DM Arbor Court, Ltd. v. The City of Hous., Civil Action H-18-1884

CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
PartiesDM Arbor Court, Ltd., Plaintiff, v. The City of Houston Defendant.
Docket NumberCivil Action H-18-1884
Decision Date21 October 2021

DM Arbor Court, Ltd., Plaintiff,
v.

The City of Houston Defendant.

Civil Action No. H-18-1884

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

October 21, 2021


MEMORANDUM & ORDER

Gray H. Miller Senior, United States District Judge.

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...

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