5-Star Athlete, Dev. v. City of Shelby

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5-STAR ATHLETE, DEVELOPMENT, LLC, Plaintiff, v. CITY OF SHELBY, NORTH CAROLINA, Defendant.

No. 1:21-CV-323-MR-WCM

United States District Court, W.D. North Carolina, Asheville Division

August 5, 2022

MEMORANDUM AND RECOMMENDATION

W CARLETON METCALF, UNITED STATES MAGISTRATE JUDGE

This matter is before the court on Defendant's Motion to Dismiss (Doc. 3), which has been referred to the undersigned pursuant to 28 U.S.C. § 636 for the entry of a recommendation.

I. Background

A. Relevant Procedural History

On October 28, 2021, Plaintiff 5-Star Athlete Development, LLC (“Plaintiff”) filed a Complaint alleging violations of the Fair Housing Act, 42 U.S.C. § 3601, et seq. (the “FHA”), the North Carolina Fair Housing Act, N.C. G.S. § 41A-1, et seq. (the “State FHA”), and “state and federal civil conspiracy laws.” Doc. 1. Plaintiff seeks various types of relief including compensatory and punitive damages. Id. at 25.

On December 20, 2021, the City of Shelby (“Defendant”) filed the Motion to Dismiss and a supporting memorandum. Docs. 3, 4. Plaintiff has responded, and Defendant has replied. Doc. 5, 6.

B. Plaintiffs' Allegations

Plaintiff's Complaint alleges, in relevant part, as follows:

Plaintiff is “a wholly minority owned company with its President being an African-American male.” Doc. 1 at ¶ 101.^[1]

In 2017, Defendant presented an Economic Development Strategic Plan (the “Plan”) to the public identifying the need for more diversity, more opportunities to integrate the entire community, and more multifamily residential housing units. Id. at ¶¶ 4-9.

In early 2019, and in response to the Plan, Plaintiff purchased real property located at 1607 E. Dixon Boulevard in Shelby, North Carolina (the “Dixon Property”). Id. at ¶¶ 10-13. Plaintiff intended to build a residential development on the Dixon Property consisting of eleven 3-bedroom townhouse units (the “Development”). Id. at ¶¶ 17, 18, 33. At the time of Plaintiffs purchase, part of the Dixon Property was zoned “General Business (GB) commercial” and another part was zoned “Residential 10 (R10) single-family dwellings.” Id. at ¶ 14.

On September 12, 2019, Plaintiff purchased an adjacent parcel located on E. Main Street in order to connect the Development to the city sewer line system and to give future residents of the Development ingress and egress. Id. at ¶ 30.

On September 25, 2019, Plaintiff submitted a zoning map amendment request, which included a site plan drawing for the Development and the proposed driveway (the “Zoning Application”). Id. at ¶¶ 33-34.

On October 17, 2019, Defendant's Planning and Zoning Board unanimously approved Plaintiffs request for a zoning change. Id. at ¶ 37.

In late October, however, a flyer began circulating among area homeowners “reflecting a false accusation that [Plaintiff] intended to construct low-income townhouses in their community, that would hurt home values because of the low-income development” (the “Flyer”). Id. at ¶ 38. The Flyer encouraged homeowners to protest the Zoning Application during an upcoming meeting of Defendant's City Council. Id.

On November 18, 2019, the City Council held a public hearing during which it considered Plaintiffs Zoning Application. Id. at ¶ 41. A local resident, Stacy Heavner, spoke against the Zoning Application and presented a “protest petition” with the signatures of local residents who opposed the rezoning. Id. at ¶¶ 41-43.^[2] Thereafter, the City Council, without explanation, voted five-to-one to deny Plaintiff's Zoning Application. Id. at ¶ 45.

On or about July 16, 2020, Plaintiff filed a complaint with the United States Department of Housing and Urban Development (“HUD”), which complaint was assigned to HUD Investigator Charles Theodore. Doc. 1 at ¶ 52. In June of 2021, Theodore emailed Green a “HUD Closure” letter and a “Determination of No Reasonable Cause” letter. Id. at ¶ 54. In July of 2021, HUD issued a Final Investigation Report (the “HUD Report”). Id. at ¶ 57.^[3]

The HUD Report referenced letters from various citizens that had been “allowed” by the City Council during the November 18 meeting, including one which specifically referred to the Development as “affordable housing...not in character with the neighborhood.” Id. at ¶ 61. Plaintiff alleges that the HUD Report provides evidence that Plaintiff's Zoning Application was denied in violation of the FHA and State FHA “because of pressure from the public of their fears of an increase in crime, their prejudice against people of low-income and the unsubstantiated assumption of [sic] their home values will decline.” Id. at ¶ 81.

