211 Eighth, LLC v. Town of Carbondale

922 F.Supp.2d 1174

211 EIGHTH, LLC, a Colorado limited liability company, and Prince Creek Construction, Inc., a Colorado corporation, Plaintiffs,

v.TOWN OF CARBONDALE, a Colorado home-rule municipality, Nancy Barnett, in her official capacity as Acting Town Manager for the Town of Carbondale, Colorado, and John Plano, in his official capacity as the Building Official for the Town of Carbondale, Defendants.

Civil Case No. 12–cv–00049–REB–MJW.

United States District Court, D. Colorado.

Feb. 11, 2013.

James Francis Fosnaught, Jeffrey Juergens Conklin, Karl J. Hanlon, Karp Neu Hanlon, P.C., Glenwood Springs, CO, for Plaintiffs.

Heidi J. Hugdahl, J. Andrew Nathan, Nathan Bremer Dumm & Myers, PC, Sean Michael Hanlon, Holland & Hart, LLP, Denver, CO, Mark Edward Hamilton, Holland & Hart, LLP, Aspen, CO, for Defendants.

ORDER RE: CROSS–MOTIONS FOR SUMMARY JUDGMENT

BLACKBURN, District Judge.

The matters before me are (1) Defendants' Motion for Partial Summary Judgment and Memorandum Brief in Support Thereof [# 50],¹ filed November 16, 2012; and (2) Plaintiffs' Motion for Partial Summary Judgment [# 49], filed November 16, 2012.² I grant defendants' motion for summary judgment in part and deny it as moot in part, deny plaintiffs' summary judgment motion as moot, and remand the state law claims to the state district court from which they were removed.³

I. JURISDICTION

I have jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331 (federal question) and 1367 (supplemental jurisdiction).

II. STANDARD OF REVIEW

Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is “genuine” if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Farthing v. City of Shawnee, 39 F.3d 1131, 1135 (10th Cir.1994). A fact is “material” if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Farthing, 39 F.3d at 1134.

A party who does not have the burden of proof at trial must show the absence of a genuine fact issue. Concrete Works of Colorado, Inc. v. City & County of Denver, 36 F.3d 1513, 1517 (10th Cir.1994), cert. denied,514 U.S. 1004, 115 S.Ct. 1315, 131 L.Ed.2d 196 (1995). By contrast, a movant who bears the burden of proof must submit evidence to establish every essential element of its claim or affirmative defense. See In re Ribozyme Pharmaceuticals, Inc. Securities Litigation, 209 F.Supp.2d 1106, 1111 (D.Colo.2002). In either case, once the motion has been properly supported, the burden shifts to the nonmovant to show, by tendering depositions, affidavits, and other competent evidence, that summary judgment is not proper. Concrete Works, 36 F.3d at 1518. All the evidence must be viewed in the light most favorable to the party opposing the motion. Simms v. Oklahoma ex rel Department of Mental Health and Substance Abuse Services, 165 F.3d 1321, 1326 (10th Cir.), cert. denied,528 U.S. 815, 120 S.Ct. 53, 145 L.Ed.2d 46 (1999).

III. ANALYSIS

The Town of Carbondale, Colorado (the Town), a home rule municipality, has enacted an affordable housing ordinance “to mitigate the impact of market rate housing construction on the limited supply of available land suitable for housing” within the town. (Def. Motion App., Exh. A–3 ¶ 15.25.020 at 7.) The ordinance establishes “community housing requirements for [residential] development which require[ ] a portion of all new residential development to be set aside for Community housing purposes as a condition of approval for such development.” ( Id.)

In December 2005, plaintiffs submitted an application to the Town for a development known as Cleveland Place II. Plaintiffs were granted a number of variances in connection with development of the project ( see id., Exh. A–3 ¶ 15.20.100 at 10) and construction was allowed to begin on the infrastructure before the plan was fully approved. Subsequently, in July 2007, plaintiffs and the Town entered into a Subdivision Improvement Agreement (“SIA”) ( id., Exh. A–8) and a Planned Unit Development Agreement (“PUD”) ( id., Exh. A–9), which were approved by local ordinance ( id., Exh. A–10).

Pursuant to the SIA, plaintiffs agreed to a number of “conditions of approval and installation of public improvements,” including, most importantly for present purposes, two units of community housing,⁴ designated as Lots 1A and 1B, which were to “be ready for occupancy as required by the Carbondale Municipal Code.” ( Id., Exh. A–8 ¶ 2.b(xv) at 4.) The code, in turn, states that community housing units “shall be ready for occupancy no later than the occupancy of free market units within the project.” ( Id., Exh. A–3 ¶ 15.25.070(C) at 9.)

