Case: 23-20385 Document: 89-1 Page: 1 Date Filed: 08/12/2025

United States Court of Appeals

for the Fifth Circuit United States Court of Appeals
____________ Fifth Circuit

FILED
No. 23-20385 August 12, 2025
____________
Lyle W. Cayce
Clerk
DM Arbor Court, Limited,

Plaintiff—Appellant,

versus

The City of Houston, Texas,

Defendant—Appellee.
______________________________

Appeal from the United States District Court

for the Southern District of Texas
USDC No. 4:18-CV-1884
______________________________

Before Dennis, Willett, and Duncan, Circuit Judges.

Stuart Kyle Duncan, Circuit Judge:
After Hurricane Harvey flooded the Arbor Court apartment complex
in 2017, the City of Houston denied the owners a repair permit by invoking a
rarely used provision in the city flood control ordinance. The owners sued,
arguing that the City’s permit denial amounted to an unconstitutional taking
of the multi-million dollar property under the Fifth Amendment. Following
a bench trial, the district court ruled against the owners, concluding that,
despite the permit denial, the property still had economic life.
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We reverse and remand. Based on the undisputed evidence, we

conclude that the City’s regulatory action deprived Arbor Court’s owners of
all economically viable use of the property. The City therefore effected a
categorical taking under Lucas v. South Carolina Coastal Council, 505 U.S.
1003 (1992). The district court legally erred by ruling otherwise.
Accordingly, we REVERSE the district court’s judgment and
REMAND for further proceedings.
I
A
Arbor Court is a 15-building, 232-unit, multifamily apartment
complex in Houston, Texas. Appellants DM Arbor Court, Limited
(DMAC), purchased the complex for $11.85 million in January 2016. Since
then, DMAC has operated Arbor Court under a Housing Assistance
Payment Contract (“HAP Contract”) from the U.S. Department of
Housing and Urban Development (HUD). Under that contract, DMAC
provides subsidized housing to low-income residents.
Arbor Court lies in a 100-year floodplain. A city flood ordinance
(“Chapter 19”) requires such structures to be elevated above the minimum
flood protection elevation. Houston, Tex., Code of Ordinances
§ 19-33(a)(1). For an existing structure like Arbor Court, that requirement
applies only if it has undergone “substantial improvement.” See id. 1 This
occurs, for example, when a structure incurs “substantial damage,” such that
repair costs “would equal or exceed 50 percent of the market value of the
structure.” Id. § 19-2.

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1
Unlike an “existing” structure, all “new construction” in a floodplain must
comply with Chapter 19’s elevation requirements. See id. §§ 19-32, 19-33(a).

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In April 2016, Arbor Court flooded. DMAC sought and received

permits to make repairs without elevating any buildings. Later in 2016, after
making those repairs, DMAC renewed its HAP Contract for twenty years.
DMAC then spent another $1.4 million on improvements, resulting in Arbor
Court’s being appraised at over $21 million.
In August 2017, Hurricane Harvey hit Houston. Arbor Court again
flooded, taking on three to four feet of water, and tenants evacuated. In
September 2017, DMAC again applied for permits to repair the damages.
This time the permits were denied. On October 6, 2017, the City
informed DMAC that all 15 Arbor Court buildings had “substantial
damage”—meaning no permit would issue until all buildings were elevated.
In January 2018, DMAC appealed and partially prevailed. The City’s
supervising engineer, Choyce Morrow, concluded that only eight of the 15
buildings were substantially damaged. But those eight would have to be
elevated.
When DMAC again appealed, City inspectors conducted a field
investigation, and City officials continued to analyze whether substantial
damage had occurred. DMAC’s Morgan Cox threatened to sue, contending
the City was unlawfully withholding the permits.
B
In June 2018, DMAC sued the City, but the district court dismissed
the suit as unripe. Our court reversed, ruling that the case ripened when the
City’s Director of Public Works, Carol Haddock, formally informed DMAC
that the City had denied DMAC’s permit application in July 2018. See DM
Arbor Court, Ltd. v. City of Houston, 988 F.3d 215, 221 (5th Cir. 2021).
Haddock explained that DMAC did not provide the additional information
Morrow requested. Separately, Haddock also stated that the City was
denying DMAC’s application under § 19-19 of the flood ordinance. That

