                                                                                       ACCEPTED
                                                                                  01-14-00823-cv
                                                                       FIRST COURT OF APPEALS
                                                                               HOUSTON, TEXAS
                                                                           1/14/2015 10:21:43 AM
                                                                             CHRISTOPHER PRINE
                                                                                          CLERK

                      01-14-00823-CV

                                                            FILED IN
           IN THE FIRST COURT OF APPEALS 1st COURT OF APPEALS
                                             HOUSTON, TEXAS
                   HOUSTON, TEXAS
                                                     1/14/2015 10:21:43 AM
                                                     CHRISTOPHER A. PRINE
                                                              Clerk
           VILLAGE OF TIKI ISLAND, TEXAS
                     Appellant,

                              v.

             JERRY D. RONQUILLE, ET AL.
                       Appellees.


On Appeal from 405th District Court of Galveston County, Texas
                   Cause No. 14-cv-0752

             REPLY BRIEF OF APPELLANT
           VILLAGE OF TIKI ISLAND, TEXAS


                            Scott Bounds
                            State Bar No. 02706000
                             sbounds@olsonllp.com
                            John J. Hightower
                            State Bar No. 09614200
                            jhightower@olsonllp.com
                            OLSON & OLSON, L.L.P.
                            Wortham Tower, Suite 600
                            2727 Allen Parkway
                            Houston, Texas 77019
                            Telephone: (713) 533-3800
                            Facsimile: (713) 533-3888

                            Attorneys for Appellant,
                            Village of Tiki Island, Texas

      APPELLANT REQUESTS ORAL ARGUMENT
                                        TABLE OF CONTENTS

TABLE OF CONTENTS .......................................................................................... ii

INDEX OF AUTHORITIES.................................................................................... iii

I. INTRODUCTION ................................................................................................. 1

II. ARGUMENTS AND AUTHORITIES ................................................................ 3

        A.       Summary. .............................................................................................. 3

        B.       The Homeowners are incorrect in asserting that the trial court
                 did not determine its subject matter jurisdiction or in suggesting
                 that the issue was waived. ..................................................................... 5

        C.       The employment of land use regulations to protect residential
                 areas from incompatible commercial use is a valid exercise of
                 the police power and not an act of bad faith. ........................................ 7

        D.       The Homeowners’ takings claims are not viable because they
                 cannot establish the existence of an investment backed
                 expectation in the right to rent their homes for periods of less
                 than thirty days. ..................................................................................... 9

        E.       The Homeowners’ takings claims are not viable because they
                 cannot establish that any economic impact of the regulations is
                 sufficiently severe to constitute a taking. ............................................ 11

        F.       The Homeowners’ request for declaratory relief is not
                 justiciable............................................................................................. 12

        G.       The Homeowners’ suffer no irreparable injury to a vested right
                 justifying injunctive relief. .................................................................. 13

III. CONCLUSION AND PRAYER ...................................................................... 14

CERTIFICATE OF COMPLIANCE ....................................................................... 16

CERTIFICATE OF SERVICE ................................................................................ 16

                                                           ii
                                   INDEX OF AUTHORITIES

CASES                                                                                             PAGE(S)

A.V.A. Services, Inc. v. Parts Industries Corp.,
      949 S.W.2d 852 (Tex. App.–Beaumont 1997, no writ) .................................. 6

BHP Petroleum Co. Inc. v. Millard,
     800 S.W.3d 838 (Tex. 1990) ......................................................................... 12

City of Brookside Village v. Comeau,
       633 S.W.2d 790 (Tex.1982) ............................................................................ 7

City of Houston v. Carlson,
       --- S.W.3d --- * 3 (Tex. 2014) ....................................................................... 11

City of Houston v. Guthrie,
       332 S.W.3d 578 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) ........... 13

City of La Marque v. Braskey,
       215 S.W.3d 861 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) ........... 13

De Mino v. Sheridan,
     176 S.W.3d 359 (Tex. App.—Houston [1st Dist.] 2004, no pet.) ................. 12

Ewing v. City of Carmel-By-The-Sea,
234 Cal. App. 3d 1579 (Cal. App. 6 Dist. 1991) ....................................................... 8

