DM Arbor Court v. City of Hous.

681 F.Supp.3d 713

DM ARBOR COURT, LTD., Plaintiff, v. The CITY OF HOUSTON, TEXAS, Defendant.

Civil Action No. 4:18-CV-01884

United States District Court, S.D. Texas, Houston Division

Signed July 11, 2023

Kenneth B. Chaiken, Robert L. Chaiken, Chaiken Chaiken PC, Plano, TX, Mark Edward Donnelly, Parker & Sanchez, Houston, TX, for Plaintiff.

Pierre Charles Grosdidier, Harris County District Attorney, Houston, TX, for Defendant.

FINDINGS OF FACT & CONCLUSIONS OF LAW

Keith P. Ellison, United States District Judge

The Court submits the following Findings of Fact and Conclusions of Law pursuant to Rule 52(a)(1) of the Federal Rules of Civil Procedure.¹

I. BACKGROUND

This cause was brought pursuant to the Takings Clause of the Fifth Amendment of the U.S Constitution. Plaintiff DM Arbor Court, Ltd. ("DMAC") owns and operates the Arbor Court Apartments. During Hurricane Harvey, Arbor Court was damaged. DMAC applied for repair permits, and the City of Houston denied those permits.

DMAC then brought this suit. DMAC's Third Amended Complaint alleged various causes of action. See ECF No. 106. On October 21, 2021, Judge Miller, to whom the case had previously been assigned, granted in part and denied in part the City's Motion to Dismiss. ECF No. 137. He found that DMAC plausibly alleged takings and equal protection claims.

On August 17, 2022, the Court granted summary judgment to the City on DMAC's equal protection claim, but denied both parties' cross motions for summary judgment on DMAC's takings claims. Specifically, DMAC contended that the denial of repair permits constituted an unconstitutional taking because (1) it deprived the DMAC of all economically beneficial use; and (2) alternatively, constituted a taking under the three-part balancing test set forth in Penn Central Transportation Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). The Court found that factual disputes precluded granting summary judgment to either party.

On February 6, 2023, this Court commenced a bench trial on DMAC's takings claims. Over the course of the four-day trial, the Court received exhibits and heard sworn testimony. Having considered the evidence, testimony, oral arguments presented during the trial, post-trial filings, and the applicable law, the Court sets forth the following Findings of Fact and Conclusions of Law.

II. FINDINGS OF FACT

A. Flood Ordinance

1. During all times relevant to this case, Houston had a Flood Ordinance, located at Chapter 19 of the Houston Code of Ordinances. As described in this Court's prior Orders, the Flood Ordinance, which was adopted in 1985, "has helped to ensure that development within Houston complies with the development standards the Federal Emergency Management Agency ("FEMA") mandates for property owners to participate in the National Flood Insurance Program ("NFIP")." ECF No. 252 at 2 (quoting ECF No. 137 at 1); see DX 4 § 19-1(c). The Ordinance lists five purposes: (1) to "[p]rotect human life and health"; (2) to "[m]inimize the need for rescue and relief efforts associated with flooding and generally undertaken at the expense of the general public"; (3) to "[m]inimize prolonged business interruptions"; (4) to "[m]inimize damage to public facilities and utilities"; and (5) to "[p]rovide for the sound use and development of floodprone areas in such a manner as to minimize the future flood-blight areas." DX 4 § 19-1(a).

2. The Flood Ordinance creates a regulatory system for permits. DX 4, Art. II. Building permits may only be issued pursuant to the Flood Ordinance. Id. § 19-11. The Flood Ordinance charges the city engineer "with exercising best engineering judgment in the administration and implementation of this chapter." Id. § 19-12. The city engineer's duties include "[r]eviewing, approving, or denying all applications for development permits required by the adoption of [the Flood Ordinance]." Id. § 19-12(2).

3. "Approval or denial of a permit by the city engineer shall be based on compliance with the applicable provisions of [the Flood Ordinance]." DX 4 § 19-19(a). These provisions include, among other requirements, requirements that permit applications include certain forms and information when submitted, id. § 19-17, and requirements that applicants submit follow-up documentation as required, id. § 19-18.

4. Further, "the city engineer may deny a permit application if the issuance of the permit could result in" one of five factors: (1) "[d]anger to life or property due to flooding or erosion damage in the vicinity of the site"; (2) "[s]usceptibility of the development and the contents of any structure to flood damage and the effect of such damage on the individual owner"; (3) "[d]anger that materials may be swept onto other lands to the injury of others"; (4) "[i]mpairments of the access to and exit from the site in times of flood for ordinary and emergency vehicles"; or (5) "[u]nusually high costs of providing governmental services during and after flood conditions, including maintenance and repair of streets, bridges, public utilities and facilities such as sewer, gas, electrical and water systems." Id. § 19-19(a).