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provision allows the city engineer to deny a permit, inter alia, if the proposed
development could result in “[d]anger to life or property due to flooding or
erosion damage in the vicinity of the site.” § 19-19(a)(1). The City had never
previously invoked § 19-19 to deny a permit.
During the permit appeals process, DMAC discussed selling Arbor
Court to the City. But in July 2018, shortly after the permit was denied, the
City declined DMAC’s offer to sell Arbor Court for $24.4 million. In
October 2018, HUD sent DMAC a default notice because Arbor Court
remained unrepaired and several tenants had moved out of the apartment
complex. DMAC and HUD negotiated the transfer of the HAP contract to
a different complex. By the end of 2019, all of Arbor Court’s residents had
moved out and, since then, the property has sat idle. DMAC continues to
pay taxes and other costs.
C
In August 2022, the district court granted summary judgment to the
City on DMAC’s equal protection claim but denied cross-motions for
summary judgment on DMAC’s Fifth Amendment takings claim. In
February 2023, the case proceeded to a bench trial on DMAC’s claim that
the City’s permit denial constituted a regulatory taking of Arbor Court. On
July 11, 2023, the court entered findings of fact and conclusions of law,
rejecting DMAC’s takings claim. See DM Arbor Court, Ltd. v. City of
Houston, 681 F. Supp. 3d 713, 745 (S.D. Tex. 2023).
The court first rejected DMAC’s claim that the permit denial
constituted a “categorical” taking under Lucas v. South Carolina Coastal
Council, 505 U.S. 1003 (1992). Id. at 740–42. The court concluded that
DMAC failed to show the denial deprived DMAC of all “economically
beneficial use of the property.” Ibid. It reasoned that DMAC was not
entitled to use the property as a government-subsidized apartment complex

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and that another owner could put the property to some different beneficial
use. Ibid. The court also agreed with the City’s expert that an economically
beneficial use could be “holding [the] property for investment purposes.” Id.
at 741.
Next, the court rejected DMAC’s claim that the permit denial
constituted a taking under the Penn Central framework. Id. at 745. See Penn
Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978) (examining
(1) the regulation’s “economic impact,” (2) the regulation’s interference
with “distinct investment-backed expectations,” and (3) “the character of
the governmental action”). The court found that the first Penn factor cut in
DMAC’s favor because the denial reduced Arbor Court’s value “between
42.5% and 80.5%.” DM Arbor Court, 681 F. Supp. 3d at 743. As to the second
Penn factor, the court found that DMAC’s investment-backed expectations
were disrupted, not by the City’s flood ordinance, but instead by “the
repetitive flooding events.” Id. at 744. Finally, as to the third Penn factor, the
court found the character of the government action “weigh[ed] heavily in the
City’s favor” because it “related to flood management and was to ensure
health and safety.” Id. at 745.
DMAC timely appealed.
II
“On an appeal from a bench trial, we review the district court’s legal
determinations de novo and its factual findings for clear error.”
Arete Partners, L.P. v. Gunnerman, 594 F.3d 390, 394 (5th Cir. 2010).
III
DMAC argues that the City’s actions amounted to a regulatory
taking of Arbor Court under either Lucas or Penn Central and that the district
court erred in ruling otherwise. We agree with DMAC that the City’s

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application of § 19-19 of the flood ordinance (and the resulting denial of a

repair permit) deprived DMAC of “all economically beneficial use” of
Arbor Court and constitutes a categorical taking under Lucas. Accordingly,
we do not consider DMAC’s Penn Central claim.
A
The United States Constitution guarantees that “private property”
shall not “be taken for public use, without just compensation.” U.S.
Const. amend. V. 2 In the classic taking, the government appropriates or
invades private property. Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 537
(2005) (citing United States v. Pewee Coal Co., 341 U.S. 114 (1951); United
States v. Gen. Motors Corp., 323 U.S. 373 (1945)); see also generally Cedar Point
Nursery v. Hassid, 594 U.S. 139, 147 (2021) (“The Court’s physical takings
jurisprudence is ‘as old as the Republic.’”) (quoting Tahoe-Sierra Pres.
Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302, 322 (2002). But
the government may accomplish much the same thing through “regulation
of private property . . . so onerous that its effect is tantamount to a direct
appropriation or ouster.” Lingle, 544 U.S. at 537 (citing Penn. Coal Co. v.
Mahon, 260 U.S. 393 (1922)).
The Supreme Court has identified two kinds of regulatory actions that
amount to categorical or per se takings. The first is “where government
requires an owner to suffer a permanent physical invasion of her property,”
id. at 538 (citing Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419
(1982)), and the second is where regulations “completely deprive an owner
of ‘all economically beneficial us[e]’ of her property,” ibid. (quoting Lucas,

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2
The Takings Clause applies to the States through the Fourteenth Amendment.
See Chicago, B. & Q.R. Co. v. Chicago, 166 U.S. 226, 239 (1897).

