DM Arbor Court, Ltd. v. The City Of Houston
Filing
137
MEMORANDUM AND ORDER re: 108 Defendant's motion to dismiss plaintiff's third amended complaint. The motion is denied in part and granted in part as follows: 1. The motion to dismiss DMACs declaratory claims pursuant to Rule 12(b)(1)is DE NIED; 2.The motion to dismiss DMACs declaratory judgment claims pursuant to Rule 12(b)(6) is GRANTED. 3.The motion to dismiss DMACs takings claims pursuant to Rule 12(b)(6) is DENIED as to DMACs categorical and non-categorical takings claims and GRAN TED as to DMACs inverse condemnation claim;4. The motion to dismiss DMACs substantive due process claims pursuant to Rule 12(b)(6) is GRANTED; 5. The motion to dismiss DMACs procedural due process claims pursuant to Rule 12(b)(6) is GRANTED; 6. The m otion to dismiss DMACs equal protection claim pursuant to Rule 12(b)(6) is DENIED; 7. The motion to dismiss DMACs Contract Clause claim pursuant to Rule 12(b)(6) is GRANTED; 8. The motion to dismiss DMACs tortious interference claim pursuant to Rule 12(b)(1) is DENIED; and 9. The motion to dismiss DMACs tortious interference claim pursuant to Rule 12(b)(6) is GRANTED. (Signed by Judge Gray H Miller) Parties notified.(rguerrero, 4)
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United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
DM ARBOR COURT, LTD.,
§
§
§
§
§
§
§
§
§
Plaintiff,
v.
THE CITY OF HOUSTON
Defendant.
October 21, 2021
Nathan Ochsner, Clerk
CIVIL ACTION H-18-1884
MEMORANDUM & ORDER
Pending before the court is the City of Houston’s (“the City”) motion to dismiss plaintiff
DM Arbor Court’s (“DMAC”) third amended complaint. Dkt. 108. Having considered the
motion, response, reply, and applicable law, the court is of the opinion that the City’s motion
should be GRANTED in part and DENIED in part.
BACKGROUND
A. Houston’s Floodplain Ordinance
Over four years ago, DMAC sought a permit to repair its property under Chapter 19 of the
Houston Code of Ordinances (the “Ordinance”). See Dkt. 108, Ex. 1; Hous., Tex., Rev. Ordinances
ch. 19 (2018 and 2006). That Ordinance governs property development in Houston’s floodplain
and floodway. See Dkt. 108, Ex. 1. After the instant litigation commenced, the City amended the
Ordinance, with the new permitting rules taking effect on September 1, 2018. See id. The
following is a summary of the relevant provisions in effect at the time.
Since 1985, the Ordinance has helped 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”).
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Id. at 3; Ch. 19, art. I, § 1(b). The Ordinance also seeks “to promote the public health, safety and
general welfare and to minimize public and private losses due to flood conditions in specific areas
by provisions designed to…[among other things] [p]rotect human life and health.” Id. at 2; Ch.
19, art. I, § 1(a).
Article II of the Ordinance sets forth the regulatory framework for floodplain development
permits. See id. at 10; Ch. 19, art. II, §§ 11–23. It provides that:
No building permit, paving permit, utility construction permit or other permit
required for a structure or development shall be issued, and no plat meets the
applicable requirements of this chapter, or unless a variance, excepting such
structure or development from the provisions of this chapter, is granted under the
terms of this chapter.
Id. at 10–11; Ch. 19, art. II, § 11. A development includes new construction, or improvements to
existing structures, within the floodplain and floodway. Id. at 6, 18; Ch. 19, arts. I–III, §§ 2
(defining “development”), 11, 16(a), 32.
The Ordinance also specifies the requirements and procedures for permit applications, as
well as decisions on whether to approve or deny them by the City Engineer. See id. at 10; Ch. 19,
art. II, § 11. The Ordinance charges the City Engineer with “exercising best engineer judgment
in the administration and implementation” of the permitting chapter’s provisions. Id. at 11; Ch.
19, art. II, § 12. In addition, it tasks the City Engineer with “[r]eviewing, approving, or denying
all applications for development permits required by the adoption of this chapter.” Id.; Ch. 19, art.
II, § 12(2). The Ordinance further authorizes the City Engineer to “deny a permit application if
the issuance of the permit could result in … [among other things] [d]anger to life or property due
to flooding or erosion damage in the vicinity of the site.” Id. at 14; Ch. 19, art. II, § 19(a)(1).
If the City Engineer denies an applicant’s permit request, the Ordinance provides a variance
and appeal process. Id. at 15; Ch. 19, art. II, § 22(a)(5). An applicant may first appeal the decision
to the General Appeals Board. See id. If that proves unsuccessful, an applicant may further appeal
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to the City Council, which serves as the final decisionmaker on any appeal. Id. at 18; Ch. 19, art.
II, § 23(g).
B. DMAC’s Attempt to Procure a Permit
In August 2017, Hurricane Harvey (“Harvey”) tore through Houston. Dkt. 106 at 1–2.
Torrential rains brought widespread flooding, leaving unprecedented scenes of loss and damaged
property. See id. Arbor Court was one such property. Id. A 15-building multi-family apartment
community built in 1979, Arbor Court offered 232 affordable housing units through the
Department of Housing and Urban Development’s (“HUD”) Section 8 program. Id. at 2, 40. Its
116 first-floor units, as well as those of neighboring apartment complexes unaffiliated with HUD,
flooded during the storm. Id. at 2, 5. Unsurprisingly, Harvey’s damage forced Arbor Court’s
tenants to leave their homes. Id. at 2. Yet, despite the damage, DMAC contends that the property
was “structurally sound” and alleges it “would be fully habitable today with interior repairs.” Id.
That is, had the City not denied it the permits necessary to restore the property. Id.
This was not the first time that Arbor Court had flooded. A little over a year before Harvey,
Arbor Court’s ground-floor units flooded during the 2016 Tax Day Flood, displacing tenants in
the process. Id. at 6. After that flood, DMAC sought to restore Arbor Court and requested repair
permits under the Ordinance. See id. The City “immediately” approved its request, and DMAC
began the work necessary to rehome Arbor Court’s displaced tenants. Id. Procuring these permits
was unexceptional because other apartment communities also flooded, and the City likewise
approved their permitting requests. See id.
Later that year, however, the City received a “drainage evaluation report.” Id. That report
recommended that the City “treat Arbor Court…as a ‘repetitively flooding property’” that the City
should purchase, clear off all structures or improvements, and re-purpose as a multi-use park and
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retention area. Id. DMAC was unaware of the drainage evaluation report when, following Harvey,
it requested repair permits from the City’s Floodplain Management Office to rehabilitate Arbor
Court. See id.
This time, the City denied its request. Id. at 2–3. On October 10, 2017, DMAC received
a letter explaining why. Id. at 7. The Floodplain Management Office concluded that “each of
Arbor Court’s fifteen buildings were ‘substantially damaged’” because “each of the buildings was
more than 50% damaged pursuant to FEMA cost estimation guidelines.” Id.
DMAC “appealed” the denial of its permits “to the appropriate City staff personnel,”
though it does not appear that DMAC appealed the denial to the General Appeals Board, at least
initially. Id. In support of its “appeal,” DMAC hired a licensed real estate appraiser to determine
the actual cash value of the buildings and a licensed architect to determine the cost of repair. Id.
Using their findings, DMAC claims it proved to City staff that the City’s calculations were
incorrect. Id. On March 28, 2018, DMAC alleges that Choyce Morrow (“Morrow”), Supervising
Engineer in the Office of the City of Engineer/Floodplain Management, sent a letter (“the Morrow
Letter”) stating that the City had “approved” DMAC’s appeal for Buildings 7–9 and 12–15. Id. at
8. Those buildings accounted for seven of the fifteen requested repair permits, and the Morrow
Letter stated that “the hold that had been placed in the City of Houston building permit system on
your address has been removed.” Id. In addition, the Morrow Letter notified DMAC that it could
“proceed with obtaining any City of Houston permits [it] need[ed] to complete the repairs to
Buildings 7–9 and 12–15.” Id. Furthermore, the Floodplain Management Office provided notices
regarding the permits related to those buildings with “approved” stamped on them. Id.
Meanwhile, DMAC continued to contest the City’s damage calculations for the remaining,
ostensibly unapproved, eight buildings. See id. After DMAC provided additional information,
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Morrow sent DMAC an e-mail (“the Morrow E-Mail”) on May 1, 2018, stating that “all buildings
will be classified as non-substantial.” Id. DMAC alleges that this notice, in turn, led it to believe
that it would receive all the requested permits. Id. Between the Morrow Letter, the seven permit
notices stamped “approved,” and the Morrow E-Mail, DMAC alleges it thought it could begin the
restoration work that Arbor Court needed. See id. at 8–9.
That assessment turned out to be misguided. When DMAC attempted “to retrieve physical
permits for the seven previously approved buildings,” the City refused to release them. Id. at 9.
DMAC next alleges that it learned that “the City was requiring either the Mayor’s Office or [the]
Director of Public Works to approve the issuance and release of any permits,” irrespective of its
successful appeal of the City’s “substantial damage” calculation. Id. According to DMAC, that
is because “the Mayor and Director of Public Works intervened in the permit application process
to enforce their own official policy that the holds they imposed upon [the] permits would not be
lifted or released.” Id. at 11. Under this alleged policy, “no permits would issue to allow
rehabilitation of the property following Hurricane Harvey without [the] approval [of the Mayor
and Director of Public Works], even if the criteria for obtaining the permits were fully satisfied.”
Id. at 14–15.
So, on June 8, 2018, DMAC sued the City. Id. at 9. At some point, then-City Attorney
Ronald Lewis communicated “the City’s interest in purchasing Arbor Court and confirmed the
City was ready, willing, and able to do so.” Id. Accordingly, shortly after DMAC initiated suit
against the City, the parties met and discussed a potential sale. Id. DMAC maintains that the
parties diligently exchanged information in hopes of striking a deal that would reflect “appraisals
of Arbor Court, using the income valuation approach at then current approved rental rates, but
assuming full, pre-Hurricane Harvey occupancy…and no damage to the property.” Id.
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Just over a month later, on July 17, 2018, the acting Director of Public Works sent DMAC
a letter advising it that the City Engineer, under various provisions of the Ordinance concluded
that there “is danger to both life and property due to flooding in the vicinity of the [Arbor Court]
site.” Id. at 11, 21. That letter referenced the 2016 drainage evaluation report that classified Arbor
Court as a “repetitively flooding property,” but failed to mention that the report also recommended
that the City buy, clear, and repurpose the property. Id. at 11–12.
DMAC states that the letter was the first notice DMAC received that the City Engineer
reviewed its permit applications. Id. at 12. The City Engineer allegedly never sought DMAC’s
comment or response to his proposed findings and decision during his review. Id. Nor did he
conduct a hearing. Id. Indeed, DMAC claims that a report of the study the City Engineer
conducted, showing what he reviewed, his findings, and how he arrived at them, “does not exist.”
Id. The absence of such a paper trail, DMAC concludes, is explained by the City Engineer’s failure
to “actually conduct a review or study of any kind.” Id. at 13. DMAC thus hypothesizes that the
City Engineer manufactured a reason to justify the City’s desire to deny the permits. See id.
This time, DMAC appealed to the General Appeals Board. Id. at 20. The General Appeals
Board held a hearing wherein the City Engineer testified that his denial decision was “a product of
supplemental data” considered pursuant to the Ordinance. Id. DMAC alleges that the City
Engineer “could not identify that supplemental data, whether it constituted supplemental as defined
in [the Ordinance], or when the same was available to the City and/or considered in connection
with the consideration of DMAC’s permit application.” Id. at 21. The General Appeals Board
upheld the denial. Id. at 20–21. Eventually, DMAC appealed to City Council, which denied
DMAC’s petition. Id. at 21.
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Though not spared by Harvey’s flooding, Arbor Court’s neighbors escaped DMAC’s fate
in the permitting process: the City issued them permits to repair their damaged ground-floor units.
Id. at 10, 40. One of those complexes, Imperial Oaks Apartments, built in 1977, is located on the
same street as Arbor Court and houses 265 units, approximately the same number of units as Arbor
Court. Id. at 40. A second complex, Biscayne at Cityview, is allegedly another neighboring
apartment community. Id. Built in 1978, Biscayne is larger than Arbor Court, with more than 500
apartments, but is also two-stories. Id. Neither Imperial Oaks nor Biscayne are affiliated with
HUD, but both offered rental rates comparable to those at Arbor Court, at between $500 and $800
per month. Id.
C. DMAC’s HUD Contract
DMAC’s relationship with HUD allegedly attracted the attention of certain City officials.
On September 12, 2017, the City’s Director of Housing and Community Development contacted
HUD “to ensure [that Arbor Court’s] units are not rehabbed,” because it was a “priority for both
[him] and the Mayor that low-income families not be placed once again in the way of storm water
given that Arbor Court is in the floodway.” Id. at 15. Those preferences were confirmed by the
City’s Chief Development Officer, who relayed to HUD that, at the Mayoral level, the City was
withholding permits while it evaluated the issue of repetitively flooding properties. Id. DMAC
further alleges that another City official likewise confirmed that “the Mayor was aware of the hold
on permits sought by DMAC.” Id. at 15–16. And, on October 2, 2017, a City Public Works
employee sought to inform the City’s Public Works Director of a study—potentially the 2016
drainage evaluation report—that recommended buying out Arbor Court, “as we have put a hold
on selling any permits in the area temporarily (per her direction and the Mayor’s).” Id. at 16, 24.
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On September 1, 2018, the City amended its Floodplain Ordinance. See Dkt. 108. The next
month, the City pulled out of purchasing discussions with DMAC. Dkt. 106 at 16. Then, HUD
formally notified DMAC that it was in default of its Housing Assistance Payment (“HAP”)
contract with the agency because Arbor Court’s first-floor units remained “damaged, unrepaired,
and uninhabitable.” Id. at 17. HUD thus demanded that DMAC obtain repair permits and repair
the units, which DMAC could not do because the City “continued its refusal to release usable
permits that would allow for the repair of any of the buildings.” Id. Consequently, HUD
“removed” the HAP contract from Arbor Court. Id. DMAC alleges that its “loss of the HAP
contract”—purportedly valued at $11 million—“is permanent.” Id. at 39–40.
Because Arbor Court could no longer operate as a HUD-subsidized affordable housing
community, its cashflow dried up. Id. at 17. DMAC claims that the Arbor Court property can no
longer be operated as a multifamily apartment complex—government subsidized or otherwise—
because DMAC cannot sell the property “to a third party for a reasonable market value as if
repaired, because it cannot be repaired and used.” Id. at 17–18, 37. As a result, DMAC asserts
that the City’s withholding of permits “has virtually eliminated the economic viability and
beneficial use of the property.” 1 Id. at 36. Moreover, because Arbor Court generates no income,
DMAC cannot pay the “substantial” sums it owes on its mortgage. Id. at 18.
D. DMAC’s Causes of Action
Based on these alleged facts, DMAC brings seven causes of action. First, it seeks a
declaratory judgment pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. §§ 2201–02,
1
Despite “render[ing] [Arbor Court] effectively valueless,” the City pursued the collection
of ad valorem taxes from DMAC based on an assessment that valued the property at more than
$12.2 million, though it since reduced the tax to reflect Arbor Court’s unused land value of $1.4
million. Dkt. 106 at 18, 39.
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and its state equivalent, the Uniform Declaratory Judgment Act, TEX. CIV. PRAC. & REM. CODE
§§37.001–37.006. Dkt. 106 at 23. DMAC’s thirty-five declaratory judgment claims can be
roughly organized into three categories: claims interpreting the Ordinance; claims that the
Ordinance is unconstitutional; and claims that the City wrongfully applied the Ordinance to
DMAC’s permitting applications.
Regarding its interpretation claims, DMAC requests a judgment declaring that:
1. The Ordinance in effect at the time of the official decisions complained of, provides a
regulatory system to monitor the issuance of permits to reduce the likelihood that
development within the city will increase the dangers of flooding. Dkt. 106 at 23.
2. The Ordinance does not allow for the retroactive regulation of land use, that does not
involve a material change in the structures or the development of the same. Id.
3. The Ordinance is intended to prevent only new proposed uses of property that are
dangerous to health, safety or property in times of flood, at the time of initial
construction. Id.
4. The Ordinance cannot be read to allow, via denial of requested permits, the prohibition
of a use of the property in question that was permitted at the time of its initial
construction, years after that initial construction, and in particular when the permits
requested seek only to repair damage, without altering the initial construction status
(i.e., the restorative construction will not change or expand the building structure,
footprint, size or location). Id.
