D. Houston, Inc. D/B/A Treasures v. City of Houston

Affirmed and Memorandum Opinion filed June 28, 2011. In The Fourteenth Court of Appeals ___________________ NO. 14-10-00384-CV ___________________ D. Houston, Inc. d/b/a/ Treasures, Appellant V. City of Houston, Appellee On Appeal from the 234th District Court Harris County, Texas Trial Court Cause No. 2010-16838 MEMORANDUM OPINION This appeal arises from a dispute between a sexually oriented business (“SOB”) and the City of Houston. D. Houston, Inc., d/b/a/ Treasures, is one of several establishments affected by a 1997 city ordinance imposing new distance requirements on SOBs. Nearly fifteen years after the ordinance’s passage, a hearing examiner appointed by the city determined Treasures should not be granted a time extension that would enable it to remain at its present location. The 234th District Court upheld the ruling. Because we agree that substantial evidence supports the trial court’s ruling, and Treasures’ due-process rights have not been violated, we affirm. I In 1997, the City of Houston enacted Ordinance 97-75. This ordinance amended existing ordinances regulating SOBs, including those regulating where SOBs could be located. Treasures held a valid permit to operate a SOB, but under the new ordinance Treasures could no longer operate in its current location. To give business owners affected by the new ordinance time to recoup their investments and adjust to the new regulations, the ordinance did not go into effect for 180 days. Furthermore, the ordinance contains an amortization provision, under which an affected business owner may apply for additional time to operate under the existing regulations by proving it needs additional time to recoup its investment. The ordinance provides that anyone aggrieved by a denied amortization request may seek judicial review immediately following the decision. Treasures applied for amortization but was denied any extension beyond the standard 180 days provided by the ordinance. Meanwhile, SOBs, including Treasures, challenged the constitutionality of the ordinance. See N.W. Enters., Inc. v. City of Houston, 27 F. Supp. 2d 754 (S.D. Tex. 1998), rev’d in part, 352 F.3d 162 (5th Cir. 2003). Although the city had already denied Treasures’ request for amortization, the city and the SOBs agreed to stay any judicial review of the amortization decisions until entry of a final judgment in the federal constitutional litigation. After a decade of litigation, including two trips to the Fifth Circuit, the constitutionality of nearly every part of the ordinance was upheld.[1] The federal district court entered judgment on January 31, 2007. The SOBs filed several post-judgment motions, including a motion to amend or make additional findings and to alter or amend the judgment. The federal district court denied these motions on March 29, 2007. Shortly thereafter, twelve SOBs, including Treasures, appealed the rulings from their respective amortization hearings. The appeals were consolidated in the 280th District Court. The trial court upheld all the rulings except for Treasures’, which it remanded for a rehearing on the grounds that it was not supported by substantial evidence. The other SOBs appealed the 280th District Court’s ruling to this court, and we affirmed. A.H.D. Houston, Inc. v. City of Houston, 316 S.W.3d 212, 223 (Tex. App.—Houston [14th Dist.] 2010, no pet.). On January 15, 2010, Treasures’ amortization request was reheard, and in a report issued on February 24, 2010, Treasures again was denied any additional time to operate under the previous regulations. This time Treasures’ appeal went to the 234th District Court. That trial court concluded that substantial evidence supported the hearing officer’s decision and affirmed the ruling. Treasures then filed this appeal. II In A.H.D. Houston, we held that the substantial-evidence standard of review applies to appeals of rulings on amortization requests under Ordinance 97-75. 316 S.W.3d at 217 (citing Webworld Mktg. Group, L.L.C. v. Thomas, 249 S.W.3d 19, 24 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (applying substantial-evidence standard of review in affirming trial court’s decision upholding denial of permit to SOB); City of Dallas v. Furrh, 541 S.W.2d 271, 273 (Tex. App.—Texarkana 1976, writ ref’d n.r.e.) (noting general rule that judicial review of agency decision, “whether pursuant to a statutory or inherent right, is generally limited to a determination of whether the administrative agency’s action is supported by substantial evidence”); City of Dallas v. Stevens, 310 S.W.2d 750, 755 (Tex. App.—Dallas 1958, writ ref'd n.r.e.)). Under the substantial-evidence rule, a limited standard of review, agency expertise enjoys significant deference. R.R. Comm’n of Tex. v. Torch Operating Co., 912 S.W.2d 790, 792 (Tex. 1995); Tex. Dep’t of Pub. Safety v. Guajardo, 970 S.W.2d 602, 605 (Tex. App.—Houston [14th Dist.] 1998, no pet.). “The true test is not whether the agency reached the correct conclusion, but whether some reasonable basis exists in the record for the action taken by the agency.” City of El Paso v. Pub. Util. Comm’n of Tex., 883 S.W.2d 179, 185 (Tex. 1994); see also Guajardo, 970 S.W.2d at 605. Substantial evidence is more than a mere scintilla of evidence, but the record may actually preponderate against the agency decision and nonetheless amount to substantial evidence. Montgomery Indep. Sch. Dist. v. Davis, 34 S.W.3d 559, 566 (Tex. 2000); Torch Operating Co., 912 S.W.2d at 792–93. The agency’s findings, inferences, conclusions, and decisions are presumed to be supported by substantial evidence, and the party appealing the agency decision has the burden of proving otherwise. City of El Paso, 883 S.W.2d at 185. If evidence can support either affirmative or negative findings, the agency’s decision must be upheld. Texas Health Facilities Comm’n v. Charter Med.