Cypress Forest Public Utility District v. Kleinwood Municipal Utility District

Reversed and Rendered and Majority Opinion

filed March 16, 2010.

In

The

Fourteenth

Court of Appeals

NO. 14-09-00679-CV

Cypress Forest

Public Utility District , Appellant

v.

Kleinwood

Municipal Utility District, Appellee

On Appeal from

the 215th District Court

Harris County, Texas

Trial Court

Cause No. 2009-20986

M A J O R I T Y O P I N I O N

This case involves a municipal utility district’s

allegation that rights acquired under an annexation agreement were appropriated

by another utility district in violation of the takings clause under article I,

section 17 of the Texas Constitution. Appellee, Kleinwood Municipal Utility

District (“Kleinwood”), filed suit against appellant, Cypress Forest Public

Utility District (“Cypress Forest”), claiming an unconstitutional taking of

rights created under an annexation agreement. Kleinwood answered the lawsuit

by filing a plea to the jurisdiction. The trial court denied the plea, and in

turn, Cypress Forest brings this interlocutory appeal. In two issues, Cypress

Forest complains that the trial court erred in denying its plea to the

jurisdiction. We reverse and render.

I. BACKGROUND

Kleinwood and Cypress Forest are Texas utility

districts under section 59 of article XVI of the Texas Constitution and

chapters 49 and 54 of the Texas Water Code. See Tex. Const. art. XVI, §

59; see also Tex. Water Code §§ 49.001–.512, 54.001–.813. This dispute

originated from their competing efforts to secure a contract for the annexing

of certain property to their respective districts.

A. Annexation Agreements

The property sought to be annexed, owned by

JP/Raveneaux Partners, L.P. (“JP/Raveneaux”), was a 39-acre tract of

undeveloped land in Harris County (“Raveneaux tract”). In or around 2005,

JP/Raveneaux and Kera Development, L.P. (collectively “the developers”) began

improving the tract of land for residential and commercial purposes. They

explored annexation to a utility district for provision of water, sanitary

sewer, and drainage services to the property. Because the Raveneaux tract was

adjacent to both Kleinwood’s district and Cypress Forest’s district, the

developers considered annexing the property to either utility district.

On October 5, 2006, Kleinwood and the developers entered

into an annexation contract (“Kleinwood annexation agreement”). The Kleinwood

annexation agreement provided that “[a]t such time as Developer desires to

obtain service to the Tract, Developers shall execute and file . . . [an] . . .

Annexation Petition” requesting that the Raveneaux tract be annexed to

Kleinwood’s district. The Kleinwood annexation agreement further provided that

if the developers failed to execute a petition for annexation within a year of

the agreement, the Kleinwood annexation agreement would automatically

terminate.

Additionally, the Kleinwood annexation agreement

provided that the developers might construct water, sanitary sewer, and

drainage facilities needed for improving the Raveneaux tract. Upon completion

of the necessary infrastructure, the developers agreed to convey the facilities

to Kleinwood. Kleinwood agreed to provide 257,400 gallons of water per day to

the Raveneaux tract and 94,500 gallons of sewage treatment capacity per day.

Kleinwood further agreed to use “good faith efforts” to obtain voter approval

for the sale of bonds to reimburse the developers for construction costs of the

facilities. Thereafter, Kleinwood would be able to tax the owners of

properties within the annexed tract and use those revenues for repayment to its

bondholders and for the benefit of other property owners within its district. If

construction of the facilities had not commenced within two years of the

agreement, the Kleinwood annexation agreement would automatically terminate.

Cypress Forest soon learned of the Kleinwood

annexation agreement. Kleinwood alleges that in early 2008, Cypress Forest

began soliciting and negotiating with the developers. It encouraged the

developers to abandon the Kleinwood annexation agreement and to enter into a

similar contract with Cypress Forest for the purpose of annexing the Raveneaux

tract to Cypress Forest’s district. Kleinwood claims that the developers’

attendance at Kleinwood’s board meetings and the developers’ communication with

Kleinwood dwindled thereafter. On September 2, 2008, and without notice to

Kleinwood, the developers entered into an annexation agreement with Cypress

Forest (“Cypress Forest annexation agreement”) calling for the development of

the Raveneaux tract and annexation of the tract to Cypress Forest’s district.

Thereafter, the developers sent Kleinwood notice that the Kleinwood annexation

agreement had terminated.