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505 U.S. at 1019). 3 “Outside these two relatively narrow categories . . .,

regulatory takings challenges are governed by the standards set forth in Penn
Central.” Ibid. (citing Penn Central, 438 U.S. 104); see also, e.g., Tahoe-Sierra
Pres. Council, Inc., 535 U.S. at 322 (Penn Central is “characterized by
essentially ad hoc, factual inquiries designed to allow careful examination and
weighing of all the relevant circumstances”) (cleaned up).
With those principles in mind, we turn to DMAC’s Lucas claim.
B
DMAC contends a categorical taking occurred because the
undisputed evidence shows that denying a repair permit under Chapter 19
leaves DMAC no viable way to redevelop Arbor Court. It argues the district
court legally erred by concluding otherwise. We agree.
As DMAC points out, the evidence shows that the permit denial
ended Arbor Court’s economic life. Both sides’ experts agreed. DMAC’s
expert, Richard Marchitelli, testified that, given the costs of demolition,
construction, and compliance with Chapter 19, “there is no economically
viable, or feasible, or beneficial use of the property.” The City’s expert,
Joseph Torzewski, reached the same conclusion: in light of Chapter 19’s
demands, there is currently “no identifiable economically feasible
redevelopment” for Arbor Court. He added that the property’s highest and
best use was to hold it “for future development” until development becomes

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3
The Supreme Court has qualified the second category this way: “[T]he
government must pay just compensation for such ‘total regulatory takings,’ except to the
extent that ‘background principles of nuisance and property law’ independently restrict the
owner’s intended use of the property.” Lingle, 544 U.S. at 538 (quoting Lucas, 505 U.S. at
1026–32).

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“feasible.” In other words, the property should sit idle until some unknown
point in the future.
This expert testimony accords with the other evidence concerning
Chapter 19’s impact on Arbor Court. For instance, City officials estimated
that redeveloping Arbor Court in conformity with Chapter 19’s elevation
requirements would cost “close to $40 million.” DMAC’s principal
Douglas Hickock, a real-estate developer, put the number at $46 million.
Given these costs, the City’s Housing Director, Tom McCasland, described
redevelopment as “prohibitively expensive” and “economically
unfeasible.”
The district court acknowledged these economic realities. The court
recognized that the permit denial caused Arbor Court to “los[e] most of its
value,” which plummeted to between $500,000 and $1 million, 4 after being
appraised in 2017 at $21 million. 5 See DM Arbor Court, 681 F. Supp. 3d at 734.
Nonetheless, the court ruled DMAC “failed to show that no economically
beneficial use of the property remained.” Id. at 741.
We agree with DMAC that the court erred for at least two reasons.

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4
As the district court correctly recognized, whether a property retains “residual”
value is immaterial to whether the owner has been deprived of all economically beneficial
use. See DM Arbor Court, 681 F. Supp. 3d at 740. See also, e.g., Del Monte Dunes at Monterey,
Ltd. v. City of Monterey, 95 F.3d 1422, 1433 (9th Cir. 1996), aff’d, 526 U.S. 687 (1999)
(“Although the value of the subject property is relevant to the economically viable use
inquiry, our focus is primarily on use, not value.”); Res. Invs., Inc. v. United States, 85 Fed.
Cl. 447, 486 (2009) (“Both in its holding and its reasoning, Lucas thus focuses on whether
a regulation permits economically viable use of the property, not whether the property
retains some value on paper.”).
5
The City argues that, after the permit denial, DMAC retained the sale value of
land, as well as the value of the HAP Contract. The district court agreed. However, we also
agree with the district court that this finding does not change the outcome of our analysis
of the Lucas claim, because the HAP contract is a separate and district property interest.

