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Pizza Hut of America, L.L.C. v. Houston Community College System

Court of Appeals of Texas, First District

December 19, 2017


         On Appeal from the County Civil Court at Law No. 4 Harris County, Texas Trial Court Case No. 1043516

          Panel consists of Chief Justice Radack and Justices Keyes and Caughey.


          Evelyn V. Keyes Justice.

         In this condemnation proceeding, appellant Pizza Hut of America, L.L.C. ("Pizza Hut"), challenges the trial court's judgment dismissing its claims for lack of standing. Pizza Hut was a tenant of the Woodridge Plaza Shopping Center ("Woodridge Plaza") at the time that appellee Houston Community College System ("HCCS") condemned the property. As part of the condemnation proceedings, a condemnation award of $427, 100 was designated to be paid to all of Woodridge Plaza's tenants, and Pizza Hut sought $7, 100 as its pro rata share from that amount. The trial court concluded, based on language in Pizza Hut's lease for the Woodridge Plaza location, that Pizza Hut had suffered no impairment of its use of the premises as a result of the condemnation proceedings and, thus, Pizza Hut lacked standing and was not entitled to any portion of the condemnation award. In its sole issue on appeal, Pizza Hut contends that it has standing to participate in the condemnation proceedings and to seek a portion of those funds awarded to the Woodridge Plaza tenants.

         We affirm.


         In February 2014, HCCS filed its petition for condemnation against Compass Investors Group, L.L.C. ("Compass") to acquire Woodridge Plaza for educational purposes and the case was referred to special commissioners. In October 2014, the special commissioners awarded Compass $12, 500, 000 for its ownership interest in Woodridge Plaza. HCCS then filed a second condemnation petition naming the tenants of Woodridge Plaza as defendants. After two hearings, the special commissioners awarded $427, 100 to all of the Woodridge Plaza tenants. The special commissioners specifically apportioned $7, 100 of the total funds to Pizza Hut because it was a tenant at the time of the special commissioners' hearings. HCCS then deposited the $427, 100 into the registry of the court. All parties contested the special commissioners' award, and the trial court consolidated causes of action against Compass and the tenants for further judicial proceedings.

         In October 2015, HCCS gained possession of Woodridge Plaza and continued operating it based on the operating leases the tenants had with Compass, including Pizza Hut's lease with Compass. That lease for Pizza Hut's restaurant space was a standard form lease provided by Pizza Hut. It contained a section pertaining to remedies in the event of a condemnation. The lease stated:

Condemnation means any impairment of Tenant's use of the Premises or the Common Area, or both, by act or omission of government authority, including without limitation, a change in applicable law, exercise of the power of eminent domain, or exercise of other government authority such as alteration of a public street directly serving the Premises or the Common Area, or both. . . .
The Condemnation Award shall belong to the Landlord, however, Tenant shall be entitled to the Unamortized Cost of Tenant Improvements, plus Tenant's relocation expenses as determined by the condemning entity or court of law. Unamortized Cost of Tenant Improvements means that portion of all costs of developing and constructing Tenant Improvement which, if amortized on a straight line basis over the Term, has not been recovered by Tenant as of the date of the Condemnation. . . .

         Under HCCS's operation as the premises owner, Pizza Hut continued operating its business at the Woodridge Plaza location-using its established equipment and improvements-at a profit and without interruption of physical impairment by the condemnation. In April 2016, while the condemnation proceedings were still pending, Pizza Hut sold all ninety of its Houston locations, including the Woodridge Plaza location. The sale price included improvements to the Woodridge Plaza location but not the leasehold interest. Pizza Hut retained the leasehold interest due to the pending condemnation proceedings.

         In December 2016, HCCS filed a plea to the jurisdiction challenging Pizza Hut's standing as a party to the condemnation proceedings. The trial court granted HCCS's motion and dismissed Pizza Hut as a party from the proceeding without prejudice. The remaining parties subsequently settled and the trial court granted a joint motion to dismiss with prejudice. This appeal between Pizza Hut and HCCS followed.


         In its sole issue, Pizza Hut argues that, as an owner of a leasehold interest at the time of the taking, it had standing to ...

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