Hang On III, Inc. v. Gregg County,
     803 S.W.2d 724 (Tex. App.—Texarkana 1995, writ dism’d by agr.)........... 14

Hearts Bluff Game Ranch, Inc. v. State,
      381 S.W.3d 468 (Tex. 2012) ........................................................................... 2

Kemp Hotel Operating Co. v. City of Wichita Falls,
     170 S.W.2d 217 (Tex. 1943) ......................................................................... 13

Lindsey v. Luckett,
      1857 WL 5285 (Tex. 1857) ......................................................................... 5, 6



                                                      iii
Lingle v. Chevron U.S.A., Inc.,
      544 U.S. 528, (2005)...................................................................................... 11

Lombardo v. City of Dallas,
     124 Tex. 1, 73 S.W.2d 475 (Tex. 1934) .......................................................... 7

Mayhew v. Town of Sunnyvale,
     964 S.W.2d 922 (Tex. 1998) ..................................................................... 9, 11

Meyer v. Young,
     545 S.W.2d 37 (Tex. Civ. App. – Austin 1976, no writ) ............................ 5, 6

Pennsylvania Coal Co. v. Mahon,
     260 U.S. 393, 43 S.Ct. 158 (1922) ............................................................ 7, 10

Taub v. City of Deer Park,
      882 S.W.2d 824 (Tex. 1994) ......................................................................... 11

Texas Ass'n of Business v. Texas Air Control Bd.,
      852 S.W.2d 440 (Tex. 1993) ........................................................................... 6

Tex. Dep’t of Transp. v. A.P.I. Pipe & Supply,
      397 S.W.3d 162 (Tex. 2013) ........................................................................... 2

Tex. Parks and Wildlife Dep’t v. Sawyer Trust,
      354 S.W.3d 384 (Tex. 2011) ......................................................................... 12

Village of Euclid, Ohio v. Ambler Realty Co.,
      272 U.S. 365, 47 S.Ct. 114 (1926) .................................................................. 7

CONSTITUTION, STATUTES AND RULES

Texas Constitution

        Article I, §17 ................................................................................................ 2, 3




                                                           iv
                                      01-14-00823-CV


                       IN THE FIRST COURT OF APPEALS
                               HOUSTON, TEXAS


                        VILLAGE OF TIKI ISLAND, TEXAS
                                  Appellant,

                                               v.

                           JERRY D. RONQUILLE, ET AL.
                                     Appellee.


         On Appeal from 405TH District Court of Galveston County, Texas
                            Cause No. 14-cv-0752

              APPELLANT, VILLAGE OF TIKI ISLAND, TEXAS
                            REPLY BRIEF


       The City of Tiki Island, Texas (the “City”), files this Reply Brief addressing

the arguments made by the remaining Appellees, Milton and Maria Chang (the

“Changs”) and Angelia Hill (“Hill”).1 For convenience, the Changs and Hill are

sometimes referenced as the “Homeowners” or the “Plaintiffs”.




1
  The original plaintiffs in the trial court, and the appellees in this Court, included Jerry and
Janell Ronquille and Richard Samaniego. On December 31, 2014, the Ronquilles and Samiengo
filed, with this Court, a notice of non-suit of their claims against the City.
                                              I.
                                         Introduction

      There are two ultimate issues raised by this appeal. The first and principal

issue is whether, under the undisputed facts before the trial court, the

Homeowners’ have asserted a viable takings claim against the City, as necessary to

establish the trial court’s jurisdiction. Tex. Dep’t of Transp. v. A.P.I. Pipe &

Supply, 397 S.W.3d 162, 167 (Tex. 2013); Hearts Bluff Game Ranch, Inc. v. State,

381 S.W.3d 468, 491 (Tex. 2012). More specifically, the issue is whether the

enforcement of municipal land use regulations that prohibit the use of single-

family residences for short-term rentals constitutes an unconstitutional taking

under Article I, §17 of the Texas Constitution.

      The second and subsidiary issue, which is material only if it is determined

that the Homeowners met their burden of establishing the trial court’s subject

matter jurisdiction, is whether the Homeowners made the additional burden to

demonstrate an irreparable injury to a vested property right as required in order to

obtain injunctive relief.