5. The Flood Ordinance also imposes certain standards for Flood Hazard Areas, including elevation requirements. Id. §§ 19-32, 19-33. These standards apply only to new construction or substantial improvements, so pre-existing structures are exempt from these requirements. Id.; ECF No. 296 at 85:2-14. However, the category of "substantial improvements" includes situations in which a building sustained "substantial damage"² and need to be repaired. Id. § 19-2.

B. Arbor Court Apartments

6. The Arbor Court Apartments ("Arbor Court") is a 15-building multi-family apartment community located at 802 Seminar Drive in Houston Texas. It is fully located in a 100-year floodplain, and is largely in the floodway ECF No. 298 at 10:22-24.

7. Plaintiff DMAC is an entity that has a general partner, DM Arbor Court GP, and eighteen limited partners. ECF No. 298 at 73:19-22. Those limited partners include the individuals Douglas Hickock and Morgan Cox. Id. at 73:21-22; 163:11-13.

8. DMAC purchased Arbor Court in January of 2016 for $11.85 million. ECF No. 298 at 9:10-14. DMAC spent an additional $1.4 million on improvements to the property. Id. at 9:14-15.

9. To finance the acquisition of Arbor Court, DMAC borrowed $10.8 million. ECF No. 298 at 9:18-22.

10. DMAC operated Arbor Court under a Housing Assistance Payment Contract ("HAP Contract") from the U.S Department of Housing and Urban Development ("HUD"). ECF No. 298 at 11:23-12:4. Pursuant to the HAP contract, HUD subsidizes the apartments, and DMAC must use these units as affordable housing for low-income residents.

11. In September 2016, HUD and DMAC renewed the HAP Contract for an additional twenty years. Id. at 35:1-3, 114:18-24. The Court finds that those HAP contract rates were somewhat inflated, reflecting a higher-than-market rent. See ECF No. 296 at 215:10-20; ECF No. 299 at 14:18-15:25; PX 72 at 3. Nevertheless, DMAC was entitled to receive these rates pursuant to the HAP Contract.

C. Tax Day Flood, Rebuilding, and the LAN Report

12. In April 2016, a storm hit Houston, causing widespread flooding (the "Tax Day Flood"). Arbor Court flooded, and the buildings sustained damage.

13. After the Tax Day Flood, DMAC sought repair permits from the City pursuant to the Flood Ordinance PX 4.

14. As part of the permit application to rebuild after the Tax Day Flood, DMAC submitted Proofs of Loss for the damaged Arbor Court buildings. DX 33. These Proofs of Loss indicated that the cost to repair or replace each Arbor Court Building (excluding the office building) ranged from $205,5978 to $409,234, and the actual cash values of the building structures (again, excluding the office building) ranged from $687,234 to $984,303. Id. Dor the purposes of the Flood Ordinance's Substantial Damage Determination,³ the buildings (excluding the office building) were between 27.1% damaged and 54.3% damaged. DX 33. Only two buildings—Building 3 and the office building—were more than 50% damaged. Id.

15. On April 27, 2016—less than two weeks after the Tax Day Flood—Houston issued the repair permits for Arbor Court after the Tax Day Flood. ECF No. 298 at 134:8-9, 14-16; PX 4. DMAC repaired Arbor Court and, as discussed above, renewed the HAP Contract on the Property that September—just five months later.

16. Following the Tax Day Flood, the North Houston District—an entity that is separate from and independent of the City of Houston⁴—contracted with the engineering firm of Lockwood, Andrews & Newman, Inc. ("LAN") to determine the root causes of flooding in the Greens Bayou watershed (which includes Arbor Court). PX 10.

17. LAN used simulations to determine water flow during 100-year flood events. ECF No. 299 at 140:18-22. The Report found that flooding would likely reach as high as seven feet in certain areas of Arbor Court—particularly near the entrance and exit. ECF No. 299 at 144:5-18. It also found that the water around Arbor Court would likely travel at a high velocity, up to 3.4 feet per second. ECF No. 299 at 144:19-145:7. Because of the relative elevations of the land, water would flow in the opposite direction of people attempting to evacuate, meaning that residents trying to leave Arbor Court would have to fight against the flow of the water. ECF No. 299 at 146:20-147:7. Together, the water's depth and velocity made flood situations particularly hazardous. ECF No. 299 at 145:8-146:8.

18. The Report included five recommendations, one of which was "the pursuit of buyouts of repetitive and severe repetitive loss properties." PX 10 at 3. These properties were ones that "have filed multiple flood insurance claims," but no properties are specifically mentioned in this recommendation. Id. Nevertheless, it seems clear that all relevant actors understood that Arbor Court and Biscayne (a nearby complex) were among the properties referred to in...