On August 12, 2025, the U.S. Court of Appeals for the Fifth Circuit ruled in favor of Baker Botts’ client DM Arbor Court, Limited (“DMAC”), holding that the City of Houston effected a regulatory taking of DMAC’s Arbor Court apartment complex when it denied DMAC repair permits for the multi-million dollar property.  The case was led on appeal by partner Aaron Streett, chair of Baker Botts’ Supreme Court and Constitutional Law Practice. 

Arbor Court is a 15-building, 232-unit, multifamily apartment complex in Houston, Texas.  DMAC purchased the complex in January 2016 and immediately invested substantial amounts into improvements for its residents.  Located in a 100-year floodplain, Arbor Court is subject to the City’s flood ordinance.  When Arbor Court flooded in April 2016, the City promptly granted DMAC repair permits, and DMAC subsequently made additional investments in the property.  But when Arbor Court flooded a year later after Hurricane Harvey hit Houston in 2017, the City denied DMAC’s repair permits application and required it to elevate all buildings.  The City relied on a section of the flood ordinance that it had never previously invoked to deny a repair permit.  Without the repair permits, Arbor Court became and remains economically idle and useless. 

DMAC filed suit against the City, alleging that the City’s denial of repair permits constituted a regulatory taking under both Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), and Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978).  After a bench trial, the district court rejected the takings claim and sided with the City, despite finding many if not all of the essential elements of a constitutional taking, in favor of DMAC. 

The Fifth Circuit reversed the district court’s decision, holding that the City’s regulatory action effected a categorical Lucas taking.  A Lucas taking occurs when a regulation deprives a property owner of all economically beneficial use of his property.  The Court explained that this standard was met here because both DMAC’s and the City’s experts and respective witnesses agreed that because of the permit denial, Arbor Court had no current economically viable use.  Redevelopment was economically impossible, and all DMAC could do was hold the property in the hope that development might one day become feasible or sell it for its residual value.  The Fifth Circuit held that when the only remaining use for a property to is to sell or hold it for future development, it lacks any viable economically beneficially use, and the regulatory action is a categorical taking under Lucas. 

The Court also rejected the City’s argument that its flood-control purpose in denying repair permits allowed it to avoid paying compensation to DMAC.  Thus, the Court reversed the judgment below and remanded for the determination of just compensation for DMAC.

In addition to Mr. Streett, the Baker Botts team included Christopher Tutunjian (Houston).  Kenneth Chaiken was lead trial counsel and a member of the appellate team.

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