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First, the court suggested that one economically beneficial use could
be “holding [Arbor Court] for investment purposes.” Ibid. We disagree. The
court’s idea was that, while DMAC can do nothing with Arbor Court now,
some future development might make it economically viable again. The same
thing could be said, though, for any regulation that erases a property’s
present economic viability: a brighter tomorrow is only a day away.
That reasoning is incompatible with Lucas. Under Lucas, a categorical
taking occurs when regulation forces an owner “to leave his property
economically idle.” 505 U.S. at 1019; see also, e.g., Nekrilov v. City of New
Jersey, 45 F.4th 662, 670 (3d Cir. 2022) (“[A] total taking is one that renders
the property essentially idle.”(citing Lucas, 505 U.S. at 1030)). Said another
way: “[s]peculative land uses are not considered as part of a takings inquiry.”
Lost Tree Village Corp. v. United States, 787 F.3d 1111, 1117 (Fed. Cir. 2015)
(citing Olson v. United States, 292 U.S. 246, 257 (1934)). Saying that a
property’s only remaining use is to hope for future development is the same
as saying that the property must remain idle today. That is a categorical
taking under Lucas.
To support its view, the district court quoted a pre-Lucas Ninth
Circuit case, MacLeod v. Santa Clara County: “Holding property for
investment purposes can be a ‘use’ of property.” 749 F.2d 541, 547 n.7 (9th
Cir. 1984). But the court overread MacLeod. In that case, a ranch owner was
denied a permit to harvest timber but could “continue to hold the property
for investment purposes, with interim use as a cattle ranch, and grazing land,
the very uses for which the property was purchased.” Id. at 547. 6 So, unlike
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6
Notably, the property in MacLeod was purchased “as a long-term investment.”
749 F.2d at 543. Perhaps it made some sense, then, to consider “hold[ing] the property as
an investment” one aspect of the property’s “use.” Id. at 547. In the same vein, MacLeod
cited two takings cases brought by owners of undeveloped land held only for future
development purposes. See id. at 547 n.7 (citing Euclid v. Ambler Realty Co., 272 U.S. 365,

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here, the permit denial did not rob the property of, as the City’s expert stated,
all “identifiable economically feasible redevelopment.” And, as noted,
MacLeod pre-dated Lucas and therefore analyzed the takings claim under
Penn Central only. See id. at 545.
Second, the court thought DMAC could sell the property. No
categorical taking occurred, the court reasoned, because “even if DMAC
could not use [Arbor Court],” a potential buyer “could . . . use it for an
economically beneficial use.” DM Arbor Court, 681 F. Supp. 3d at 742. We
disagree. The case the court cited for this view, Nekrilov, 45 F.4th 662, does
not support it.
In Nekrilov, a regulation curtailed short-term property leases but left
available long-term uses. Id. at 670–72. As the Third Circuit explained, if an
owner could not use the property long-term, he could sell to someone who
could. Id. at 671 & n.3. This is true, the court emphasized, only where the
regulation leaves “other underlying economic uses” for the property. Id. at
671 n.3. “When there are no underlying economic uses,” however, “it is
unreasonable to define land use as including the sale of the land.” Ibid.
(quoting Lost Tree Vill., 787 F.3d at 1117). These principles from Nekrilov
plainly point in DMAC’s favor. As explained, the permit denial leaves Arbor
Court with no viable economic use. So speculating about a sale—indeed, one
that would have to be at fire sale prices—cannot defeat a Lucas taking claim.
Finally, we find illuminating our decision in Vulcan Materials Co. v.
City of Tehuacana, 369 F.3d 882 (5th Cir. 2004). There, a company had a
limestone mining lease on a property in a Texas town. Id. at 884. When the

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384 (1926); United States v. 156.81 Acres of Land, 671 F.2d 336, 337 (9th Cir. 1982)). These
cases have no application to Arbor Court, which is obviously not undeveloped land held for
investment purposes.

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town banned explosives and heavy equipment in mining, the company sued,
arguing this effected a categorical taking of the company’s property. Id. at
886, 888. 7 The district court ruled the town had not denied all economically
viable use of the property, since the company could continue mining without
the banned methods. Id. at 886; id. at 885 n.2. We reversed. Although the
town had not technically forbidden all mining, it had “effectively
prohibit[ed]” it, since mining without the banned methods was not
economically viable. Id. at 891 (emphasis added), 887 n.3.
Here, as in Vulcan Materials, the City’s permit denial deprived
DMAC of all economically viable use of Arbor Court. True, DMAC is
technically free to redevelop property so long as it complies with Chapter 19.
But as both sides’ experts agreed, doing so consistent with Chapter 19 is not
economically feasible. Yes, DMAC’s expert recognized that DMAC could
“build anything” it wanted on the property if it complied with Chapter 19. It
might redevelop Arbor Court as an apartment complex or for some
“alternative use.” But the evidence shows that any such high-dollar
redevelopment was an economic pipe dream. Instead, according to the City’s
own expert, the property’s highest use now is to sit idle. See Lucas, 505 U.S.
at 1019. That is precisely when Lucas applies. See ibid.; Del Monte Dunes, 95
F.3d at 1433.
DMAC was charged with the burden of proving that the City’s
permitting decision denied it all economically viable use of the property. Price
v. City of Junction, Tex., 711 F.2d 582, 591 (5th Cir. 1983). It met that burden
by presenting evidence including the testimony of (1) its own expert, (2) the
City’s expert, (3) its own principal, and (4) the City’s director of housing that
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7
Though the takings claim in Vulcan Materials was brought under the Texas
constitution, we applied federal takings law because we assumed, arguendo, “that the Texas
and federal takings standards are coextensive.” Id. at 888, n.4.