B. Trial Court Proceedings

Initially, Kleinwood sued Cypress Forest and the

developers in federal court. Kleinwood alleged that Cypress Forest had (1)

deprived Kleinwood of its rights created under 42 U.S.C. section 1983 , (2)

conspired with the developers in violation of 42 U.S.C. section 1983 , (3)

deprived Kleinwood of due process under the Fourteenth Amendment of the United

States Constitution, (4) effected an unconstitutional taking in violation of

article I, section 17 of the Texas Constitution, and (5) tortiously interfered

with Kleinwood’s existing contract with the developers. Ruling on Cypress

Forest and the developers’ 12(b)(6) motion, the federal district court

dismissed Kleinwood’s section 1983 and Fourteenth Amendment claims with

prejudice and dismissed the state article I, section 17 takings claim without

prejudice.

Kleinwood then filed its article I takings claim

against Cypress Forest and its board of directors in state district court. Against

Cypress Forest, Kleinwood claimed only an unconstitutional taking in violation

of article I, section 17. Cypress Forest later filed a plea to the

jurisdiction, arguing that Kleinwood’s takings claim was in fact an inverse

condemnation cause of action, a claim over which the county civil courts at law

have exclusive jurisdiction pursuant to section 25.1032(c) of the Texas

Government Code. [1]

In response, Kleinwood contended that section

25.1032(c) applied only to eminent domain cases; by contrast, its takings claim

did not allege the exercise of the state’s eminent domain powers. Kleinwood

argued that because the case involved the taking of contract rights—not real

property—section 25.1032(c) was not applicable. Cypress Forest later

supplemented its plea to the jurisdiction, further arguing that all article

I, section 17 claims were captured by section 25.1032(c), and thus, Kleinwood’s

article I, section 17 claim could not be adjudicated in the district court.

Additionally, Cypress Forest argued that it had governmental immunity from

Kleinwood’s takings claim because: (1) Kleinwood had no vested property

interest under the Kleinwood annexation agreement and (2) Cypress Forest’s act

of contracting with the developers did not constitute a taking because the act

was neither a physical taking nor a regulatory taking.

After a hearing on Cypress Forest’s plea to the

jurisdiction, the trial court denied the plea, and the instant accelerated

appeal ensued. On appeal, Cypress Forest argues that the district court lacked

jurisdiction on two grounds: (1) section 25.1032(c) divested the district

court’s jurisdiction to hear Kleinwood’s takings claim and (2) Cypress Forest’s

sovereign immunity had not been waived because Kleinwood failed to plead a

valid takings claim.

II. STANDARD OF REVIEW

A plea to the jurisdiction seeks dismissal on the

ground that the trial court lacks subject-matter jurisdiction to hear the

cause. Harris County v. Sykes , 136 S.W.3d 635, 638 (Tex. 2004).

Whether a court has subject-matter jurisdiction is a question of law which we

review de novo . Tex. Dep’t of Parks & Wildlife v. Miranda ,

133 S.W.3d 217, 226 (Tex. 2004); Tex. Natural Res. Conservation Comm’n v.

IT-Davy , 74 S.W.3d 849, 855 (Tex. 2002). The plaintiff bears the burden of

alleging facts that affirmatively demonstrate the trial court’s subject-matter

jurisdiction over a case. Tex. Ass’n of Bus. v. Tex. Air Control Bd. ,

852 S.W.2d 440, 446 (Tex. 1993).

When a plea challenges the pleadings, we determine if

the pleader has alleged facts affirmatively demonstrating the court’s

jurisdiction to hear the case. Miranda , 133 S.W.3d at 226 . We construe

the pleadings liberally in favor of the plaintiff and look to the pleader’s

intent; we do not decide the merits of the case. See id. ; see also

Bland Indep. Sch. Dist. v. Blue , 34 S.W.3d 547, 554 (Tex. 2000). If

the pleadings neither establish jurisdiction nor demonstrate incurable defects

in jurisdiction, we must afford the plaintiff an opportunity to amend its

pleadings. Miranda , 133 S.W.3d at 226–27. However, if the pleadings

affirmatively negate jurisdiction, the trial court may grant a plea to the

jurisdiction without allowing the plaintiff the opportunity to amend. County

of Cameron v. Brown , 80 S.W.3d 549, 555 (Tex. 2002).

