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As a Texas attorney representing Texas homeowner and property owner associations in residential and commercial developments, I find that very often the greatest service I can perform for my clients is education. I ran across a recent article by Richard Thompson with Regenesis in Realty Times, entitled the “HOA Health Survey”. The article sets out a questionnaire to determine just how healthy your association is. The questionnaire contains very specific and pointed questions, and the answers will indeed tell you just how “healthy” your association is. Very interesting and informative article.

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I have represented developers and investors in Texas real estate developments for over thirty years. I have been blessed with clients who are fabulous people to work with, and Texas development law is always challenging and interesting. There is one thing that is guaranteed to make both my clients and I tear our hair out however: arbitrary and capricious municipal governments and code enforcement personnel. They are not all that way, by any means: most Texas city government officials and personnel are highly professional. However, if you practice development law in Texas long enough, you will find that the few bad apples cause you more effort than all the others combined.

There is a game some municipal governments play called “Yes, that’s what we promised then, but it’s different now”. The case of Continental Homes of Texas, L.P. v. City of San Antonio, decided recently by the Texas Fourth Court of Civil Appeals in San Antonio, illustrates what I mean. In 2002, the owners of a ranch, (located outside the San Antonio city limits but within its extra-territorial jurisdiction), received a “Vested Rights Permit” in return for giving the City a parcel of land for a gas metering station. The Permit had an effective date of 1991 and basically said that the ranch would be subject only to City ordinances and rules as of 1991, and not any passed thereafter. Importantly, the Permit had no expiration date.In 2003, the City passed a Tree Preservation Ordinance, which required developers to, among other things, request a permit from the City Arborist before cutting trees, and to perform mitigation (i.e., plant new trees) if trees were going to be removed. In 2005, Continental bought part of the original ranch, and submitted a Master Development Plan to the City. The Plan was approved, but in a side letter, the City told Continental that Continental’s Master Tree Stand Delineation was rejected, and further noted that the project will be subject to the City’s Tree Preservation ordinance. In 2006, while Continental was clearing at the site, it was served with a temporary restraining order obtained by the City, stopping all work on the grounds that Continental was violating the Tree Preservation Ordinance.

The City argued that the Vested Rights Permit had become “dormant”! The trial court decided for the City. The Court of Appeals reversed the trial court decision, and quite rightly held that the Vested Rights Permit controlled, and since the City’s tree ordinance was passed after the date of the Vested Rights Permit, the tree ordinance did not apply to this property. Appropriately, the City had to pay Continental’s attorney’s fees. If I were a San Antonio taxpayer, I would be furious that my tax dollars financed a suit like this!

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As a Texas real estate lawyer representing developers, builders and investors in Texas, I have found that my clients benefit from the availability of “alternate dispute resolution” remedies in their contracts. These remedies, such as mediation and arbitration, can result in satisfactory outcomes to disputes, without the cost of extended litigation. A recent Texas Supreme Court case illustrates that the contract remedy of arbitration can be waived, however.

In the case of Perry Homes, Inc. v. Robert and Jane Cull, the Culls sued their homebuilder for structural and drainage defects in the home built by Perry Homes. Initially, Perry Homes requested that the dispute be submitted to arbitration, but the Culls resisted. A ruling was never obtained by either party from the trial court on whether the case must be submitted to arbitration. The Culls then engaged in a course of extended (and expensive) discovery for 14 months. Four days before trial, the Culls requested that arbitration be ordered. The trial court ordered arbitration, and the arbitration resulted in an $800,000.00 award to the Culls.The Texas Supreme Court states that: “(the Culls) got extensive discovery under one set of rules and then sought to arbitrate the case under another. They delayed disposition by switching to arbitration when trial was imminent and arbitration was not. They got the court to order discovery for them and then limited their opponents’ rights to appellate review. Such manipulation of litigation for one party’s advantage and another’s detriment is precisely the kind of inherent unfairness that constitutes prejudice under federal and state law.” As a result,the Texas Supreme Court set aside the award, and sent the case back to the trial court for a trial, on the grounds that the Culls had waived their right to arbitrate this dispute.

