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Schrock v. City of Baytown

Court of Appeals of Texas, First District

June 27, 2019

ALAN SCHROCK, Appellant
v.
CITY OF BAYTOWN, Appellee

          On Appeal from the County Civil Court at Law No. 1 Harris County, Texas Trial Court Case No. 1007923

          Panel consists of Chief Justice Radack and Justices Goodman and Countiss.

          OPINION

          Julie Countiss Justice.

         Appellant, Alan Schrock, challenges the trial court's judgment, rendered after a jury trial, in favor of appellee, City of Baytown (the "City"), in Schrock's suit against the City for taking his property[1] and for a declaratory judgment.[2] In two issues, Schrock contends that the trial court erred in granting the City a directed verdict on his claims.

         We affirm in part and reverse and remand in part.

         Background

         This is the second appeal we have heard involving these parties.[3] In his previous appeal, Schrock challenged the trial court's rendition of summary judgment against him on his regulatory-taking and declaratory-judgment claims.[4] We held that the trial court erred in granting the City summary judgment and dismissing Schrock's claims, and we reversed the trial court's judgment and remanded the case to the trial court for further proceedings consistent with our opinion.[5]

         In his second amended petition, Schrock alleged that in 1993, he purchased a house at 606 Vista Avenue in the City to use as a rental property (the "property"), which he did until approximately January 2010. Each time that Schrock leased the property to a new tenant, the City required, before it would connect utility services, including water service, in the tenant's name, that the tenant pay a deposit and provide a copy of the lease agreement related to the property. Thus, whenever a new tenancy began, Schrock provided the City with a copy of the lease agreement, either by furnishing his new tenant with an extra copy to give to the City or by giving a copy of the lease agreement directly to the City himself.

         In 2009, the City notified Schrock that he owed it $1, 999.67 for unpaid utility services provided by the City to the property for ten of Schrock's prior tenants, dating back to 1993. The City gave Schrock copies of the relevant billing invoices, listing the names and account numbers of his prior delinquent tenants. The City demanded that Schrock pay the outstanding sum within fourteen days to avoid having a lien placed on the property. Schrock disputed the charges for utility services and requested an administrative hearing.

         After a hearing, the City reduced the amount owed by Schrock to $1, 157.39 for unpaid utility bills that had accrued over the preceding four years, rather than the preceding sixteen years. And it gave Schrock fourteen days to pay. Although after the administrative hearing, the City sent Schrock's attorney a notice detailing its decision, Schrock's attorney misfiled the notice. Because Schrock was not aware of the City's decision, he did not pay the sum assessed by the City, and on June 1, 2009, the City filed a lien against the property for unpaid utility services that it had provided directly to Schrock's tenants who had previously resided at the property. According to Schrock, the City failed to perfect its lien or provide him with notice of the lien or his right to appeal. And the City continued to provide utility services, including water service, to the property until January 2010, when, pursuant to an ordinance, the City refused to provide services to Schrock's new tenant.[6]

         In 1991, the City had enacted an ordinance requiring landlords who wished to prevent the City from filing liens against their rental properties and discontinuing utility services to those properties to submit a "declaration" that their properties were rental properties, which they did not wish to be security for their tenants' utility bills.[7]

         Even so, according to Schrock, he complied with the City's ordinance each time that he leased the property to a new tenant because he provided a copy of the lease agreement to the City, either directly or through his tenant. And the City charged new tenants a higher deposit to connect utility services to the property because of their status as tenants.[8] Thus, Schrock alleged that the City, at all times, had notice that Schrock used the property as rental property. Also, Schrock asserted that he had complied with the Texas Local Government Code, which provides that a "municipality's lien shall not apply to bills for service connected in a tenant's name after notice by the property owner to the municipality that the property is rental property."[9] The Local Government Code prohibits requiring, as a condition of connecting service, a third-party guarantee of a customer's utility bill or requiring, as a condition of connecting or continuing service, a customer to pay for service previously furnished to another customer at the same address.[10]

         Later, in 2011, the City amended its ordinance, removing the requirement that a landlord file a "declaration." Rather, if the City "knows" that a property is occupied by a tenant, it may not file a lien against the property; however, it may report the tenant's delinquency to a credit bureau.[11] In 2012, the City further amended its ordinance, allowing utility services to continue to be provided to a property in accordance with the Local Government Code.[12]

         Schrock brought regulatory-taking[13] and declaratory-judgment[14] claims against the City. Regarding his regulatory-taking claim, Schrock alleged that since January 2010, the City had refused to provide water service to the property, and without water service, Schrock was not able to use the property as a rental property. Accordingly, Schrock was denied all economically viable use of the property, and the property fell into disrepair and became uninhabitable. Schrock never received any compensation from the City for its regulatory taking of his property.