5. Chapter 19 does not authorize a Mayoral or Director of Public Works mandated hold
upon the release of permits. Id. at 25.
6. The continued, particular specific use of a property for its intended purposes or the
demographics of its users, are not factors that can direct whether a repair permit should
issue, under the Ordinance. Id.
7. Ordinance Sections 19-1 (a)-(b) do not authorize post initial construction refusals of
permits to repair to their pre-damaged condition, or repair improvements upon
properties that have long been located on a site prone to a risk of flooding. Id.
8. Ordinance Section 19-19 does not authorize the denial of permits to repair already
developed properties and improvements, to restore them to their pre-damage condition
with no other material changes. Id.
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9. Neither Section 19-2, 19-17 nor 19-19 of the Ordinances authorize or require the
submission of NFIP proof of loss statements as a condition to obtaining a repair permit,
as the same are not relevant to a substantial damage determination. Id. at 25–26.
Regarding its constitutional claims, DMAC requests a judgment declaring that:
10. The Ordinance cannot be used to cause or effectuate a taking of property, in the form
of a regulatory prohibition of its use, without corresponding just compensation being
paid to the property owner who suffers such a prohibition and loss of use. Id. at 24.
11. The Ordinance cannot be used to leverage an uncompensated re-purposing of the
property, as suggest by Officials in the HPC-PWE office since at least October 2, 2017,
when Bob Oakes wrote an email confirming that the LAN study cited in the July 17,
2018 permit denial letter suggested “buying out 2 complexes to use as a detention for
the area” (expressly identifying Arbor Court as one of those 2 complexes), and
explaining that “we have put a hold on selling any permits in the area temporarily (as
per her direction and the Mayor). Id.
12. The Ordinance “unconstitutionally vests in the City Engineer the discretion to prohibit
permitted uses of a property without establishing a legitimate public purpose and
without providing constitutional due process to the landowner in the form of just
compensation. Chapter 19 as written and applied in this manner and in this case
authorizes an unconstitutional or unlawful taking of private property in violation of the
Texas and United States constitutions, without just compensation.” Id. at 26–27 ¶ 85.
13. The City Engineer’s July 2018 denial of the permits was not the actual or reasonable
implementation of a health and safety requirement dependent upon specific and
necessary Chapter 19 findings; and instead it was merely the effectuation of a
previously planned prohibition via official decision of the Mayor and/or Director of
Public Works, of the continuation of the subject property’s permissible and longtime
use that targeted Arbor Court, and that was not applied to any other property in
Houston, in violation of the Equal Protection Clause of the United States Constitution.
Id. at 27–28 ¶ 88.
14. The Board’s and the City Council’s refusal to reverse the alleged City Engineer permit
denial decision in this case constitutes an official ratification of an unlawfully made
official decision and governmental action made and undertaken pursuant to an
unconstitutional ordinance as written and applied. Id. at 26 ¶ 84.
Regarding its wrongful application claims, DMAC asks the court to declare that:
15. The denial of permits that is the subject of this case is grounded in Section 19-19 but
does not assert any failure of DMAC to comply with any applicable provisions of the
Ordinance if the proposed repair construction occurs, as proposed, via DMAC’s permit
applications. Instead, the denial of permits purportedly employs the standards of
Article III which on its face, apply to new construction, and substantial improvements
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of existing structures, and not repairs of damages to structures already located in a
floodway area or special flood hazard area. See, §§ 19-31 and 19-32, 19-43(a) (“the
general restrictions stated herein shall not apply to a repair or renovation that is not a
substantial improvement”). According to § 19-2, “Substantial Improvement” shall
mean any reconstruction, rehabilitation, addition or other improvement of a structure,
the cost of which equals or exceeds 50 percent of the market value of the structure
before the start of construction of the improvement.” “Cost of improvement” shall
mean the cost that increases the value of the structure based on a signed architect’s or
engineer’s estimate. Id. at 23–24.
16. The permits sought by DMAC to reconstruct or repair damage to the Arbor Court
buildings do not involve “substantial improvements,” or improvements that increase
the pre-construction value. Id. at 24.
17. Despite the requirements of § 19-19(a), the official decision denying DMAC’s
requested permits fails to show, explain or establish that the issuance of the permits
could result in any of the conditions or circumstances set forth in § 19-19(a)(1-5) to
any extent that differs from those conditions or circumstances as they previously
existed, before repairs became necessary. Id.
18. Nothing about the requested permits or the proposed construction to repair damage,
will cause any increase in the dangers of flooding, and the City and City Engineer have
failed to prove otherwise, and cannot prove otherwise. Id.
19. Chapter 245 of the Texas Local Government Code mandates that the City was required
to consider the approval, disapproval, or conditional approval of DMAC's applications
for permits solely on the basis of any orders, regulations, ordinances, rules, expiration
dates, or other properly adopted requirements in effect at the time the original
application for the permit was filed for review for any purpose, including review for
administrative completeness. Id.
20. The City cannot rely upon alleged new information, to retroactively deny a permit
application, especially after the stated requirements for obtaining the permit –
establishing that the damages structures are not substantially damaged, have been
satisfied. Id. at 24–25.
21. The Mayor and Director of Public Works of the City promulgated and initiated an
official policy not set forth in Houston’s Ordinances, targeting DMAC and Arbor
Court, pursuant to which building repair permits for Arbor Court will never issue, in
contravention of the plain terms of Chapter 19 and despite DMAC’s compliance with
its plain terms, thereby entitling DMAC to receive permits for the repair of all of its
buildings, regardless of whether used as a HUD subsidized or non-HUD subsidized
apartment community. Id. at 25.
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22. In contravention of the Ordinance, the Mayor and the Director of Public Works of the
City directly intervened in the Arbor Court permit application process to ensure that
notwithstanding DMAC’s compliance with the published requirements of Chapter 19,
and in contravention of those requirements, permits would never be released to DMAC
so as to prevent rehabilitation of Arbor Court following Hurricane Harvey, for the
purpose of preventing low income residents requiring HUD provided rental assistance
to continue to live at Arbor Court. Id.
23. The permit denial decision has occurred in violation or contravention of DMAC’s
vested rights under Chapter 245 of the Texas Local Government Code as established
by the issuance of prior development permits for Arbor Court, including a rehabilitation
permit allowing for all buildings to be repaired in 2016, after sustaining almost identical
damage. Id.
24. The City wrongfully refused to complete the Substantial Damage Determination appeal
process, and to issue permits, because it knew none of the buildings at Arbor Court
were substantially damaged, and that the City needed to ground its refusal to issue
permits in some other stated reason. Id.
25. The apparent decision to deny DMAC its permits, to the extent based upon a failure to
provide NFIP proof of loss statements, is impermissible, especially because the City
knew no such proof of loss statements existed in the form nevertheless demanded.
Id. at 26.
26. The July 17, 2018 permit denial decision arbitrarily and capriciously concludes that
there is danger to both life and property due to flooding in the vicinity of the Arbor
Court site justifying a denial of repair permits, and it is a pretext to circumvent the
effects of DMAC establishing that all buildings at Arbor Court were not “Substantially
Damaged.” Id.
27. The permit denial decision fails to show that the issuance of the requested permits, or
performance of the repair work that necessitates such permits, will cause any increase
in the dangers of flooding. Id.
28. The requested permits are expressly exempt from the requirements of Article III of the
Ordinance. Id.
29. The decision by the City Engineer to prohibit the repair and use of the subject property
and all of its buildings by denying permits is the imposition of the requirements of the
Ordinance that constitutes an exceptional hardship to DMAC, as there is no method
whereby DMAC may obtain permits to repair and use its property, as it was required
by HUD to do, and as the City historically had permitted it to. Id.
30. The proposed repair construction set forth in DMAC’s permit requests that have been
denied will have no effect whatsoever on the flood levels within the City of Houston,
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and the issuance of the requested permits will not cause any increase in flood dangers
at the property or elsewhere. Id.
31. The decision to prohibit the use of DMAC’s property was not actually made by the City
Engineer in connection with the Hurricane Harvey event, or for legitimate Chapter 19
reasons. The decision to prohibit DMAC’s use of the property as an apartment complex
or, more specifically, as an affordable apartment complex was made by the Mayor, the
Director of Public Works, and certain senior City Officials prior to the Hurricane
Harvey event. Id. at 27 ¶ 86.
32. The stated reasons for the final permit denial decision, putatively by the City Engineer,
are pretextual, and establish the City’s violation of Chapter 245 of the Texas Local
Government Code in failing to consider the approval, disapproval or conditioned
approval of DMAC’s permit applications based solely on ordinances and rules in effect
at the time of the consideration and denial of the same. Id. ¶ 87.
33. The imposition of the Ordinance’s health and safety requirements constitute an
exceptional hardship upon DMAC. Id. at 28 ¶ 89.
34. The imposition of the Ordinance’s health and safety requirements to the particular
circumstances would be unjustified in light of a demonstrated good and sufficient
cause—i.e., the loss of DMAC’s ability to continue providing longstanding affordable
housing at the Arbor Court property via the same structures in which such housing had
been provided at that location, for decades. Id. ¶ 90.
35. The imposition by the City of the Ordinance’s health and safety requirements
necessitated a variance pursuant to Section 19–22(b)(1-3). Id. ¶ 91.
In addition, DMAC brings five constitutional claims under 42 U.S.C. § 1983. First, DMAC
alleges that the City’s withholding of the repair permits effected an unconstitutional taking without
just compensation in violation of the Fifth Amendment. The next three claims involve the City’s
conduct during the permit request process, which DMAC alleges violated its substantive due
process, procedural due process, and equal protection rights under the Fourteenth Amendment of
the U.S. Constitution. DMAC’s fifth and final constitutional claim invokes the Contracts Clause.
Id. at 35–42. Finally, DMAC brings state law claim of unconstitutional takings, violations of due
process, and tortious interference. Id. at 43–44.
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STANDARD OF REVIEW
The City moves to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and
12(b)(6). Rule 12(b)(1) authorizes dismissal of an action for lack of subject matter jurisdiction.
Fed. R. Civ. P. 12(b)(1). Federal courts are ones of limited jurisdiction. Howery v. Allstate
Insurance Co., 243 F.3d 912, 916 (5th Cir. 2001), citing Kokkonen v. Guardian Life Insurance Co.
of America, 511 U.S. 375, 377, 114 S.Ct. 1673 (1994). A federal court's decision to hear a case
that is beyond its subject matter jurisdiction is not a “mere technical violation,” but rather “an
unconstitutional usurpation” of power. Charles Alan Wright and Arthur R. Miller, Federal
Practice and Procedure § 3522 (West 3d ed June 2021 update). Because it “spring[s] from the
nature and limits of the judicial power of the United States and is inflexible and without exception,”
subject matter jurisdiction is a “threshold” matter. Steel Co. v. Citizens for a Better Environment,
523 U.S. 83, 94–95, 118 S.Ct. 1003 (1998) (internal quotations omitted).
Review of whether a complaint fails to state a claim under Rule 12(b)(6) involves a
different set of considerations. A 12(b)(6) motion to dismiss should be granted only if the
complaint omits “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic
Corp. v. Twombly, 127 S. Ct. 1955, 1969 (2007). Because this is such a low bar, motions to dismiss
under Rule 12(b)(6) are viewed with disfavor and are rarely granted. Priester v. Lowndes County,
354 F.3d 414, 418 (5th Cir. 2004). In analyzing a motion to dismiss under Rule 12(b)(6), the
court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.
Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004). The
court’s review is limited to the allegations in the complaint and to those documents attached to a
motion to dismiss to the extent that those documents are referred to in the complaint and are central
to the claims. Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004).
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DISCUSSION
A.
Declaratory Judgment Claims
It is always dangerous when lawyers try to do math. But, by the court’s count, DMAC
brings thirty-five declaratory judgment claims touching upon the Ordinance’s interpretation,
application, and constitutionality. See Dkt. 106 at 23. The City contends that DMAC’s claims
against it should be dismissed for lack of subject-matter jurisdiction under Rule 12(b)(1) and
failure to state a claim under Rule 12(b)(6). Dkt. 108. When a motion to dismiss is predicated on
both Rule 12(b)(1) and (6), the court first resolves jurisdictional questions before addressing the
merits of the claim under Rule 12(b)(6)’s standards. See Ramming v. United States, 281 F.3d 158,
161 (5th Cir. 2001).
1. Motion to Dismiss Pursuant to Rule 12(b)(1)
Under the Declaratory Judgment Act (“DJA”), a court “may declare the rights of and other
legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201. 2 The DJA
offers the court broad discretion to decide whether it will decline the party’s request for a
declaratory judgment, provided it explains its actions. Mission Ins. Co. v. Puritan Fashions Corp.,
706 F.2d 599, 601 (5th Cir. 1983). However, both Article III of the Constitution and the DJA
cabin this discretion to claims presenting an “actual controversy.”
28 U.S.C. § 2201(a);
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126–27, 127 S. Ct. 764 (2007). If a case fails
to present such a controversy “at the time the complaint was filed,” the court must dismiss the
claim. Vantage Trailers, Inc. v. Beall Corp., 567 F.3d 745, 748 (5th Cir. 2009). Controversies
2
The Texas Declaratory Judgment Act, Tex. Civ. Prac. & Rem. Code § 37.001, et seq., “is
a procedural, and not a substantive, provision and therefore does not apply to actions in federal
court. Vera v. Bank of America, N.A., 569 F. App’x 349, 352 (5th Cir. 2014) (citing Utica Lloyd’s
of Tex. v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998)).
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must be ripe, which is to say, they may not be moot. See Dailey v. Vought Aircraft Co., 141 F.3d
224, 227 (5th Cir. 1998). For the purposes of declaratory relief, these requirements ensure the
continuation of a “substantial controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune,
Inc., 549 U.S. at 127.
Here, the parties disagree as to whether DMAC has standing to seek declaratory relief to
redress past injuries, specifically those DMAC incurred under the prior permitting regime. They
likewise disagree over whether the amended ordinance that became effective on September 1, 2018
mooted DMAC’s declaratory challenge. And they both retread old ground by contesting the
ripeness of DMAC’s challenge. See DM Arbor Court, Ltd. v. City of Houston, 988 F.3d 215 (5th
Cir. 2021).
a. Standing
The City contends that DMAC lacks “standing for its declaratory judgment claims because
they are based on past events and are not forward looking.” Dkt. 108 at 14. The City notes that
the ordinance under which DMAC was denied repair permits is no longer operational because the
City Council amended Chapter 19 after this litigation commenced. Id. at 14–15. It also observes
that DMAC has failed to apply for any permits under the current regime. See id. Thus, from the
City’s perspective, DMAC’s declaratory relief claim lacks the risk of future injury necessary to
merit declaratory relief.
With respect to Article III’s standing doctrine, “[r]equests for injunctive and declaratory
relief implicate the intersection of redressability and injury-in-fact requirements.” Stringer v.
Whitley, 942 F.3d 715, 720 (5th Cir. 2019). For declaratory relief, injuries must be continuous or
threatened because “declaratory relief ‘cannot conceivably remedy any past wrong.’” Id. (quoting
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Citizens for a Better Env’t, 523 U.S. at 103). “A plaintiff can meet the standing requirements when
suit is brought under the [DJA]…by establishing ‘actual present harm or a significant possibility
of future harm.’” Bauer v. Texas, 341 F.3d 352, 357 (5th Cir. 2004). Because declaratory relief
is, as the City notes, “forward looking,” see Kinnison v. City of San Antonio, 699 F. Supp. 2d 881,
891 (W.D. Tex. 2010), “a plaintiff must allege facts from which it appears there is a substantial
likelihood that he will suffer injury in the future.” Bauer, 341 F.3d at 358. That future injury must
be “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.”
Stringer, 942 F.3d at 720–21 (citing Susan B. Anthony List v. Driehaus, 573 U.S. 149, 158, 134
S.Ct. 2334 (2014). In short, “[p]ast exposure to illegal conduct does not in itself show a present
case or controversy…if unaccompanied by any continuing, present adverse effects.” City of Los
Angeles v. Lyons, 461 U.S. 95, 103 S.Ct. 1660 (1983).
Plaintiff certainly alleges “continuing, present adverse effects.” See Lyons, 461 U.S. at 95.