While arbitration is often less expensive than discovery and trial, it has some downside: discovery and the scope of appeal is substantially limited in an arbitration proceeding. That’s why it is faster and costs less. The moral here for clients and lawyers: the case should be analyzed in the beginning, to determine whether trial or arbitration is the best remedy. Once you embark down the path of discovery and trial, the arbitration door is going to swing shut!

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Texas rural water utilities and the attorneys representing Texas rural water companies are often faced with the challenge of making sense of the sometimes tangled layers of Texas statutes, Texas court decisions and the administrative rules of the Texas agency that regulates water utilities, the Texas Commission on Environmental Quality. As I indicated in a blog last week entitled “Texas Rural Water Utilities Faced With New Law: “Paint It Black!!”, House Bill 1717, effective June 15, 2007 (and now codified as Texas Health and Safety Code Section 341.0357), requires that a utility that provides fire hydrants paint black any “non functioning” hydrant. A hydrant is non functioning if “the device pumps less than 250 gallons of water per minute”. Because the statute does not specify over what period of time this standard must be met, it will almost certainly be interpreted by a Texas court to mean “at all times”. Many rural water companies simply cannot meet this standard 24/7, 365 days a year.A recent article by Michael Gresham in The Kaufman Herald illustrates that the controversy over this recent law is continuing. Rural water utilities are continuing to paint their hydrants black. Firefighters continue to disparage this practice on the basis that “this is not what the law intended”. As I have said before, water companies usually don’t get sued for acting contrary to what a law intended, but they regularly get sued if they do not follow what a law says. Instead of criticizing what the rural water companies are doing because they have no choice, hopefully the fire fighters will direct their concerns to the Texas Legislature!

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One of the challenges of serving as an attorney for rural water utilities in Texas is helping my clients navigate the increasing regulatory burden on Texas rural water utilities, an issue specifically addressed in a prior blog entitled Challenges Ahead for Texas Rural Water Companies in Texas. A recent law enacted by the Texas Legislature appears to add confusion to that burden.

House Bill 1717, effective on June 15, 2007 (and now codified as Texas Health and Safety Code Section 341.0357), requires that a utility that provides fire hydrants paint black any “non functioning” hydrant. “Non functioning” is defined by the law to mean any hydrant that cannot pump at least 250 gallons of water per minute, presumably at all times. Most rural water utilities I represent do not install fire hydrants, because they simply do not have the capacity to serve their customers and produce water for firefighting as well. Those rural water utilities that do install hydrants cannot always deliver 250 gallons per minute 100% of the time.

A recent article by Ron Maloney with the Seguin Gazette-Enterprise illustrates the confusion this new law can cause. The Green Valley Special Utility District, a water district that serves 25,000 customers in Guadalupe, Comal and Bexar Counties in Texas, painted all their fire hydrants black. The water district’s general manager is quoted in Mr. Maloney’s article as saying: “It’s different in a rural district from the type of system in a municipality and a lot of things can affect flow rate. I have the flow now. But I might not have it in an hour, and we can’t guarantee it.”This action has apparently angered fire departments and the emergency management coordinators of the involved counties. If I had represented the water district, I might have advised them to cover hydrants with a black tarp while the water district and the Texas Rural Water Association worked with state legislators to get an emergency bill passed to clarify the law, rather than go to the expense of painting. But tarps cost money too, the new law says you can only use tarps temporarily, and Green Valley SUD was painting the hydrants so as to leave them available for fire fighter use. The law, as currently worded, is quite clear that if the water district cannot supply 250 gallons per minute to the hydrant at all times, the hydrant must be painted black. If the water district did not paint these hydrants black, and a fire truck hooked up to the hydrant at a time when peak demand by the water district’s paying customers or a broken line caused the hydrant to deliver less than 250 gallons per minute, then you can bet that the water district will be sued by a homeowner whose house burned down. That kind of suit can result in higher insurance premiums for the water district, which translates into higher water bills for the water district’s customers. The best course of action for the rural water districts effected by this new law may be to remove all fire hydrants altogether, thus depriving the communities involved of helpful fire-fighting resources.

