Religious of Sacred Heart of Texas v. City of Houston

Decision Date01 July 1992
Docket NumberNo. D-1320,D-1320
Citation836 S.W.2d 606
Parties77 Ed. Law Rep. 992 RELIGIOUS OF THE SACRED HEART OF TEXAS et al., Petitioners, v. CITY OF HOUSTON, Respondent.
CourtTexas Supreme Court
OPINION

HIGHTOWER, Justice.

This is a condemnation action involving the partial taking of a private school for the purposes of extending a roadway. The case was submitted to the jury on the theory that the condemnee was entitled to compensation for the cost of purchasing substitute facilities. The jury returned a verdict for the condemnee in the amount of $18,451,398. The condemnor appealed, arguing, among other things, that the trial court erred in applying the substitute facilities doctrine to the partial taking of a private school. The court of appeals reversed, holding that the substitute facilities doctrine did not apply. 811 S.W.2d 734. The primary question for our determination is whether the substitute facilities doctrine applies to the partial taking of a private school. We hold it does not. We must also consider whether the condemnor waived the application of any theory of compensation other than the substitute facilities doctrine. We hold it did not. We affirm the judgment of the court of appeals and remand the cause to the trial court for further proceedings.

I.

Religious of the Sacred Heart of Texas d/b/a Duchesne Academy ("Duchesne") is a private school for girls from pre-kindergarten through high school. Duchesne has operated since 1960 on 14.786 acres of land within the City of Houston ("the City"). To the north of the campus lies Buffalo Bayou, to the south is Memorial Drive, to the west is the Memorial Creole Apartments, and to the east are townhomes.

In 1988, the City commenced condemnation proceedings on 1.479 acres of Duchesne's campus. The City sought the property for the purpose of extending Chimney Rock Road from Memorial Drive to the Katy Freeway. The condemned tract included a parking lot, building, and playground. The condemnation also separated a .689 acre strip of land from the remainder of the campus. Duchesne contended that the strip was rendered useless. Duchesne also contended that an educational building located less than six feet from the new Chimney Rock right of way was rendered useless. Lastly, Duchesne contended that the remainder of the campus suffered substantial damages resulting from, among other things, increased noise and air pollution.

The county court at law 1 appointed a three-person panel of special commissioners to determine the appropriate compensation. See Tex.Prop.Code Ann. § 21.014 (Vernon 1984). The special commissioners determined that Duchesne should receive $7,250,000. Duchesne and the City appealed. 2

At trial the City contended that the remainder of the campus could be restored to its pre-taking utility by rebuilding the facilities taken and relocating many of the remaining structures. City experts testified that under this "cost to cure" theory, Duchesne was entitled to $4,400,000. Duchesne did not agree that the campus could be restored to its pre-taking utility on the remaining 12.618 acres. Duchesne argued that it needed to acquire a 7.9073 acre tract of land adjacent to the campus--the tract on which the Memorial Creole Apartments was located. Its theory was that under the "substitute facilities doctrine", it was entitled to compensation for the cost of acquiring the adjacent land. There was testimony that the owner of the apartments would sell the property for $12,055,470 ($35.00 per square foot). Duchesne's experts testified that the total cost of acquiring the land, demolishing the apartments, developing the site, and restoring the campus was $19,789,245. The City's theory differed from Duchesne's in that the City argued that under no circumstances was Duchesne entitled to compensation for the cost of acquiring substitute land. Accepting Duchesne's theory, the trial court submitted the case to the jury on a single question:

What do you find from a preponderance of the evidence was the reasonable cost on February 18, 1988, of land, if any, and improvements, if any, reasonably necessary to restore the remaining land and improvements at Duchesne Academy to substantially the same function and use that existed at Duchesne Academy before the City's taking of 1.479 acres of land and improvements thereon for construction and use of Chimney Rock Road?

In response to this question the jury awarded Duchesne $18,451,398. The City appealed, arguing, among other things, that the trial court erred in submitting the case to the jury on the substitute facilities doctrine. The court of appeals reversed and remanded, holding that the substitute facilities doctrine does not apply to the partial taking of a private school. 811 S.W.2d 734.

II.