DMAC cannot generate any rental income from Arbor Court because it is uninhabitable, it is
uninhabitable because it cannot be repaired, and it cannot be repaired because the City refuses to
issue restoration permits. Dkt. 106 at 17, 36–37. Moreover, “because the property is no longer
operable for the purposes for which the loan was made,” DMAC cannot repay a lender “substantial
additional sums” required under its mortgage. Id. at 18.
Standing is also judged “[at] the time [the] suit is filed.” Energy Mgmt. Corp. v. City of
Shreveport, 397 F.3d 297, 302 n.3 (5th Cir. 2005); see also Reagan Nat'l Advert. of Austin, Inc. v.
City of Cedar Park, No. 20-50125, 2021 WL 3484698, at *5 (5th Cir. Aug. 6, 2021). That
DMAC’s past injuries have resulted in such enduring effects is sufficient for the purposes of
Article III standing. However, were there any doubt, DMAC alleged future injuries at the time of
suit that were neither “conjectural [n]or hypothetical.” See Stringer, 942 F.3d at 720–21. When
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DMAC initiated suit on June 8, 2018—several months before the new floodplain ordinance would
go into effect—it sought injunctive relief against the City that would permit it to repair Arbor
Court. Dkt. 1 at 7–8. In support of its claim, DMAC alleged that the City would continue to hinder
its ability to restore Arbor Court to suppress its value in the event it later sought to purchase it. Id.
at 4. In addition, DMAC alleged that the City would continue to frustrate its contractual
obligations to HUD, thereby prolonging its purported contractual injury, with the same goal of
suppressing Arbor Court’s value. See id. at 8. These allegations of a future injury satisfy the
jurisdictional standards for Article III standing.
b. Mootness
However, the question remains whether the City Council’s enactment of an amended
floodplain ordinance after the commencement of suit mooted the controversy. Whereas “standing
is to be determined as of the commencement of the suit,” Lujan v. Defeneders of Wildlife, 504 U.S.
555, 571–72, 112 S. Ct. 2130 (1992), mootness “accounts for such events that occur during the
litigation.” Pool v. City of Houston, 978 F.3d 307, 313 (5th Cir. 2020). “A controversy becomes
moot [when], as a result of intervening circumstances, there are no longer adverse parties with
sufficient legal interests to maintain the litigation.” Resident Council of Allen Parkway Vill. v.
U.S. Dep't of Hous. & Urban Dev., 980 F.2d 1043, 1048 (5th Cir. 1993) (citing Mills v. Green,
159 U.S. 651, 653, 16 S. Ct. 132 (1859)). A controversy is moot “when the issues presented are
no longer ‘live’ [or when] the parties lack a legally cognizable interest in the outcome.” Id. (citing
Powell v. McCormack, 395 U.S. 486, 496, 89 S. Ct. 1944 (1969)). Generally, “[t]here is little
difficulty in finding an actual controversy if all of the acts that are alleged to create liability already
have occurred.” 10B Fed. Prac. & Proc. Civ. § 2757 (4th ed.).
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A question of mootness arises where, as here, a challenged ordinance is repealed or
modified after the initiation of litigation. See McCorvey v. Hill, 385 F.3d 846, 849 (5th Cir. 2004)
(“Suits regarding the constitutionality of statutes become moot once the statute is repealed.”). In
the event of the former, “repeal of a challenged statute is one of those events that makes it
‘absolutely clear that the allegedly wrongful behavior…could not reasonably be expected to
recur.’” Citizens for Responsible Gov't State Pol. Action Comm. v. Davidson, 236 F.3d 1174, 1182
(10th Cir. 2000); see also Flanigan's Enterprises, Inc. of Georgia v. City of Sandy Springs, Ga.,
868 F.3d 1248 (11th Cir. 2017) (city’s repeal of an unenforced, disavowed ordinance banning the
sale of sex devices mooted controversy). But, for mootness purposes, the justiciability analysis
turns not on whether an ordinance is still in effect but “whether the facts alleged, under all the
circumstances, show that there is a substantial controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”
MedImmune, Inc., 549 U.S. at 127.
The Fifth Circuit’s recent decision in Reagan National Advertising of Austin, Inc. v. City
of Austin illustrates these principles. See 972 F.3d 696 (5th Cir. 2020). There, the City of Austin
enacted an ordinance regulating the use of signs. Id. at 699. The plaintiffs were denied a permit
and subsequently sued the city seeking a declaratory judgment that its sign code was
unconstitutional. Id. at 699–701. Soon thereafter, the city amended the sign code, changing some
of the challenged provisions but retaining others. Id. at 700. Plaintiffs argued that their claims
were not moot because Texas law, specifically, Section 245002(a)(1) of the Texas Local
Government Code, “require[d] [its] permits applications be evaluated under the law as it existed
at the time they were submitted.” Id.at 701 (quoting Reagan Nat. Advert. of Austin, Inc. v. City of
Cedar Park, 387 F. Supp. 3d 703, 706 n. 3 (W.D. Tex. 2019)). The Fifth Circuit agreed and, noting
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that plaintiffs sought permits under the prior ordinance, “evaluate[d] the constitutionality of the
previous version.” Id. at 701.
Reagan National instructs just the opposite of what the City maintains—that DMAC’s
claims “are moot because they are based on past conduct and because the City later amended
Chapter 19.” Dkt. 108 at 24. Like Reagan National, some of DMAC’s declaratory claims touch
upon the constitutionality of a previously enacted ordinance. See supra at 10. Both ordinances
were amended after the initiation of suit, and both sets of plaintiffs invoked Section 245002(a)(1)
of the Texas Local Government Code for the proposition that their permit applications had to be
evaluated under the “rules in effect at the time.” Compare Reagan National, 972 F.3d at 701, with
Dkt. 106 at 27. Accordingly, “the rule of orderliness resolves this jurisdictional issue.” Reagan
Nat'l Advert. of Austin, Inc. v. City of Cedar Park, No. 20-50125, 2021 WL 3484698, at *2, n. 3
(5th Cir. Aug. 6, 2021).
c. Ripeness
The City also argues that DMAC’s claims are unripe “to the extent [it] may purport to
somehow seek declaratory relief with respect to the now-current amended version of Chapter 19,”
under which DMAC has not sought any permits. Dkt. 108 at 24. The City declined to locate this
concern in any specific provision of DMAC’s third amended complaint. See id. The court has
thoroughly reviewed the third amended complaint and is satisfied that DMAC is not seeking a
declaratory judgment as to the current ordinance. See Dkt. 106 at 22 ¶ 81, 23 ¶ 83, 26 ¶ 84, 27 ¶
85, 32 ¶ 102. Accordingly, the City’s motion to dismiss pursuant to Rule 12(b)(1) is DENIED.
2. Motion to Dismiss Pursuant to Rule 12(b)(6)
The City also moves to dismiss DMAC’s declaratory relief claims pursuant to Rule
12(b)(6). The court has broad discretion in determining whether to entertain a declaratory
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judgment action under 28 U.S.C. § 2201. Winton v. Seven Falls Co., 515 U.S. 277, 287, 115 S.
Ct. 2137 (1995) (noting that the Declaratory Judgment Act is “an enabling Act, which confers
discretion on the courts rather than an absolute right upon the litigant.”). Although a court may
not dismiss a request for declaratory relief “on the basis of whim or personal disinclination...the
court may consider a variety of factors in determining whether to decide a declaratory judgment
suit.” Rowan Cos., Inc. v. Griffin, 876 F.2d 26, 28–29 (5th Cir. 1989).
DMAC’s declaratory judgment claims can be broadly organized as follows:
1. Claims interpreting the Ordinance;
2. Claims that the Ordinance is unconstitutional; and
3. Claims that the City and its various components wrongfully applied the Ordinance.
In its motion to dismiss, the City argued that the constitutional claims DMAC housed in its
declaratory action were duplicative of those found elsewhere in the third amended complaint. See
Dkt. 108 at 13–16. The court ordered supplemental briefing to address whether some of DMAC’s
claims counseled in favor of abstention.
Dkt. 126.
After, the City argued that DMAC’s
interpretation and application claims merit abstention. Dkt. 128 at 2 ¶ 3, 3–4 ¶ 2. The court thus
considers whether DMAC’s declaratory claims should be dismissed because they are duplicative
of its constitutional claims and if abstention doctrines apply to DMAC’s interpretation and
application claims.
a. Duplicative Claims
The Fifth Circuit has cautioned that courts “should avoid duplicative...litigation where
possible.” Sherwin-Williams Co. v. Holmes Cty., 343 F.3d 383, 391 (5th Cir. 2003). If a request
for a declaratory judgment adds nothing to an existing lawsuit, it need not be permitted. See PanIslamic Corp. v. Exxon Corp., 632 F.2d 539, 546 (5th Cir. 1980) (affirming refusal to allow leave
to add claims that were adequately raised in the original complaint); Mandry v. Fina Oil & Chem.
Co., 44 F.3d 1004, 1994 WL 733494 at *2 (5th Cir. 1994) (unpublished) (reversing award of
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declaratory relief where “[t]he declaratory judgment does not declare any significant rights not
already at issue in the contract dispute.”).
In this circuit, “district courts...regularly reject declaratory judgment claims seeking the
resolution of issues that are the mirror image of other claims in a lawsuit.” Great Am. Ins. Co. v.
Goin, No. 3:15-cv-75-L, 2017 WL 4238698, at *4 (N.D. Tex. Sept. 25, 2017); see also Xtria LLC
v. Tracking Sys., Inc., No. 3:07-CV-0160, 2007 WL 1791252, at *3 (N.D. Tex. Jun. 21, 2007)
(dismissing declaratory judgment action under Rule 12(b)(6) where it duplicated an existing
breach of contract claim); Assistmed, Inc. v. Conceptual Health Sols., Inc., No. 3:05-CV-0880,
2006 WL 3691003, at *17 (N.D. Tex. Dec. 14, 2006) (same); Hanson Aggregates, Inc. v. Roberts
& Schaefer Co., No., 2006 WL 2285575, at *3 (N.D. Tex. Aug. 9, 2006) (dismissing counterclaim
for declaratory judgment while noting that “a motion for declaratory judgment that merely restates
a party’s defenses is insufficient”); Albritton Props. v. Am. Empire Surplus Lines, No. 3:04-CV2531, 2005 WL 975423, at *2 (N.D. Tex. Apr. 25, 2005) (granting Rule 12(b)(6) motion
dismissing counterclaim for declaratory judgment where the disputed issues were already pending
before the court); Kogul v. Xspediou Mgmt. Co., No. 3:04-CV-2518, 2005 WL 1421446, at * 4
(N.D. Tex. Jun. 1, 2005) (dismissing declaratory actions that sought resolution of matters already
to be resolved in the ongoing lawsuit).
This practice accords with the “[t]wo principal criteria” that guide the court’s decision of
whether to issue a declaratory judgment: whether (1) “the judgment will serve a useful purpose in
clarifying and settling the legal relations in issue” and (2) whether “it will terminate and afford
relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” Env't Texas
Citizen Lobby, Inc. v. ExxonMobil Corp., 824 F.3d 507, 523 (5th Cir. 2016). Simply put,
declaratory actions serve no “useful purpose” when they duplicate other legal claims. See id.
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DMAC asserts five constitutional claims—violations of the Takings Clause, substantive
due process, procedural due process, the Equal Protection Clause, and the Contract Clause—and
its declaratory judgment claims duplicate most. Consider first that DMAC seeks a declaration that
the Ordinance “cannot be used to cause or effectuate a taking of property.” Dkt. 106 at 24; see id.
at 24, 26–27 ¶¶ 84–85. This declaratory claim does little more than mirror the gravamen of
DMAC’s Takings claim: “the City’s regulatory actions...have absolutely interfered with Plaintiff’s
right to use and enjoy its property, and constitute regulatory action gone too far” because “the
requirements of Chapter 19 that facially would justify the denial of repair permits were not satisfied
by the City.” Id. at 36 ¶ 115.
Or consider that DMAC seeks a declaration that the Ordinance “unconstitutionally vests in
the City Engineer the discretion to prohibit permitted uses of a property without establishing a
legitimate public purpose and without providing constitutional due process to the landowner in the
form of just compensation.” Id. at 27 (emphasis added). This, too, merely simplifies and restates
DMAC’s substantive due process and procedural due process claims, namely that:
[t]he City, initially through official action of its Mayor and Director of Public
Works and subsequently through official action of its City Engineer, has
proximately caused the wrongful deprivation of DMAC’s constitutional rights to
procedural due process, substantive due process, and equal protection, to
wrongfully deny DMAC permits and to deprive DMAC of its establish right to
repair its property.
Id. at 29–30 ¶ 96.
The same is true with respect to DMAC’s equal protection claim.
In that claim’s
declaratory counterpart, DMAC asks the court to declare that:
[t]he City Engineer’s July 2018 denial of the permits was not the actual or
reasonable implementation of a health and safety requirement dependent upon
specific and necessary Chapter 19 findings; and instead it was merely the
effectuation of a previously planned prohibition via official decision of the Mayor
and/or Director of Public Works, of the continuation of the subject property’s
permissible and longtime use that targeted Arbor Court, and that was not applied to
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any other property in Houston, in violation of the Equal Protection Clause of the
United States Constitution.
Id. at 27–28 ¶ 88 (emphasis added). The declaration DMAC seeks does little more than repeat its
equal protection claim, which rests on the allegation that “the City intentionally treated DMAC
differently than other similarly situated property owners.” Id. at 40 ¶ 133.
Because DMAC’s claims regarding the constitutionality of the Ordinance and the
permitting process it endured repeat the same constitutional claims located elsewhere in the third
amended complaint, the City’s motion to dismiss DMAC’s declaratory judgment claims pursuant
to Rule 12(b)(6) is GRANTED with respect to these claims.
b. Remaining Claims
The remainder of DMAC’s declaratory judgment claims, by and large, do not duplicate the
claims found elsewhere in its third amended complaint. Rather, they ask the court for various
declarations interpreting the Ordinance and determinations that the City improperly applied it to
DMAC’s permitting request. See Dkt. 106 at 23–28. These interpretive and application-based
requests represent the vast majority of DMAC’s thirty-five declaratory claims. See id. But in
asking the court to declare, for example, “that the imposition by the City of [the Ordinance’s]
health and safety requirements necessitated a variance,” (Dkt. 106 at 28 ¶ 91), DMAC enlists the
federal judiciary to sit “as a zoning board of appeals.” See Koerner v. Garden Dist. Ass'n, 78 F.
App'x 960, 964 (5th Cir. 2003). The Fifth Circuit has “long insisted that review of municipal
zoning is within the domain of the states, the business of their own legislatures, agencies, and
judiciaries, and should seldom be the concern of federal courts.” See Shelton v. City of Coll.
Station, 780 F.2d 475, 477 (5th Cir. 1986). Wary of aggrandizing its authority through the DJA,
the court ordered supplemental briefing from the parties to address whether abstention was
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appropriate in this case. The issue being fully briefed, the court concludes that abstention is
appropriate for the remainder of DMAC’s non-duplicative declaratory relief claims.
Federal courts have a “virtually unflagging obligation...to exercise the jurisdiction given
them” by Congress. Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96
S. Ct. 1236 (1976). But abstention is sometimes appropriate where cases feature either “difficult
questions of state law bearing on policy problems of substantial public import whose importance
transcends the result in the case then at bar,” or if “adjudication in a federal forum would be
disruptive of state efforts to establish a coherent policy with respect to a matter of substantial policy
concern.” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 728, 116 S.Ct. 1712 (1996) (internal
quotations omitted). Named after the Supreme Court’s decision in Burford v. Sun Oil Company,
the Burford abstention doctrine relaxes the court’s otherwise unremitting duty to hear cases that
satisfy these narrow criteria. 319 U.S. 315, 333–34 63 S.Ct. 1098 (1943).
Because abstention is “the exception, not the rule,” the court pauses to note the doctrine’s
origins and justifications. See Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 236, 104 S.Ct.
2321 (1984) (internal quotations omitted). In Burford, Sun Oil Company challenged the validity
of a Texas Railroad Commission order granting Burford a permit to drill several oil wells on land
in east Texas. 319 U.S. at 317. Noting that the case was arguably an “‘appeal’ from the
Commission,” the Supreme Court observed that Sun Oil’s challenge implicated “part of the general
regulatory system devised for the conservation of oil and gas in Texas, an aspect of ‘as thorny a
problem as has challenged the ingenuity and wisdom of legislatures.’” Id. at 317–18 (citation
omitted).
