Are Management Districts on the Brink of Extinction?

Fed-up business owners are piling on in hopes that the point will tip in their favor, forever ridding Houston of its "clubby" management districts.

Last week, Marvy Finger of Milford Ltd./The Fingers Companies, which has developed luxury apartments in Houston for decades, jumped on the Harris County District Court suit that’s pitting Montrose commercial property owners against the Montrose Management District. The petition in 1620 Hawthorne, Ltd. vs. The Montrose Management District et al, much like the original lawsuit filed in Harris County 333rd Civil Court, claims that the MMD has consistently acted unlawfully when assessing yearly property taxes.

Management districts are state-created entities that “promote, develop, encourage and maintain employment, commerce, transportation, housing, tourism, recreation, arts, entertainment, economic development, safety and the public welfare” for the low, low ad valorem tax assessment price of 12.5 cents per each $100 of property value. Management districts are all over Houston, ranging from the Houston Downtown Management District to the North Houston (née Greenspoint Management) District.

It takes only 25 petition signatures from commercial property taxpayers to form a management district. Dissolving a management district is much more arduous and requires signatures from 75 percent or more of the area’s property owners.

In December, in a big-deal decision, Harris County Judge Tad Halbach ruled that the MMD had illegally levied $6.59 million in taxes and the district wasn’t legally formed to begin with. The defendants appealed the decision.

On January 4, commercial property owners in the Montrose submitted a new lawsuit against the fraught district, alleging that the district and its board members, read court documents, “arrogantly continue to ignore these findings and instead engage in this unconstitutional and illegal conduct until the present time.”

In February, the district yanked the class action suit, which made a dissolution claim, from state court to the U.S. District Court for the Southern District of Texas. Three months later, the district changed course once again and kicked both cases back to state district court. A bare minimum hearing took place on May 26; the original case was remanded from federal to state court on May 8 and the newer suit moved to state court on May 30.

The Finger petition not only seeks an injunction from any assessment, levy, collection or enforcement against his company, but also, just like the class action suit, seeks an all-out dissolution of the special district. If the court sides with property owners and the Montrose Management District is forced to dissolve, it would set a legal precedent that could carry over to the county's other management districts.

Since the Board Defendants engaged in an unlawful evaluation, invalidation, and rejection of the 2016 Petitions for Dissolution, they have continued their ultra vires actions, including authorizing the assessment, levying, and collection of assessments for years 2016, charging of interest and late fees on unpaid assessments, and imposing liens against property belonging to owners who have not paid the unlawful assessment.

Milford Ltd. seeks a declaratory judgment that the District Board Members acted without legal authority and failed to perform their ministerial duties to dissolve the District upon the filing with the Board, on or about May 18, 2016, of written petitions meeting the criteria for dissolution by owners set forth in Tex. Local Gov’t Code § 375.262(2).

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