Posted by: Patricia Salkin | September 25, 2013

TX Supreme Court Holds Moratoria Does Not Apply to Subdivision as it Qualified as a Development Already Underway and Remanded Takings Claim

This case arose out of a temporary moratorium placed on property development by the City of Lorena, Texas, pursuant to a state statute that allows such moratoria in order to prevent the shortage of essential public facilities. The statute, Chapter 212 of the Texas Local Government Code, permits municipalities to implement a moratorum where there is evidence that the temporary bar is limited to property not already approved for development. In this case, the City of Lorena passed a moratorium against development because of its sewer system’s lack of capacity.

BTMP Holdings, a property owner impacted by the moratorium, operated a business based in subdividing its property into residential lots, developing community infrastructure, then selling off individual plats for home construction. The company had received the necessary approvals to create the five-phase South Meadows Estate subdivision in 2003. This case involves the fourth and fifth development phases, which involved seven of the subdivision’s remaining lots and for which the City Council had issued approvals by January 2006. BMTP completed infrastructure work for phase five of the development in May 2006.

During the same time BMTP was installing infrastructure, the City’s engineers had been studying its sewer system, which was determined to be over-capacity and incapable of handling additional sewer taps without additional work. Based on these findings, the City in June 2006 imposed a 120-day moratorium on sewer connections, with an exemption for pending sewer tap applications and any sewer tap that had been installed but was still inactive. This moratorium was renewed seven times, each time for 120 days, with the same moratorium language, as the City took steps to join the Waco Metropolitan Area Regional Sewerage System.
In its first moratorium resolution, the City also provided an appeals process that required aggrieved parties to go before the City Manager to demonstrate deprivation of vested property rights as a result of the moratorium, and request relief. However, despite the state statutory requirement that a municipality show developments that were already approved would be unimpeded by the moratorium, the City provided no evidence on the record that accommodations would be made for property already approved for development.

When BTMP was provided with its final plat approval in the summer of 2006, the City Manager informed the company of the moratorium and of the City’s intent not to allow any additional sewer connections for South Meadows Estates during the period of the moratorium. The City agreed to allow BMTP to avoid the moratorium on fifteen of its lots which had been sold prior to the moratorium, however the City refused to exempt seven additional lots in the subdivision from the moratorium. After the moratorium had been extended a fourth time, BMTP asked the City to reconsider application of the moratorium to its seven lots which had already received plat approval. The City refused, arguing that it had approved subdivision on the seven lots, but not construction. BMTP Holdings sued seeking a declaratory judgment that it was not subject to the moratorium and damages for inverse condemnation. The company claimed the value of the seven lots subject to the moratorium declined by 83 percent during the period of the moratorium and its seven extensions.

At trial, the court found in favor of the City on both claims, and awarded attorney’s fees. BMTP Holdings appealed, and the appellate court reversed, finding that the moratorium should not have applied to BMTP’s property because development plans had been approved for the parcel prior to the moratorium, and the state statute barred moratoria against work on parcels already approved for development.

Before the Texas Supreme Court, the City argued that BMTP’s claims were not ripe because they did not follow the appeal procedures set forth in the moratorium, and further that the moratorium should apply to BMTP’s seven lots. The Court rejected the City’s ripeness argument, finding that even if the moratorium appeal process had created a mandatory administrative process, forcing BMTP to follow the appeal process would have been futile.

On the question of whether the moratorium should have applied to BMTP’s seven lots, the Court had to determine the meaning of the state statute’s requirement that municipalities exempt property already under development from a moratorium. Initially, the Court noted that the City had failed to provide the necessary evidentiary findings on the record before it passed the moratorium, in violation of the statute. Further, the Court found that the statute’s use of “development” was meant in the broadest possible sense to include, among other things, the subdivision of property in preparation for construction. This was due, in part, to the fact that Texas grants vested rights to property development once it receives plat approval, which is considered to be a late enough stage in development to give rise to these rights. The Court reasoned that it would be inconsistent with state statute to construe moratoria limitations as more narrowly applicable to development which has already reached the construction stage. Therefore, the Court held that the Texas law limiting the application of municipal moratoria to development already under way should apply to development that is at the subdivision as well as construction phase. This meant that the City’s moratorium could not have applied to BMTP’s seven lots, which had already received subdivision plat approval.

On BMTP’s inverse condemnation claim, the Court applied the Penn. Central analysis and looked at the economic impact of the moratorium on BMTP, the extent of the moratorium’s interference with BMTP’s investment-backed expectations, and the character of the City’s actions as they pertained to BMTP. Ultimately, the court concluded that, because it was hearing the case based on summary judgment having been awarded to the City at the trial level, there were not enough facts to conclude whether a taking had occurred. The extent of the moratorium’s financial impact on BMTP’s property was still in dispute, as well as the diminution in property value. Thus, the Court remanded the takings issue for a new trial.

City of Lorena v. BMTP Holdings, LP, 2013 WL 4730647 (Tex. 8/30/13)

The opinion, which includes a lengthy dissent disputing the majority’s interpretation of the Texas state statute at issue in this case, is available at: http://law.justia.com/cases/texas/supreme-court/2013/11-0554-2.html


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