Hearts Bluff Game Ranch, Inc. v. State

• Decision Date: 16 November 2012
• Docket Number: No. 10–0491.,10–0491.
• Citation: 381 S.W.3d 468,55 Tex. Sup. Ct. J. 1287
• Parties: HEARTS BLUFF GAME RANCH, INC., Petitioner, v. The STATE of Texas and The Texas Water Development Board, Respondents.
• Court: Texas Supreme Court

381 S.W.3d 468

55 Tex. Sup. Ct. J. 1287

HEARTS BLUFF GAME RANCH, INC., Petitioner,

v.The STATE of Texas and The Texas Water Development Board, Respondents.

No. 10–0491.

Supreme Court of Texas.

Argued Oct. 5, 2011.

Decided Aug. 31, 2012.

Rehearing Denied Nov. 16, 2012.

Edward C. Small, Jackson Walker LLP, Austin, TX, for Amicus Curiae Texas Farm Bureau Texas Association of Dairymen.

Greg White, Attorney at Law, James E. Wren, Baylor Law School, Waco, TX, Terry L. Jacobson, Jacobson Law Firm, P.C., Corsicana, TX, for Petitioner Hearts Bluff Game Ranch, Inc.

Arthur Cleveland D'Andrea, Assistant Solicitor General, Clarence Andrew Weber, Kelly Hart & Hallman LLP, Daniel T. Hodge, First Asst. Attorney General, David S. Morales, Deputy First Assistant Attorney General, Office of the Attorney General of Texas, Greg W. Abbott, Attorney

General of Texas, Jonathan F. Mitchell, Solicitor General, Office of the Attorney General, Thomas Haines Edwards, Office of the Attorney General, Environmental Protection, William J. “Bill” Cobb III, Office of the Attorney General, Austin, TX, James C. Ho, Gibson Dunn & Crutcher LLP, Dallas, TX, Kellie Elizabeth Billings–Ray, Office of the Attorney General of Texas, Georgetown, TX, for Respondent State of Texas.

Justice WAINWRIGHT delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice GREEN, Justice JOHNSON, Justice GUZMAN, and Justice LEHRMANN joined.

The judiciary has a historic duty to uphold constitutional protections of individual liberties.¹ But the individual must present a claim countenanced by law. It is not prudent to sanction a seventy million dollar demand against the State of Texas for an alleged taking of a property interest when 1) as acknowledged by all parties, the United States Army Corps of Engineers, not the State of Texas, exercised its exclusive authority to deny petitioner's application for a federal mitigation banking permit on the land, and 2) the federal courts have held that petitioner has no cognizable property right in the federal permit at issue. Under these circumstances, petitioner failed to plead a viable takings claim.

The backstory for this case is the State's continuing battle to manage its critical water resources. The Texas drought from 1950–1957 ² has been described by a Texas water official as “the most costly and one of the most devastating droughts in 600 years.” ³ The 1950s drought “reshaped Texas, ruining thousands of farmers and ranchers and pushing rural residents to migrate out of the country and into the cities.” ⁴ Comal Springs stopped flowing out of the Edwards Aquifer for the first and only time in recorded history.⁵ In 1952 the Cotton Bowl, the stadium at Fair Park in Dallas, drilled its own well within the stadium to water the field because the city could not furnish the water it needed.⁶ By the end of the drought, 244 of Texas' 254 counties were classified as disaster areas,⁷ and losses from the drought were estimated at $22 billion in 2011 dollars.⁸

The Legislature responded to the drought by creating in 1957 the Texas Water Development Board (TWDB), charged with forecasting water supply needs and developing a comprehensive state water plan for water management, conservation, and response to drought conditions.⁹ With policy-makers focused on the water needs of a thriving State, from 1957 to 1980 Texas constructed more than 126 major reservoirs ¹⁰ and from 1957 to 1970 built 69 dams, including Longhorn Dam on the Colorado River, which formed Lady Bird Lake in 1960. ¹¹ These efforts expanded the State's water storage, as the State concurrently sought new sources of groundwater in underground aquifers. ¹²

Continuing to address Texas' water needs and usage after another drought in 1996, the Legislature passed Senate Bill 1, likely the most comprehensive water bill in the State's history, requiring the TWDB to publish a comprehensive state water plan every five years and base its projections on a fifty-year time horizon.¹³ As of August 2011, the recent drought had left three-quarters of the state in the exceptional drought category and over 99 percent of the state in some form of drought condition.¹⁴ Against this backdrop, the TWDB has identified potential reservoir sites going back decades and revised water plans as tasked by the Legislature.

Hearts Bluff Game Ranch, Inc. (Hearts Bluff) purchased some of the wetlands on one of the sites identified by the TWDB as a potential reservoir location. When the United States Army Corps of Engineers (USACE or Corps) denied its application for a mitigation banking permit because the State had identified the site as a potential reservoir, Hearts Bluff sued the State and the USACE for a taking for interfering with its asserted right to commercially develop the land as a mitigation bank.

