Vulcan Materials Company faced off with the City of Tehuacana in beautiful Limestone County, Texas, over its rights to mine limestone. It seems the residents of Tehuacana had no problem with this idea until it went from theory to practice. Of course, by then, Vulcan had sunk a lot of money into the project, so walking away just wasn’t an option. They faced off in federal district court. Could Vulcan mine, or not? If not, could Vulcan require Tehuacana to pay them for “taking” their mining rights? And what difference does it make to you? It makes a difference because sometimes a city’s zoning laws and ordinances constitute a “taking” of your land, for which you are entitled to just compensation.
It was David vs. Goliath, only the big bad bully turned out to be the tiny city of Tehuacana, Texas, population 300. How did the vaunted Vulcan Materials Company, the largest U.S. maker of road construction projects, become the figurative David? Here’s the scoop.
In 1993, Smith Crushed Stone leased limestone quarry rights on three tracts just outside Tehuacana’s city limits, and four other adjacent tracts within the city limits. These four tracts were about 48 acres in size, about 2/3 to 3/4 of a mile wide. In October of 1997, Vulcan purchased the assets of SCS in Limestone County, including the limestone quarry leases on these 7 tracts.
As part of its due diligence, to make sure it was getting what it paid for, Vulcan hired a local lawyer named Bobby Reed to determine whether any Tehuacana city ordinances would prevent Vulcan from quarrying on these tracts. Reed met with the mayor and city secretary, both of whom advised him that the city had no ordinances to that effect, and that none were in the planning stages. Reed gave Vulcan the green light, and the purchase was completed.
In early 1998, Vulcan began planning active quarrying on the tracts inside the city. It invested quite a bit of money to determine access points and ramp sites, clear land, and strip overburden. In October of that same year, it sought and obtained permission from the Texas Railroad Commission to construct berms. Vulcan began to prepare for a blast (a “shot”) to loosen limestone in the quarry, and conducted test shots on November 25 and 26, 1998, right around Turkey Day.
Apparently Vulcan’s activities caused some indigestion amongst the locals. And so the city began holding public hearings on Vulcan’s activities. Numerous citizens reported the shaking of their houses, lifting furniture off the floor, rattling windows, shaking and jostling people in their homes, noise, dust, smoke, property damage, fear, and exposure to fly and throw rock. And to top it all off, back when SCS was conducting quarrying activities on the tracts outside the city, before selling to Vulcan, a 500 pound boulder was propelled by a “shot” into a city resident’s yard. What that had to do with Vulcan in 1998 is still a mystery to me.
What was the city to do? Many of its voters were up in arms. Well, it only took until December 8, 1988, for the Tehuacana city council to pass an ordinance forbidding quarrying or blasting operations within the city limits. Basically they outlawed Vulcan’s fireworks. One week later, Vulcan filed this lawsuit claiming the ordinance was a “taking” and for which they were entitled to be compensated.
The district court ruled for the city. Among other things, it said:
Although Vulcan argues that high explosives and heavy equipment are required to extract the limestone from the ground, the Court notes that neither were required to extract the stone used to build the pyramids. Obviously, while extraction of the limestone without explosives and heavy equipment may be more expensive and labor intensive, it is not impossible to operate such a quarry without violating the 1988 ordinance.
Do you think this judge ever owned a business? Suffice it to say the 5th Circuit Court of Appeals disagreed and wisely stated “…we hesitate to compare Vulcan’s land use activities to those of the ancient Egyptians”, citing the U.S. Constitution, 13th amendment.
Here’s the federal rule. If a governing body, in the exercise of its police power (i.e. zoning), enacts a regulation that goes too far in regulating private property, that governing body “takes” the property and the property owner is entitled to just compensation for that “taking.” The factors considered in determining if a regulation has “gone too far” are:
1. Whether the property was rendered wholly useless;
2. Whether the governmental burden created a disproportionate diminution in economic value or caused a total destruction of the value;
3. Whether the government’s action against an economic interest of an owner was for its own advantage.
Since the only right Vulcan had in the leased properties was the right to mine limestone, and since the ordinance prevented it from mining limestone, it was a total taking, and Vulcan was entitled to compensation for the taking of its quarry leases by Tehuacana.
Do you think Tehuacana could pay the fair market value of the quarry rights? Those two test shots back in November of 1998 loosened “only” 400-500 tons of limestone for processing, an amount that was a small percentage of what Vulcan normally retrieves and processes during one day of its normal operations.
Here’s the Texas state rule. Texas classifies takings into one of two categories: physical takings, and regulatory takings. A physical taking is when the government authorizes an unwarranted physical occupation of an individual’s property. A regulatory taking can occur in one of two ways: (1) when the regulation does not substantially advance legitimate state interests, or (2) when the regulation either denies the owner of all economically viable use of his property, or unreasonably interferes with a property owner’s rights to use and enjoy his property–a partial taking.
The city’s ordinance denied Vulcan all economically viable use of its property. It certainly interfered with the distinct investment-backed expectation of Vulcan. Game over, Vulcan wins, right?
But the city had one last argument. It claimed the quarry operation was a nuisance. Basically, this theory is that, even if the current value of property has been destroyed, or “taken”, the property owner cannot recover if the state’s nuisance laws would have prohibited the activity as a nuisance. This is often referred to as the “nuisance exception.”
The problem was, quarry activities are not automatically nuisances under Texas law. It may only become a nuisance as a result of circumstances or surroundings, maybe due to the locality in which it is carried on, or because it is conducted in an improper manner. And the 5th Circuit held that since the issue of whether or not Vulcan’s activities were, or were not, a nuisance were based on facts, it must be determined by a jury, not a judge as a matter of law. As a result, the court sent the case back to the district court and instructed it to hold a jury trial on that issue.
This case is a good example of “takings” law and the issues you face if the government regulates your land use out of existence. Just because the government says so, doesn’t mean you have to take it laying down. Protect the value of your property, and when you lose that, get your just compensation.
Vulcan Materials Co. v. City of Tehuacana, Case No. 02-51182, 5th Circuit U.S. Court of Appeals, decided May 21, 2004