KMS Retail Rowlett, LP v. City of Rowlett

• Decision Date: 17 May 2019
• Docket Number: No. 17-0850,17-0850
• Parties: KMS RETAIL ROWLETT, LP f/k/a KMS Retail Huntsville, LP, Petitioner v. CITY OF ROWLETT, Texas, Respondent
• Court: Texas Supreme Court

593 S.W.3d 175

KMS RETAIL ROWLETT, LP f/k/a KMS Retail Huntsville, LP, Petitioner

v.CITY OF ROWLETT, Texas, Respondent

No. 17-0850

Supreme Court of Texas.

Argued October 31, 2018

OPINION DELIVERED: May 17, 2019

Justice Brown delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Guzman, Justice Devine, and Justice Busby joined.

The City of Rowlett exercised its eminent-domain authority to take KMS's private-road easement and convert it to a public road connecting several commercial retail and restaurant sites. Pointing to the taking's relationship to an economic-incentives deal that would secure a Sprouts Farmers Market grocery store for the city, KMS argues the taking violates both the Texas Constitution's public-use requirement as well as chapter 2206 of the Government Code, which prohibits takings for economic-development purposes. KMS further urges that the taking should be invalidated because it was fraudulent, in bad faith, and arbitrary and capricious.

The trial court below granted partial summary judgment in the city's favor and denied KMS's motion for summary judgment altogether. The court of appeals affirmed. We agree with the court of appeals that (1) chapter 2206 does not apply here; (2) the taking was necessary for a constitutional public use; and (3) KMS failed to raise a fact issue precluding summary judgment. Accordingly, we affirm.

I

KMS Retail Rowlett, LP, is a commercial-real-estate developer. It owns a triangle-shaped nine-acre tract in the City of Rowlett that is part of a commercial subdivision called Luke's Landing. The tract is bordered to the west-northwest by Kenwood Drive; to the south by Lakeview Parkway; and to the east-northeast by a twelve-acre tract owned by Briarwood Armstrong, LLC, also a commercial-real-estate developer.

Though much of the KMS tract remains undeveloped, four commercial sites were built along the southern boundary with primary access from Lakeview Parkway. At the time of the condemnation proceeding at issue, those sites were occupied by a Wells Fargo bank, a Starbucks, a Chick-fil-A, and an Arby's. As part of its limited development of the tract, KMS built a private drive that allows access to these four sites from the west-northwest via Kenwood Drive. Located at a stoplight on Kenwood Drive, the private drive allowed traffic to access the four commercial sites from the rear. The drive extended the length of the four commercial sites, but no farther, leaving a stretch of vacant land between the edge of the four sites and the border with the Briarwood tract to the east.

The entrance to KMS's private drive was positioned across a Walmart parking-lot entrance on the other side of Kenwood Drive. Accordingly, customers leaving Walmart's parking lot could reach KMS's commercial sites from the rear by proceeding straight through a stoplight at Kenwood Drive. Without the private drive, the most efficient route to reach those sites from Walmart would be to travel south-southwest along Kenwood Drive, turn left onto Lakeview Parkway, and then turn left into the businesses' front-facing parking-lot entrances. A not-to-scale map of Luke's Landing and its surrounding properties and roadways is appended to this opinion.

The record reflects that as early as 2012, the city undertook efforts to recruit a high-quality grocery store. City representatives approached Sprouts Farmers Market and discovered mutual interest in a Rowlett location. Sprouts began negotiating with Briarwood to execute a long-term lease under which Sprouts could build a store on the Briarwood tract. In 2014, Briarwood asked the city about the possibility of an economic-incentives deal to facilitate negotiations with Sprouts. The city and Briarwood fleshed out a deal that largely centered on tax breaks but also required Briarwood to build a "private circulation drive providing for cross-access between adjacent properties." The "private circulation drive" would connect KMS's existing private drive to the commercial development on Briarwood's property. With the private drive extended to reach the Briarwood tract, Sprouts would benefit from cross-access traffic from the west via Kenwood Drive. In exchange, the city agreed to pay Briarwood $ 225,000, roughly half the projected cost of extending the private drive.

