Refusing to connect utilities to rental property for outstanding balances qualifies as potential takings claim says 1st District Court of Appeals

Alan Schrock v. City of Baytown, 01-13-00618-CV (Tex. App. – Houston [1st Dist.], April 23, 2015)(mem. Op.)

This is a takings case where the First District Court of Appeals reversed the granting of a summary judgment for the City in a utility services dispute where the City refused to connect services to a rental property.

Schrock owned rental property in the City. Each time he rented to a new tenant the City required him to provide a copy of the lease to the City before the City would connect utilities (water, sewer, trash, etc.). Each time Schrock complied.  In 2009 the City advised Schrock that he owed $1999.67 in utility charges for the ten prior tenants dating back to 1993. The City demanded payment within 14 days to avoid a lien.  The lien was eventually placed on the property. Schrock asserts that each time he provided the tenant’s lease to the City, he was complying with a city ordinance which allows a landlord to declare the property as a rental property to avoid utility liens. Schrock argued his notice to the City also satisfied Tex. Loc. Gov’t Code §552.0025 noting a municipal lien shall not apply to bills for utility services after such declarations are made.   Schrock asserts the City has refused to provide services to the property since 2010 even after he provides new leases from new tenants. Without rents, the property fell into disrepair and became uninhabitable. This has prevented him from using the property a as a rental. When he attempted to pay the outstanding balance for that property, his payment was refused and the City’s employees told him he had to pay all outstanding balances for any of the 17 rental properties he had throughout the City.  He filed a takings lawsuit, but the trial court dismissed his claims by granting the City’s summary judgment.

The court first analyzed the three part Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (1978) test for a taking: (1) the economic impact of the regulation on the claimant, (2) the character of the government action, and (3) the extent to which the regulation has interfered with the economic expectations of the property owner.  The court held the City had regulatory power over the actions, without question. The City had notice at all times that this was rental property and that the alleged amounts owed were incurred by tenants and not by Schrock. As a result, its actions could be in violation of §552.0025. The City therefore failed to negate Schrock’s regulatory takings claims. The court then rejected the City’s argument that this was a property damage claim with a two year statute of limitations. The evidence and pleadings make clear this is a regulatory takings claim and therefore subject to a ten year statute of limitations.

If you would like to read this opinion click here. Panel: Chief Justice Radack, Justice Jennings and Justice Keyes. Memorandum Opinion by Justice Jennings.  The attorney listed for the City is Scott Bounds.  The attorney listed for Schrock is David Sadegh.