         Schrock further alleged that the City's actions, in the enactment and enforcement of its ordinance, [15] constituted an unreasonable interference with his right to use and enjoy the property and an "unlawful exercise of police power . . . . which primarily and adversely affected a small number of landlords of single[-]family residences." According to Schrock, from 1991 to 2012, the City filed eighteen liens against rental properties, but only eight remained, including the lien on his property.[16] He argued that the City's enforcement of its ordinance was not "in response to a great public necessity," but constituted an "attempt to coerce a small number of landlords into paying their tenants' water bills" out of convenience because it was difficult for the City to collect from tenants who had moved. Schrock, on his regulatory-taking claim, sought "all actual damages resulting from the [City's] inverse condemnation of his [p]roperty."

         Regarding his declaratory-judgment claim, Schrock sought a declaration that the City's enforcement of its ordinance[17] against him in 2010 "resulted in the inverse condemnation of [his] property for which no just compensation [was] paid." Further, Schrock sought a declaration that certain sections of the City's ordinance, [18] prior to their amendment, were "invalid, illegal, and/or unconstitutional" and conflicted with the Local Government Code.[19] And he sought a "clarification as to the validity of [the City's] utility lien" as well as a "clarification as to his rights under the current version" of the City's ordinance[20] and as to whether the City "c[ould] lawfully prevent [his] tenants from obtaining utility service[s] at the [p]roperty."

         In its fourth amended answer, the City generally denied Schrock's claims and asserted certain affirmative defenses.

         At trial, Schrock testified that in 1993, he purchased the property, which was a ten-year-old mobile home, for $21, 000. In 2006 or 2007, Schrock spent $5, 000 to $5, 500 renovating the property, which included rebuilding the outer walls, installing and painting new siding, and installing new insulation. The trial court admitted into evidence photographs of the property after the renovation, but before any utility services were suspended by the City. In Schrock's opinion, the property would "have held up another 10 or 15 years with the new siding on it."

         According to Schrock, he always intended to use the property as a rental property. And since 1993, he consistently rented the property, with never more than a one or two week gap in between tenants. In other words, Schrock "always ha[d] another tenant to move in" to the property, and that tenant would pay Schrock a deposit prior to the previous tenant even vacating. Regarding rent, Schrock testified that his tenants paid less than $2, 000 a month and were generally lower-income individuals. The last tenant with whom Schrock signed a lease agreement was required to pay a $400 deposit and $600 each month for rent. Schrock never foresaw a reason that would prevent him from using the property as a rental property.

         Schrock explained that the lease agreement that he signed with each of his tenants required the tenant to provide and pay for his own utility services related to the property. And his tenants provided the City with a copy of their lease agreements when seeking the connection of utility services. According to Schrock, tenants were required to provide $125 deposits to the City for the connection of utility services, including water service, while owners of properties were only required to pay $50 deposits.

         Schrock further testified that on March 31, 2009, the City sent him a letter, a copy of which the trial court admitted into evidence, stating that, as the owner of the property, he was responsible for "outstanding balances total[ing] . . . $1, 999.67" related to unpaid utility services provided by the City to Schrock's tenants from 1993 through 2009. The City, in its letter, essentially wanted him to claim responsibility for the outstanding balances of ten of his previous tenants based on a 1991 City ordinance, which provided, at that time:

         Sec. 98-65. Liens.

         (a) Water. Liens for unpaid water charges shall be filed according to the following:

(1) After the [C]ity has terminated a customer's water . . ., the supervisor of the utility billing division shall file a lien on the property served by the terminated water service and in the amount the customer whose service was terminated owed to the [C]ity for water service at the time of the termination of services.
(g) Reconnection of services. No water, garbage or sewer services shall be provided to property encumbered by a lien filed pursuant to this section. However, the supervisor of the utility billing division shall be authorized to reconnect water, garbage and wastewater services if the customer agrees in writing to pay the accrued water and wastewater charges for [the] property . . . .
(i) Rental Property.
(1) The owner of any property, which property is rented to another and such tenant carries [C]ity water, sewer or garbage collection services in the tenant's name, may prevent the [C]ity from using that property as security for the water, sewer and garbage collection service charges for service to that property and from filing any lien on such property under this section by filing with the [C]ity utility billing division a declaration in writing specifically naming the service address of that property and declaring such to be rental property, which the owner does not wish to be security for the water, sewer and garbage collection service charges for service to that property.[21]

         According to Schrock, he did not know of the ordinance's requirement of a "Rental Property Declaration" until he received the City's letter. And he had no idea that he could possibly be responsible for the outstanding balances for utility services owed by his tenants. In fact, his lease agreement with his tenants stated that they were to pay for utility services; Schrock "had nothing to do with it." And Schrock had never received a letter from the City like the March 31, 2009 letter, and he owned approximately thirty-five rental properties by 2009.