      In their Brief the Homeowners fail to acknowledge that they bear the burden

of establishing the trial court’s jurisdiction.




                                            2
                                        II.
                              Argument and Authorities

      A.     Summary.

      The City challenged the trial court’s jurisdiction over the Homeowners’

claims in its first responsive pleading and in its arguments in opposition to the

Homeowners’ requests for temporary injunctive relief. The trial court necessarily

rejected the City’s jurisdictional challenge when it exercised jurisdiction by

granting injunctive relief.

      The trial court erred in determining that it had subject matter jurisdiction

over the Homeowners’ takings claims because the Homeowners failed to meet

their burden to demonstrate that those claims were viable. More specifically, the

Homeowners failed to demonstrate that the City’s actions in restricting the use of

the single-family homes they owned within the City to owner occupancy and long-

term rental constituted an unconstitutional taking of their property under Article I,

§17 of the Texas Constitution.

      Texas Courts have long recognized the validity of local land use regulations

that are designed to protect residential neighborhoods from the negative effect of

commercial activities. It is undisputed that the Homeowners are using single-

family residences in the City as de facto hotels, renting by the day or week, with

the attendant negative effects associated with short-term tenants.         The rental

activity that the City prohibits is defined by the state as the operation of a hotel or

                                          3
motel for state and local tax purposes. Although no Texas appellate court has yet

addressed the issue of whether a prohibition on short-term rental is valid, the courts

of several other states have done so and have concluded that such regulations are

valid.

         The Homeowners did not allege, nor did they present evidence sufficient to

raise a fact issue as to whether, the enforcement of the regulations against the

single-family homes they owned would have any material effect on the value of

those homes. There was no evidence that the Homeowners paid a higher price for

the homes because they believed them to be available for short-term rentals, or that

the homes they purchased were different from the vast majority of homes in the

City that are not offered for short-term rental.       Accordingly, the undisputed

evidence demonstrated that, as a matter of law, the Homeowners did not make any

different investment in the single-family homes they purchased than did others in

the City who purchased homes without any plan to offer them for short-term rental.

The Homeowners’ do not have a viable takings claim because they made no

investment in the expectation that they could rent their homes on a short-term

basis, and because the enforcement of the City’s regulations has no material effect

on the value of their property.

         Finally, there was no evidence to support the trial court’s finding of

irreparable harm to a vested property right caused by the alleged taking. There was



                                          4
no evidence that the enforcement of the ban on short-term rentals would have any

material effect on the value of the single-family residences owned by the Plaintiffs,

and the only alleged damages were money damages that would be reparable by a

damage award.

       B.      The Homeowners are incorrect in asserting that the trial court did
               not determine its subject matter jurisdiction or in suggesting that
               the issue was waived.

       The Homeowners assert, on page 2 of their brief, that the trial court did not

rule on the issue of whether it had subject matter jurisdiction over the

Homeowners’ claims because the City did not request a separate oral hearing on its

plea to jurisdiction. In fact, the City raised the issue of the trial court’s subject

matter jurisdiction in its Plea to Jurisdiction and Original Answer filed on July 24,

2014. (CR 18-25).2 The City also raised the jurisdictional issue at the evidentiary

hearing on September 30, 2012 – asserting that the trial court lacked subject matter

jurisdiction to enter injunctive relief and in a Supplemental Plea to Jurisdiction

filed the same date. 9/30/14 RR 1 p. 25 line 25; p. 26 line 18, p. 40 line 25; p. 42

line 4; CR 41.

       In any event, the trial court’s first order of business was to determine

whether it had subject matter jurisdiction. “Every court of limited powers must


2
 The Plaintiffs filed a written response to the City’s plea to jurisdiction on July 31, 2014. CR 26
et seq.


                                                5
determine its own jurisdiction in the first instance.” Lindsey v. Luckett, 1857 WL

5285, 1 (Tex. 1857); Meyer v. Young, 545 S.W.2d 37, 39 (Tex. Civ. App. – Austin

1976, no writ). The trial court necessarily made a determination that is had subject

matter jurisdiction when it issued the temporary injunction orders. A.V.A. Services,

Inc. v. Parts Industries Corp., 949 S.W.2d 852, 856 (Tex. App.–Beaumont 1997,

no writ) (“Every court of limited powers must determine its own jurisdiction in the

first instance, and it does so when it assumes to hear and determine a case or when

it refuses to hear and determine a cause.”)

