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Cherry Knoll, L.L.C. v. Jones

United States Court of Appeals, Fifth Circuit

April 22, 2019

CHERRY KNOLL, L.L.C., Plaintiff - Appellant

          Appeal from the United States District Court for the Western District of Texas

          Before STEWART, Chief Judge, DAVIS and ELROD, Circuit Judges.

          W. EUGENE DAVIS, Circuit Judge

         Plaintiff-Appellant, Cherry Knoll, L.L.C., appeals the Rule 12(b)(6) dismissal of its complaint against Defendants-Appellees, the City of Lakeway, Texas, City Manager Steven Jones, and HDR Engineering, Inc. For the reasons set forth below, we REVERSE and REMAND.


         Cherry Knoll alleges the following facts in its Second Amended Complaint, which, at the motion to dismiss stage, we assume to be true.[1] In November 2006, Cherry Knoll acquired 27.7 acres in the City of Lakeway ("the City") and sought to develop the property for mostly single-family residential lots, with a small portion for commercial purposes. Larry Aiken, a developer and member of Cherry Knoll, spearheaded the company's development efforts. In September 2007, the City approved a subdivision plat for the property, but that plat was never recorded. Cherry Knoll subsequently modified its plans for the property, determining that the property should be platted in two subdivisions, one commercial and the other residential.

         By the spring of 2008, however, the development project was having financial difficulties, and Aiken advised the City Engineer, Paul Duncan, that Cherry Knoll was placing the project on hold until further notice. Aiken and Duncan agreed that it was best to preserve the progress that had already been made, in case the project was later resurrected. Therefore, Cherry Knoll prepared two Subdivision Plats, one commercial and one residential, that reflected the configuration of the proposed development project as it existed at that time. Aiken delivered the plats to Duncan, who agreed to hold the plats until such time (if any) that Cherry Knoll was able financially to proceed with the project. Cherry Knoll specifically alleges: "At no time whatsoever did Aiken authorize Duncan to record the Subdivision Plats, and at no time did Duncan suggest that the City might do so."

         The development project was never resurrected. Aiken ultimately sold his interest in Cherry Knoll in April 2009 to two of its other members. Since then, Cherry Knoll has explored other options for the property, having determined that single-family residential use is no longer feasible because of significant development of the surrounding area, including the 2012 opening of Lakeway Regional Medical Center, a large medical campus located a few hundred feet from the property.

         In 2013, approximately five years after Aiken delivered the Subdivision Plats to Duncan, the City began moving forward with a planned improvement of Flint Rock Road, which is adjacent to Cherry Knoll's property. The City hired an independent contractor, Schwendinger Advisory Services, L.L.C., for consulting and project management services. The City hired another independent contractor, HDR Engineering, Inc. ("HDR"), to provide a wide range of services for the road improvement project, including "land acquisition" services. Specifically, HDR was hired to handle all aspects of the City's acquisition of property from the various landowners affected by the City's road project, from the initial contact with the landowner through the closing of the sale. HDR also was responsible for obtaining an independent condemnation appraisal report for the City.[2]

         On March 12, 2014, the City wrote a letter to Cherry Knoll, stating that its road improvement project made it "necessary for the City of Lakeway to acquire a portion of property [Cherry Knoll] own[ed]."[3] As detailed in the survey attached to the letter, the City needed to acquire 1.741 acres, described as Parcel 16. The letter also explained the steps the City would have to complete in acquiring the property, starting with an appraisal of the property. The letter stated that the City was required by law to provide Cherry Knoll with a copy of the appraisal and that, after the appraisal was completed, an agent from HDR would contact Cherry Knoll to discuss an offer. The letter also enclosed a summary of the state statutes governing the process for the City to acquire the property entitled "State of Texas Landowner's Bill of Rights."

         On March 25, 2014, Schwendinger emailed HDR Vice President, Teri Morgan, indicating that he had made contact with the principals of Cherry Knoll, Kay and Jim Wolverton. Although the City had sent a letter to Cherry Knoll stating that the process for acquiring the property would begin with an appraisal, Morgan replied that it was her understanding that she should discuss "waiving the appraisal and a donation of the property" with the Wolvertons. However, Schwendinger cautioned Morgan that they might "want to strategize a bit before [they] start[ed] the process with the Wolverton's [sic]." Specifically, Schwendinger explained:

While we think there is a path to dedication, I don't think that has been discussed with [the Wolvertons]. We may need to have a short conference call with [City Manager] Steve [Jones] on this because as I understand it, they came to the city a few years ago and submitted a plat but then never had it recorded. We need to know when that was and what was said or implied regarding any dedication.

         Cherry Knoll alleges that this email shows that Schwendinger and Jones were aware that, several years previously, Cherry Knoll had submitted a plat to the City which Cherry Knoll never had recorded. Cherry Knoll further alleges that the email shows that Jones and Schwendinger understood that the unrecorded plat included a dedication to the City of part of Cherry Knoll's property, which overlapped with some of the property the City needed for its road project. Cherry Knoll alleges that, in fact, the commercial subdivision plat Aiken submitted to Duncan in 2008 included a swath of land, described as a "future" right of way, that overlapped considerably with Parcel 16. Specifically, "[t]he overlapping area comprise[d] approximately 48% of Parcel 16."