When the defendant’s plea challenges the existence of

jurisdictional facts, we consider the relevant evidence submitted by the

parties to the extent necessary to resolve the jurisdictional questions

raised. See Miranda , 133 S.W.3d at 227 . Then, we assume as true all

evidence favoring the nonmovant. See id. at 228 . If the evidence generates

a fact question regarding the jurisdictional issue, then the plea to the

jurisdiction must be denied. Id. at 227–28. If the evidence is

undisputed or fails to raise a fact question on the jurisdictional issue, then

the trial court rules on the plea to the jurisdiction as a matter of law. Id.

at 228 .

III. TRIAL COURT’S JURISDICTION

In its first issue, Cypress Forest contends that the

lower district court lacked jurisdiction to hear Kleinwood’s article I, section

17 claim because: (1) Government Code section 25.1032(c) vests the county

civil court at law with exclusive jurisdiction over Kleinwood’s takings claim

and (2) Kleinwood’s claim is not a taking by eminent domain.

A. Section 25.1032(c)

Cypress Forest first contends that Kleinwood’s

takings claim falls within the county civil court at law’s exclusive

jurisdiction. Section 25.1032(c) provides that a “county civil court at law

has exclusive jurisdiction in Harris County of eminent domain proceedings, both

statutory and inverse, regardless of the amount in controversy.” Tex. Gov’t

Code § 25.1032(c). Relying on two cases from our sister court, Cypress Forest

contends that the language of this section covers all article I,

section 17 cases, not just statutory and inverse eminent domain proceedings. See

Villarreal v. Harris County , 226 S.W.3d 537 (Tex. App.—Houston [1st Dist.]

2006, no pet.); City of Houston v. Boyle , 148 S.W.3d 171 (Tex.

App.—Houston [1st Dist.] 2004, no pet.). [2]

1. Villarreal and Boyle

Contrary to Cypress Forest’s contention, the First

Court’s opinions in Villarreal and Boyle did not hold that all

article 1, section 17 claims are subject to section 25.1032(c). See

Villarreal , 226 S.W.3d at 544 (holding “that the improper use of taxing

power to accomplish a taking of real property is a use of eminent domain power,

and thus, jurisdiction over any claim that alleges such rests exclusively in

the Harris County Civil Courts at Law”); see also Boyle , 148

S.W.3d at 179 (“Because Boyle’s pleadings seek recovery premised on allegations

that the City’s alleged conduct—both nonnegligent nuisance and inverse

condemnation—resulted in a taking of his property that entitled him to

compensation, we conclude that exclusive jurisdiction over Boyle’s . . .

inverse condemnation claim . . . is in the Harris County Civil Courts at Law

pursuant to section 25.1032(c) of the Government Code.”). Villarreal

did not hold that all article I, section 17 claims are subject to

section 25.1032(c). Rather, Villarreal concluded that a state’s

improper use of its taxing power to take a person’s real property is an

exercise of eminent domain powers and therefore subject to section 25.1032(c).

226 S.W.3d at 544 . Here, there is no allegation of an improper use of taxing

power to take real property.

Furthermore, the plaintiff in Boyle explicitly

pleaded an inverse condemnation claim, which subjected the suit to the county

court’s exclusive jurisdiction by the plain language of section 25.1032(c).

148 S.W.3d at 174 . Kleinwood’s pleadings do not allege injury by “inverse

condemnation” on their face. Accordingly, Cypress Forest’s reliance on Villarreal

and Boyle for the proposition that all article I, section 17 claims fall

under section 25.1032(c) of the Government Code is misplaced. Because Cypress

Forest cites to no authority holding that all article I, section 17 claims are

subject to section 25.1032(c), we reject Cypress Forest’s argument and overrule

its first issue.

IV. VALIDITY OF TAKINGS CLAIM AND GOVERNMENTAL IMMUNITY

In its second issue, Cypress Forest argues alternatively

that because the rights alleged to have been taken from Kleinwood under the Kleinwood

annexation agreement were not an exercise of eminent domain powers, its

sovereign immunity has not been waived, and it is therefore immune from suit. See

Gen. Servs. Comm’n v. Little-Tex Insulation Co. , 39 S.W.3d 591 , 598–99

(Tex. 2001) (reasoning that the immunity doctrine shielded the State from an

invalid constitutional-takings claim). Cypress Forest supports its legal

conclusion on the facts that (1) the right to annexation was contingent on the

developers’ constructing the facilities; (2) the right to tax was contingent on

ever-changing tax laws; (3) interference with a contract does not constitute a

“taking” under Texas law; and (4) the rights allegedly appropriated were

contract rights, not real property rights.