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any other redevelopment of the property at present would not be

economically feasible. The City failed to present evidence to rebut that
testimony, and indeed, neither the City nor the district court ever identified
any economically viable use for the property. DMAC thus met its burden
under Lucas.
Accordingly, the district court erred in concluding there was no
categorical taking under Lucas. 8
C
The City makes one additional argument worth noting. Relying on our
decision in Adolph v. Federal Emergency Management Agency of the U.S., 854
F.2d 732 (5th Cir. 1988), the City contends that application of a flood
ordinance like Chapter 19 can never amount to a taking. We disagree.
Adolph rejected a facial Takings Clause challenge to land use
regulations promulgated under the National Flood Insurance Program
(NFIP). Id. at 740; see 44 C.F.R. §§ 59.1, 60.3. A contrary decision, we

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8
In a lengthy post-argument “letter,” the City contends for the first time that,
even if the permit denial zeroed out all of Arbor Court’s viability, no categorical taking
occurred because Lucas’s “nuisance” exception applies. See Lucas, 505 U.S. at 1030 (no
taking occurs when “background principles of nuisance and property law” already prohibit
the use). We will not consider this late-breaking argument. It was the City’s burden to show
that the nuisance exception applied. See id. at 1031 (explaining that the state had to identify
on remand the background nuisance); Lucas v. South Carolina Coastal Council, 424 S.E.2d
484, 485–86 (S.C. 1992) (holding South Carolina failed to identify such background
principles). But the City never raised the issue before the district court. See, e.g., Gulf Union
Indus., Inc. v. Formation Sec., Inc., 842 F.2d 762, 765 (5th Cir. 1988) (“Affirmative defenses
cannot be raised for the first time on appeal.”). And on appeal it raised the issue only in its
post-argument letter. So, the issue has been forfeited. See, e.g., United States v. Guillen-
Cruz, 853 F.3d 768, 777 (5th Cir. 2017) (refusing to consider appellee’s arguments that
could have been, but were not, raised in appellate brief); Hernandez v. Garcia Pena, 820
F.3d 782, 786 n.3 (5th Cir. 2016) (refusing to consider unbriefed defense as a basis for
affirmance).

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explained, would “require a holding that virtually the entire [NFIP statute]
is unconstitutional.” Adolph, 854 F.2d at 737. We concluded: “the NFIP,
when operating precisely as intended by Congress, results in no
unconstitutional taking of plaintiffs’ property.” Ibid. (citation omitted).
Accordingly, “[l]anguage in the local land-use regulations that tracks the
criteria of the NFIP does not, on its face, effect a taking in violation of the
fifth and fourteenth amendments.” Id. at 740.
The district court correctly rejected the argument that Adolph
forecloses an as-applied takings claim involving flood ordinances that adopt
NFIP requirements, as does Chapter 19. DM Arbor Court, 681 F. Supp. 3d
at 738. It is axiomatic that the rejection of a facial challenge does not, ipso
facto, foreclose an as-applied challenge. See, e.g., United States v. Salerno, 481
U.S. 739, 745 (1987) (explaining that, in “[a] facial challenge,” the plaintiff
“must establish that no set of circumstances exists under which the Act
would be valid.”); Wisconsin Right to Life, Inc. v. FEC, 546 U.S. 410, 411–12
(2006) (holding the plaintiff could bring an as-applied challenge to a statute
despite the statute having been upheld on its face).
Going further, however, the district court opined that Chapter 19’s
incorporation of the NFIP requirements was a “relevant consideration” that
“weigh[ed] strongly against finding that a permit denial is a taking.” See DM
Arbor Court, 681 F. Supp. 3d at 738. All we need say about this observation is
that it is not relevant to a Lucas claim. A categorical taking occurs under Lucas
when a regulation eliminates all economically viable use of property—
regardless of “the public interest advanced in support of the restraint.”
Lucas, 505 U.S. at 1015. 9 In other words, Lucas announced a “per se” test.
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9
See also, e.g., Good v. United States, 189 F.3d 1355, 1361 (Fed. Cir. 1999) (in a Lucas
claim “courts do not balance the importance of the public interest advanced by the
regulation against the regulation’s imposition on private property rights”).