Plaintiff alleges that from January 1, 2017 to December 31, 2019, the City Council voted on a total of seven zoning amendments and four special use permits, all of which involved the creation of multifamily housing, Id. at ¶¶ 82, 83, and that Plaintiff's Zoning Application was the only one that was denied. Id. at ¶ 83.

Additionally, Plaintiff alleges that a separate entity, Cleveland County Community Development, is building housing in Shelby in the same price range as Plaintiff's Development, Id. at ¶¶ 40, 88, 92, and that Defendant's Chief of Police and Housing Authority Director are both active Directors of that separate entity. Id. at ¶ 93.

II. Legal Standard

When considering a motion made pursuant to Rule 12(b)(6), the court, accepting the allegations in the complaint as true and construing them in the light most favorable to the plaintiff, determines “whether the complaint on its face states plausible claims upon which relief can be granted.” Francis v. Giacomelli, 588 F.3d 186, 189, 192 (4th Cir. 2009); accord Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009).

The court, however, is not required to accept “legal conclusions, elements of a cause of action, and bare assertions devoid of further factual enhancement.” Consumeraffairs.com, 591 F.3d at 255; see Giacomelli, 588 F.3d at 192. That is, while “detailed factual allegations” are not required, the complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); accord Consumeraffairs.com, 591 F.3d at 255. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); accord Consumeraffairs.com, 591 F.3d at 255. In short, the well-pled factual allegations must move a plaintiff's claim from conceivable to plausible. Twombly, 550 U.S. at 570; Consumeraffairs.com, 591 F.3d at 256.

III. Discussion

Defendant moves to dismiss Plaintiff's Complaint in its entirety for failure to state a claim. Doc. 3.

A. The FHA Claims

Congress enacted the FHA “to provide, within constitutional limitations, for fair housing throughout the United States.” 42 U.S.C. § 3601. The FHA makes it unlawful to “discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin,” 42 U.S.C. § 3604(b), or “refuse to sell or rent...or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” 42 U.S.C. § 3604(a); see also Luckett v. Town of Bentonia, No. No. 5:05-cv-144, 2007 WL 1673570, at *3 (S.D.Miss. June 7, 2007) (“The phrase ‘otherwise make unavailable or deny' has been interpreted to reach a wide variety of discriminatory housing practices, including exclusionary zoning and the refusal to permit tying into a city's water and sewer systems through the denial of permits and/or the denial of annexation”) (collecting cases). Additionally, the FHA prohibits any person or entity “whose business includes engaging in residential real estate-related transactions” from discriminating “against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” 42 U.S.C. § 3605(a).

An FHA claim can proceed under “either a disparate-treatment or disparate-impact theory of liability....” Reyes v. Waples Mobile Home Park Ltd. P'ship, 903 F.3d 415, 421 (4th Cir. 2018). “Under a disparate-treatment theory of liability, a ‘plaintiff must establish that the defendant had a discriminatory intent or motive,' whereas ‘a plaintiff bringing a disparate-impact claim challenges practices that have a disproportionately adverse effect on minorities and are otherwise unjustified by a legitimate rationale.'” Id. (quoting Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519, 524 (2015)).

Here, Plaintiff asserts that Defendant discriminated “in making available residential real-estate related transactions because of race, color, or [i]ntentional discrimination of land-use and zoning laws....” Doc. 1 at ¶ 102(1). Plaintiff does not specify whether its claim is based on a theory of disparate treatment or disparate impact. Id. Nonetheless, because an FHA plaintiff “is not required to elect which theory the claim relies upon at pre-trial, trial, or appellate stages,” Reyes, 903 F.3d at 421, the undersigned has considered whether Plaintiff has stated a claim under either theory of liability. See e.g. National Fair Housing Alliance v. Bank of America, N.A., 401 F.Supp.3d 619, 631 (D. Md. 2019) (“[F]or purposes of a motion to dismiss for lack of legally cognizable discrimination, the court must discern if either predicate theory of discrimination is sufficiently pled”).

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