Part and parcel with other land use regulations, Texas’ administrative processes involved
“novel” and “complex[]” legal issues that often intersected with the state’s localized geology. See
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id. at 320, 323. And given the sophisticated system of judicial review the state legislature
established, the Supreme Court determined: “Insofar as we have discretion to do so, we should
leave these problems of Texas law to the State court where each may be handled as ‘one more item
in a continuous series of adjustments.’” Id. at 332. It concluded that “sound respect for the
independence of state action requires the federal equity court to stay its hand” where “the state
provides a unified method for the formation of policy and determination” and offers “expeditions
and adequate” judicial review of its regulators’ decisions. Id. at 333–34.
The Burford doctrine matured some years later in Alabama Public Service Commission v.
Southern Ry. Co., 341 U.S. 341, 71 S. Ct. 762 (1951). There, “[i]nstead of pursuing its right of
appeal to the state courts,” a railroad operator appealed a permit denial from the Alabama Public
Service Commission (the “Commission”) directly to the federal court, where it alleged the denial
constituted an uncompensated taking under the Fourteenth Amendment. Id. at 343. The district
court proceeded to make its own factual findings, voided the Commission’s order, and entered
injunctive relief. Id. at 333–34. On appeal, the railroad operator defended the district court’s
judgment, arguing that any “administrative order ripe for judicial review in the state courts” that
confers federal jurisdiction through “the presence of diversity of citizenship or a federal question
opens the federal courts to litigation as to the validity of that order,” provided “no action involving
the same subject matter” was pending in the state courts. Id. at 345. But, relevant here, the
Supreme Court narrowed the scope of the question: “Assuming that the federal district court had
jurisdiction, should it, as a matter of sound equitable discretion, have declined to exercise that
jurisdiction here?” Id.
In keeping with Burford, the Court answered that the district court improperly exercised
its jurisdiction by conducting what it characterized as a “de novo” review of the Commission. See
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id. at 347–48. Alabama, the Court observed, “provided for appeal from any final order of the
Commission to the [state] circuit court...as a matter of right.” Id. at 348. The operator did not
challenge the constitutional adequacy of the state’s judicial review. Id. But even if it had, the
Court noted that it was well “settled that a utility has no right to relitigate factual questions on the
ground that constitutional rights are involved.” Id. at 349. The takeaway? The lower court had no
need to make factual findings in a regulated area of local concern. See id. Equally importantly,
the Court underscored the federal judiciary’s duty to exercise its equitable discretion with
“‘scrupulous regard for the rightful independence of state governments.’” Id.
Subsequent developments to the Burford doctrine are similarly instructive. Just as the
presence of a federal question does not categorically demand a court sitting in equity to exercise
its jurisdiction, the presence of a “complex state administrative process” does not require
abstention. See New Orleans Pub. Servs., Inc. v. Council of City of New Orleans, 491 U.S. 350,
362, 109 S. Ct. 2506 (1989) (“NOPSI”). In NOPSI, an electricity utility sought declaratory and
injunctive relief in federal court after litigating a utility claim before municipal bodies. Id. at 357.
Specifically, it sought a judgment that federal law pre-empted the New Orleans City Council’s rate
order. Id. Despite the federal nature of the utility’s claim, the district court abstained from hearing
the case pursuant to Burford. Id. at 355–56, 357. That was a mistake. After the Fifth Circuit
affirmed, the Supreme Court reversed because the utility’s claims did not “demand significant
familiarity with, and [would] not disrupt state resolution of, distinctively local regulatory facts or
policies.” Id. at 358. The Court further explained that Burford abstention is not necessarily
warranted “even in all cases where there is a ‘potential for conflict’ with state regulatory law or
policy.” Id. (citation omitted). In that vein, NOPSI also afforded the Supreme Court opportunity
to clarify when Burford abstention applies:
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Where timely and adequate state-court review is available, a federal court sitting in
equity must decline to interfere with the proceedings or orders of state
administrative agencies: (1) when there are “difficult questions of state law bearing
on policy problems of substantial public import whose importance transcends the
result in the case then at bar”; or (2) where the “exercise of federal review of the
question in a case and in similar cases would be disruptive of state efforts to
establish a coherent policy with respect to a matter of substantial public concern.
Id. at 361.
All told, the decision to abstain under Burford, must be “based on a careful consideration
of the federal interests in retaining jurisdiction over the dispute” and ultimately represents a
determination “that the State's interest are paramount and that [the] dispute would best be
adjudicated in a state forum.” 319 U.S. at 327. And, although there is no “formulaic test” for
deciding whether a case comes within Burford’s narrow jurisdictional exception, the Fifth Circuit
has identified five factors that should be considered: (1) “whether the cause of action arises under
federal or state law;” (2) “whether the case requires inquiry into unsettled issues of state law;” (3)
“the importance of the state interest involved;” (4) “the state's need for a coherent policy in that
area;” and (5) “the presence of a special state forum for judicial review.” Wilson v. Valley Elec.
Membership Corp., 8 F.3d 311, 314 (5th Cir. 1993). Finally, courts may abstain “only where the
relief being sought is equitable or otherwise discretionary,” such as a request for declaratory
judgment. Quackenbush, 517 U.S. at 731.
Returning to this case, DMAC requests, in relevant part, several declarations interpreting
the Ordinance. See supra at 9–13; Dkt. 106 at 23–28. Among these, DMAC notably asks the
court to declare that the Ordinance “cannot be read to allow, via denial of requested permits, the
prohibition of a use of the property in question that was permitted at the time of its initial
construction” and that the Ordinance “does not authorize[] a Mayoral or Director of Public Works
mandated hold upon the release of permits.” Dkt. 106 at 23, 25. It similarly asks the court to
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declare that specific subsections of the Ordinance “do not authorize post initial construction
refusals of permits to repair to their pre-damaged condition” or “require the submission of NFIP
proof of loss statements as a condition to obtaining a repair permit.” Id. at 25–26.
Among its many application-based declarations, DMAC asks the court to declare that the
“permits it sought…do not involve ‘substantial improvements’ or improvements that increase the
pre-construction value” of the Arbor Court property; that “[n]othing about the requested permits
or the proposed construction to repair damage, will cause any increase in the dangers of flooding;”
and that the Mayor’s alleged targeting of DMAC in the permitting process contravened the
Ordinance. Id. at 24.
These are but a few amongst a litany of claims that ask the court to make factual findings
about the proposed construction in the floodplain and whether the City was wrong under the
Ordinance to deny DMAC a permit to rehabilitate Arbor Court. In effect, DMAC requests this
court to serve as an appellate body to the City’s permitting adjudication process, conduct a de novo
review of the proceedings below, and make factual findings superseding those of the City’s own
bodies.
For abstention, the issue is whether these claims present “difficult questions of state law
bearing on policy problems of substantial public import whose importance transcends the result in
the case then at bar” or the “exercise of federal review of the question in a case and in similar cases
would be disruptive of state efforts to establish a coherent policy with respect to a matter of
substantial public concern.” See NOPSI, 491 U.S. at 361. Considering the Fifth Circuit’s Wilson
factors, the court concludes that they do.
First, DMAC’s claims arise from questions of state law. Texas both “permit[s] and
provide[s] incentives for local governments to take measures to mitigate the potential for loss of
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life and property from future flood events.” City of Friendswood v. Horn, 489 S.W.3d 515, 523–
24 (Tex. App.—Houston [1st Dist.] 2016, no pet.). The Texas Water Code articulates the state’s
more general flood-management scheme and
authorizes political subdivisions to adopt more comprehensive floodplain
management rules that the political subdivision determines are necessary for
planning and appropriate to protect public health and safety, participate in
floodplain management and mitigation initiatives such as the program’s community
rating system, Project Impact, or other initiatives developed by federal, state, or
local government, collect reasonable fees to cover the cost of administering a local
floodplain management program, and take steps, using regional, watershed, and
multi-objective approaches, to improve the long-range management and use of
flood-prone areas (Sec. 16.315).
House Comm. On Land & Res. Mgmt, Bill Analysis, Tex. S.B. 936, 77th Leg., R.S. (2001). To
accomplish these goals, Texas mandates that certain political subdivisions “adopt ordinances, as
appropriate, necessary for the city…to be eligible to participate in the [NFIP].” Tex. Water Code
§ 16.3145. Since 1985, the Ordinance at issue here furthered this interest by promulgating local
standards for property owners to comply with FEMA’s national program. 3 See Dkt. 108, Ex. 1 at
3; Ch. 19, art. I, § 1(b). Despite this federal tie-in, the Water Code delegates “the responsibility
for qualifying for the [NFIP]” to the relevant “interested political subdivision.” Tex. Water Code
§ 16.314. As a home-rule city, “Houston derives its authority from the Texas Constitution and the
City Charter adopted by its voters,” and qualifies as a relevant political subdivision for the purposes
of the Water Code. See Powell v. City of Houston, No. 19-0689, 2021 WL 2273976, at *2 (Tex.
June 4, 2021), reh'g denied (Oct. 8, 2021). The Water Code authorizes all of Texas’ relevant
3
Congress established the NFIP in 1968 after private insurance companies declined to offer
flood insurance on flood-prone property. See 42 U.S.C. § 4001(a)). NFIP (1) makes federally
subsidized flood insurance available in flood-prone areas and (2) encourages states and localities
to adopt land use policies and regulations that reduce the risk of flood damage. § 4001(a)-(e)). For
communities to be eligible for federal flood insurance under the NFIA, they are required to adopt
community floodplain ordinances in accordance with flood hazard maps promulgated by FEMA.
§ 4012(c).
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political subdivisions, including Houston, “to take all necessary and reasonable actions that are not
less stringent than the requirements of the [NFIP].” Tex. Water Code § 16.315. This includes, but
is not limited to, (1) making appropriate land use adjustments to constrict the development of land
which is exposed to flood damage and minimize damage caused by flood losses and (2) guiding
the development of proposed construction. Id. §§ 16.315(1)–(2).
DMAC makes much ado about the Ordinance’s federal relations, arguing that the
interpretation and application claims it brings here cannot be local or state-based in nature if the
Ordinance is designed to secure Houston’s participation in the NFIP. Dkt. 133 at 9. But as Texas’
Water Code indicates, and as other courts have recognized, “[c]ommunity participation in the NFIP
is voluntary, and FEMA does not have any direct involvement in the administration of local
floodplain management ordinances.” See, e.g., Nat'l Wildlife Fed'n v. Fed. Emergency Mgmt.
Agency, 345 F. Supp. 2d 1151, 1156 (W.D. Wash. 2004). In any case, a state law or local ordinance
does not adopt a federal profile merely because it is enacted to secure a political subdivision’s
participation in a national benefits scheme, especially where, as here, that ordinance is an
outgrowth of the polity’s pre-existing “authority to regulate land use.” 4 See Powell, 2021 WL
2273976, at *2.
In addition, the Supreme Court has held that the balance of federal and state judicial
responsibilities would be disturbed by the exercise of federal jurisdiction where such exercise
would “herald [] a potentially enormous shift of traditionally state cases into federal courts.”
Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 319, 125 S.Ct. 2363
(2005). Where “the scope and limitations of a complex federal regulatory framework are at stake,”
the implications for the federal docket are “less severe.” Bd. of Comm’rs. of Se. Louisiana Flood
Prot. Auth.-E. v. Tennessee Gas Pipeline Co., L.L.C., 850 F.3d 714, 725 (5th Cir. 2017). Here,
NFIP—which DMAC does not expressly challenge—does not “interfere[] with the power of state
authorities to regulate” land use in the floodplain so much as it incentivizes certain regulation. See
Singh v. Duane Morris LLP, 538 F.3d 334, 339 (5th Cir. 2008). That the Ordinance at issue is the
product of that incentive does not make DMAC’s declaratory challenges sound fundamentally in
federal law.
4
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With this understanding in mind, DMAC seeks interpretation and application of “purely
state law issues.” See Koerner, 78 F. App’x at 963. As previously noted, such issues “should
seldom be the concern of federal courts,” Shelton, 780 F.2d at 477, unless the “challenges
to…land-use decisions aspire to constitutional stature.” See FM Props. Operating Co. v. City of
Austin, 93 F.3d 167, 174 (5th Cir. 1996).
That exception does not apply here: DMAC’s
interpretation and application challenges are distinct from its constitutional claims because they
do not challenge the rational basis of the permitting denial. Rather, they contest the denial’s
validity vis-a-vis the ordinance itself, properly construed. See Dkt. 106. The Alabama Court made
clear that a declaratory claim revolving around “an allegedly invalid state administrative order”
does not command the court to exercise its jurisdiction. See 341 U.S. at 345, 349–50. That lesson
remains true here. Accordingly, the first Wilson factor favors abstention.
The other Wilson factors do, too. DMAC asks the court to inquire “into unsettled issues of
state law,” like whether the Ordinance “authorize[s] a Mayoral or Director of Public Works
mandated hold upon the release of permits.” See Wilson, 8 F.3d at 314; Dkt. 106 at 25. Likewise,
DMAC solicits judicial inquiry “into local facts” in asking the court to declare that “[n]othing
about the requested permits or the proposed construction to repair damage will cause any increase
in the dangers of flooding.” See Wilson, 8 F.3d at 314; Dkt. 106 at 25. These claims are but two
examples of “difficult state questions” littered throughout DMAC’s declaratory action. See
Burford, 319 U.S. at 331. The second Wilson factor thus favors abstention.
Regarding Wilson’s third factor, there is no doubt that “the state interests involved”—landuse in flood prone areas— are important. See 8 F.3d at 314; see also Harper v. Pub. Serv. Comm’n
of W. Va., 396 F.3d 348, 352 (4th Cir. 2005) (“[P]roperty law concerns, such as land use and zoning
questions, are frequently ‘important’ state interests justifying…abstention.”); Carroll v. City of
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Mt. Clemens, 139 F.3d 1072, 1075 (6th Cir. 1998) (recognizing that state has an “important interest
in enforcing its state and local housing codes”); Duty Free Shop, Inc. v. Administracion De
Terrenos De Puerto Rico, 889 F.2d 1181, 1182 (1st Cir. 1989) (recognizing that state’s ability to
conduct “eminent domain proceedings” is an important interest); World Famous Drinking
Emporium, Inc. v. City of Tempe, 820 F.2d 1079, 1083 (9th Cir. 1987) (recognizing that nuisance
ordinance “in aid of and closely related to Tempe's zoning ordinance” represents an important state
interest).
These core state interests are managed in a more decentralized manner than those at issue
in Burford, which featured challenges to a specialized state tribunal tasked with shaping regulatory
policy for the entire state. See 319 U.S. at 326–28; see also Sierra Club v. City of San Antonio,
112 F.3d 789, 794 (5th Cir. 1997) (concerning whether abstention was appropriate where federal
court ruling on an Endangered Species Act claim would interfere in “comprehensive regulatory
scheme” used to govern an aquifer). In that sense, DMAC’s challenge to the Ordinance does not
entail the Jenga-like risk of “a federal court[] tapping on one block…[and] caus[ing] the whole
thing to crumble.” Grace Ranch, L.L.C. v. BP Am. Prod. Co., 989 F.3d 301, 319 (5th Cir. 2021),
as revised (Feb. 26, 2021). Yet, the diffuse nature of Texas’ regulatory scheme does not undermine
the need for coherent policy, namely one that vests power in local bodies to determine local needs.
So, while exercising jurisdiction here would not sound the death knell for a state-wide regulatory
scheme, it would invite the brick-by-brick dismantling of state-authorized local governance over
floodplain management. Accordingly, Wilson’s fourth factor also favors abstention.
Only the last factor—the presence of a special state forum for judicial review—cuts in
DMAC’s favor. Texas provides no special forum for judicial review of floodplain permitting
denials, unlike the regime in Burford which empowered a single state court to hear all appeals of
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the Railroad Commission’s orders. 319 U.S. at 326. Rather, Texas affords plaintiffs like DMAC
a right to appeal permit denials to general state courts. See, e.g., Dos Republicas Coal P'ship v.
Saucedo, 477 S.W.3d 828, 841 (Tex.App.—Corpus Christi–Edinburg 2015, no pet.) (reviewing
whether municipal administrator abused discretion when applying certain provisions of a
floodplain ordinance). In that respect, the kind of state-level judicial review offered to DMAC is
more in line with that offered to the parties in Grace Ranch, where “regular litigation” venues
served state judicial interests. See 989 F.3d at 318.
Though the fifth Wilson factor favors the exercise of jurisdiction, that DMAC enlists the
federal court’s intervention through the DJA in resolving an essentially local problem despite the
availability of a general state judicial forum mitigates its persuasiveness. The DJA provides that
a court “may declare the rights and other legal relations of any interested party seeking such
declaration.” 28 U.S.C. § 2201(a) (emphasis added). Again, the Supreme Court has “repeatedly
characterized the [DJA] as enabling Act, which confers a discretion on the courts rather than an
absolute right upon the litigant.”