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Lingle, 544 U.S. at 538. By contrast, the extent to which an ordinance’s

grounding in flood control bears on the Penn Central analysis is not before us,
and we offer no opinion on it. Cf. Penn Central, 438 U.S. at 124 (considering
the “character of the governmental action”).
IV
The City’s denying DMAC a repair permit under Chapter 19 of its
flood control ordinance effected a categorical taking of Arbor Court under
Lucas. The district court erred in ruling otherwise.
Accordingly, the district court’s judgment is REVERSED and the
case is REMANDED for further proceedings consistent with this opinion.

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James L. Dennis, Circuit Judge, dissenting:

I respectfully dissent because in my view, the district court’s analysis,
reasoning, and judgment are correct. The district court rejected DM Arbor
Court (“DMAC”)’s categorical claim under Lucas v. South Carolina Coastal
Council, 505 U.S. 1003 (1992), in its conclusions of law as follows:
First, DMAC contends that the permit denial
constituted a categorical taking under Lucas. “[C]ategorical
treatment [is] appropriate . . . where regulation denies all
economically beneficial or productive use of land.” Lucas, 505
U.S. at 1015. “[T]he categorical rule in Lucas was carved out
for the ʻextraordinary case’ in which a regulation permanently
deprives property of all value; the default rule remains that, in
the regulatory taking context, we require a more fact specific
inquiry.” Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Plan.
Agency, 535 U.S. 302, 332 (2002); see Bridge Aina Le’a, LLC v.
Land Use Comm’n, 950 F.3d 610, 626 (9th Cir. 2020) (“This is
a relatively narrow and relatively rare taking category[.]”
(cleaned up)).
Lucas did not fully define what constitutes “the denial
of all economically beneficial or productive use” such that the
categorical rule is triggered. Still, Lucas gave some initial
guidance. First, the “typical[ ]” case in which there has been a
total taking involves a situation in which the government
“require[es] land to be left substantially in its natural state.”
Lucas, 505 U.S. at 1018. Second, the “total deprivation of
beneficial use” must be so severe as to be “from the
landowner’s point of view, the equivalent of a physical
appropriation.” Id. at 1017.
Although Lucas speaks of economic use, not value,
courts often look to a property’s value when determining
whether there is a taking. Indeed, the Supreme Court has
subsequently stated that “[i]n the Lucas context, of course, the
complete elimination of a property’s value is the determinative
factor.” Lingle v. Chevron USA Inc., 544 U.S. 528, 539 (2005);
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see Tahoe, 535 U.S. at 332 (“[T]he categorical rule in Lucas was
carved out for the extraordinary case in which a regulation
permanently deprives property of all value.”).
Thus, courts have found that where there is a
significant—but not complete—reduction in the value of
property, no categorical taking has occurred. See, e.g., Tenn.
Scrap Recyclers Ass’n, LLC v. Bredesen, 556 F.3d 442, 456 [] n.6
(6th Cir. 2009) (noting that the Supreme Court has upheld
diminutions in value of 75% and 92.5%); Iowa Coal Mining Co. v.
Monroe Cnty., 257 F.3d 846, 853 (8th Cir. 2001) (75%
diminution in value); Bridge Aina Le’a, 950 F.3d at 627–28
(83.4% diminution); Appolo Fuels, Inc. v. United States, 381 F.3d
1338, 1347 (Fed. Cir. 2004) (92% loss in on part of land’s value
and 8% loss in another part); Cienega Gardens v. United States,
331 F.3d 1319, 1344 (Fed. Cir. 2003) (Lucas requires loss of
“100% of a property interest’s value”).
That being said, Lucas may still apply even if some
nominal property value remains. “Assuming a taking is
otherwise established, a State may not evade the duty to
compensate on the premise that the landowner is left with a
token interest.” Palazzolo v. Rhode Island, 533 U.S. 606, 631
(2001). Thus, courts have occasionally found a Lucas taking
even when the property was worth some amount that slightly
exceeded zero. E.g., Lost Tree Vill. Corp. v. United States, 787
F.3d 1111, 1117 (Fed. Cir. 2015).
Thus, when a property retains only a tiny residual value,
“the relevant inquiry . . . is whether the land’s residual value
reflected a token interest or was attributable to noneconomic
use.” Bridge Aina Le’a, 950 F.3d at 628. “[A] parcel will
typical[ly] retain some quantum of value even without
economically viable use.” Res. Invs., Inc. v. United States,
85 Fed. Cl. 447, 488 (2009). “Indeed, it is not difficult to
identify other circumstances, such as purchasing a parcel to
preserve development-free open space or natural land, in
which a parcel may have some value despite its lack of

