tex. App.—Corpus Christi July 14, 2016) (mem. op.). Reginald Trainer and other citizens (Trainer) sued the City of Port Arthur seeking to invalidate a city zoning ordinance that re-zoned a certain property to zoning classification PD-36 so the property could be sold by the school district to a developer of townhomes and apartments. Specifically, Trainer argued that the ordinance did not receive the approval of a supermajority of council as required by Local Government Code Section 211.006(d).

Following the filing of the suit, Trainer appeared at the city’s board of adjustment meeting and presented his argument that the ordinance was invalid. The board of adjustment issued a decision agreeing that the ordinance was invalid. The city later issued a permit to the developer to construct 39 duplexes and a community center on the property in question, still under zoning classification PD-36. The trial court ultimately granted the city’s plea to the jurisdiction because the decision to move forward with duplex construction instead of multi-family construction rendered the initial ordinance moot, and because Trainer failed to exhaust all administrative remedies under the city’s zoning ordinance regarding the issuance of the permit for duplex construction. Trainer appealed.

On appeal, Trainer contended that his claim was not moot because the initial ordinance was not repealed and a permit was issued in accordance with the initial zoning classification. The city argued that the board of adjustment’s decision that the ordinance was invalid fully and finally resolved the issue raised by Trainer in the original petition. The court held that even though the board of adjustment declared the ordinance invalid, the ordinance was never formally repealed by the city council. In other words, according to the court, the city treated the property as if the initial ordinance were valid and in effect. Further, the court noted that there is no authority for the board of adjustment to invalidate a city ordinance.

On Trainer’s second claim on appeal, the court held that because Trainer did not exhaust his administrative remedies regarding his claim that the building permit issued was improper, the trial court lacked jurisdiction over that claim. The court remanded the mootness claim to the trial court for further proceedings.

*Case summaries taken largely from the work of the Law Offices of Ryan Henry, PLLC, and reprinted with permission from Ryan Henry.  To sign up for the firm’s blog, go to www.rshlawfirm.com.