Religious of the Sacred Heart of Texas v. City of Houston
836 S.W.2d 606, 1992 Tex. LEXIS 94, 35 Tex. Sup. Ct. J. 1066 (1992)
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Rule of Law:
The 'substitute facilities doctrine,' which allows for compensation based on the cost of acquiring a substitute property, does not apply to the partial condemnation of private property, such as a private school. The proper measure of compensation for such a taking is fair market value, which can be determined through various methods, including the cost approach, even when comparable sales data is unavailable.
Facts:
- Religious of the Sacred Heart of Texas operated Duchesne Academy, a private girls' school, on a 14.786-acre campus in Houston.
- The campus was situated between Buffalo Bayou to the north, Memorial Drive to the south, an apartment complex to the west, and townhomes to the east.
- In 1988, the City of Houston initiated proceedings to condemn 1.479 acres of Duchesne's campus for the purpose of extending Chimney Rock Road.
- The condemned property included a parking lot, a building, and a playground.
- The road construction also separated a .689-acre strip of land from the rest of the campus and placed the new road less than six feet from an educational building.
- Duchesne contended that to restore its pre-taking functionality, it was necessary to acquire an adjacent 7.9-acre tract of land occupied by the Memorial Creole Apartments.
Procedural Posture:
- The City of Houston initiated condemnation proceedings against Duchesne Academy in a Harris County court at law, a trial-level court.
- A panel of special commissioners appointed by the court awarded Duchesne $7,250,000 in compensation.
- Both Duchesne and the City of Houston appealed the commissioners' award, seeking a trial de novo in the county court at law.
- Duchesne withdrew the awarded funds that the City had deposited with the court, which under Texas law limited the trial issue solely to the adequacy of compensation.
- At trial, the court submitted the case to the jury based on the substitute facilities doctrine, asking for the reasonable cost to restore the school's pre-taking function and use.
- The jury returned a verdict awarding Duchesne $18,451,398.
- The City of Houston appealed the judgment to the court of appeals, an intermediate appellate court.
- The court of appeals reversed the trial court's judgment, holding that the substitute facilities doctrine does not apply to private schools, and remanded the case for a new trial.
- Duchesne (as petitioner) appealed the decision of the court of appeals to the Supreme Court of Texas (the state's highest court for civil matters).
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Issue:
Does the substitute facilities doctrine, which measures compensation by the cost of acquiring a replacement property, apply to the partial condemnation of a private school's property?
Opinions:
Majority - Justice Hightower
No. The substitute facilities doctrine does not apply to the partial taking of private property, and therefore does not apply to a private school. The court reviewed U.S. Supreme Court precedent, including United States v. 564.54 Acres of Land (Lutheran Synod) and United States v. 50 Acres of Land, and concluded that the doctrine's application has been severely curtailed, particularly for private condemnees. The court reasoned that 'market value' is a broad concept that serves as the standard for just compensation, and a lack of comparable sales does not render market value unascertainable; other valuation methods, such as the cost approach (replacement cost minus depreciation plus land value), must be used instead. The court explicitly rejected the holding of a prior Texas case, City of San Antonio v. Congregation of the Sisters of Charity, labeling it an outlier. The court also held that the City of Houston did not waive its objection to the trial court's erroneous jury instruction because it made repeated, specific objections, which is sufficient to preserve error for a defectively submitted question.
Concurring - Justice Cornyn
No. While concurring in the judgment, this opinion disagrees with the majority's conclusion that the substitute facilities doctrine can never apply to private property. The constitutional requirement of 'just compensation' applies equally to public and private entities. While fair market value is the general rule, the substitute facilities doctrine remains a viable option in rare cases where applying the market value standard would be impracticable or result in 'manifest injustice.' In this specific case, Duchesne failed to demonstrate that the market value standard, particularly using the cost approach advocated by the City, was inapplicable or would lead to an unjust result.
Dissenting - Justice Gonzalez
Yes. The substitute facilities doctrine should apply in this case, and the jury's verdict should be upheld. The majority misinterprets U.S. Supreme Court precedent, as cases like Lutheran Synod and 50 Acres are distinguishable because the properties in those cases had ascertainable market values based on comparable sales. Here, it was undisputed that Duchesne was a special purpose property with no active market. By rejecting the doctrine for private schools, the majority creates an unconstitutional distinction between public and private condemnees. Furthermore, the City's own 'cost to cure' theory was functionally a substitute facilities measure, and the only true dispute—whether acquiring adjacent land was necessary to restore the school's utility—was a question of fact properly decided by the jury.
Dissenting - Justice Cook
Yes. The trial court's judgment should be affirmed. This opinion joins Justice Gonzalez's dissent and adds that the majority is wrong to foreclose the use of the substitute facilities doctrine for private property. In cases involving special purpose properties with no comparable sales, the cost approach to determining market value can and should allow the cost of substitute facilities to be considered as a component of that value. Therefore, the question submitted to the jury was a proper method for determining the market value of Duchesne's property under the cost approach.
Analysis:
This case significantly narrows the application of the substitute facilities doctrine in Texas, effectively eliminating it as a standalone measure of compensation for the condemnation of private property. The decision clarifies that 'market value' is a broad, flexible concept not strictly limited to the comparable sales (market data) approach. It establishes that for special purpose properties like schools or churches, the cost approach is a valid method for determining market value. This ruling aligns Texas law with the modern federal trend of restricting the substitute facilities doctrine and reinforces fair market value as the primary, default standard for just compensation, thereby limiting potential windfalls to private condemnees at public expense.
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