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No. 23-20385

economically viable uses.” Id. Thus, if the residual value is due

to a non-economic use, a Lucas taking may nonetheless have
occurred. But if the residual value results from a possible
economic use, then there is no Lucas categorical taking.
Put differently, “[w]hen there are no underlying
economic uses, it is unreasonable to define land use as
including the sale of the land.” Lost Tree Vill. Corp., 787 F.3d
at 1117. “[T]he mere fact that there is one willing buyer of the
subject property, especially where that buyer is the
government, does not, as a matter of law, defeat a taking
claim.” Del Monte Dunes at Monterey, Ltd. v. City of Monterey,
95 F.3d 1422, 1433 (9th Cir. 1996), aff’d, 526 U.S. 687 (1999).
But when “there are other underlying economic uses,” courts
“consider the plaintiffs’ ability to sell the properties in
determining whether there has been a total taking.” Nekrilov v.
City of Jersey City, 45 F.4th 662, 671 n.3 (3d Cir. 2022)[.]
Thus, “[t]he crucial inquiry” is “whether the property
use allowed by the regulation is sufficiently desirable to permit
property owners to sell the property to someone for that use.”
Park Ave. Tower Assocs. v. City of New York, 746 F.2d 135, 139
(2d Cir. 1984) (cleaned up); accord Nekrilov, 45 F.4th at 671.
That being said, a property may have an economically
beneficial use even if it is not profitable. “[T]he central
question for a total taking is not ʻwhether the regulation allows
operation of the property as a profitable enterprise for the
owners, but whether others might be interested in purchasing
all or part of the land for permitted uses.’” Nekrilov, 45 F.4th
at 671 (quoting Park Ave. Tower, 746 F.2d at 139); see MacLeod
v. Santa Clara Cnty., 749 F.2d 541, 548 (9th Cir. 1984) (“We
are unwilling to equate immediate overall profitability with the
requirement of ʻeconomic viability.’”). A plaintiff must show
that “across all potential purchasers,” there is no economically
viable use of the property. Nekrilov, 45 F.4th at 671.
For example, in Nekrilov, 45 F.4th 662, plaintiffs
challenged a regulation barring short-term rentals. One set of

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No. 23-20385

plaintiffs had a monthly mortgage payment of $3,300, but could

only earn $2,600 per month once the regulation too[k] effect
(down from $4,500 per month absent the regulation). Id. at
668. The Third Circuit nonetheless concluded that the
property retained economic value. Id. at 670–71. The fact that,
for one set of plaintiffs, the rental income was less than the
mortgage payment did not undermine this conclusion because
the property was still being put to economic use. This
application is a logical outgrowth of Lucas’s admonition that
there is no categorical taking even when there is a 95%
reduction in value. 505 U.S. at 1019 n.8.
Likewise, a property does not have to immediately have
value to still have some economically beneficial use. Instead,
“[h]olding property for investment purposes can be a ʻuse’ of
property.” MacLeod, 749 F.2d at 547 n.7.
Applying this standard here, it is clear that DMAC has
failed to show that no economically beneficial use of the
property remained. It is true that the former use of the property
as a multi-family HUD subsidized apartment complex was no
longer possible. But the Court is not persuaded that no other
economically beneficial use remains.
The Court also notes the narrow scope of the City’s
permit denial. The City denied one specific permit application:
to repair Arbor Court so that it could function as it previously
existed. The City did not deny permits for any other use. And
the Court is persuaded by testimony from City officials
explaining that an owner may use the property in any way that
it chooses, as long as the use complied with the ordinance. The
Court did not hear testimony indicating that DMAC ever
looked into any way to comply with health and safety.
At some points, DMAC seems to suggest that the
property was in a total loss state because there was debt on the
property, and the payment on the debt would far exceed the
income that the property could generate after the permit
denial. But the fact that DMAC had taken out loans to finance