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As a Texas attorney representing both builders and construction companies in Texas on one hand, and Texas consumers of construction services on the other, I have had occasion to litigate a number of cases in which construction defects were the central issue in the case. I learned long ago (because I had some great mentors when I was a new lawyer), that when I represented a Plaintiff in a suit to recover damages for a construction defect, the claim should be characterized as both a breach of contract as well as breach of warranty. It always seemed redundant to me, but a recent case illustrates that it may not be. Consider the case of Medical City Dallas Ltd. v. Carlisle Corporation, decided recently by the Dallas Court of Appeals and subsequently heard by the Texas Supreme Court.

Medical City purchased a membrane type roofing system from Carlisle Corporation. Within a short time, the roof began to leak. Initially, Carlisle performed repairs. When the repairs appeared not to cure the leaks, Medical City obtained the advice of a roofing expert, who examined the membrane and determined that it was failing. Medical City requested that the roof be replaced, and when Carlisle failed to respond, this litigation ensued.The opinion of the Dallas Court of Appeals held that a breach of warranty was different than a breach of contract, and in particular, a breach of warranty did not support an award of attorneys fees to the damaged party, even though the Texas Civil Practices and Remedies Code Section 38.001 clearly allows the injured party in a breach of contract case to recover attorneys fees. Since Medical City’s pleadings contained only a claim for breach a warranty, the Dallas Court of Appeals held that it could not recover attorneys fees, only its damages.

The Texas Supreme Court opinion reversed this decision, and concluded that since a written warranty is a type of written contract, Texas Civil Practices and Remedies Code Section 38.001(8) supports an award of attorneys fees for breach of a written warranty.

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In the course of representing rural water companies in Texas, I am always on the lookout for new resources and educational materials to help me expand my understanding of the challenges that water companies, and especially rural water companies in Texas, face each day. The American Water Works Association has just published a new book that looks like a fascinating addition to the library of any lawyer representing water companies. It’s called “The Business of Water”, and it’s edited by Steve Maxwell, Managing Director of TechKNOWLEDGEy Strategic Group in Boulder, Colorado.The advance press on this book indicates that it deals with some of the paradoxes that water companies face. For example, water is essential to life and thus incredibly valuable, yet drinking water costs us a fraction of a cent out of our tap. Another paradox is that many of us purchase bottled water that costs thousands of times as much as tap water, yet almost everyone screams if our monthly water bill goes up. Finally, the book notes that water companies must sell water in order to stay in business, yet are often in the position of asking their customers to conserve and use less water!

The book deals with water costs, strategic planning for water companies, government regulation and many other timely topics. I have ordered my copy and will report back to you after I have read it. It certainly appears to be a valuable addition to any water lawyer’s library. The price is $45.00 for AWWA members and $68.00 for nonmembers.

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Texas attorneys representing developers, homeowners and contractors, and in fact any attorney who is drafting a contract for a client, should make note of a recent case by the 4th Court of Appeals in San Antonio, Texas.

In the recent case of San Antonio Properties L.P. v. PSRA Investments, Inc., the Seller of an apartment complex was held liable for fraud for its representations as to the financial condition of the apartments, even though the contract of sale contained language that the Buyer agreed to “…accept the Property in its current condition, as is, after having inspected the Property to Buyer’s satisfaction.” The evidence showed that the Seller had provided the apartments’ operating statements to the Buyer, but had omitted from those financial documents the substantial amounts spent by the Seller in capital expenditures and repairs.The resulting operating statement (minus the capital expenditures) showed that the apartments made money. When the capital expenditures were added back in, the apartments lost money. The Court held that the “as-is” clause in this contract did not prevent the Seller from being liable to the Buyer for fraud due to the intentionally inaccurate financial documents provided to the Buyer. The Court notes that “…even sophisticated buyers have the right to rely on the veracity of the financial information provided to them by the sellers.”

I often see Texas real estate attorneys and their clients placing a great deal of reliance on the “as-is” clause in their contracts. This case suggests that this reliance may be misplaced, and will certainly not be a shield against actual deception.