A. Taking by Eminent Domain

The distinction between a taking by eminent domain

and a taking not in eminent domain is a murky topic in constitutional

condemnation jurisprudence. Article I, section 17 claims have generally fallen

under one of three categories: (1) the taking or interference of a right by

physical possession or regulation; (2) the taking of property by the state’s

exercise of a colorable contract right; and (3) the taking, damaging, or

destruction of real property by eminent domain or inverse condemnation.

1. Physical or Regulatory Taking

To establish a takings claim, a plaintiff must prove

(1) the intentional performance by the governmental entity of certain acts, (2)

that resulted in a “taking” of property, (3) for public use. Id. at 598 .

A taking can be either a physical taking or a regulatory taking. Tarrant

Reg’l Water Dist. v. Gragg , 151 S.W.3d 546, 554 (Tex. 2004); Mayhew v.

Town of Sunnyvale , 964 S.W.2d 922, 933 (Tex. 1998). A physical taking

occurs when the government physically authorizes an unwarranted physical

occupation of the property. Gragg , 151 S.W.3d at 554 ; Mayhew , 964

S.W.2d at 933 . Kleinwood did not allege a physical occupation; thus, it has

not alleged a physical taking.

In the absence of any physical invasion, a regulatory

taking may occur by means of a governmental restriction that constitutes an

unreasonable interference with the use and enjoyment of the property. Lowenberg

v. City of Dallas , 168 S.W.3d 800, 802 (Tex. 2005); Taub v. City of Deer Park , 882 S.W.2d 824, 826 (Tex. 1994) .

In the instant case, there are no allegations or facts presenting a regulatory

taking. Accordingly, Cypress Forest’s acts do not constitute a physical or

regulatory taking.

2. Contract Disputes

The Texas Supreme Court has held that when the State withholds property in a

contractual context, it lacks the necessary intent to commit a taking because it “is acting within a

color of right under the contract

and not under its eminent domain

powers.” Little-Tex

Insulation Co. , 39 S.W.3d at 598–99 .

The Supreme Court’s reasoning rests on the concept that the State may wear two

hats: one as a contracting party, “akin to a private citizen,” and another as a

sovereign. Id. at 599. However, this theory does not apply in the

instant case because the complained-of act—Cypress Forest’s interference with

the Kleinwood annexation agreement—was not pursuant to an existing contract

right belonging to Cypress Forest.

Kleinwood complains of Cypress Forest’s alleged acts prior

to the Cypress Forest annexation agreement: by persuading the

developers to breach its contract with Kleinwood and by entering into the

Cypress Forest annexation agreement, Cypress Forest appropriated Kleinwood’s

rights to have the tract annexed to its district and to tax the property in the

future. These alleged acts of interference occurred before Cypress Forest was

a party to the Cypress Forest annexation agreement. Thus, the alleged act of

taking—interfering with the Kleinwood annexation agreement—was not pursuant to an

existing colorable contract right created under the Cypress Forest

annexation agreement. Accordingly, Cypress Forest was not acting under

existing contract rights.

3. Eminent Domain

Eminent domain refers to the power to take private

property for public use by the state, municipalities, and private persons or

corporations authorized to exercise a function of state power. Taub v.

Aquila Sw. Pipeline Corp. , 93 S.W.3d 451, 456 (Tex. App.—Houston [14th

Dist.] 2002, no pet.) (quoting BLACK’S LAW DICTIONARY 523 (6th ed. 1990)); see

also Ft. Worth & D.C. Ry. Co. v. Ammons , 215 S.W.2d 407, 409 (Tex. Civ.

App.—Amarillo 1948, writ ref’d n.r.e.) (stating that eminent domain is the right

of the state, or of those to whom power has been delegated, to condemn private

property for public use, and to take ownership and possession of property on

paying owner due compensation). The process of exercising the power of eminent

domain is commonly referred to as “condemnation” or “expropriation.” Taub ,

93 S.W.3d at 456 . Because a taking by eminent domain traditionally has been

used to seek compensation for the damaging, destruction, or taking of real

property , Kleinwood attempts to distinguish its takings claim from eminent

domain cases: the rights for which Kleinwood seeks compensation are contract

rights to have the Raveneaux tract annexed to its district and to tax the

property owners within the tract.