The question posed is whether a takings claim against the State may be predicated on the denial of a permit by the federal government when the State had no authority to grant or deny the permit. Our answer is no, absent establishing bad faith, and we affirm the judgment of the court of appeals, reversing the trial court's denial of the plea to the jurisdiction.

I. Introduction and Background

In 2003 and 2004, Hearts Bluff purchased approximately 4,000 acres of “bottomland” in Titus County near the Sulphur River. “Bottomland” is seasonally or continuously flooded hardwood river swamps. 313 S.W.3d 479, 481. Hearts Bluff planned to create a federal mitigation bank which is a commercial endeavor that allows a person who restores, establishes or preserves a wetland or other aquatic resource to sell “mitigation bank credits” he receives from the federal government to third parties who negatively impact aquatic resources in other locations. See33 U.S.C. § 1251; 33 C.F.R. §§ 332.2, 332.3(b)(2) (2011); Butler v. Comm'r, 103 T.C.M. (CCH) 1359, at *38, n. 20 (2012) (citing the U.S. Environmental Protection Agency, Mitigation Banking Factsheet, available at http:// www. epa. gov/ owow/ wetlands/ facts/ fact 16. html. 33 C.F.R. 332.1, 332.3(b)(2) (2011)). The Corps is the only governmental entity with authority to issue these permits. Clean Water Act, 33 U.S.C. § 1344 et seq. (authorizing the Secretary of the Army, acting through the “Chief of Engineers,” to issue these permits); Rivers and Harbors Act of 1899, 33 U.S.C. § 403 (similar); 33 C.F.R. §§ 332.1, 332.3 (describing general compensatory mitigation requirements); see also Clean Water Act, Pub.L. No. 108–136, § 314(b), 117 Sta. 1431 (2003). Hearts Bluff acknowledges the exclusive authority of the Corps to grant or deny federal mitigation banking permits.

Hearts Bluff's land lies within the bounds of the potential Marvin Nichols Reservoir, a 67,957 acre site identified by the State since 1968 as a possible drinking water reservoir to service the Dallas and Fort Worth areas. Marvin Nichols Reservoir has been included in every version of the TWDB's state water plan ¹⁵ since 1968.¹⁶ Hearts Bluff acknowledged that at the time it purchased the land, it was aware both that the State was considering creating the reservoir and that the land it purchased was within the reservoir's footprint.

After Hearts Bluff purchased the land and applied for a mitigation banking permit with the Corps, the Corps solicited public comment on Hearts Bluff's application. The USACE solicited comments from resource agencies, other federal, state and local government agencies, public interest groups, the general public, adjacent property owners, and other interested parties on various factors. The Corps received over 300 responsive comments, including from state elected officials representing Northeast Texas, the Texas Committee on Natural Resources, the City of Texarkana, local municipalities and regional water districts, the United States Fish and Wildlife Service, the Environmental Protection Agency, and the Texas Commission on Environmental Quality. Most of the comments received supported the mitigation bank, however “all of the agencies” expressed concern with the location of the proposed mitigation bank within the footprint of the Marvin Nichols Reservoir. Local municipalities and regional water districts opposed the mitigation bank proposal.

The TWDB responded by letter, dated December 9, 2004, to the Corps' request for comment, explaining how the permit could affect its interests and observing that the mitigation bank could potentially render the Reservoir project less viable or infeasible. The TWDB opined that approval of Hearts Bluff's mitigation bank would “not prevent construction of a reservoir,” but it would require a re-analysis of the water management strategy for the Dallas and Fort Worth region of the State. The TWDB advised that it opposed the permit's approval.

The USACE denied the permit application in July 2006.¹⁷ A year later, in May 2007, the Legislature approved the TWDB's 2006 water plan, thus conferring upon the Marvin Nichols Reservoir site the designation as a “unique” potential reservoir site. Tex. Water Code § 16.051(g). The Corps' stated reason for denying the application was that the mitigation bank would not exist in perpetuity if the Legislature chose to build the Reservoir. Hearts Bluff then applied for a limited-term mitigation bank permit, but the Corps denied this request because mitigation banks must be perpetual. Hearts Bluff later applied again, but the Corps once again denied the permit in July 2008.

II. Procedural Posture

Hearts Bluff brought an inverse condemnation claim against the State of Texas and the TWDB (collectively the “State”), asserting a regulatory taking under both the Texas and United States Constitutions and seeking $30 to $70 million in damages. In its Second Amended Original Petition, the live pleading, Hearts Bluff alleges that the Corps denied the mitigation banking permit solely because the “mitigation bank was located within the footprint of a reservoir that was a unique reservoir site suitable for...