Duchesne argues that the substitute facilities doctrine should apply to the partial taking of a private school. We disagree. The substitute facilities doctrine provides that in certain limited circumstances the proper measure of compensation is the reasonable cost of acquiring a substantially equivalent substitute facility. It has generally been applied when public facilities are being condemned. See 4 Nichols, Nichols on Eminent Domain, § 12C.01[d] (3d ed. 1978); Annotation, Eminent Domain: Cost of Substitute Facilities as Measure of Compensation Paid to State or Municipality for Condemnation of Public Property, 40 A.L.R.3d 143 (1971). In this case, however, Duchesne contends that the doctrine should be applied to the partial taking of a private school.

The roots of the substitute facilities doctrine stem from Brown v. United States, 263 U.S. 78, 44 S.Ct. 92, 68 L.Ed. 171 (1923). Brown involved the flooding of three-quarters of a town in conjunction with the construction of a reservoir. 263 U.S. at 80, 44 S.Ct. at 93. The United States sought to condemn 120 acres of Brown's land for the purpose of rebuilding the town. 263 U.S. at 81, 44 S.Ct. at 93. Brown argued that such a taking was not for public use and therefore unconstitutional. 263 U.S. at 81, 44 S.Ct. at 93. After noting how "peculiar" the circumstances of the case were, as well as describing the particular problems associated with the taking of a city, the Supreme Court held that a "method of compensation by substitution would seem to be the best means of making the parties whole." 263 U.S. at 82-83, 44 S.Ct. at 94.

The Supreme Court again visited the doctrine in United States v. 564.54 Acres of Land, 441 U.S. 506, 99 S.Ct. 1854, 60 L.Ed.2d 435 (1979) ("Lutheran Synod"). Lutheran Synod involved the condemnation of three private, nonprofit, summer camps. The condemnee argued that because the camp was a nonprofit organization, it was absolutely entitled to a substitute facilities measure of compensation. 441 U.S. at 508, 99 S.Ct. at 1855. The Supreme Court disagreed, holding that the condemnee's nonprofit status was not a basis for distinguishing it from other business enterprises. The Supreme Court observed:

[T]here is no reason to treat respondent differently from the many private homeowners and other noncommercial property owners who neither derive earnings from their property nor hold it for investment purposes. Unless the Just Compensation Clause mandates a Government subsidy for nonprofit organizations, a proposition we find patently implausible, respondent's nonprofit status does not require us to reject the application of the fair-market-value standard.

441 U.S. at 515, 99 S.Ct. at 1859. The Supreme Court also rejected the argument that additional compensation was warranted because the camps were reasonably necessary to the public welfare. 441 U.S. at 515, 99 S.Ct. at 1859. Unable to ascertain any rationale requiring the suspension of the normal rules for determining just compensation, the Supreme Court held that the fair market value measure applied. 441 U.S. at 515, 99 S.Ct. at 1859. Specifically left unanswered, however, was the proper measure of compensation for the condemnation of public property. 441 U.S. at 509 n. 3, 99 S.Ct. at 1856, n. 3.

This question was resolved in United States v. 50 Acres of Land, 469 U.S. 24, 105 S.Ct. 451, 83 L.Ed.2d 376 (1984). 50 Acres involved the taking of land used as a sanitary landfill by the City of Duncanville, Texas. 469 U.S. at 26, 105 S.Ct. at 453. Duncanville argued that, as a public entity, it was automatically entitled to compensation for the cost of acquiring a substitute site. 469 U.S. at 26-27, 105 S.Ct. at 453. The Supreme Court rejected this argument holding that "[n]othing in Brown implies that the Federal Government has a duty to provide the city with anything more than the fair market value of the condemned property." 469 U.S. at 33, 105 S.Ct. at 456-57. Although 50 Acres rejected the premise that the substitute facilities doctrine automatically applies to all takings of public property, the Supreme Court did not resolve whether the doctrine retains any applicability. See 469 U.S. at 37, 105 S.Ct. at 458 (O'Connor, J., concurring).

In Texas, the substitute facilities doctrine has been discussed in two cases. The doctrine was first applied in State of Texas v. Waco Indep. School Dist., 364 S.W.2d 263 (Tex.Civ.App.--Waco 1963, writ ref'd n.r.e.). Relying in part on Brown, the court of civil appeals held that because a duty existed to rebuild the taken premises, a public school was entitled to compensation for the cost of acquiring additional land. Id. at 268. The second case was City of San Antonio v. Congregation of the Sisters of Charity, 404 S.W.2d 333 (Tex.Civ.App.--Eastland 1966, no writ). City of San Antonio involved an appeal from a temporary injunction enjoining the condemnor from exercising its power of eminent...

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