Although eminent domain has traditionally been used

in the condemning of real property, neither party has directed the Court to

authority reflecting that such power is limited to the taking of real property.

However, at least one court of appeals has acknowledged, in the context of

article I, section 17, that eminent domain involves condemnation of interests

in real property, not the alleged taking of property interests created under a

contract. See State v. Operating Contractors/State , 985 S.W.2d 646, 651

(Tex. App.—Austin 1999, pet. denied); see also MBP Corp. v. Bd. Of Trs. of

Galveston Wharves , 297 S.W.3d 483 , 491–92 (Tex. App.—Houston [14th Dist.]

2009, no pet.). We decline Kleinwood’s invitation to extend the definition of

condemned property, in the context of eminent domain, to include contract

rights. Accordingly, we sustain Cypress Forest’s second issue to the extent

that the alleged taking of Kleinwood’s contract rights is not an exercise of

eminent domain.

B. Vested Property Interest

Cypress Forest further contends in its second issue that

Kleinwood failed to plead a valid takings claim because (1) the right to

annexation was contingent on the developers’ construction of the facilities and

the right to tax was contingent on ever-changing tax laws and (2) Cypress did

not appropriate Kleinwood’s contract rights. [3]

A person asserting a valid article I takings claim

must show that it has a vested property interest. The two property interests

that Kleinwood asserts were taken are (1) the right to be petitioned to have

the Raveneaux tract annexed to its district and (2) the right to tax property

owners within the tract and its district. Neither of these interests is a vested

property right. See City of Houston v. Northwood Mun. Util. Dist. No. 1 ,

73 S.W.3d 304, 311 (Tex. App.—Houston [1st Dist.] 2001, pet. denied)

(concluding that an “interest in receiving ad valorem tax revenues is not a

vested property right for purposes of asserting a violation of article I,

section 17”). The right to collect ad valorem tax revenues is dependent on the

characteristics and status of the entity owning the property. Id. Such

taxes are based merely on the expectancy that all future landowners in the district

will be subject to paying ad valorem taxes. Id. Accordingly, Kleinwood’s

right to collect ad valorem taxes is not a vested right, but a “qualified”

property right. See id. Likewise, Kleinwood’s right to annexation was

“qualified.” This right vested upon only the developers’ discretion to execute

and file the petition for annexation. Furthermore, if the petition for

annexation was not filed within a year of the Kleinwood annexation agreement,

the agreement terminated. Accordingly, Kleinwood did not have a vested property

right.

Because Kleinwood has failed to plead a vested

property interest, and therefore no valid takings claim, governmental immunity

bars its suit against Cypress Forest. See Little-Tex Insulation Co. , 39

S.W.3d at 599 . We sustain Cypress Forest’s second issue to the extent that

Kleinwood did not plead a vested property interest. Accordingly, we hold that

the trial court erred in denying Cypress Forest’s plea to the jurisdiction.

V. CONCLUSION

We reverse the trial court’s order denying Cypress

Forest’s plea to the jurisdiction and render judgment dismissing Kleinwood’s

suit for want of jurisdiction.

Senior Justice Mirabal concurs in the result with the

following note: “Justice Mirabal concurs in the result, joining only in the

analysis under the heading ‘IV.B. Vested Property Interest.’”

/s/ Adele

Hedges

Chief

Justice

Panel consists of Chief Justice Hedges,

Justice Anderson, and Senior Justice Mirabal.* (Senior Justice Mirabal

concurring in the result with note).

* Senior Justice Margaret Garner

Mirabal sitting by assignment.

[1]

See Tex. Gov’t Code § 25.1032(c).

[2]

In its reply brief, Cypress Forest further argues that because Kleinwood’s

takings claim is really an inverse condemnation claim, it is subject to section

25.1032(c). In response, Kleinwood contends that its article I, section 17

takings claim is a taking of contract rights, not real property rights, and

therefore not subject to section 25.1032(c).

[3]

Cypress Forest’s argument that it did not appropriate Kleinwood’s contract

rights addresses the merits of Kleinwood’s takings claim. However, a challenge

to the merits of a claim is not proper in a plea to the jurisdiction.