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Lamont Alan Jefferson, Haynes & Boone, L.L.P., San Antonio, TX, Britton D. Douglas, Attorney, David Ross Noel Taubenfeld (argued), Haynes & Boone, L.L.P., Dallas, TX, for Plaintiff-Appellant.
William Neil Rambin, Attorney, Sherman Vance Wittie, Esq. (argued), Senior Special Counsel, Sedgwick, L.L.P., Dallas, TX, for Defendant-Appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before HIGGINBOTHAM, CLEMENT, and PRADO, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge.
Star Insurance Company (" SIC" ) refused to defend or indemnify its insured, the City of College Station (" the City" ), in a lawsuit brought by Weingarten Realty Investors (" WRI" ), a real-estate investment trust not party to this appeal. The City settled the underlying litigation with WRI and sued SIC to recover defense costs, indemnification, and statutory penalty interest. Applying Texas law, the district court concluded that SIC had no duty to defend or indemnify the City in the litigation with WRI and, consequently, no penalty liability for late payment. We reverse and remand for further proceedings.
In 2008, WRI sued the City in federal district court. WRI's suit arose out of a dispute over the re-zoning of a tract of land that WRI hoped to develop into a shopping mall centered around a Walmart store. As alleged in WRI's second amended complaint, WRI purchased the tract in reliance on the City's 1990 Comprehensive Plan, which designated the tract for " regional retail use," as well as the City's 2001 land use study, which designated the tract for a " power" retail center. According to WRI, the " regional retail use" designation in the Comprehensive Plan was legally binding on the City and meant that it could only zone the property as " General Commercial (C-1)" — the designation WRI needed to develop its mall. However, when WRI requested C-1 zoning in 2006— a request that " should have been a mere formality" — the City denied it.
WRI nevertheless continued to work with the City " in an effort to salvage its investment." WRI met with a member of the City council, who advised WRI that it might get approval by replacing Walmart with HEB and by breaking its zoning request into several smaller applications so as to arouse less opposition from neighboring landowners. WRI followed these instructions, negotiating an agreement with HEB to be the new anchor tenant and submitting a revised zoning request for only 16 acres of its 76-acre tract. However, the City " tabled" the request, purportedly to conduct a transportation study. Though the study concluded in November 2007, the City did not take any action for another year and a half, until WRI sued the City in 2008. Finally, in 2009, the City introduced a new Comprehensive Plan that re-designated portions of WRI's property as " suburban commercial" and " general suburban" — designations that, according to WRI, will make it more difficult to develop the property.
WRI asserted four distinct causes of action against the City. First, WRI claimed that the City's actions were discriminatory and lacked a rational basis, violating its Fourteenth Amendment right to equal protection and entitling it to damages and injunctive and declaratory relief. WRI supported its equal protection claim with detailed factual allegations:
[The City's] denials of WRI's zoning requests were unreasonable and constitute treatment different than that given by [the City] to individuals and entities situated similarly to WRI. One such example is the development directly across the street from [WRI's] [p]roperty. This development is similar to the development planned by WRI in that both are retail developments. [The City] approved the zoning for that development but not for WRI. Generally speaking, upon information and belief, many individuals and entities have come before [the City] and requested zoning that is in accordance with the Comprehensive Plan, and [the City] has granted such zoning requests. Here, [the City] denied WRI's requests despite the fact that they comply with the Comprehensive Plan. [The City] has also passed a [n]ew Comprehensive Plan ... directed at blocking WRI's development in the future, while at the same time granting zoning to property owners who are developing their properties with the same tenants previously interested in WRI's [p]roperty at the intersection just south of [WRI's] [p]roperty.
According to WRI, the real reason for this disparate treatment was the City's irrational bias against WRI, ...