This case is about the city's eventual decision to condemn the land necessary to extend the private drive to connect the KMS and Briarwood tracts. The economic-incentives deal is silent on whether Briarwood had an existing legal right to extend the private drive. KMS argues that Briarwood and the city colluded to have the city condemn what Briarwood could not acquire on its own after Briarwood learned it had no easement allowing it to extend the private drive and failed to negotiate purchase of the necessary land. Accordingly, KMS insists the city impermissibly condemned its property solely to benefit a private entity. KMS points to Briarwood's lease with Sprouts, which provides for reduced lease payments to Briarwood if the cross-access drive isn't built, as Briarwood's motivation for enlisting the city to condemn KMS's easement.

Cross-access between the tracts is mentioned in the city's earliest documentation in the record regarding the Sprouts deal. A PowerPoint presentation dated July 2014 that was prepared for elected officials acknowledges the "potential need for condemnation" to provide cross-access. The anticipated private-road extension appears in schematics and an internal city memo regarding preliminary plat approval of the Sprouts development. And it is mentioned in every version of the draft economic-incentives deal that appears in the record along with the city's payment to Briarwood in exchange for building it.

The earliest indication in the record that Briarwood would have trouble extending the drive appears in a September 2014 email in which Briarwood's title insurer communicated that it found no legal avenue for Briarwood to build on KMS's tract. That finding had an immediate impact on the still unapproved economic-incentives deal between the city and Briarwood. On October 1, a city staffer emailed the city council, stating, "I wanted to make sure you know that we have pulled the agenda item on the Sprouts deal from the October 7th council meeting.... To be clear, the parties are good to go with the proposed development agreement. However, the issue has to do with the wording on the plat of the [KMS tract] and the connection of the road that is proposed to be built between the two properties."

The evidence suggests Briarwood offered to purchase an easement to extend the private drive and that Briarwood rejected a counter-offer from KMS. In an email, a Briarwood representative stated, "We have decided our best way forward on this situation is to convince our tenant to do this deal without the bridge and without direct access to Kenwood [D]rive." But that same month, the city's attorney emailed a city staffer directing him to use an attached easement-deed form to "get as many voluntary dedications as possible" and then "get someone to prepare a full-blown legal for the part of the roadway that sits on the [KMS] tract and for anyone who doesn't voluntarily sign the deed. Then ... get an appraisal and get the acquisition process underway."

The economic-incentives deal was back on the city-council agenda in November, and the terms regarding the cross-access drive in the executed version of the agreement were unchanged from previously circulated drafts. On January 16, however, Briarwood and the city executed a letter amendment to the economic-incentives deal that modified the terms of the city's payment to Briarwood for construction of the cross-access drive. It provided that the $ 225,000 payment "may, however, be reduced in accordance with right-of-way acquisition costs incurred by the City (to include payments made to property owners, ROW acquisition agents, and direct costs incurred to acquire rights-of-way) to convert the existing private easement on the adjacent properties in the Luke's Landing subdivision/addition to a public street or roadway. Such reduction shall not exceed $ 62,750 without [Briarwood's] approval."

The city filed its original petition in eminent domain in March 2015. As evidence of collusion between Briarwood and the city, KMS points out that a boundary survey attached to the petition was prepared by the same engineering firm Briarwood hired to prepare its preliminary plat and development plan. KMS further insists, and the city has not disputed, that Briarwood paid for the survey included with the eminent-domain petition.

Over KMS's objections, a panel of special commissioners awarded KMS $ 31,662 for the taking. After KMS moved to dismiss the eminent-domain action, the city and KMS filed competing motions for summary judgment regarding the permissibility of the city's taking. KMS argued in its motion that the taking violated Government Code chapter 2206 and was not for a constitutional public use. KMS further argued that the city's public use and necessity findings were fraudulent, in bad faith, and arbitrary and capricious. The trial court denied KMS's motion. It also granted the city's motion for summary judgment in part, issued a final judgment confirming the commissioners' award, and dismissed all of KMS's claims with prejudice.

The court of appeals affirmed, holding the summary-judgment evidence established that the city's condemnation was necessary for a public use and that KMS failed to raise a fact issue as to whether the taking was fraudulent, in bad faith, or arbitrary and capricious. 559 S.W.3d 192 (Tex. App.—Dallas 2017). It further held chapter 2206 of the Government Code inapplicable to the taking because an exception provides that the statute "does not affect the authority of an entity authorized by law to take private property through the use of eminent domain for ... transportation projects, including, but not limited to ......