      To the extent that the Homeowners’ Brief suggests that the City’s action in

the trial court somehow constituted a waiver of the jurisdictional issue, they are

wrong. “Subject matter jurisdiction is an issue that may be raised for the first time

on appeal; it may not be waived by the parties.” Texas Ass'n of Business v. Texas

Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993).

      The trial court determined that it had subject matter jurisdiction over the

Homeowners’ takings claims when it issued orders temporarily enjoining the

enforcement of the City’s ban on short-term rentals. That determination was in

error because the Homeowners failed to demonstrate the existence of a viable

takings claim against the City.




                                          6
      C.     The employment of land use regulations to protect residential
             areas from incompatible commercial use is a valid exercise of the
             police power and not an act of bad faith.

      The Homeowners’ arguments suggest that it is improper for a City to

regulate land uses to protect its existing residential areas from the negative effects

associated with commercial activities. To the contrary, both the United States

Supreme Court and the Texas Supreme Court have upheld the use of governmental

land use regulations for exactly that purpose. Village of Euclid, Ohio v. Ambler

Realty Co., 272 U.S. 365, 390, 47 S.Ct. 114, 119 (1926) (upholding zoning

ordinance that excluded apartment houses, business houses, retail stores, and shops

from residential district); Lombardo v. City of Dallas, 124 Tex. 1, 9-12, 73 S.W.2d

475, 478-79 (Tex. 1934) (upholding zoning ordinance that excluded gasoline

filling stations from residential district). “Zoning regulation is a recognized tool of

community planning, allowing a municipality, in the exercise of its legislative

discretion, to restrict the use of private property.” City of Brookside Village v.

Comeau, 633 S.W.2d 790, 792 (Tex.1982). “Government hardly could go on if to

some extent values incident to property could not be diminished without paying for

every such change in the general law. As long recognized some values are enjoyed

under an implied limitation and must yield to the police power.” Pennsylvania

Coal Co. v. Mahon, 260 U.S. 393, 413, 43 S.Ct. 158, 159 (1922).




                                          7
         The Mayor testified about the noise, parking and trespass problems that the

City’s residents experienced related to short-term rentals, stating that these

problems were more prevalent in short-term rentals than with other single-family

homes. 8/1/14 RR1 p. 72 lines 3-5; p. 73 lines 21-24; p. 78 line 10 (noise and

disturbance issues); p. 86 line 21; p. 87 line 14; p. 89-90. In addition to the

parking, noise and trespass issues related to short-term rentals:

         According to most of the community, it – it actually devalues your
         property if you want to sell a residence and somebody comes to look
         at your residence and they lease a property that was leased to one
         family and 15 people show up and you’re trying to sell your property,
         and they don’t know that it’s a rental property and is there that many
         people living in the house, people parked all over the streets, blocking
         access to their homes … .

8/1/14 RR1 p. 74 lines 13-21.

The residential character of a neighborhood may be threatened when a significant

number of homes are occupied not by permanent residents but by a stream of

tenants staying a weekend, a week or even 29 days.3 The City’s prohibition of

short-term rentals was a valid exercise of police power.




3
    See Ewing v. City of Carmel-By-The-Sea, 234 Cal. App. 3d 1579, 1591 (1991).


                                                8
D.    The Homeowners’ takings claims are not viable because they cannot
      establish the existence of an investment backed expectation in the right
      to rent their homes for periods of less than thirty days.


      The Homeowners concede that their takings claims are asserted under Penn

Central and they seek to demonstrate that the City’s prohibition on short-term

rentals constitutes an unreasonable interference with their right to use and enjoy

the single-family homes they own in the City. In order to establish a viable Penn

Central takings claims, the Homeowners must demonstrate the existence of a

“reasonable investment-backed expectation” that they would have the right to rent

the single-family residences they purchased in the City for periods of thirty days or

less. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 937-938 (Tex. 1998).