Development of Cleveland Place II proceeded, but in May 2008, the Town learned that Lots 1A and 1B had either been sold or were under contract at free market prices. The parties negotiated various amendments to the SIA and PUD, which increased the total number of units for the project from 18 to 20 and designated three units for community housing. ( See id., Exh. A–11 ¶ C(7) at 3.) Although defendants contend that plaintiffs failed to begin construction on the community housing units,⁵ plaintiffs counter that it was agreed that community housing units would be marketed as “pre-sales,” to be constructed only after a buyer had entered into a commercially reasonable contract.

Plaintiffs maintain that although they actively marketed the community housing units through the Town's administrative agent, Mountain Regional Housing Authority (“MRHA”), they found only one buyer. Moreover, plaintiffs insist that the community housing contracts approved by MRHA included unreasonable conditions under which their lender refused to finance construction of pre-sale units.

On August 6, 2009, the Town, via its attorneys, sent plaintiffs a letter under the heading “NOTICE OF BREACH AND NOTICE OF INTENT TO TAKE ACTION” in which the Town stated its position that the failure to build the community housing units contemporaneously with the other units in the development constituted a breach of the parties' contract, as did plaintiffs' alleged refusal to allow MRHA to use its standard form contract to market and sell the units. ( Id., Exh. A–15 at 2.) The letter advised plaintiffs that if they did not cure within ten days, the Town would exercise its rights under the SIA, including recording an affidavit of default and withholding additional building permits and/or COs until the deficiencies had been cured. ( Id., Exh. A–15 at 3; see also id., Exh. A–8 ¶ 18 at 11–12.) ⁶

In October 2010 and August 2011, plaintiffs requested COs for two units in the Cleveland Place II development. Both were denied by the Town's building inspector, citing, inter alia, “pending litigation” and the affidavit of default.⁷ Meanwhile, in March 2011, the Town's engineer performed a “warranty inspection” of the development and noted that some concrete had failed.⁸

Defendant Nancy Barnett, the acting town manager, notified plaintiffs on June 9, 2011, of the Town's intent to draw on the extant letter of credit unless the alleged deficiencies were cured within ten days. Ms. Barnett presented a first sight draft on June 16, 2011, and a second on June 20, 2011. Although plaintiffs filed a motion for a temporary restraining order to prevent the Town from calling in the letter of credit, the bank released the funds on June 20, 2011.

As a result of these events, the development is now in foreclosure, and plaintiffs represent that they are liable to their lenders for nearly three million dollars. The suit they initially brought in Colorado state district court was eventually removed to this court after plaintiffs filed an amended complaint asserting claims under 42 U.S.C. § 1983.

Plaintiffs assert four such claims here, alleging violation of their constitutional rights of equal protection and substantive and procedural due process, as well as a claim alleging a regulatory taking under the Fifth Amendment. In addition, plaintiffs have alleged state law claims for breach of contract and for declaratory and injunctive relief. For their part, defendants have counterclaimed for breach of contract.

A. EQUAL PROTECTION

Plaintiffs' first claim asserts a violation of their rights of equal protection under the Fourteenth Amendment. “Equal protection is essentially a direction that all persons similarly situated should be treated alike.” Fogle v. Pierson, 435 F.3d 1252, 1260 (10th Cir.), cert. denied,549 U.S. 1059, 127 S.Ct. 675, 166 L.Ed.2d 526 (2006) (citation and internal quotation marks omitted). The Equal Protection Clause “does not forbid classifications. It simply keeps governmental decisionmakers from treating differently persons who are in all relevant respects alike.” Nordlinger v. Hahn, 505 U.S. 1, 10, 112 S.Ct. 2326, 2331, 120 L.Ed.2d 1 (1992). In general, and particularly in relation to economic and social welfare issues, the state “retains broad discretion to classify as long as its classification has a reasonable basis.” Graham v. Richardson, 403 U.S. 365, 371, 91 S.Ct. 1848, 1852, 29 L.Ed.2d 534 (1971). However, if the government's classification involves a suspect class or burdens a fundamental constitutional right, the classification is subject to strict scrutiny and must be narrowly tailored to serve a compelling government interest. Save Palisade FruitLands v. Todd, 279 F.3d 1204, 1210 (10th Cir.), cert. denied,537 U.S. 814, 123 S.Ct. 81, 154 L.Ed.2d 18 (2002).

Plaintiffs do not argue (nor could they) that they are members of a suspect class.⁹ Rather, they allege that they have a fundamental right to lease, sell, and convey property which comes...