Regulatory Taking Affirmed by Texas Court of Appeals

by: Joseph Grather
16 Aug 2022

On August 1, 2022, the Fifth District Court of Appeals in Dallas, Texas affirmed a $33 million dollar jury verdict in favor of a property owner on a regulatory taking claim! Dallas v. Trinity East Energy (2022-8-1 Trinity East Energy).

In short, the City of Dallas and Trinity East had entered into a Lease Agreement that would allow Trinity to drill for valuable minerals on City-owned property.  The leased area covered thousands of acres.  Trinity East had substantially performed under the Lease – “engineering, surveying, and other work necessary for producing the minerals, including the design of drill site pads, pipeline alignment, archaeological and tree surveying, and seeking regulatory approval from federal, state, and local authorities, such as the Railroad Commission, the Army Corps of Engineers, and the City.” (Slip op. at p.5).  In order to commence drilling, Trinity had to receive special use permits (SUP) from the City of Dallas (its landlord under the lease).  It timely applied for the SUPs in July of 2011.

The City formed a drilling task force thereafter, which delayed consideration of the application. In December of 2012, the City Planning Commission denied Trinity’s application for the SUPs.  Trinity appealed the denial to the governing body. On August 28, 2013, the City Council voted on Trinity’s appeal of the denial of the SUPs. A majority of the council voted to approve the SUPs, but the vote was less than the required three-quarters margin. As a result, the SUPs were denied. In December 2013, the City amended the gas drilling ordinance and imposed strict setback and other restrictions that would essentially preclude drilling on the Lease or within the City limits. The Lease subsequently expired and the mineral interest reverted to the City.” Slip op. at 7.

Trinity sued the City alleging, inter alia, that the denial of the SUPs resulted in a regulatory taking.  The case was tried before a judge and jury. Trinity presented evidence that the value of the Leases with permission to drill the viable sites ranged from $26,000,000 to $40,000,000 and that after the denial of the SUPs, the value of the lease was zero.  The jury found that the value of Trinity’s property “before the denial of the SUPs was $33,639,000 and zero after the denial.” Slip op. at 7.

The Appellate Court’s analysis started with a citation to Lucas and Penn Central as the standard bearers of regulatory takings claims.  What is perhaps most interesting is the following statement: The trial court’s findings of fact and conclusions of law support either theory. Because we conclude the evidence supports the trial court’s findings and conclusions on the Lucas theory, we do not discuss the Penn Central theory.  Under the Lucas theory, the question is whether the government regulation has deprived the owner of all economically viable use of his property. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 935 (Tex. 1998). This requires determining whether any value remains in the property after the governmental action.”  Again, the jury found that the Trinity property had zero value after the denial of the SUPs, and the appellate court “conclude[d] the evidence is legally and factually sufficient to support the trial court’s finding that other than the three sites proposed in the SUPs, Trinity did not have reasonable access to other locations from which it could economically develop its mineral interests. Based on the evidence and the trial court’s findings we agree with the trial court that the City’s denial of the SUPs resulted in a regulatory taking of Trinity’s property.”

I suspect this one will be going to the Texas Supreme Court.