Wilton, 515 U.S. at 287 (internal quotations omitted).
Considering the fundamentally discretionary jurisdiction that DMAC seeks, and that four of the
five Wilson factors favor abstention, the court abstains.
To summarize, the City’s motion to dismiss DMAC’s declaratory judgment claims
pursuant to Rule 12(b)(6) is GRANTED because some of the claims are duplicative of the
constitutional claims located elsewhere in the suit and the remainder merit abstention.
B.
Section 1983 Claims
DMAC asserts that the City violated its constitutional rights by taking its property without
just compensation, denying substantive and procedural due process, violating its right to equal
protection, and substantially impairing its ability to contract in contravention of the Contracts
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Clause. See generally Dkt. 106. It brings these claims pursuant to 42 U.S.C. § 1983. The City
moves to dismiss each pursuant to Rule 12(b)(6).
Section 1983 of Title 42 in relevant part provides:
Every person who, under color of any statute, ordinance, regulation, custom, or
usage, of any State or Territory or the District of Columbia, subjects, or causes to
be subjected, any citizen of the United States or other person within the jurisdiction
thereof to the deprivation of any rights, privileges, or immunities secured by the
Constitution and laws, shall be liable to the party injured in an action at law, suit in
equity, or other proper proceeding for redress ....
To state a claim under § 1983, a plaintiff must assert facts to support that a person acting under
color of state law denied the plaintiff a right under the Constitution or federal law. Martin v
Thomas, 973 F2d 449, 452–53 (5th Cir 1992). A person for these purposes includes a local
governing body if the action claimed to be unconstitutional implemented a “decision officially
adopted and promulgated by that body's officers.” Monell v Dep’t of Soc. Servs. of City of New
York, 436 US 658, 690, 98 S. Ct. 2018 (1978). Any such claim against a municipality must
establish “a policymaker; an official policy; and a violation of constitutional rights whose ‘moving
force’ is the policy or custom.” Piotrowski v City of Houston, 237 F3d 567, 578 (5th Cir 2001),
quoting Monell, 436 US at 694.
“[T]he unconstitutional conduct must be directly attributable to the municipality through
some sort of official action or imprimatur; isolated unconstitutional actions by municipal
employees will almost never trigger liability.” Piotrowski, 237 F.3d at 578. For that reason,
municipal liability cannot be predicated on the doctrine of respondeat superior. Id. Instead,
“[o]nly the actions of district officials with final policy-making authority subject the district to
such liability.” Eugene v. Alief Indp. Sch. Dist., 65 F.3d 1299, 1304 (5th Cir. 1995).
In practice, the Supreme Court and Fifth Circuit have recognized three different kinds of
“policy.” The first encompasses “formal rules and understandings… that…establish fixed plans
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of action to be followed under similar circumstances consistently and over time.” Pembaur v. City
of Cincinnati, 475 U.S. 469, 480–81 (1986). Policy may also include “conduct that has become
a traditional way of carrying out policy and has acquired the force of law.” Bennett v. City of
Slidell, 728 F.2d 762, 768 (5th Cir. 1984); see also 42 U.S.C. § 1983 (making liable “[e]very
person who, under color of any statute, ordinance, regulation, custom, or usage” deprives a citizen
“or other person” within the jurisdiction her rights) (emphasis added). Discriminatory acts
“performed pursuant to a ‘custom’” need not have “been formally approved by an appropriate
decisionmaker” to “subject a municipality to liability,” provided “that the relevant practice is so
widespread as to have the force of law.” Bd. of Cty. Comm’rs of Bryan Cty., Okla. v. Brown, 520
U.S. 397, 404, 117 S. Ct. 1382 (1997). A third formulation—ratification—posits that a plaintiff
satisfies the policy standard where she shows that “a final decisionmaker[]” adopted “a course of
action ‘tailored to a particular situation and not intended to control decisions in later situations.’”
Bryan Cty., 520 U.S. at 410 (quoting Pembaur, 475 U.S. at 481). Under this category, “a single
decision by a policy maker may, under certain circumstances, constitute a policy for which the
county may be liable.” Brown v. Bryan Cty., Okla., 219 F.3d 450, 462 (5th Cir. 2000). In those
cases, a municipality can be liable only if the decision to adopt action resulting in the constitutional
deprivation is properly made by that government’s authorized decisionmakers. See id. Such
“authorized decisionmakers” are defined to be officials “‘whose acts or edicts may fairly be said
to represent official policy’” and whose decisions may therefore result in municipal liability under
§ 1983. Id. at 480 (quoting Monell, 436 U.S. at 694).
Finally, a plaintiff must also establish that the municipality’s wrongful actions were
causally connected to the deprivation. See James v. Tex. Collin Cty., 535 F.3d 365, 373 (5th Cir.
2008). Satisfaction of this element requires Plaintiff to “show that the municipal action was taken
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with the requisite degree of culpability” and is causally related to “the deprivation of federal
rights.” Id. The court considers each of DMAC’s constitutional claims against these well-settled
standards.
1.
Takings Claims
DMAC alleges that the City’s refusal to issue it a repair permit effected a categorical
regulatory taking and a non-categorical regulatory taking without just compensation in violation
of the Fifth Amendment of the U.S. Constitution. Dkt. 106 at 36 ¶ 114. DMAC separately claims
that the City has inversely condemned its property. Id. The court finds that DMAC has adequately
alleged that the City effected a regulatory taking without providing just compensation. However,
the court finds that DMAC cannot bring a state-level inverse condemnation claim through its §
1983 action.
The Takings Clause of the Fifth Amendment provides that private property shall not “be
taken for public use, without just compensation.” U.S. Const. amend. V. The Fourteenth
Amendment made the Takings Clause applicable to the States. Lingle v. Chevron U.S.A. Inc., 544
U.S. 528, 536, 125 S. Ct. 2074 (2005). By definition, ripe takings claims also comply with the
doctrinal requisites of § 1983. See Pakdel v. City & Cty. of San Francisco, Cal., ––– U.S. ––––,
141 S. Ct. 2226, 2230 (2021) (noting that the ripeness doctrine’s finality requirement requires that
a plaintiff “show that there is no question about how the regulations at issue apply to the particular
land in question”) (internal quotations and alterations omitted).
As its texts makes plain, the Takings Clause “requires the payment of compensation
whenever the government acquires private property for a public purpose.” See Tahoe–Sierra
Preservation Council, Inc. v. Tahoe Reg’l Plan. Agency, 535 U.S. 302, 321, 122 S.Ct. 1465 (2002).
In conditioning the exercise of the Government’s power on just compensation, the Takings Clause
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bars it “from forcing some people alone to bear public burdens which, in all fairness and justice,
should be borne by the public as a whole.” Armstrong v. United States, 364 U.S. 40, 49, 80 S. Ct.
1563 (1960).
But while the Takings Clause requires “just compensation” when there is a “taking,” it
neither defines a taking nor “address[es] in specific terms the imposition of regulatory burdens on
private property.” See Murr v. Wisconsin, ––– U.S. ––––, 137 S. Ct. 1933, 1942 (2017). That task
is left to the courts. In that vein, the Supreme Court has advised that the “paradigmatic taking”
involves the “direct appropriation of property.” Lingle, 544 U.S. at 537–38; see also Lucas v. S.C.
Coastal Council, 505 U.S. 1003, 1014, 112 S.Ct. 2886 (1992) (citing Legal Tender Cases, 12 Wall.
457, 551 (1871)). Such was the only category of takings prior to Justice Holmes’s famous
mediation on the effects of the government’s regulatory power in Pennsylvania Coal Co. v. Mahon,
260 U.S. 393, 43 S.Ct. 158 (1922).
Charting a new course in takings jurisprudence, Mahon recognized that “while property
may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.”
260 U.S. at 415. Though the Court has not defined what constitutes a regulation gone “too far,” it
has acknowledged that this class of regulations “may, in some instances, be so onerous that its
effect is tantamount to a direct appropriation or ouster.” Lingle, 544 U.S. at 537. Therefore, in
reviewing a regulatory takings claim, the court keeps in mind the doctrine’s “aim to identify
regulatory actions that are functionally equivalent” to those classic takings. Id. at 529.
Three species of regulatory takings identified by the Supreme Court inform this court’s
analysis. See Lingle, 544 U.S. at 538–39. First, the government causes a taking when it “requires
an owner to suffer a permanent physical invasion of her property.” Id. at 538; see also Cedar Point
Nursery v. Hassid, ––– U.S. ––––, 141 S. Ct. 2063, 2072 (2021) (“Government action that
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physically appropriates property is no less a physical taking because it arises from a regulation.”).
Second, “regulations that completely deprive an owner of all economically beneficial use of her
property” likewise constitute a “categorical” taking, except where principles of nuisance and
property law “independently restrict” the owner’s use. Lingle, 544 U.S. at 538.
A third category applies to regulations that do not effect a physical taking and fall short of
completely eliminating a property’s value. This catchall category asks courts to apply the factors
outlined in Penn Central Transportation Co. v. New York City to determine whether a regulation
effects a taking. See 438 U.S. 104, 124, 98 S. Ct. 98 (1978). Those factors test the “magnitude of
a regulation’s economic impact” and “the extent to which the regulation has interfered with distinct
investment-backed expectations.” Lingle, 544 U.S. at 540, 125 S. Ct. at 2082. The court may also
consider the “character of the governmental action. Penn Central, 348 U.S. at 124, 98 S. Ct. at
2646. Importantly, even regulatory restrictions reviewed under the Penn Central framework must
“entirely deprive an owner of property rights” to qualify as a taking. Horne v. Dep’t of Agric., 576
U.S. 350, 364, 135 S. Ct. 2419 (2015).
However, regardless of how a regulation might be classified, the key inquiry is “whether
the government has physically taken property for itself or someone else —by whatever means—
or has instead restricted a property owner’s ability to use his own property.” Cedar Point Nursery,
141 S. Ct. at 2072.
a. Categorical Regulatory Taking
DMAC claims that the denial inflicted “a severe, negative impact” upon it, “permanently
depriv[ing] Plaintiff of all economically viable or beneficial use of the Arbor Court property.”
Dkt. 106 at 36 ¶¶ 116, 119. That is so because “the City itself has taken the position that the Arbor
Court property cannot safely be used by people in occupied structures on the property, due to its
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existence in a floodplain and/or floodway.” Id. at 37 ¶ 120. In DMAC’s telling, the City’s position
was informed, in part, on the recommendation of the 2016 drainage evaluation report that proposed
clearing the property and converting it to a public park or retention area, see id., neither of which
constitute “beneficial use[s]…from the landowner’s point of view.” Lucas, 505 U.S. at 1017.
Though not currently a public park or retention area, the Arbor Court property allegedly “sits
vacant and produces no income.” Dkt. 106 at 38 ¶ 123. Indeed, DMAC alleges that even the
Harris County Appraisal District recognizes that the Arbor Court property is economically idle
insofar as it based its ad valorem tax valuation on the “value of the raw land.” Dkt. 106 at 38 ¶
123. Finally, DMAC alleges that “there is no known economically viable or beneficial use of the
property to which the property can be put.” Id. In other words, DMAC has alleged facts that the
City’s permitting denial amounts to “regulation[] that completely deprive [it] of all economically
beneficial use of [its] property.” See Lingle, 544 U.S. at 538.
Resisting this conclusion, the City argues that the Fifth Circuit’s decision in Adolph v. Fed.
Emergency Mgmt. Agency, 854 F.2d 732 (5th Cir. 1988), “confirm[s]” that local floodplain
regulations cannot “result in any taking.” Dkt. 108 at 17. Adolph supports no such conclusion. In
that case, a group of plaintiffs sued their local parish council and FEMA alleging both that a local
floodplain ordinance and the National Flood Insurance Program resulted in an unconstitutional
taking without just compensation. 854 F.2d at 734. The local ordinance required “new or
additional structures” to meet certain elevation requirements per the national, congressionally
mandated regulations. Id. The Adolph plaintiffs argued that the ordinances made the development
of their properties “prohibitively expensive” and “unmarketable.” Id. Rejecting their claims, the
Fifth Circuit concluded that, irrespective of the prohibitive cost of compliance, the challenged
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ordinances did not effect a taking “[s]o long as [they] d[id] not directly affect the then-current use
of plaintiffs’ property.” Id. at 739.
This case differs in several important respects. First, DMAC does not challenge the
entirety of a “carefully-crafted nationwide scheme” and an ordinance exclusive to new or
additional development but, instead, the local denial of a permit to rebuild existing structures. See
id. at 737. Second, DMAC claims that there are no conditions—prohibitively expensive or
otherwise—that it can comply with to secure the permit necessary to restore Arbor Court’s
economic viability. See Dkt. 106 at 39 ¶ 126. Third, the Adolph Court explicitly narrowed its
holding to regulations that did not “directly affect the then-current use” of a property. 854 F.2d at
739. But that’s exactly what DMAC alleges the City did by denying it a repair permit to rebuild
Arbor Court’s existing structures, which functioned as an apartment complex just before Hurricane
Harvey’s flooding and indeed appear to entirely predate the floodplain ordinance. See generally
Dkts. 106, 108.
The Ninth Circuit’s decision in Del Monte Dunes at Monterey, Ltd. v. City of Monterey, 95
F.3d 1422 (9th Cir. 1996), aff'd, 526 U.S. 687, 119 S. Ct. 1624 (1999), is more relevant, though
DMAC’s claim is arguably stronger. There, a developer purchased dozens of acres of beachfront
property zoned for multi-unit residential use. See id. at 1425, 1434. The prior owner had
unsuccessfully applied for a development permit but re-applied. Id. That second application for
development permits was pending with the City of Monterey when plaintiff Del Monte purchased
the property. Id. After the City of Monterey again denied the development permits, citing
environmental impact, Del Monte sold the property to the State of California for an $800,000
profit. See id. at 1432. Despite its profit, Del Monte sued, alleging a categorical regulatory taking
because the City of Monterey effectively required it to leave the property in its natural state, despite
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its zoning for residential use. Id. at 1433. Unable to be developed, Del Monte argued that the
property was only valuable to the city or state, which later converted the property into a public
park. Id. The Ninth Circuit agreed because the jury heard evidence that the extensive list of
development conditions the City of Monterey placed on the property “made any
development…impossible.” See id. at 1434.
Though not binding, this case is persuasive. Of course, DMAC, unlike Del Monte, is not
seeking to break new ground and develop otherwise virgin waterfront property: it is merely trying
to rehabilitate what already exists. This difference aside, the claims are similar. DMAC, like Del
Monte, owns residential property. It alleges that the City of Houston, like the City of Monterey,
denied it a permit to use the property for residential purposes due to the environmental character
of the land—here, because it lies in a floodplain, there because development would hurt native
flora and fauna. See Del Monte, 95 F.3d at 1431. In both cases, the plaintiffs alleged that the
permit denials abrogated any economically viable use of the property because it cannot be used
for any other purpose. Thus, at bottom, both rested on claims that the government’s “regulatory
actions” were the “functional[] equivalent” to the more paradigmatic takings that deprived owners
of any beneficial use of their property. See Lingle, 544 U.S. at 529. Accordingly, the court finds
that DMAC has sufficiently stated a categorical regulatory taking claim.
b. Penn Central Regulatory Taking
DMAC also alleges that the City effected a non-categorical taking under the three-factor
Penn Central test. See Dkts. 106 at 36 ¶ 116, 119 at 14. The Penn Central analysis of a noncategorical taking requires an “ad hoc, factual inquir[y]” into the factual circumstances of each
case. See Lucas, 505 U.S. at 1015. Courts must “weigh three factors to determine whether the
interference with property rises to the level of a taking: (1) the economic impact of the regulation
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on the claimant; (2) the extent to which the regulation has interfered with distinct investmentbacked expectations; and (3) the character of the governmental action.” Degan v. Bd. of Trs. of
Dallas Police & Fire Pension Sys., 956 F.3d 813, 815 (5th Cir.), cert. denied, ––– U.S. –––, 141
S. Ct. 375 (2020).
Though these factors “provide[] important guideposts,” they are not
“mathematically precise variables.” Palazzolo v. Rhode Island, 533 U.S. 606, 634, 121 S.Ct. 2448
(2001) (O'Connor, J., concurring). For that reason, courts “must consider all of the surrounding
circumstances and employ a fact-sensitive test of reasonableness” when considering noncategorical regulatory takings claims. Da Vinci Inv., Ltd. P'ship v. City of Arlington, Tex., 747 F.
