Ep Hotel Partners, LP v. City of El Paso, 08-16-00031-CV.

• Decision Date: 04 August 2017
• Docket Number: No. 08-16-00031-CV.,08-16-00031-CV.
• Citation: 527 S.W.3d 646
• Parties: EP HOTEL PARTNERS, LP and Spokane Equities Limited Partnership, Ltd., Appellants, v. CITY OF EL PASO, Mayor Oscar Leeser, City Representatives Emma Acosta, Carl L. Robinson, Michiel R. Noe, Courtney C. Niland, Ann Morgan Lilly, Larry Romero, Claudia Ordaz, Lily Limon, and EP Vida, LLC, Appellees.
• Court: Texas Court of Appeals

527 S.W.3d 646

EP HOTEL PARTNERS, LP and Spokane Equities Limited Partnership, Ltd., Appellants,

v.CITY OF EL PASO, Mayor Oscar Leeser, City Representatives Emma Acosta, Carl L. Robinson, Michiel R. Noe, Courtney C. Niland, Ann Morgan Lilly, Larry Romero, Claudia Ordaz, Lily Limon, and EP Vida, LLC, Appellees.

No. 08-16-00031-CV.

Court of Appeals of Texas, El Paso.

August 4, 2017

Hon. Francis S. Ainsa Jr., Ainsa Hutson LLP, El Paso, TX, for appellants.

Hon. Mark N. Osborn, Kemp, Smith, Hon. Oscar G. Gabaldon, Jr., El Paso, El Paso, TX, for appellees.

Before McClure, C.J., Rodriguez, and Palafox, JJ.

OPINION

GINA M. PALAFOX, Justice

Appellants, who are owners and operators of existing hotels located near the El Paso International Airport, filed suit against the City of El Paso, its elected representatives (collectively referred to as the "City"), and a private third party, EP Vida, LLC (EP Vida). Appellants claimed that the City violated its charter by entering a lease with EP Vida, later amended, for the construction and operation of a new hotel and retail center on city property located near Appellants' hotels. This is an appeal from an order granting summary judgment in favor of the City and EP Vida, jointly, in which the trial court dismissed Appellants' lawsuit seeking a declaration pursuant to the Uniform Declaratory Judgment Act (UDJA), that the City violated the El Paso City Charter when it entered the lease with EP Vida, and that the City representatives acted in an ultra vires manner by approving it. Appellants assert that the trial court erred in granting summary judgment in favor of Appellees, arguing that they presented sufficient evidence to raise genuine issues of material fact on the question of whether the lease violated the City Charter, and on the question of whether the representatives acted in an ultra vires manner. We affirm.

FACTUAL BACKGROUND

The undisputed facts in this case reveal that prior to May of 2013, the City worked on redeveloping a parcel of land it owned that was located near the El Paso International Airport (hereinafter the "airport"). Staff working on the project included individuals from both the airport and economic development departments of the City. At the time, the property at issue had become "blighted," as it contained an abandoned building that had stood vacant since 2002 or earlier, and squatters had become an issue of concern.

The City hired a third-party appraiser to provide a fair market value determination of the parcel of land. Ordinarily, based on the appraised value, the City would then charge eight percent of the appraised value times the length of the lease in years to determine the lease rate for the property. To begin the redevelopment of this parcel, however, the City believed it needed to offer "incentives," in the form of temporary rental abatements, to induce a hotel developer to build on the site.

In May of 2013, the City entered a forty-year lease agreement with EP Vida that provided for EP Vida to begin construction, within sixty days from the issuance of a building permit, and complete construction within thirty-six months of the lease signing, El Paso's first four-star hotel, together with a retail center and public right of way included on the property.¹ The terms of the lease agreement, relevant to this appeal, provided that the rent for the hotel site would be set at a minimum annual guarantee rental amount, or "MAG" rent, for the first fifteen years of the lease, which was set at 0.49 cents per square foot; thereafter, in the year 2028, EP Vida would be required to pay either the MAG rent, which was then set at eight percent of the fair market value of the site less improvements, or rent based on a certain percentage of the hotel's gross revenue ("Hotel Percentage Revenue"), whichever was greater.² Additionally, the lease provided for periods of rent abatement under two provisions: first, to account for a period of design and construction, EP Vida would not be required to pay any rent during the first thirty-six months of the lease, or until a certificate of occupancy was issued for the hotel, whichever occurred first; and second, from the beginning of the lease to the fifteenth anniversary, or year 2028, the provision requiring payment of a percentage of hotel revenue, when greater than MAG, would also be abated.