-Dallas, Inc., 665 S.W.2d 446, 453 (Tex. 1984); Guajardo, 970 S.W.2d at 605. III Treasures does not argue there was not substantial evidence to support the hearing examiner’s ruling. Instead, Treasures argues the ruling was arbitrary and capricious because the hearing examiner did not consider Treasures’ existing lease obligation, which runs through May 1, 2017. In support of its position, Treasures relies on two cases in which courts held that arbitrary actions of an administrative agency amounting to a denial of due process cannot stand, even if supported by substantial evidence. See Charter Med.-Dallas, 665 S.W.2d at 454 (“[I]nstances may arise in which the agency’s action is supported by substantial evidence, but is arbitrary and capricious nonetheless.”); Perkins v. City of San Antonio, 293 S.W.3d 650, 654 n.2 (Tex. App.—San Antonio 2009, no pet.) (holding trial court is permitted to consider whether proceedings satisfy due-process requirements in addition to reviewing whether substantial evidence supports administrative action). Treasures contends the hearing examiner’s decision denied Treasures due process “because the ordinance effectively required the hearing [examiner] to consider Treasures’ existing lease obligation and to allow the business to continue operating as a SOB until the expiration thereof.” Treasures relies on Section 8(c) of the ordinance, which outlines the information an applicant for amortization should submit in support of its request, including: (1) The amount of the owner’s investment in the existing enterprise through the date of passage of the ordinance; (2) The amount of such investment that has been or will be realized through the effective date; (3) The life expectancy of the existing enterprise; and (4) The existence or nonexistence of lease obligations, as well as any contingency clauses therein permitting termination of such lease. Treasures does not, however, point to any section of the ordinance suggesting that the existence of a lease obligation compels a ruling in Treasures’ favor. And indeed, no such provision exists. Section 8(c) contains a list of information relevant to a hearing examiner’s consideration of an amortization request, but the ordinance contains no mandate that any single piece of information is dispositive. The city argues “[t]he amortization procedure of Ordinance 97-75 does not give a business owner the ability to dictate its own amortization extension by signing an amended lease with a longer term.” We agree. Our holding in A.H.D. Houston also reflects this interpretation of Section 8(c). In concluding a reasonable hearing officer could have rejected the SOBs’ calculations of additional time needed to recoup investments, we noted that some of the submitted leases “were between the [SOB] owner and a related entity, and the signatures for landlord and tenant on each lease were signed by the same person.” 316 S.W.3d at 220. Although it is not argued here that the lessor and lessee are the same person or even related entities, it remains that under the ordinance a lease obligation is one factor, but not necessarily a decisive factor, in ruling on an amortization request. Despite Treasures’ insistence that the hearing examiner failed to consider its lease obligation, the examiner’s report shows the lease was admitted into evidence as “Exhibit D.” And although the lease obligation is not discussed in the report, the rationale for the omission is clear from the ordinance’s plain language. Section 8(c) provides that amortization was intended to allow recoupment of investment incurred through the date of passage and approval of the ordinance. Section 8(c) further provides that “[n]o investment that was not incurred by the date of passage and approval of this Ordinance shall be considered.” The city enacted Ordinance 97-75 on January 15, 1997. At that time, Treasures was in the midst of a five-year lease that began on June 1, 1995. The lease was set to end on May 31, 2000, with an option to renew for an additional five years under the same terms. The first lease amendment, executed on April 12, 2005, reflects that Treasures previously exercised its option to extend the original lease an additional five years to May 31, 2005, and further provides that the parties agreed to an additional extension until May 31, 2012. The second lease amendment, executed June 16, 2008, further extends the lease term to May 31, 2017. Even assuming the hearing examiner did not consider these amendments, his failure was no denial of due process. Because the ordinance itself prohibits amortization based on investments made after the ordinance became effective, whether the hearing examiner considered the lease obligation is irrelevant. We overrule Treasures’ sole issue. * * * For the foregoing reasons, we affirm the trial court’s judgment. /s/ Jeffrey V. Brown Justice Panel consists of Justices Brown, Boyce, and Jamison. [1] The district court enjoined enforcement of a portion of the ordinance. See 27 F. Supp. 2d at 813. The Fifth Circuit reversed that determination and remanded for further proceedings. See N.W. Enters., Inc. v. City of Houston, 352 F.3d 162, 197 (5th Cir. 2003). On remand, the district court ruled in favor of the city on January 31, 2007, and the Fifth Circuit affirmed. See Ice Embassy, Inc. v. City of Houston, No. H-97-0196, 2007 WL 397447 (S.D. Tex. Jan. 31, 2007), aff'd, 236 Fed. Appx. 118 (5th Cir. 2007), cert. denied, 552 U.S. 1258, 128 S.Ct. 1658, 170 L.Ed.2d 356 (2008).