Westgate, Ltd. v. State, D-0732

CourtSupreme Court of Texas
Citation843 S.W.2d 448
Docket NumberNo. D-0732,D-0732
PartiesWESTGATE, LTD., Robert L. Randolph, Bank One, and Deposit Insurance Bridge Bank, Petitioners, v. STATE OF Texas and City of Austin, Respondents.
Decision Date02 December 1992

Page 448

843 S.W.2d 448
WESTGATE, LTD., Robert L. Randolph, Bank One, and Deposit
Insurance Bridge Bank, Petitioners,
STATE OF Texas and City of Austin, Respondents.
No. D-0732.
Supreme Court of Texas.
Dec. 2, 1992.
Rehearing Overruled, Dec. 2, 1992.
Dissent on Motion for Rehearing Dec. 2, 1992.
Separate Dissenting Opinions Filed July 1, 1992. *

Page 450

Carole Tower, John McClish, Austin, for petitioners.

Iris J. Jones, Barney L. Knight, Thomas M. Pollan, James Noble Johnson, Austin, for respondents.


PHILLIPS, Chief Justice.

Petitioners' motion for rehearing is overruled. Our opinion of July 1, 1992, is withdrawn and the following is substituted in its place.

This is a condemnation case with a counterclaim by the landowner for inverse condemnation. The primary issue is whether a landowner may recover damages for inverse condemnation under Tex. Const. art. I, § 17 where the government has not physically appropriated, denied access to, or otherwise directly restricted the use of the landowner's property. Our answer is no, and we affirm the judgment of the court of appeals. 798 S.W.2d 903.


Westgate, Ltd., 1 purchased a tract of land in Austin for commercial development in September 1984. Westgate began constructing a shopping center on the property in April 1985, and had substantially completed construction of the project by October of that year. About the time construction was completed, Westgate learned that the State of Texas and City of Austin (collectively the "government") planned to widen U.S. Highway 290, which ran adjacent to the Westgate property, so that the new highway right-of-way would cross the Westgate property. Robert L. Randolph, one of the Westgate general partners, first learned of the proposed highway project from a newspaper article published on October 20, 1985. 2 The State Department of Highways and Public Transportation soon confirmed to him that the proposed route of Highway 290 not only crossed the Westgate property, but passed directly through one of Westgate's newly constructed buildings.

The government had been considering plans to expand Highway 290 at least since 1984, and the Highway Department approved the project in either late 1984 or early 1985. Nevertheless, when the Highway Department approved Westgate's site plan in February 1985, it gave no notification about the project. Likewise, the Austin City Council authorized the project in February 1985, but the City Planning Department approved Westgate's site plan and issued a building permit in March 1985 without any warning to Westgate.

The proposed highway expansion hurt Westgate's ability to lease its shopping center. Tenants were reluctant to lease space

Page 451

that might soon be condemned or, at the least, impacted by nearby construction. Randolph attended a public meeting on the proposed highway expansion in February 1986 and learned from Highway Department officials that it might be "quite a while" before the project received final approval and right-of-way acquisition commenced. Because the government sought federal assistance for the project, it was required to conduct the exhaustive environmental review process mandated by federal law. See 42 U.S.C. § 4332. Although this process was initiated in early 1986, the final environmental impact statement was not approved by the Federal Highway Administration until October 1988.

In July 1986, Westgate asked the government to expedite acquiring that portion of Westgate's property needed for the new highway. Charles Muery, a supervisor of right-of-way acquisition for the Highway Department, testified that the Highway Department tries to accommodate such requests whenever the landowner demonstrates that a pending project is causing severe financial hardship. On Muery's recommendation, the Highway Department approved Westgate's request for expedited acquisition in November 1986. The government submitted an offer to Westgate for the needed property in June 1987, but Westgate rejected this offer and the parties did not subsequently agree on a price. The record does not disclose whether there were subsequent negotiations concerning purchase of the property or additional offers or counter-offers.

The government commenced the actual condemnation proceedings against Westgate in September 1988. Westgate counterclaimed for inverse condemnation, seeking to recover its lost profits for the period between the announcement of the highway project in October 1985 and the government's actual acquisition of the property on January 5, 1989. 3 According to Westgate, the government appropriated Westgate's property during this period by 1) failing to warn Westgate of the highway expansion before the shopping center was built, and 2) unreasonably delaying acquisition of Westgate's property after the highway project was announced.