City staff calculated that, when viewing the EP Vida lease over the course of its forty-year term, the City would recoup or "catch up on" any deficiencies that might occur in the earlier stages of the lease—due to the incentives offered—by the end of the term, and that the City would in fact receive more than fair market rent for the property over the term of the lease. The City asserted that, even though fair market value for rent for the hotel site over a forty-year term would ordinarily have been less than $10 million, it projected that EP Vida would pay more than double that amount due to the City capturing the fair-market-value rent and a percentage of gross revenue from year sixteen onward to the end of the lease.

Appellants' Lawsuit

On March 5, 2014, Appellants, as the owners and operators of airport hotels located on land leased from the City, filed a lawsuit naming both EP Vida and the City of El Paso, in which they sought a declaratory judgment under the UDJA that the EP Vida Lease was void and unenforceable on the basis that it violated the El Paso City Charter.³ Appellants claimed that the lease violated Section 3.18 of the El Paso City Charter (hereinafter the "City Charter"), which provides that: "Any ordinance providing for the conveyance, lease, or grant of a franchise regarding the property of the City shall provide for payment to the City of a reasonable fee as consideration for that conveyance, lease, or franchise" (hereinafter the "reasonable fee" provision). Appellants argument challenging the lease centered on the two periods of "rent abatement," i.e., the initial thirty-six month rent deferral, and the fifteen-year period of deferral of the imposition of the hotel percentage revenue rent provision, when greater than MAG, until after 2028. Appellants argued that because of the inclusion of these rental abatements, the City was not charging a "reasonable fee" as required by the Charter. Appellants later added the City Representatives as defendants in their lawsuit in their Second Amended Petition, alleging that they acted in an ultra vires manner when they approved the lease, due to the lease's alleged violation of the City Charter. In response, both EP Vida and the City, filed counterclaims, seeking a declaration under the UDJA that the lease was valid and enforceable.

The First Amended Lease

Because of the ongoing litigation with Appellants, EP Vida was unable to meet initial obligations under the Original Lease in a timely manner. In light of this delay, the City Council passed a resolution dated December 15, 2015, authorizing the City to enter into an amended lease with EP Vida, which was signed and became effective that same day (hereinafter the "Amended Lease"). In the Amended Lease, the hotel site was replatted to more accurately reflect the scope of the hotel site,⁴ and EP Vida again agreed to construct a four-star hotel, and to pay a minimum annual guarantee rental amount, or "MAG" rent, at the same rate of .49 cents per square foot per year until 2028, with adjustments made for increases in the Consumer Price Index. Thereafter, in 2028, the MAG rent would readjust to a rate equal to eight percent of the fair market value of the hotel site less improvements. The Amended Lease also called for a 100 percent abatement of the MAG rent until May 28, 2016, or until a certificate of occupancy was issued for the hotel, whichever occurred first. In addition, in 2028, the hotel percentage revenue provision became effective, and EP Vida would be required to pay the MAG rate or the hotel percentage revenue provision, whichever amount was greater. As well, the Amended Lease imposed specific requirements on EP Vida to construct and maintain an open space on the premises to include a park pond and a private street.

The Motions for Summary Judgment

On June 12, 2015, six months before the parties signed the First Amended Lease, EP Vida and the City filed a joint no-evidence motion for summary judgment, seeking dismissal of Appellants' claims against them, arguing that Appellants had no evidence that the EP Vida Lease violated the City Charter. In addition, both the City and EP Vida filed traditional motions for summary judgment on their counterclaims, seeking a declaration that the EP Vida Lease was valid and enforceable.

In their written response, which was based on the original EP Vida Lease, Appellants pointed out that the City admitted in one of its discovery responses that it did not use any specific criteria for determining what would constitute a "reasonable fee" for hotel leases on City property adjacent to the airport. However, Appellants argued that the City had in effect defined that term by the policies or practices it had previously followed when it structured rent in other airport hotel leases, and submitted evidence from other hotel owners and operators regarding the manner in which the City had structured rent in their leases. Appellants asserted that this evidence demonstrated that the City's "practice," as reflected in these other leases, was to require airport hotel lessees to "pay market rent in the form of fixed ground rent based on appraised value and percentage rent, or just percentage rent, without any abatement[s]." In their written pleadings, Appellants argued that the EP Vida Lease did not contain a "reasonable fee," as required by the City Charter because it deviated from its past practices, in part because it contained the following two rental abatement provisions, not found in other airport hotel leases: (1) the initial thirty-six-month rental abatement in that lease; and (2) the abatement of the...