App'x 223, 228 (5th Cir. 2018) (internal quotations omitted). DMAC alleges facts that satisfy each
of the Penn Central factors.
First, DMAC has alleged that the City’s denial of the repair permit significantly reduced
the value of the Arbor Court property. In assessing a regulation’s economic impact, the Fifth
Circuit “compare[s] the value that has been taken from the property with the value that remains in
the property.” Hackbelt 27 Partners, L.P. v. City of Coppell, 661 F. App'x 843, 850 (5th Cir.
2016). According to DMAC, the Arbor Court property enjoyed a “fair market value of at least
$24,500,000.00.” Dkt. 106 at 39 ¶ 127. Now, it claims, “that fair market valuation [has been]
reduced to $1,400,000.00”—a $23,100,000.00 loss. Id. The Fifth Circuit has recognized that the
denial of permits can “undoubtedly” reduce the value of a property. See Da Vinci, 747 F. App’x
at 228. Thus, Penn Central’s economic impact factor cuts in DMAC’s favor.
The next factor, investment-backed expectations, also adds a point in DMAC’s column.
Investment-backed expectations must be “reasonable.” Hackbelt, F. App’x at 850. Mahon
illustrates what “reasonable” investment-backed expectations look like. There, the claimant sold
the surface rights to parcels of property but reserved the right to mine the below-surface coal.
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Mahon, 260 U.S. at 414. A Pennsylvania statute, enacted after the transactions, prohibited any
coal mining that unsettled housing foundations unless certain conditions were met. Id. The statute
effectively made it commercially impracticable to mine the coal. Id. at 414. Because it effectively
destroyed the very rights that the plaintiff reserved from the owners of the surface land, the
Supreme Court held that the statute effected a taking without just compensation. See id. at 414–
415.
The facts alleged by DMAC suggest comparably reasonable investment-backed
expectations. Arbor Court was built in 1979. Dkt. 106 at 40 ¶ 133. The contested ordinance went
into effect in 2006, long after DMAC was built. See Dkt. 108 at 11. Despite this, Arbor Court
flooded in 2016, and the City issued a repair permit. Dkt. 106 at 6 ¶ 20. Both flooding incidents
yielded comparable levels of damage. See id. Yet, after Harvey, the City reversed its past practice
of allowing DMAC to rebuild and repair Arbor Court after storm damage, preventing DMAC from
using Arbor Court the way it had been used for the preceding thirty-eight years. See Dkt. 106 at 7
¶ 24. These factual allegations support the inference that DMAC reasonably expected the City to
issue a second repair permit after Hurricane Harvey’s flooding and thus are sufficient to survive a
motion to dismiss under Rule 12(b)(6). See Sansotta v. Town of Nags Head, 97 F.Supp.3d 713,
733–34 (E.D.N.C. 2014) (finding Town interfered with beachfront cottage owners’ investmentbacked expectations after denying rebuild permits following storm damage when it previously
granted the permits following prior storms).
Finally, “government actions that may be characterized as acquisitions of resources to
permit or facilitate uniquely public functions have often been held to constitute ‘takings.’” Penn
Central, 438 U.S. at 128. Because the City has “restricted” DMAC’s ability to use the property
for the existing residential purposes it is zoned for—and because DMAC arguably states a claim
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under the categorical takings doctrine—this factor also weighs in its favor. See Hackbelt, 661 F.
App’x at 850. 5
c. Inverse Condemnation
DMAC also “sues the City under the theor[y] of inverse condemnation,” seemingly
bringing the claim under § 1983. 6 Dkt. 106 at 3 ¶ 10, 35–36 ¶ 114. “Inverse condemnation is a
cause of action against a governmental defendant to recover the value of property that has been
taken in fact by the governmental defendant.” Knick v. Twp. of Scott, Pa., ––– U.S. –––, 139 S.
Ct. 2162, 2168 (2019) (internal quotations omitted). Thus, where there is a regulatory taking that
deprives landowners of all beneficial uses of the property, landowners can bring an action in state
court for inverse condemnation and seek damages for that temporary taking. See First English
Evangelical Lutheran Church v. Cnty. of L.A., 482 U.S. 304, 321, 107 S. Ct. 2378 (1987).
At the outset, the court notes that “inverse condemnation” claims are state creations. Knick,
139 S. Ct. at 2182 (Breyer, J., dissenting). With the notable exception of Ohio, every state provides
an inverse condemnation action. Id. at 2168. Under Texas law, to establish its claim for inverse
condemnation against the City, DMAC must show that “(1) the state intentionally performed
5
DMAC also brings the same regulatory takings claims under the Texas Constitution. Dkt.
106 at 38 ¶ 124. Texas courts permit both categorical and non-categorical regulatory takings
claims; analysis of such claims under the state constitution is coextensive with federal claims. See
City of Lorena v. BMTP Holdings, L.P., 409 S.W.3d 634, 644 (Tex. 2013) (noting that in
determining whether the government’s actions have unreasonable interfered with a claimant’s
property interests, Texas courts follow the U.S. Supreme Court's “Penn Central inquiry, which
requires [a court] to consider all of the circumstances surrounding the alleged taking.”); Hallco
Texas, Inc. v. McMullen Cty., 221 S.W.3d 50, 56 (Tex. 2006) (“A regulation that deprives a
property owner of all economically beneficial or productive use of the property makes the
regulation categorically a taking.”) (internal quotations omitted). Because the court finds that
DMAC stated both categorical and non-categorical regulatory takings claim under the federal
constitution, it likewise concludes that DMAC has stated a regulatory takings claim under Texas’
constitution.
6
While courts liberally construe pro se filings, more stringent standards apply to parties
represented by counsel. Grant v. Cuellar, 59 F.3d 523, 524 (5th Cir. 1995) (per curiam).
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certain acts, (2) that resulted in a ‘taking’ of property, (3) for public use.” Gen. Servs. Comm'n v.
Little-Tex. Insulation Co., 39 S.W.3d 591, 598 (Tex. 2001).
However, DMAC bring appears to brings its inverse condemnation claim under § 1983,
not Texas state law. See Dkt. 106 at 3 ¶ 10. Because § 1983 is reserved for “vindicating federal
rights,” it cannot function as a vehicle for state-level causes of action. Baker v. McCollan, 443
U.S. 137, 144, 99 S. Ct. 2689, 2694 n. 3 (1979). This distinction between federal and state causes
of action occupied the Knick Court’s attention, and its analysis is relevant here. See 139 S. Ct at
2171, 2174 n. 5. There, plaintiff Rose Mary Knick brought a Fifth Amendment takings claim
under § 1983 in federal court, expressly foregoing an inverse condemnation action under state law.
Id. at 2168. The Township of Scott argued that plaintiff Knick had to first raise her inverse
condemnation action in state court prior to bringing a federal takings claim under § 1983. See id.
The Court recognized that a “state action for battery” is separate from a “Fourth Amendment claim
of excessive force” and that the availability of the former does not preclude the invocation of the
latter. Id. at 2171. Because the two causes of action originate from a different legal genus, § 1983
cannot carry both. That is, in part, why the Knick Court declined to adopt the Solicitor General’s
argument that “state inverse condemnation claims arise under federal law.” See id. at 2174 n. 5.
That logic applies with equal force here. Inverse condemnation is a state cause of action
that mimics, in some respects, a federal takings claim but enjoys no independent footing in federal
law. Accordingly, it cannot be brought under § 1983.
In sum, the City’s motion to dismiss pursuant to Rule 12(b)(6) is DENIED as to DMAC’s
categorical and non-categorical takings claims and GRANTED as to DMAC’s inverse
condemnation claim.
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2. Violations of Substantive Due Process
“Not everything that stinks violates the Constitution.” Hillcrest Prop., LLP v. Pasco Cty.,
915 F.3d 1292, 1303 (11th Cir. 2019) (Newsom, J., concurring) (cleaned up). That maxim holds
true here. Some of DMAC’s allegations are certainly odious. See generally Dkt. 106 at 29 ¶ 95.
But they nonetheless fail to articulate a constitutionally protected property interest or a violation
of DMAC’s rights for the purposes of substantive due process.
“If there is no protected property interest, there is no process due.” Spuler v. Pickar, 958
F.2d 103, 106 (5th Cir. 1992). Thus, “[t]o prevail on a substantive due process claim, [a plaintiff]
must first establish that it held a constitutionally protected property right to which the Fourteenth
Amendment’s due process protection applies.” Simi Inv. Co., v. Harris Cnty., 236 F.3d 240, 249–
50 (5th Cir. 2000). “To have a property interest in a benefit,” a plaintiff must “have a legitimate
claim of entitlement to it;” relevant entitlements are “created and their dimensions are defined by
existing rules or understandings that stem from an independent source such as state law.” Town
of Castle Rock v. Gonzales, 545 U.S. 748, 756, 125 S.Ct. 2796 (2005) (citation and quotation
marks omitted). But even where state law creates an underlying substantive interest, “federal
constitutional law determines whether that interest rises to the level of a legitimate claim of
entitlement protected by the Due Process Clause.” Memphis Light, Gas & Water Div. v. Craft,
436 U.S. 1, 9, 98 S. Ct. 1554 (1978) (internal quotations omitted). If a plaintiff shows that it has
been deprived of a property interest, it must further show that the deprivation was not “rationally
related to a legitimate government interest.” Simi, 236 F.3d at 249.
DMAC appears to locate its property interest in two sets of allegations. First, DMAC
asserts that it:
owned an apartment complex that, prior to Hurricane Harvey, had been fully
constructed and occasionally repaired, with permits issued by the City under its
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floodplain ordinance, following a prior flooding event. DMAC had a vested
property interest in the permits it had received, and in the right to repair they
afforded, and it has such a vested right in the identical permits it sought in order to
make repairs to damage caused by Hurricane Harvey.
Dkt. 106 at 29 ¶ 94. DMAC additionally asserts that it has a “legally cognizable property interest
under Texas law in the permits that were wrongfully held by the City when they should have been
released.” Dkt. 119 at 26–27; see also Dkt. 106 at 29 ¶ 94. The City responds that “[a] plaintiff
has a protected property interest in a permit only after it is issued.” Dkt. 108 at 30 ¶ 40 (emphasis
original). Under this theory, DMAC had an enduring protected property interest in the permits
necessary to repair its property after Hurricane Harvey because it had previously received repair
permits.
DMAC’s second theory is a bit different. In its response to the City’s motion to dismiss,
DMAC appears to contend that its constitutionally protected property interest rests in the permits
that were “revoked…by appointed officials specifically targeting the Arbor Court property and its
operations.” Dkt. 119 at 27. This theory is presumably connected to the correspondence DMAC
had with city personnel and, specifically, the Morrow Letter approving permits for some buildings,
the subsequent Morrow e-mail indicating that the damage calculations to the buildings would be
changed, and the Flood Management Office notices with the approval stamps. Dkt. 106 at 8–9.
This argument turns on the inference that DMAC received the permits and the City revoked what
DMAC effectively had in hand.
DMAC correctly states that “business permits,” as well as “[p]rivileges, licenses,
certificates, and franchises…qualify as property interests” for the purposes of due process. See
Bowlby v. City of Aberdeen, Miss., 681 F.3d 215, 220–21 (5th Cir. 2012). In Bowlby, the Aberdeen
Planning and Zoning Board issued permits authorizing plaintiff to operate a “Sno Cone” hut inside
the city limits. Id. at 218. After receiving the permits, the plaintiff opened her business. Id. Then,
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nearly two months later, the Board revoked the permits without previously notifying the plaintiff
that it would be reviewing the permits. Id. The Fifth Circuit found that the plaintiff possessed a
“property interest in her business permits” because, “once issued” the permit became “essential in
the pursuit of a livelihood.” Id. at 220 (quoting Bell v. Burson, 402 U.S. 535, 539, 91 S. Ct. 1586,
1589 (1971)). Likewise, in Jabary v. City of Allen, the Fifth Circuit concluded that the plaintiff
had a protected property interest in his hookah bar’s Certificate of Occupancy once it was issued.
547 F. App’x 600, 606–07 (5th Cir. 2013). In that case, the plaintiff operated his hookah bar
without interruption for approximately one year before the City of Allen revoked the Certificate
without predeprivation notice. Id.
Bowlby and its progeny spell doom for DMAC’s first theory. For starters, DMAC fails to
cite any authority, let alone state law, to support its assertion that the City’s issuance of a permit
one year created an enduring property interest. 7 See Town of Castle Rock, 545 U.S. at 756. But
development or repair permits that have yet to issue fit awkwardly within the Bowlby framework.
On one hand, a development permit might be necessary to use the land “in pursuit of a livelihood.”
See Bell, 402 U.S. at 539, 91 S.Ct. at 1589. On the other, unlike licenses authorizing the continuous
operation of a business, these land-use analogs more often allow singular, time-limited instances
of capital improvement. At least that is the case with the Ordinance, which provides that a
“development permit will expire if development has not commenced within 18 months of issuance,
and upon completion of the project for which it is granted, or after five years has elapsed from the
date of permit issuance, whichever occurs first.” Dkt. 108, Ex. 1 at 12. Because they tend to
7
The court notes that the Ordinance prescribes a revocation for when a permit is issued and
then needs to be revoked. Dkt. 108, Ex. 1 at 17.
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expire, it is counter-intuitive, as both a matter of logic and law, that the issuance of one repair
permit would generate an enduring, constitutionally protected property interest.
Yet, DMAC relies exactly on this counter-intuitive premise when it contends that “it
has…a vested right in the identical permits it sought in order to make repairs to damage caused by
Hurricane Harvey.” Dkt. 106 at 29 ¶ 94. DMAC does not allege that the repair permit it received
after the Tax Day Flood continued in perpetuity. And while it may be that the City’s issuance of
a repair permit after the Tax Day Flood gave DMAC the expectation that it would issue another
after Hurricane Harvey, DMAC must establish “more than a unilateral expectation” that it would
receive the benefit for the purposes of alleging a viable substantive due process claim. See Bd. of
Regents of State Colls. v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701 (1972).
In any case, DMAC’s reliance on Bowlby is inapposite because courts ask whether the
statute or regulation that allegedly creates the protected property interest places “substantive
limitations on official discretion.” Ridgely v. Fed. Emergency Mgmt. Agency, 512 F.3d 727, 735
(5th Cir. 2008). Regulations cannot create a property interest prior to issuance, as “a benefit is
not a protected entitlement if government officials may grant or deny it in their discretion.” See
Town of Castle Rock, 545 U.S. at 756.
DMAC ignores this established caselaw entirely. DMAC acknowledges that the Ordinance
empowered the City Engineer with discretion to issue permits—it just disagrees that he
appropriately exercised that discretion. See Dkt. 106 at 12–13 ¶ 41, 21 ¶ 74, 26 ¶ 85, 31 ¶ 101.
The Ordinance provides that “the city engineer may deny a permit application if the issuance of
the permit could result in…[d]anger to life or property due to flooding or erosion damage in the
vicinity of the site” or “[s]usceptibility of the development and the contents of any structure to
flood damage and the effect of such damage on the individual owner.” Id. “Though an automatic
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or non-discretionary…policy may give rise to a protected property interest,” the Ordinance’s own
“guidelines clearly indicat[e] that [DMAC] was not guaranteed” a permit. See Wigginton v. Jones,
964 F.3d 329, 336 (5th Cir. 2020) (considering whether a discretionary tenure policy created a
protected property interest for the purposes of substantive due process protection).
So, DMAC’s first formulation of a constitutionally protected property interest cannot get
off the ground. Its second fares a little better but falters in flight. That is because, even assuming
that the Morrow Letter, Morrow E-mail, and Floodplain Management Office notices actually
resulted in DMAC having the permits that the City then revoked, the City had a rational basis for
its actions. “Rational-basis review is guided by the principle that [courts] do not have a license…to
judge the wisdom, fairness, or logic of legislative choices.” Hines v. Quilliivan, 982 F.3d 266, 274
(5th Cir. 2020) (internal quotations omitted). It is not, therefore, a “searching standard of scrutiny.”
Brackeen v. Haaland, 994 F.3d 249, 342 (5th Cir. 2021). Thus, unless a decision to revoke (or
deny) a permit is “clearly arbitrary and unreasonable, having no substantial relation to the public
health, safety, morals, or general welfare,” it will escape stiffer scrutiny from the federal courts.
See Shelton, 780 F.2d at 280. And, while “[a] rationality analysis…cannot be conducted in a
vacuum,” DMAC’s own allegations underscore that the court need not look far to find reason in
the City’s denial. Accepting, as DMAC alleges, that the City classified Arbor Court as a
“repetitively flooding” property, it had a reasonable basis to withhold the repair permits. See Dkt.