         Schrock also noted, in regard to the City's ordinance, that it conflicted with Texas law, which states that an "entity . . . cannot hold a third party responsible for somebody else's bill. In other words, the City had an agreement with the customer and they c[ould not] come along and make a third party responsible for th[e] [customer's] bill." Essentially, the City "couldn't do what they were doing."[22]

         In response to the City's March 31, 2009 letter, Schrock sought a hearing "to contest the amount due and owing and/or [the] proposed lien" on the property. On April 21, 2009, a hearing was held during which Schrock was told that "the[] law" stated that "landlords of properties had to pay the water bills from [their] tenants that didn't pay [them]." Schrock agreed that, at the time of the hearing, he was the owner of the property and he had not yet filed with the City a "Rental Property Declaration" for the property.

         Following the hearing, on April 24, 2009, the City sent Schrock a letter regarding its "[d]ecision concerning the appeal of the imposition of lien for unpaid utility services." That letter, a copy of which the trial court admitted into evidence, states:

After having considered the testimony received at the hearing held on April 21, 2009, regarding the City's decision to impose a lien for unpaid utility services and after reviewing the billing records together with the Code of Ordinances of the City of Baytown, [the City] ha[s] determined that a lien in the following amount[] should be placed on the property as indicated hereinbelow:

Property Address

Account Number

Lien Amount

606 Vista, Baytown, Texas

1071-00625

$1, 157.39

Such amount reflects the cost of utility services provided to the above-referenced property for only the past four years and excludes all late charges. . . .
This decision is based upon the following facts presented at the hearing, namely that:
1. . . . Schrock admitted that he was the owner of the property at all times during which the unpaid utility services were provided by the City;
2. [T]he property has not been and cannot be declared as a homestead;
3. [T]here was no evidence presented contesting [the] above-referenced amount[] for services provided to . . . [the] property; and
4. [T]here was no rental declaration on file for the time period in question declaring that . . . Schrock d[id] not wish the property to be used as security for the utility service[] charges for services to the property.
To avoid the imposition of [a] lien, . . . Schrock . . . must pay the above-referenced amount and send a check for the same to[] . . . [the City] on or before fourteen calendar days from the date of this letter. If payment has not been received or a payment arrangement has not been made within such time frame, the City shall no longer be stayed from the imposition of the lien in the amount referenced hereinabove. If a lien is filed, please be advised that the cost of the same will be included and such lien will bear interest . . . .

         Schrock stated that he did not receive the City's letter or become aware of it because his attorney misfiled the letter in another client's file. However, Schrock also testified that he knew about the City's letter, and he knew that if he paid $1, 157.39 a lien would not be attached to the property. According to Schrock, he was financially able to pay the lien at that time.

         On May 1, 2009, Schrock submitted a "Rental Property Declaration" related to the property, asserting that the property constituted a rental property and that he did not "wish [the property] to be security for the water, sewer and garbage collection service charges for service to th[e] property." Although Schrock explained that the City always knew that the property constituted a rental property based on the deposits it had received from his tenants and the lease agreements that were required to be provided for such deposits, he still completed the declaration based on the advice of his attorney.

         On May 27, 2009, the City executed a lien, and on June 1, 2009, the City filed the lien in the Harris County real property records. At the time that the City executed and filed its lien, a tenant lived at the property and the City was providing utility services, including water service, to the property. Thus, Schrock explained that he was not initially harmed by the execution of the lien, and he was not even aware of its attachment to the property in June 2009. Schrock noted that, at the time that the City executed and filed its lien, he had already filed the required "Rental Property Declaration" for the property.

         At the end of December 2009, Schrock's tenant moved out of the property, and Schrock signed a lease agreement with a new tenant, George Cuellar, on or about January 10, 2010. When Cuellar moved to the property, he sought to have water service to the property "turned on." On or about January 20, 2010, Cuellar's wife, went to the City, with a copy of Cuellar's lease agreement, but a City employee told her that water service to the property could not be connected until the City spoke with Schrock. When Schrock spoke to the City that same day, he was told that the City would not provide utility services, including water service, to the property unless Schrock paid the lien attached to the property. According to Schrock, this was the first time that he ever became aware that the City had attached a lien to the property. At that time, Schrock was told by a City employee that it would cost $1, 251.59 to pay off the lien, interest, and the filing fee.

         When Schrock went to pay the lien; however, he was told that he was required to pay $1, 415.76, rather than $1, 251.59, because Schrock was also liable for the unpaid "water bill" of his last tenant who vacated the property in December 2009. In other words, Schrock was told, in addition to paying the lien amount, he was responsible for "pay[ing] [his] last tenant's water bill before [his] new tenant c[ould] get [water] service." According to Schrock, his tenant's unpaid water bill did not accrue until after the City had filed its lien on June 1, 2009; and, essentially, he was being asked to pay more to have the lien released than the actual cost of the lien itself. At trial, the court admitted into evidence a copy of certain e-mails between employees of the City, which confirmed that the unpaid water bill of Schrock's last tenant "was not included in the lien."