Without a “reasonable investment-backed expectation” their takings claims must

fail as a matter of law. Id.

      It is undisputed that the only investment that the Homeowners made was to

purchase an existing single-family home in the City. There are no allegations or

evidence that they paid a premium above the normal market price for single-family

homes in the City because they planned to offer the homes for short-term rental, or

that they made significant modifications to the homes to ready them for short-term

rental. They made the same investment in purchasing their homes as did others

who had no intention of offering their homes for short-term rental. Thus they

made no separately identifiable investment in the expectation that they could

                                          9
engage in short-term rentals and, as a consequence, they do not have a viable

takings claim.

      A reasonably prudent investor would also recognize that such an investment

is not without some regulatory risk.   As noted above, “Government hardly could

go on if to some extent values incident to property could not be diminished without

paying for every such change in the general law. As long recognized some values

are enjoyed under an implied limitation and must yield to the police power.”

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 413, 43 S.Ct. 158, 159 (1922).

      The evidence here is that the Homeowners’ properties were constructed and

used as single family homes, and that they are located in neighborhoods in which

over 95-98% of the homes are used for single family residences. 8/1/14 RR p. 75

lines 13-15. The Changs purchased their home in July 2012, after the City adopted

a zoning ordinance not allowing hotels in residential districts. Neither the Changs

nor Hill paid hotel taxes on their properties prior to City’s adoption of the 2014

Ordinance. The Changs testified that they submitted taxes for 2013 & 2014 on

July 14, 2014. 8/1/14 RR1 pgs. 118, 139. Hill never paid state or local hotel taxes

on her property. 9/30/14 RR1 p. 34. Neither the Changs nor Hill paid a premium

to use their single family residences as hotels.       The Homeowners had no

investment backed expectation that they could rent their properties for periods less

than 30 days.



                                        10
      E.     The Homeowners’ takings claims are not viable because they
             cannot establish that any economic impact of the regulations is
             sufficiently severe to constitute a taking.


      There are no allegations or evidence that the enforcement of the City’s ban

on short-term rentals had any economic impact on the value of the single-family

residences at issue, much less an impact that was sufficiently severe to constitute a

taking.    See Taub v. City of Deer Park, 882 S.W.2d         824, 826 (Tex. 1994)

(sufficiently severe economic impact can constitute a taking); Mayhew v. Town of

Sunnyvale, 64 S.W.2d 922, 937 -938 (Tex. 1998).          The Homeowners do not

dispute that each of their properties is located in a residential neighborhood and a

district zoned for use as a detached, single-family residence, that each property was

constructed, occupied and used as a single-family residence. Appellant’s Brief at

5. Further, the Homeowners do not dispute that their properties are, after the

adoption of the City’s ordinances prohibiting short-term rentals, worth as much or

more than they paid for their properties in 2007 and 2012, respectively.

Appellant’s Brief at 8-9, 13; 8/1/14 RR1 p. 125 lines 12-17; p. 126 (Changs);

9/30/14 RR1 p. 36 lines 5; p. 37 line 15. “A regulatory taking is a condition of use

“so onerous that its effect is tantamount to a direct appropriation or ouster.” City

of Houston v. Carlson, --- S.W.3d --- * 3 (Tex. 2014), citing Lingle v. Chevron

U.S.A., Inc., 544 U.S. 528, 537 (2005). The Homeowners’ takings claims are not




                                         11
viable because they cannot establish that any economic impact of the regulations is

sufficiently severe to constitute a taking.

      F. The Homeowners’ request for declaratory relief is not justiciable.

      The Homeowners assert that the Court has jurisdiction under the Declaratory

Judgment Act because their “damages are actual and ripe for judicial

determination.”    Appellees’ Brief at 13.         The Homeowners cannot, however,

present any authority to rebut that their single request for declaratory relief, a

“declaration that the Plaintiffs’ property have been wrongfully taken (inverse

condemnation) by Defendant”, is not justiciable because it merely restates their

taking claim. Texas Parks and Wildlife Dept. v. Sawyer Trust, 354 S.W.3d 384,

388 (Tex. 2011) (“[S]overeign immunity will bar an otherwise property DJA claim

that has the effect of establishing a right to relief against the State for which the

Legislature has not waived sovereign immunity); BHP Petroleum Co. Inc. v.