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No. 23-20385

the property does not impact the total taking analysis. As

discussed above, the question is whether any owner could use
the property for an economically beneficial use. See Nekrilov,
45 F.4th at 671. So, even if DMAC suffered a heavy loss, and
even if DMAC could not use the property, that alone does not
create a Lucas taking. Rather, if it could sell the property for a
fraction of what it had originally paid, and the buyer could then
use it for an economically beneficial use, there has been no total
taking, even if DMAC cannot repay its debts.
In sum, Lucas categorical takings are limited to the
extraordinary circumstances in which no economically
beneficial use of the property remains. This is not such a
circumstance. Thus, no categorical taking occurred.
DM Arbor Court, Ltd. v. City of Houston, 681 F. Supp. 3d 713, 739–42 (S.D.
Tex. 2023) (footnotes omitted) (citation modified).
These conclusions of law and the balance of the district court’s
opinion refute the majority’s opinion and demonstrate why the district
court’s decision is correct and should be affirmed. 10
For these reasons, I respectfully dissent.

_____________________
10
I additionally agree with the reasoning of the district court that the permit denial
did not constitute a taking under Penn Central Transportation Co. v. City of New York,
438 U.S. 104 (1978). See DM Arbor Court, Ltd., 681 F. Supp. 3d at 742–45.

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United States Court of Appeals

FIFTH CIRCUIT
OFFICE OF THE CLERK
LYLE W. CAYCE TEL. 504-310-7700
CLERK 600 S. MAESTRI PLACE,
Suite 115
NEW ORLEANS, LA 70130

August 12, 2025

MEMORANDUM TO COUNSEL OR PARTIES LISTED BELOW
Regarding: Fifth Circuit Statement on Petitions for Rehearing
or Rehearing En Banc
No. 23-20385 DM Arbor Court v. City of Houston
USDC No. 4:18-CV-1884

Enclosed is a copy of the court’s decision. The court has entered

judgment under Fed. R. App. P. 36. (However, the opinion may yet
contain typographical or printing errors which are subject to
correction.)
Fed. R. App. P. 39 through 41, and Fed. R. App. P. 39, 40, and 41
govern costs, rehearings, and mandates. Fed. R. App. P. 40 require
you to attach to your petition for panel rehearing or rehearing en
banc an unmarked copy of the court’s opinion or order. Please
read carefully the Internal Operating Procedures (IOP’s) following
Fed. R. App. P. 40 for a discussion of when a rehearing may be
appropriate, the legal standards applied and sanctions which may
be imposed if you make a nonmeritorious petition for rehearing en
banc.
Direct Criminal Appeals. Fed. R. App. P. 41 provides that a motion
for a stay of mandate under Fed. R. App. P. 41 will not be granted
simply upon request. The petition must set forth good cause for
a stay or clearly demonstrate that a substantial question will be
presented to the Supreme Court. Otherwise, this court may deny
the motion and issue the mandate immediately.
Pro Se Cases. If you were unsuccessful in the district court
and/or on appeal, and are considering filing a petition for
certiorari in the United States Supreme Court, you do not need to
file a motion for stay of mandate under Fed. R. App. P. 41. The
issuance of the mandate does not affect the time, or your right,
to file with the Supreme Court.
Court Appointed Counsel. Court appointed counsel is responsible
for filing petition(s) for rehearing(s) (panel and/or en banc) and
writ(s) of certiorari to the U.S. Supreme Court, unless relieved
of your obligation by court order. If it is your intention to
file a motion to withdraw as counsel, you should notify your client
promptly, and advise them of the time limits for filing for
rehearing and certiorari. Additionally, you MUST confirm that
this information was given to your client, within the body of your
motion to withdraw as counsel.
 Case: 23-20385 Document: 89-2 Page: 2 Date Filed: 08/12/2025

The judgment entered provides that Appellee pay to Appelllant the

costs on appeal. A bill of cost form is available on the court’s
website www.ca5.uscourts.gov.

Sincerely,
LYLE W. CAYCE, Clerk

By:_________________________
Melissa B. Courseault, Deputy Clerk
Enclosure(s)
Mr. Kenneth B. Chaiken
Mr. Donald B. Hightower
Mr. Ronaldo Rauseo-Ricupero
Mr. Kenneth S. Soh
Mr. Aaron Michael Streett
Mr. Christopher Tutunjian