         Although Schrock was financially able to pay the $1, 415.76 amount in January 2010, he did not bring a check with him to cover the additional amount subsequently requested by the City. Thus, Schrock did not pay the $1, 415.76 on or about January 20, 2010, and the City refused to connect utility services, including water service, to the property that day. When Cuellar learned that he could not obtain utility services for the property, he immediately moved out of the property. As a result, Schrock refunded Cuellar his $600 rent payment and his $400 deposit, and he reimbursed Cuellar for the deposits that Cuellar had made for gas and electricity. At the time that Cuellar vacated the property, Schrock did not have another tenant to rent the property. Schrock explained that he was harmed because the lien placed on the property prevented any new tenant from securing utility services, including water service for the property.

         On October 19, 2010, Schrock, on the advice of his attorney, attempted to pay the lien attached to his property for a second time. On that day, he was told that he would have to pay $1, 502.01, in order to have utility services turned back on at the property, which included the lien amount, interest, a filing fee, and his last tenant's unpaid water bill. Schrock noted that the lien amount remained unchanged, even though in May 2010, one of his former tenants paid his delinquent utilities account with the City. Additionally, when Schrock went to make his lien payment, the City informed him that he would need to also address his "other 19 accounts" related to the other nineteen rental properties that he owned at the time. In other words, according to Schrock, he was told that he "had to pay everything that had ever been on any of [his] rent houses," which "could have been as much as 19 times" $1, 500. Thus, Schrock believed that paying the lien attached to the property would not ultimately resolve his situation with the City.

         Schrock further testified that at the time that he attempted to pay the lien for the second time, in October 2010, the property was still vacant and he could not rent it to anyone because the City would not provide utility services to a new tenant. And Schrock explained that if he did rent the property to a new tenant, but had not paid the lien attached to the property, the City would simply deny services to that new tenant, as it had in the past.

         Regarding the condition of the property, after the City stopped providing utility services to the property in January 2010, it became difficult for Schrock to maintain without a tenant living there. For instance, although Schrock "check[ed]" on the property once a week, rats gained access to the property through "the back of the cabinets," under the stove, and "the heating unit in the hall." The rats went "up in[to] the ceiling" and ate holes. Additionally, mold grew in various places inside the property, and in 2012, the property was "broken into by kids a couple of times [who] pretty much tore up [the] inside." According to Schrock, those individuals "tore the walls up," tore out the light fixtures and ceiling fans, "busted windows," ripped the doors off of cabinets, "pulled . . . pieces of the flooring up," and vandalized the air-conditioning unit. Further, Schrock testified that because the property was vacant for an extended period of time, the City "disconnect[ed] the . . . power wires," "pull[ed] the [electrical] meter out," and removed the gas meter.

         The trial court admitted into evidence photographs of the property taken in 2012 after the property had been vandalized. Schrock explained that the photographs depicted the damage due to the vandalism, but also the damage done by rats and mold that had grown at the property. The trial court also admitted into evidence photographs of the property taken "[v]ery recent[ly]," within three weeks or a month of trial.

         Schrock testified that if the City had provided utility services, including water service, to the property then the property would have been occupied and the aforementioned damages would not have occurred. In fact, according to Schrock, no one had ever broken into any of his other rental properties, which all had tenants. In Schrock's opinion, the property was not currently habitable. And in order to make the property habitable, he would need to repair all of the walls, install new appliances, install a new air-conditioning system, replace the carpet, have "electric reconnected," "test the gas pipes . . . and have the gas meter reconnected," and potentially replace some wood on the exterior of the property. Schrock explained that it would cost $1, 100 to have the "power wires" reconnected and the electrical meter replaced. It would also cost $400 to have the gas meter put back in, and approximately $4, 922.52 to replace the air-conditioning system. Additionally, because of the rats, mold, and vandalism at the property, it would cost $8, 500 to repair the drywall, approximately $2, 000 to replace the carpet, and approximately $500 to replace the refrigerator, which had "complete[ly] rust[ed]" because the property was vacant. According to Schrock, nothing was "wrong" with the property before the City stopped providing utility services. At the time of trial, the property did not have utility services, including water service connected.

         Schrock further explained that, in general, he had accumulated approximately twenty to thirty rental properties in the City and he originally planned to purchase three houses a year until he reached the age of sixty-five. At that time, he would begin selling the properties and using the money from those sales to support himself. However, once the City stopped providing utility services to the property in January 2010, he stopped buying rental properties, having bought his last two properties in 2009 or 2010. In Schrock's ...


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