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I have served as an attorney representing both rural water companies and real estate developers in Texas for quite a few years. Very often, my representation involves negotiating “nonstandard service” contracts. These are contracts governing the conditions, terms and costs under which a rural water company will extend water service to a new development. At best, there is a bit of built-in tension between the two groups: real estate developers are appropriately mindful of their bottom line and want to minimize the costs and restrictions of obtaining water service, while rural water companies have legitimate concerns that their capital costs will be paid and that some amount of warranty service is covered. I emphasize to all my clients, whether they are real estate developers or rural water companies, that their agreements must be reduced to writing, to insure there is no misunderstanding in what can very often be a complex negotiation.A recent case, BCY Water Supply Corp. v. Residential Investments, Inc., illustrates the pitfalls when one or the other of the parties involved takes action based on (often misunderstood) oral statements. This case, decided by the 12th Court of Appeals in Tyler, Texas, involved a small rural water company serving Anderson County, Texas. The Plaintiff was a real estate developer who was the considering the purchase of a small tract of land within the water company’s service area. The developer came by the water company’s office, and visited with the water company’s bookkeeper and maintenance man. The developer questioned the maintenance man about the availability of water for the property the developer was thinking of buying. According to the developer, the maintenance man said that there would be “no problem” getting water service to the property. The maintenance man, on the other hand, testified that the developer requested a single meter at the property, and that he told the developer that, while he did not see a problem serving a single meter, all requests for service had to be directed to and approved by the board of directors and that the board might require capital improvements before service could be approved. The developer bought the property, and when he applied for service, the board of directors of the water company told him that he would have to install a new line prior to water service being supplied. The developer claimed that the representations by the maintenance man were negligent and sued the water company for denial of service.

The Court of Appeals held for the water company, ultimately. However, this litigation probably cost this small rural water company and its members dearly. The decision represents something I emphasize often to my rural water company clients: educate all your staff, whether office staff, maintenance people or operators, that whenever someone asks about the availability of water, always, and I mean always, tell them that they will have to talk to the manager of the company or the President of the board of directors. Do not guess, do not speculate and do not surmise. The maintenance man for this company was probably just trying to be helpful to this developer, and a lawsuit was the result.

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As a real estate and development attorney in east Texas, I have represented Texas property or homeowners associations (HOAs) on quite a number of occasions. My legal services for my homeowner association clients have ranged from preparation of corporate documents and restrictive covenants, to mediating disputes, to overseeing annual meetings, to filing and collecting assessment liens, to litigation to enforce deed restrictions. As any lawyer who has represented HOAs knows, few things engender as much conflict and heated debate as interpretations of restrictive covenants among the members of the HOA. A recent case illustrates this situation.

In Jennings v. Bindseil, the Texas Court of Appeals in Austin considered just such a dispute. The neighborhood in question, in rural Comal County, Texas, had restrictive covenants in place. One of the restrictions prohibited mobile homes. The Defendant, Jennings, purchased a modular home, which was delivered in sections and assembled on Jennings property. The other members of the HOA cried foul, claiming that a modular home is the same thing as a mobile home, and sued Jennings for the removal of the structure.

The Court considers that modular and mobile housing (the term “mobile”, as the Court notes, has been replaced by the term “manufactured” housing) are governed by different codes, differ as to their foundation requirements (modular houses must be placed on a permanent foundation) and in titles (titles are issued for mobile homes but not for modular housing). Because the case had been decided in the trial court on a motion for summary judgment (in other words, there had been no evidentiary hearing as to the details of the Defendant’s house), the Court of Appeals reversed the summary judgment against the Defendant and sent the case back to the trial court for an evidentiary hearing.This case illustrates what happens when older deed restrictions (drafted and filed before modular housing became widely available) come up against more recent technology. The truth is, mobile or manufactured housing is different from modular housing in many ways. However, while there is high end modular housing that is quite tasteful, some modular houses look not much nicer than manufactured or mobile homes, and are sometimes made of the cheapest of materials. If the other owners in this subdivision had spent substantial amounts of money on site-built homes, and the Defendant’s home was of the cheap variety, it is understandable why they would be upset. The lesson for HOAs and their attorneys is clear: review your deed restrictions or restrictive covenants periodically, and update them to keep up with changing technologies.