106 at 33¶105, 34 ¶ 109. Afterall, the City could easily find that permitting tenants to live in a
floodway would fail to advance “public health, safety…or general welfare” goals of protecting
residents during storms. See Shelton, 780 F.2d at 280. DMAC does not allege otherwise. See
Dkt. 106 at 29–35.
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Accordingly, the City’s motion to dismiss pursuant to Rule 12(b)(6) is GRANTED as to
DMAC’s substantive due process claim.
3. Violations of Procedural Due Process
DMAC’s procedural due process claim is born from the same set of facts as its substantive
due process claim. See Dkt. 106 at 31 ¶ 101. DMAC’s formulation of its claim is also related. As
the court just discussed, DMAC’s substantive due process argument waffled between assertions
that the City refused to issue permits it had a property interest in receiving and implications that
the City had issued the permits but then arbitrarily revoked them. See Dkts. 106 at 29–35, 119 at
26–29. Here DMAC merges the two together: “the City provided no process prior [to] depriving
DMAC of permits that had been wrongfully subject to a hold.” Dkt. 119 at 25. The court’s
conclusion is the same.
Procedural due process under the Fourteenth Amendment of the United States Constitution
is implicated where an individual is deprived of life, liberty, or property, without due process of
law. U.S. CONST. amend. XIV, § 1, cl. 3. Claims under procedural and substantive due process
both require the plaintiff to identify a protected property interest. See Meza v. Livingston, 607 F.3d
392, 399 (5th Cir. 2010). But whereas substantive due process protects plaintiffs from the arbitrary
deprivation of protected interests, see Cnty. of Sacramento v. Lewis, 523 U.S. 833, 846–47 (1998),
procedural due process guarantees “an opportunity to be heard” before the deprivation. Mathews
v Eldridge, 424 US 319, 332–33 (1976) (citations and internal quotations omitted). In the zoning
and permitting context, the Fifth Circuit considers procedural due process claims through one of
two frameworks. “[W]here a zoning decision has been made by an elected body…[the Fifth
Circuit] ha[s] characterized the action as legislative or ‘quasi-legislative,’” thereby “negating
procedural due process claims.” Jackson Court Condos., Inc. v. City of New Orleans, 874 F.2d
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1070, 1074 (5th Cir. 1989). But “a municipal body's action may be more likely termed adjudicative
if an appointed group, such as a zoning board, makes a specific decision regarding a specific piece
of property.” Cnty. Line Joint Venture v. City of Grand Prairie, 839 F.2d 1142, 1144 (5th Cir.
1988). Procedural due process rights attach to this latter category. See id. But see Shelton, 780
F.2d at 482 (“[A] state's use of an adjudication-like mechanism for zoning decisions does not by
itself trigger [a procedural due process] inquiry or create [protected] property rights.”).
If a zoning or permitting decision was “adjudicative” in nature, the courts apply the threefactor test articulated Mathews to determine if a plaintiff was denied its procedural due process
rights. First, courts evaluate “the private interest that will be affected by the official action;”
second, “the risk of an erroneous deprivation of such interest through the procedures used and [the]
probable value, if any, of additional procedural safeguards;” and third, “the Government’s interest,
including the fiscal and administrative burdens that the additional or substitute procedures would
entail.” Mathews, 424 U.S. at 321, 96 S. Ct. 893.
DMAC asserts that it had a constitutionally protected property interest in receiving the
permits that the City simultaneously withheld and revoked from its possession. See Dkt. 119 at
25. Content with ignoring the epistemological difficulties this entails, DMAC further complains
that City provided no pre-deprivation process and argues that “it would not have been overly
burdensome for the City to provide a pre-deprivation procedure.” Id.
Even assuming there was a property interest, and that the City’s decision to deny the
permits was adjudicative, rather than legislative or quasi-legislative, DMAC was not denied its
right to procedural due process. 8 Whether subject to a denial or a revocation, DMAC does not
8
While the court assumes for the purposes of argument that DMAC had a property interest,
it struggles to reconcile DMAC’s argument that the City revoked the permits—which implies that
the permits had issued—with the many allegations that belie this premise. For instance, DMAC
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sufficiently allege a procedural due process claim. While DMAC’s private interest in receiving
the permits was considerable, DMAC’s allegations paint the picture of constitutional adequate
process. The City Engineer reviewed DMAC’s permitting application and denied it. Dkt. 106 at
20. The City of Houston’s General Appeals Board “heard [DMAC’s] appeal from the denial…and
DMAC’s variance seeking relief from the application of the requirements of Chapter 19.” Id. at
20–21 ¶ 72. The General Appeals Board subsequently rejected DMAC’s appeal. Id. at 21 ¶ 73.
Finally, albeit without a hearing, the City Council “rejected [DMAC’s] appeal from the General
Appeals Board’s decision…thus upholding the City’s permit denial decision.” Id. This process
involved sufficient safeguards to guard against an erroneous deprivation, and it requires little
imagination to see how adding or modifying layers of process—ideas that DMAC declines to
propose—would burden the City’s interest in regulating development in the floodplain.
“The Mathews balancing test ‘permits varied types of hearings, from informal to more
formal evidentiary hearings.’” G & H Dev., L.L.C. v. Benton-Par. Metro. Plan. Comm'n, 641 F.
App'x 354, 357 (5th Cir. 2016) (quoting Bowlby, 681 F.3d at 221). The third amended complaint
does not indicate—and DMAC’s response to the City’s motion to dismiss does not argue— how
the permitting application and appellate procedures were, themselves, constitutionally insufficient.
Instead, it repeatedly claims that the City incorrectly applied those procedures. Dkt. 106 at 2 ¶ 7,
13 ¶ 41, 16 ¶ 53, 21 ¶ 73, 36 ¶ 114.
But “the due process clause does not require a [municipality]
to implement its own law correctly,” so “a violation of [municipal] law alone is insufficient to state
alleges that the City “put a hold on selling any permits in the area temporarily” pursuant to the
Mayor’s direction, Dkt. 106 at 35, and that the City “refuse[d] to lift [the] hold…that would have
allowed [it] to repair the damage to its buildings.” Id. at 3 ¶ 7. DMAC acknowledges that, even
when it first applied for the permits, its request was “initially denied.” Id. at 2 ¶ 7. Thus, under
its own allegations, the City did not “deprive” DMAC what it already possessed but, rather, denied
it from obtaining what it sought.
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a constitutional claim.” FM Props. Operating Co. v. City of Austin, 93 F.3d 167, 174 (5th Cir.
1996) (citation and internal quotation marks omitted). In short, the permitting application and
appellate process supplied to DMAC afforded it all the constitutional due process it was due. See
G & H Dev., L.L.C., 641 F. App'x at 357; Welders Mart, Inc v City of Greenville, 2000 WL 246607,
*2 (N.D. Tex.); Cleburne's Grass Roots, LLC v City of Cleburne, 2001 WL 238132, *1 (N.D.
Tex.).
Accordingly, the City’s motion to dismiss pursuant to Rule 12(b)(6) is GRANTED with
respect to DMAC’s procedural due process claim. 9
4. Violations of the Equal Protection Clause
DMAC also alleges that the City violated its right to equal protection. The Equal Protection
Clause serves “as a shield against arbitrary classifications.” Engquist v. Or. Dep't of Agr., 553
U.S. 591, 598, 128 S. Ct. 2146 (2008). But not all classifications are subject to the same degree
of judicial scrutiny. In the absence of a “classification affecting fundamental personal rights or
based upon inherently suspect distinctions such as race, religion, or alienage,” classifications or
unequal treatment are “subject to the same rational basis analysis utilized in due process claims.”
Jackson Ct. Condos., Inc. v. City of New Orleans, 874 F.2d 1070, 1079 (5th Cir. 1989).
Despite the Supreme Court’s emphasis on “classifications,” the Equal Protection Clause
“protects persons, not groups.” Engquist, 553 U.S. at 597 (alteration deleted). For that reason,
“an equal protection claim can in some circumstances be sustained even if the plaintiff has not
alleged class-based discrimination, but instead claims that [it] has been irrationally singled out as
In passing, DMAC alleged identical substantive and procedural due process claims under
the Texas Constitution. The state constitution “due process of law provision provides the same
protections as the federal Due Process Clause,” so these claims fail as well. See Lucky Tunes #3,
L.L.C. v. Smith, 812 F. App’x 176, 184 (5th Cir. 2020) (quoting Fleming v. State, 376 S.W.3d 854,
857 (Tex. App.—Fort Worth 2012), aff'd, 455 S.W.3d 577 (Tex. Crim. App. 2014)).
9
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a so-called ‘class of one.’” Id. at 601. In other words, “when it appears that the government is
singling out an individual, the specter of arbitrary classification is fairly raised, and the Equal
Protection Clause requires a rational basis for the difference in treatment.” Id. at 602.
Thus, to adequately state its “class of one claim,” DMAC must prove that (1) it “has been
intentionally treated differently from others similarly situated” and (2) “there is no rational basis
for the difference in treatment.” See Vill. of Willowbrook v. Olech, 528 U.S. 562, 564, 120 S.Ct.
1073 (2000). To show differential treatment, a plaintiff must identify a comparator group. See
Integrity Collision Ctr. v. City of Flusher, 837 F.3d 581, 586 (5th Cir. 2016). “[T]here is no precise
formula to determine whether an individual is similarly situated to comparators.” Lindquist v. City
of Pasadena, Tex., 656 F. Supp. 2d 662, 687 (S.D. Tex. 2009), aff'd sub nom. Lindquist v. City of
Pasadena Tex., 669 F.3d 225 (5th Cir. 2012). Rather, this court “consider[s] the full variety of
factors that an objectively reasonable…decisionmaker would have found relevant in making the
challenged decision.” Id. at 234 (citation and internal quotation marks omitted).
DMAC adequately alleges a “class of one” claim. DMAC alleged that Arbor Court is
“similarly situated” to other properties that received repair permits following Hurricane Harvey’s
floods: Imperial Oaks Apartments is another two-story apartment complex located on the same
street as Arbor Court, was built in 1977—two years before Arbor Court—and sustained
“substantial damage from Hurricane Harvey[‘s] flooding.” Dkt. 106 at 40–41 ¶ 133. At 265 units,
Imperial Oaks Apartments is home to “approximately the same number of apartments as Arbor
Court,” which contains 232 total units. Id. at 5 ¶ 18, 40–41 ¶ 133. A second neighboring, twostory apartment complex, Biscayne at Cityview, was built in 1978, is the site of over 500
apartments. Biscayne also weathered flood damage from Hurricane Harvey. Id. at 5 ¶ 18. To be
sure, neither apartment complex is a Section 8 property. Id. But DMAC alleges that “both
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properties offer apartments with comparable prices to Arbor Court at between $500 and $800 per
month.” Id. Nevertheless, unlike Arbor Court, these properties received repair permits.
Second, DMAC has adequately alleged that the City lacked a rational basis for the
difference in treatment. The Supreme Court’s decision in Olech is instructive. In that case,
plaintiffs alleged that the Village of Willowbrook conditioned connecting plaintiffs’ property to
the municipal water supply on a 33-foot easement, even though it required only a 15-foot easement
from other property owners. Olech, 528 U.S. at 563. The plaintiffs claimed that the Village’s
demand for an additional 18-foot easement was “irrational and wholly arbitrary” in violation of
the Equal Protection Clause. Id. The district court dismissed a plaintiffs’ equal protection claim
pursuant to Rule 12(b)(6). Id. The Seventh Circuit reversed, holding that a plaintiff could state
an equal protection claim by asserting that the state’s differential treatment was motivated by spite.
Id. at 564. Though the Supreme Court affirmed the Seventh Circuit’s decision, it held that the
plaintiffs’ factual allegations of differential treatment, including claims that the Village’s demand
for an enlarged easement was “irrational and wholly arbitrary,” was “sufficient to state a claim for
relief under traditional equal protection analysis.” Id. at 565.
In view of Olech, this court is hard-pressed to dismiss DMAC’s equal protection claim,
which is more factually developed than that upheld by the Supreme Court. The City responds that
it “denied the permits because of flood-related danger to health and safety, which qualifies as a
rational basis.” Dkt. 108 at 36 ¶ 60. But this is no answer to the court’s query. The relevant
inquiry is not whether the City had a rational basis for denying the permits, but whether it had a
“rational basis for the differential treatment.” See Da Vinci, 747 F. App'x at 227.
The City thus asks the court to find some “conceivable rational basis” for its “official
action.” See Dkt. 108 at 36 ¶ 60. The court declines that invitation. While the court may
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“hypothesize a legitimate purpose to support the action,” the rational basis “still must be actually
rational, not a matter of fiction.” Hines, 982 F.3d at 273. “A hypothetical rationale…cannot be
fantasy.” St. Joseph Abbey v. Castille, 712 F.3d 215, 223 (5th Cir. 2013). On the alleged facts, a
rational basis for the differential treatment of comparably expensive, neighboring apartment
complexes of comparable size situated along the Bayou that endured similar levels of damage from
Hurricane Harvey’s floodwaters is not within ready reach.
Accordingly, the City’s motion to dismiss pursuant to Rule 12(b)(6) is DENIED as to
DMAC’s equal protection claim.
5. Violations of the Contract Clause
The last of DMAC’s constitutional claims concerns the Contract Clause. Dkt. 106 at 41–
43. The Contract Clause prohibits states from passing any “law” that “impair [s] the Obligations
of Contracts.” U.S. Const. art. I, § 10. When considering claims arising from the Contracts Clause,
“[t]he threshold inquiry is ‘whether the state law has, in fact, operated as a substantial impairment
of a contractual relationship.’” Energy Rsrvs. Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400,
411, 103 S.Ct. 697 (1983) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98
S.Ct. 2716 (1978)); Powers v. United States, 783 F.3d 570, 578 (5th Cir. 2015). “This inquiry has
three components: whether there is a contractual relationship, whether a change in law impairs that
contractual relationship, and whether the impairment is substantial.” Gen. Motors Corp. v.
Romein, 503 U.S. 181, 186, 112 S.Ct. 1105 (1992).
If the regulation constitutes a substantial impairment, the court then determines whether
there is a “significant and legitimate public purpose behind the regulation.” Energy Rsrvs., 459
U.S. at 411, 103 S.Ct. 697 (citation omitted). Generally, remedying a broad and general social or
economic problem will constitute a significant and legitimate public purpose, but providing a
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benefit to a narrow group of people will not. See Allied Structural Steel, 438 U.S. at 247, 249; see
also Lipscomb, 269 F.3d at 504–05. This requirement helps ensure “that the State is exercising its
police power, rather than providing a benefit to special interests.” Energy Rsrvs., 459 U.S. at 412.
If there is a significant and legitimate public purpose behind the regulation, “the next inquiry is
whether the adjustment of ‘the rights and responsibilities of contracting parties [is based] upon
reasonable conditions and [is] of a character appropriate to the public purpose justifying [the
legislation's] adoption.’” Id. Where, as here, the municipality is not a contracting party, “[a]s is
customary in reviewing economic and social regulation…courts properly defer to legislative
judgment as to the necessity and reasonableness of a particular measure.” Id. at 412–13.
DMAC asserts that the City’s “arbitrary, capricious, and discriminatory revocation and
denial of DMAC’s permits has substantially impaired DMAC’s contractual relationships with
HUD and the residents who leased the damaged apartments at the Arbor Court property.” Dkt.
106 at 42 ¶ 139. It further repeats that it was the City’s “unlawful actions” that resulted in HUD
terminating its contract with DMAC. Id. Due to these allegations, the City frames DMAC’s
complaint as one against “Houston’s conduct,” as opposed to its laws, and argues that its Contract
Claim must therefore be dismissed. Dkt. 108 at 36 ¶ 61 (emphasis original). So, the “law” that
DMAC challenges is the allegedly improper administration of the Ordinance itself. Specifically,
DMAC argues that the conduct of which it principally complains—namely, the unofficial policy
of requiring the Mayor’s Office or Director of Public Works’ approval of any permits or the
issuance—has “the effect of law.” Dkt. 119 at 31. But it points to no caselaw—authoritative or
otherwise—that supports the premise that the Contract Clause extends to administrative conduct.