         On or about April 7, 2014, Morgan called Kay Wolverton regarding the City's acquisition of Parcel 16. They discussed Cherry Knoll's prior efforts to develop the property and the "approved plats with the property to be set aside for [a] roadway." Wolverton "confirmed that the plat was never recorded and [the] roadway was never dedicated to the City." Morgan asked whether Wolverton would consider donating Parcel 16 to the City. Wolverton "did not think so" because potential buyers of Cherry Knoll's property wanted the City to change the zoning, but "were told there was no way it would ever happen." Morgan, Schwendinger, and Jones discussed the conversation that Morgan had with Wolverton, and Jones instructed Morgan to continue with the appraisal and offer process as outlined in the City's letter to Cherry Knoll. On April 8, 2014, Morgan emailed Wolverton providing a summary of the appraisal and offer process that would follow and attached another copy of the "Landowner's Bill of Rights."

         On July 21, 2014, the appraisal firm (Atrium Real Estate Services) issued its appraisal report for Parcel 16. The report recommended a total compensation amount of $381, 266. This first appraisal report was never sent to Cherry Knoll, and Cherry Knoll alleges that it only learned of the report's existence through discovery in this matter.

         On August 5, 2014, Schwendinger emailed Jones stating that if the appraisal of Parcel 16 "stood as currently appraised," then they "would be forced into looking into other cost savings opportunities." Schwendinger suggested re-designing the road to reduce the amount of land needed from Cherry Knoll's property. Schwendinger stated that they could discuss this option at an upcoming meeting "regarding the appraisal."

         On August 6, 2014, a meeting occurred at Lakeway City Hall to discuss the appraisal of Parcel 16. Morgan emailed a meeting notification to Jones and Schwendinger, as well as other representatives of HDR and Atrium. The next day, Troy Anderson, the City's Building and Development Services Manager, sent a letter to Cherry Knoll stating the following:

It has recently come to my attention that the approved subdivision plat documents known as CHERRY KNOLL FARMS SUBDIVISION PLAT and CHERRY KNOLL FARMS COMMERCIAL PLAT were found in our offices, having not been filed. Please allow this letter to serve as notice that the plat documents have since been executed by Water Control and Improvement District (WCID) No. 17, the Code Official, the Zoning and Planning Commission Chair and the Mayor and will be filed with the Travis County Clerk in the next five (5) to seven (7) days. We apologize for any inconvenience this may have caused you.
If you have any questions or comments please feel free to contact me directly at 512-314-7542 or via e-mail at

         In response, on August 12, 2014, Jim Wolverton emailed Anderson the following message:

Mr. Anderson: Let this E-Mail serve as notice, That the Owners of Cherry Knoll do not wish to have you file the plats in question.
We find it interesting that The City of Lakeway now chooses to act on a SEVEN (7) year old plat which was not filed by the current owners, and furthermore, we cannot find any fee paid by the owners associated with the plat. The owners request a meeting with you and the City to discuss this issue. ONCE again do not file The PLATS in question.

         Wolverton did not receive a response to his email. Cherry Knoll alleges that Wolverton tried to reach Anderson over the ensuing days by phone and email, but Wolverton's messages were not returned.

         On the same day that Wolverton emailed Anderson, Schwendinger emailed HDR representative Bob Leahey (with a copy to Jones and Morgan) explaining the City's decision to record the Subdivision Plats. Schwendinger wrote:

After lots of consideration and legal counsel the city has decided to record the 2008 plat which included a dedication of a right of way for [Flint Rock Road]. It is not in the exact location but certainly overlaps . . . . We sent notice to the property owner last Friday of our intent to record the plat and we intend to record it this Friday. We have concluded that we need to get them to the table to discuss a resolution and this creates pressure for them to act. . . . Part of our dilemma in determining our position is that it is apparent that Atrium, the appraiser, was not given documents which included key features of the property that the city feels materially impact the valuation of parcel #16. We are talking here about the flood plain and the power line easements plus other aspects. So it seems that Atrium will need to rework the appraisal once that information is provided to them. We expect the cost per square foot to be reduced for the [right-of-way] take once all the aspects are incorporated. Plus once the plat is recorded, we would be in a position to better negotiate a settlement or at least have to only buy the net difference between the 2008 dedication and the current [right of way] take.

         On August 15, 2014, Morgan contacted Kay Wolverton to set up a meeting "in response to [Jim Wolverton's] communications regarding the plat and sale of the property and [right of way]." On August 18, 2014, although aware of Cherry Knoll's opposition and without meeting with the Wolvertons, the City filed the Subdivision Plats in the Travis County Official Public Records.

         Morgan (as instructed by Schwendinger) requested Atrium to complete another appraisal of Parcel 16, but this time using "the flood plain and buffer zones outlined on the [recently recorded] plat for appraisal and valuation purposes," instead of the FEMA flood plain studies apparently used in the first appraisal. Considering the flood plain data in the recorded Subdivision Plats, the second appraisal report, issued on August 22, 2014, recommended a total compensation amount of $262, 956 for Parcel 16. This appraisal report was ...

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