Millard, 800 S.W.3d 838 (Tex. 1990) (DJA not available to settle disputes already

pending before a court); De Mino v. Sheridan, 176 S.W.3d 359, 368 (Tex. App.—

Houston [1st Dist.] 2004, no pet.) (dismissing declaratory relief that recasts

defamation claim).     The Homeowners’ request for declaration that the City has

taken their property is not justiciable.




                                              12
      G. The Homeowners’ suffer no irreparable injury to a vested right
         justifying injunctive relief.

      The Homeowners argue that their trial court had authority to enjoin the

City’s penal ordinances because the Homeowners have alleged a taking of a

“personal and property right”. Appellees Brief at 14-15. The Homeowners do not

show, however, any irreparable injury to any vested property right. There was no

evidence that the enforcement of the ban on short-term rentals would have any

material effect on the value of the single-family residences owned by the Plaintiffs

and the only alleged damages were money damages that would be reparable by a

damage award.

      The Homeowners also do not provide any authority that they have a vested

right in the hotel operations they seek to protect, but they argue instead that the

Braskey4 case relied upon by the City is inapplicable because, unlike the plaintiff in

Braskey, they assert a takings claim. Id. Texas courts have consistently held that

there is no vested property right to engage in a particular business, or to engage in

business in a particular manner, without restrictions.        See, e.g., Kemp Hotel

Operating Co. v. City of Wichita Falls, 170 S.W.2d 217, 219 (Tex. 1943) (no

vested property right in hauling garbage); City of Houston v. Guthrie, 332 S.W.3d

578 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (no vested property rights


4
  City of La Marque v. Braskey, 215 S.W.3d 861 (Tex. App.—Houston [1st Dist.] 2007, pet.
denied).


                                          13
in fireworks stands); City of La Marque v. Braskey, supra (no vested property

right to operate shelter); Hang On III, Inc. v. Gregg County, 803 S.W.2d 724, 726

(Tex. App.—Texarkana 1995, writ dism’d by agr.) (no vested property right in

sexually oriented business).

      The Homeowners failed to demonstrate an irreparable injury to a vested

property right: the Homeowners have no viable takings claim against the City.

                                        III.
                               Conclusion and Prayer

      Under the undisputed jurisdictional facts, the Plaintiffs Milton and Maria

Chang and Angelia Hill cannot establish a viable takings claim against the City.

For that reason, the City respectfully requests that the Court reverse the trial

court’s order granting the Plaintiffs’ injunctive relief for want of subject matter

jurisdiction.




                                        14
      Respectfully submitted,

By:   /s/Scott Bounds
      Scott Bounds
      State Bar No. 02706000
      sbounds@Olsonllp.com
      John J. Hightower
      State Bar No. 09614200
      jhightower@Olsonllp.com
      OLSON & OLSON, L.L.P.
      Wortham Tower, Suite 600
      2727 Allen Parkway
      Houston, Texas 77019
      Telephone: (713) 533-3800
      Facsimile: (713) 533-3888

      ATTORNEYS FOR DEFENDANT
      VILLAGE OF TIKI ISLAND,
      TEXAS




 15
                      CERTIFICATE OF COMPLIANCE

      I hereby certify that the foregoing Appellant’s Reply Brief has a word count

of 2,968.

                                                    /s/ Scott Bounds
                                                    Scott Bounds

                         CERTIFICATE OF SERVICE

      As required by Texas Rule of Appellate Procedure 6.3 and 9.5(b), (d), (e), I

certify that I have served this document on all other parties to this appeal, through

their respective counsel of record, on January 14, 2015 as follows:

ATTORNEYS FOR APPELLANT

George D. Martin
State Bar No. 13064000
gmartin1100@aol.com
Carlos Garza
State Bar No. 07730900
cgarza3200@aol.com
MARTIN, GARZA & FISHER, L.L.P.
1100 Rosenberg
Galveston, Texas 77550
Telephone No.: (409) 765-5705
Facsimile No.: (409) 765-7570


                                                    /s/ Scott Bounds
                                                    Scott Bounds




                                         16