Because of the Contracts Clause’s plain language, claims arising under it are generally
facial in nature, looking to the law, itself, as opposed to its administration. See, e.g., Keystone
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Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 504, 107 S. Ct. 1232 (1987) (finding that a
Pennsylvania law that removed surface owners’ contractual obligations to waive damages
substantially impaired preexisting contractual obligations); U.S. Tr. Co. of New York v. New
Jersey, 431 U.S. 1, 17, 97 S. Ct. 1505 (1977) (finding that New Jersey law repealing New Jersey’s
previously-legislated contractual obligations substantially impaired contract); El Paso v. Simmons,
379 U.S. 497, 85 S.Ct. 577 (1965) (finding that a Texas statute that limited reinstatement rights of
interest-defaulting purchases of land from the state to a 5-year period where defaulting purchasers
previously could have reinstated claims through written request interfered with preexisting
contractual relations); Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231 (1934)
(finding that a Minnesota law permitting judicial extension of the time for redemption interfered
with preexisting contractual obligations).
Thus, legislation that, itself, “repudiate[s] or adjust[s] existing debtor-creditor relationships
that obligors [are] unable to satisfy” violates the Contract Clause. See Keystone, 480 U.S. at 503.
Legislation that “operates collaterally or incidentally to impair or destroy the obligation of private
contracts” does not. See Cont'l Ill. Nat. Bank & Tr. Co. of Chicago v. Chicago, R.I. & P. Ry. Co.,
294 U.S. 648, 680, 55 S. Ct. 595 (1935); see also Nw. Nat. Life Ins. Co. v. Tahoe Regional Plan.
Agency, 632 F.2d 104 (9th Cir. 1980) (finding that a land use ordinance did not contravene
Contract Clause where the ordinance affected only property and did not impair any obligations of
parties to assessment bonds issued for development of the property). Here, the Ordinance does
not impair the contractual relationship DMAC enjoyed with HUD and its tenants. Rather, the
City’s application of a facially neutral ordinance “incidentally” or “collaterally” interfered with
the relationships. See Chicago, 294 U.S. at 680. And that, Supreme Court doctrine suggests, is
insufficient to state a claim.
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Picking up on this suggestion, other courts have found that administrative acts, like zoning
enforcement or permitting denials, do not fall within the Contract’s Clause ambit. See Kinney v.
Conn. Jud. Dep’t, 974 F.2d 313, 314 (2d Cir. 1992) (observing that the Contract Clause is “aimed
at the legislative power of the State, and not at the decisions of its courts, or the acts of
administrative or executive boards or officers.”); Jackson Sawmill Co., Inc. v. United States, 580
F.2d 302, 312 (8th Cir. 1978) (“[A]ppellants have confused impairment of performance of a
contract with impairment of the obligation of the contract. The Constitution does not provide a
federal action for simple breach of contract.”); Carver v. Nassau Cnty. Interim Fin. Auth., No. 11CV-1614(JS)(GRB), 2018 WL 1970740, at *7 (E.D.N.Y. Apr. 26, 2018), aff'd sub nom. Sullivan
v. Nassau Cnty. Interim Fin. Auth., 959 F.3d 54 (2d Cir. 2020) (finding that administrative action
that interfered with contract’s performance did “not fall within the Contract Clause’s prohibition”);
Tocci Bros., Inc. v. City of N.Y., No. 00-CV-0206, 2000 WL 1134367, at *9 (E.D.N.Y. Aug. 3,
2000) (administrative acts taken pursuant to legislative authority do not implicate the contracts
clause or else “every administrative action would become subject to the Contracts Clause, a result
clearly prohibited by controlling precedent.”). Though out of circuit, this court finds these
decisions persuasive. The complained-of conduct did not repudiate a contractual obligation but
collaterally impaired DMAC’s performance of its contract. Therefore, DMAC has failed to state
a claim under the Contract Clause.
Accordingly, the City’s motion to dismiss pursuant to Rule 12(b)(6) is GRANTED as to
DMAC’s Contract Clause claim.
6. Tortious Interference
Finally, invoking the court’s supplemental jurisdiction, DMAC brings a state-law claim of
tortious interference. Dkt. 106 at 4 ¶ 14, 43–44. DMAC alleges that the City tortiously interfered
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with its contract with HUD by “encouraging HUD to terminate its contract with DMAC and agree
to a comparable contract with the City.” Id. at 43 ¶ 146. The City moves to dismiss this claim on
the grounds that it is shielded from suit due to sovereign immunity and that DMAC fails to state a
claim. Dkt. 108 at 38. The court finds that the City does not benefit from sovereign immunity
because its actions were proprietary in nature but that DMAC nevertheless fails to state a claim for
tortious interference.
a. Sovereign Immunity
When a municipality commits a tort while engaged in governmental functions, its liability
is determined by the provisions of the Texas Tort Claims Act. See Tex. Civ. Prac. & Rem. Code §
101.0215(a). The doctrine of sovereign immunity, however, shields a city from suit when it
commits torts in the performance of its governmental functions, except as authorized by statute.
Id. §§ 101.0215(a), 101.023(c); Turvey v. City of Houston, 602 S.W.2d 517, 519 (Tex. 1980). That
said, whether a city enjoys immunity from suit turns on the function it was performing when it
committed the tort. See Turvey, 602 S.W.2d at 519.
“Municipal corporations exercise their broad powers through two different roles;
proprietary and governmental.” Gates v. City of Dallas, 704 S.W.2d 737, 738 (Tex. 1986). As
the Texas Supreme Court recently explained, “[t]he governmental/proprietary dichotomy
recognizes that immunity protects a governmental unit from suits based on its performance of a
governmental function but not a proprietary function.” Wasson Ints., Ltd. v. City of Jacksonville,
559 S.W.3d 142, 146 (Tex. 2018).
“Unlike governmental functions, for which municipal
corporations have traditionally been afforded some degree of governmental immunity, proprietary
functions have subjected municipal corporations to the same duties and liabilities as those incurred
by private persons and corporations.” Gates, 704 S.W.2d at 739.
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Governmental functions generally consist of a municipality's activities “in the performance
of purely governmental matters solely for the public benefit.” Tooke v. City of Mexia, 197 S.W.3d
325, 342 (Tex. 2006) (quoting Dilley v. City of Houston, 222 S.W.2d 992, 993 (Tex. 1949)). The
Texas Tort Claims Act enumerates a non-exhaustive list of several governmental functions
including: “zoning, planning, and plat approval” and “enforcement of land use restrictions under
Subchapter E, Chapter 212, Local Government Code.”
Tex. Civ. Prac. & Rem. Code §§
101.0215(a)(29)–(36). Such functions are those that, as a historical matter, have “normally
performed by governmental units.” Wassons, 559 S.W.3d at 147 (quoting Joe R. Greenhill and
Thomas V. Murto III, Governmental Immunity, 49 Tex. L. Rev. 462, 463 (1971)). Governmental
functions likewise encompass a city’s “exercise [of] powers conferred on [it] for purposes
essentially public...pertaining to the administration of general laws made to enforce the general
policy of the state.” City of Galveston v. Posnainsky, 62 Tex. 118, 127 (1884).
By contrast, proprietary functions are those “performed by a city, in its discretion, primarily
for the benefit of those within the corporate limits of the municipality” and “not as an arm of the
government.” Gates, 704 S.W.2d at 739; Dilley, 222 S.W.2d at 993. Because they “are not done
as a branch of the state,” proprietary acts “do not implicate the state's immunity for the simple
reason that they are not performed under the authority, or for the benefit, of the sovereign.”
Wasson, 559 S.W.3d at 147 (internal quotations omitted). Just as it identifies governmental
functions, the Tort Claims Act also enumerates a non-exclusive list of some proprietary functions,
including “the operation and maintenance of a public utility” and “amusements owned and
operated by the municipality.” Tex. Civ. Prac. & Rem. Code §§ 101.0215(b)–(c).
DMAC alleges that “[o]n information and belief, these efforts included numerous phone
calls, communications, and meetings with HUD officials, all of which were intended to interfere
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with DMAC’s contractual relationship with HUD” and prevent its performance of the HUD
contract. Id. at 43–44 ¶ 147. Furthermore, DMAC alleges that on September 12, 2017, the City’s
Director of Housing and Community Development contacted HUD “to ensure the [Arbor Court]
units aren’t rehabbed” and confirmed that “it is a priority for both me and the Mayor that lowincome families not be placed once again in the way of storm water given that Abor Court is in
the floodway.” Id. at 15 ¶ 50. These actions, DMAC argues, are proprietary in nature, and
therefore sovereign immunity does not shield the City from suit. See Dkt. 119 at 31–32. The City
counters that once situated in the appropriate “context,” its actions were “clearly [of a]
governmental function.” See Dkt. 108 at 38–39 ¶ 67. For this reason, the City believes that
DMAC’s tortious interference claim should be dismissed on immunity grounds.
The court agrees that the City’s communication with HUD to ensure that the Arbor Court
units were not rehabbed is not a governmental function. As the Director of Housing and
Community Development acknowledged in his communication with HUD, the City sought to
prevent the rehabilitation of Arbor Court to the benefit of low-income families. Dkt. 106 at 15 ¶
50. This was a discretionary decision, one not obligated by the City’s traditional governing duties.
See Gates, 704 S.W.2d at 739. Consideration of context supports this conclusion. The actions
complained of in DMAC’s tortious interference claim pertain to the City’s communication with
HUD—not its exercise of a plainly governmental land use authority. Moreover, the City’s
communication was also made to benefit a specific subset of its own residents, as opposed to the
general public. See Wasson, 559 S.W.3d at 151 (noting that “whether a [municipality’s] contract
primarily benefits one or the other will often indicate whether it is proprietary or governmental”).
Nor was the specific instance of communication “closely related to or necessary” for the City to
perform its governmental functions, namely executing the permitting process. See id. at 153 (“The
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fact that a city's proprietary action ‘touches upon’ a governmental function is insufficient to render
the proprietary action governmental.”).
Accordingly, the court finds that the City is not immune from suit as to DMAC’s tortious
interference claim and the City’s motion to dismiss pursuant to Rule 12(b)(1) is DENIED.
b. Failure to State a Claim
However, this finding does not end the court’s analysis. The question remains whether
DMAC has adequately alleged a tortious interference claim. The court finds that it has not. To
establish a claim for tortious interference with existing contracts a plaintiff must establish that: (1)
contracts existed that were subject to interference; (2) defendant willfully and intentionally
committed acts of interference; (3) defendant's acts proximately caused damages; and (4) actual
damages. Faucette v. Chantos, 322 S.W.3d 901, 913 (Tex.App.—Houston [14th Dist.] 2010, no
pet.) (citing Browning–Ferris, Inc. v. Reyna, 865 S.W.2d 925, 926 (Tex. 1993)).
Assuming that the third amended complaint contains allegations satisfying the first two
elements, DMAC has not pleaded facts that show that the City’s “acts”—namely, its
communication with HUD—“proximately caused damages.” See Faucette, 322 S.W.3d at 913.
The term “proximate cause” is shorthand for a legal concept: “Injuries have countless
causes, and not all should give rise to legal liability.” CSX Transp., Inc. v. McBride, 564 U.S. 685,
692, 131 S. Ct. 2630 (2011). In a tortious interference claim, “[a] plaintiff must be able to show
that the act of interference was the proximate cause of the damages suffered by it. This is the
classic proximate cause test with the component elements of cause in fact and foreseeability.” Hill
v. Heritage Res., Inc., 964 S.W.2d 89, 126 (Tex.App.—El Paso 1997, pet. denied). So, in addition
to foreseeability, DMAC must allege facts showing that the “cause in fact”—the City’s
communication with HUD—was a “substantial factor” in bringing about its injury—the lost
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contract and attendant revenue. See Tex. Campaign for the Env't v. Partners Dewatering Int'l,
LLC, 485 S.W.3d 184, 197 (Tex.App.—Corpus Christi–Edinburg 2016, no pet.) (citing Nixon v.
Mr. Prop. Mgmt. Co, Inc., 690 S.W.2d 546, 549 (Tex.1985)). “In other words, proximate cause is
that cause, unbroken by any new and independent cause, that produces injury and without which
the injury would not have occurred.” Id.
DMAC’s allegations have not met that elementary burden. The only allegations that
DMAC makes that the City’s communications resulted in the loss of the contract, as opposed to
its denial of the permit (the basis of its Contracts Clause claim), are found in paragraphs 149 and
150 of the third amended complaint:
The City’s tortious communications with HUD resulted in damage to DMAC’s
contractual relationship with HUD as demonstrated by HUD’s termination and
transfer of the HAP contract. Upon information and belief, in its communications
with HUD, the City repeatedly has encouraged HUD to terminate its contract with
DMAC.
The City’s willful and deliberate efforts to interfere with DMAC’s contractual
relationship with HUD proximately resulted in additional damages, including the
termination of the HUD contract.
Id. at 44 ¶¶ 149–50. These “conclusory statements,” which are little more than “[t]hreadbare
recitals of the elements,” do not suffice to allege proximate cause, and, therefore, to state a claim
of tortious interference. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937 (2009).
The Iqbal Court understood that evaluating a claim under Rule 12(b)(6) would “be a
context-specific task that requires the reviewing court to draw on its judicial experience and
common sense.” 556 U.S. at 679. The larger context of DMAC’s third amended complaint
underscores why it fails to state a claim here. To the extent that the third amended complaint
includes factual allegations touching on concepts of causation, they refute the notion that the City’s
communication plausibly served as the proximate cause of DMAC’s damage. Consider, for
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instance, DMAC’s allegation that it was “the denial of [the repair] permits [that] caused the loss
of the HUD subsidy”— not the City’s communication with HUD. Dkt. 106 at 18 ¶ 63. Indeed,
DMAC claims that “HUD formally notified DMAC that it was in default under its Housing
Assistance Payment...contract with HUD because the first-floor units at Arbor Court remained
damaged, unrepaired, and thus uninhabitable.” Id. at 17 ¶ 55. Consequently, DMAC asserts that
“HUD demanded DMAC take correction action including obtaining permits and proceeding to
repair the still damaged units.”
Id. ¶ 56.
But “DMAC could not comply with HUD’s
demand...because the City continued its refusal to release usable permits.” Id. And “[a]s a direct
consequence of the City’s refusal to lift the holds placed on permits,” DMAC alleges that “it could
not repair Arbor Court as demanded by HUD, who removed the HAP contract from Arbor Court,”
thereby resulting in DMAC’s “cashflow” to come “to a complete halt.” Id. ¶ 57. In short, DMAC
theorizes that this conduct “caused the independent injury of being unable to repair the [Arbor
Court] property, as it was required by HUD to do to maintain the HUD HAP contract and benefits
thereunder.” See id. at 35 ¶ 112.
However, in defending its tortious interference claim, DMAC argues that this allegedly
improper permitting conduct is “completely independent” from its tortious interference claim.
Dkt. 119 at 34. The court is inclined to agree. Thus, while DMAC has shown that the City’s
communication with HUD constituted propriety conduct that waived immunity, it has failed to
adequately allege that the challenged communications were the proximate cause of its injuries.
In sum, DMAC does not allege sufficient facts to state a claim of tortious interference.
Accordingly, the City’s motion to dismiss pursuant to Rule 12(b)(6) is GRANTED with respect
to DMAC’s tortious interference claim.
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CONCLUSION
For the reasons outlined above, the City’s motion to dismiss under Rule 12(b)(1) and Rule
12(b)(6) is DENIED in part and GRANTED in part, as follows:
1. The motion to dismiss DMAC’s declaratory claims pursuant to Rule 12(b)(1) is
DENIED;
2. The motion to dismiss DMAC’s declaratory judgment claims pursuant to Rule
12(b)(6) is GRANTED.
3. The motion to dismiss DMAC’s takings claims pursuant to Rule 12(b)(6) is DENIED
as to DMAC’s categorical and non-categorical takings claims and GRANTED as to
DMAC’s inverse condemnation claim;
4. The motion to dismiss DMAC’s substantive due process claims pursuant to Rule
12(b)(6) is GRANTED;
5. The motion to dismiss DMAC’s procedural due process claims pursuant to Rule
12(b)(6) is GRANTED;
6. The motion to dismiss DMAC’s equal protection claim pursuant to Rule 12(b)(6) is
DENIED;
7. The motion to dismiss DMAC’s Contract Clause claim pursuant to Rule 12(b)(6) is
GRANTED;
8. The motion to dismiss DMAC’s tortious interference claim pursuant to Rule 12(b)(1)
is DENIED; and
9. The motion to dismiss DMAC’s tortious interference claim pursuant to Rule 12(b)(6)
is GRANTED.
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Signed at Houston, Texas on October 21, 2021.
_________________________________
Gray H. Miller
Senior United States District Judge
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