At trial, the jury found not only that the government was negligent in not warning Westgate, but that it unreasonably delayed acquisition of the property. The trial court awarded Westgate $633,000 on the inverse condemnation claim, in accordance with the jury's award of lost profits.

The court also awarded $2,734,000 to Westgate as damages on its statutory condemnation claim. To determine the statutory damages, the trial court submitted two questions to the jury, one asking the value of Westgate's entire tract without considering the highway project, and the other asking the value of Westgate's remaining portion not taken by the government. The difference between the amounts found by the jury was $2,524,000, but the trial court increased the award by $210,000 because the court concluded that the jury's answer to the first question was lower than the evidence would support.

The court of appeals reversed and rendered judgment against Westgate on the inverse condemnation claim. The court of appeals held that no compensable taking existed until the government's actual acquisition of the property, as the government had not committed any of the actions constituting inverse condemnation before that date. The court noted that "the failure to notify and undue delay of which [Westgate] complains do not rise to the requisite level of interference with access to or use and enjoyment of its property." 798 S.W.2d at 907. Furthermore, the court held that the trial court erred in submitting two separate valuation questions to determine the statutory condemnation damages. Relying on our opinion in Callejo v. Brazos Electric Power Cooperative, Inc., 755 S.W.2d 73 (Tex.1988), the court reversed and remanded for a new trial on these damages.

Page 452



Tex. Const. art. I, § 17 provides that "[n]o person's property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made...." Generally, the government compensates the owner before appropriating property, either by paying a mutually agreed price or by paying the value as determined in a statutory condemnation proceeding. See Tex.Prop.Code § 21.042. If, however, the government appropriates property without paying adequate compensation, the owner may recover the resulting damages in an "inverse condemnation" suit. See, e.g., City of Austin v. Teague, 570 S.W.2d 389 (Tex.1978); City of Abilene v. Burk Royalty Co., 470 S.W.2d 643 (Tex.1971). An inverse condemnation may occur when the government physically appropriates or invades the property, or when it unreasonably interferes with the landowner's right to use and enjoy the property, such as by restricting access or denying a permit for development. See Teague, 570 S.W.2d 389; City of Waco v. Texland Corporation, 446 S.W.2d 1 (Tex.1969); DuPuy v. City of Waco, 396 S.W.2d 103 (Tex.1965). As in statutory condemnation, the appropriated property must also be applied to public use. Tex. Const. art. I, § 17; Dallas County Flood Control Dist. v. Benson, 157 Tex. 617, 620, 306 S.W.2d 350, 351 (1957).

The issue here is whether there was a taking or damaging of Westgate's property within the meaning of art. I, § 17 prior to January 5, 1989. The specific legal question presented is whether there can be a taking or damaging under art. I, § 17 where the government has not directly restricted use of the landowner's property. "Direct restriction," as used herein, refers to an actual physical or legal restriction on the property's use, such as a blocking of access or denial of a permit for development. It is undisputed that the government did not directly restrict use of Westgate's property prior to January 5, 1989; rather, the damage which Westgate suffered before then resulted from a decline in the marketability of the property caused by the government's proposal to condemn in the future.

This Court has not previously addressed this issue. Our courts of appeals, however, have held that a landowner may not recover economic damage caused by the government's public announcement of plans to condemn property in the future, where the government has imposed no current, direct restriction on the property's use. See City of Houston v. Biggers, 380 S.W.2d 700 (Tex.Civ.App.--Houston 1964, writ ref'd n.r.e.), cert. denied, 380 U.S. 962, 85 S.Ct. 1105, 14 L.Ed.2d 153 (1965); State v. Vaughan, 319 S.W.2d 349 (Tex.Civ.App.--Austin 1958, no writ).

In Biggers, the city passed an ordinance authorizing construction of a civic center on the landowner's property. The court held that passage of the ordinance did not constitute a taking because the ordinance did not legally restrict use of the property, even though as a practical matter it hurt the property's marketability. "The fact that at some future time land might be taken under eminent domain, even where the threatened taking is imminent, is but one of the conditions on which an owner holds property." 380 S.W.2d at 704.

Likewise, the court in Vaughan refused to find a taking where tenants vacated the landowner's building because the property had been slated for future...

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