LXR RS V, LLC v. Municipality of Norristown, Case No. 2:19-cv-01397-JDW

LXR RS V, LLC, Plaintiff v. MUNICIPALITY OF NORRISTOWN, Defendant

Case No. 2:19-cv-01397-JDW

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

October 7, 2019

MEMORANDUM

Pennsylvania law permits municipalities to require property owners to obtain a Use and Occupancy ("U&O") Certificate before selling real property. See 68 P.S. § 1082.1. The Municipality of Norristown imposes such a requirement. Plaintiff LXR RS V, LLC ("LXR") claims in this case that Norristown's requirements, at least as applied to it, imposed a temporary taking, violated its rights to substantive and procedural due process, and violated the Civil Rights Act. LXR also asserts claims for a writ of mandamus and a declaratory judgment under Pennsylvania law. Norristown has moved to dismiss all claims. (ECF No. 18.) As explained below, the Court concludes that LXR has not stated a claim for any of its federal causes of action. The Court also declines to exercise supplemental jurisdiction over LXR's state-law claims. The Court will therefore remand this case to the Court of Common Pleas for Montgomery County.

I. FACTUAL BACKGROUND

A. Norristown's Ordinances Regarding Sales Of Property

Under Pennsylvania law, a municipality that requires U&O Certificates must proceed as follows: (1) if the municipal inspection of the property reveals no violations, then the municipality must issue a U&O Certificate; (2) if the inspection reveals one violation but no substantial violation, the municipality must issue a temporary U&O Certificate; and (3) if the inspection reveals at least one substantial violation, the municipality must specifically note the items on an inspection report and issue a temporary access certificate. See 68 P.S. § 1082.1. In the event that an inspection reveals a substantial violation, a purchaser has one year to rectify the violation or to demolish the building. 68 P.S. § 1083.

Norristown requires U&O Certificates in connection with the sale of property. In particular, Norristown Code § 128-3.3 prohibits the sale of property without a U&O Certificate. The Norristown Code provides for property inspections and the issuance of certificates in compliance with Pennsylvania law. See Norristown Code § 128-6, 128-7.

B. LXR's Acquisition Of The Properties

On October 12, 2018, LXR executed a series of Standard Agreements for the Sale of Real Estate (the "Agreements") to acquire the properties at 5 E. Elm Street, 15 E. Elm Street, and 17 E. Elm Street (the "Properties"). The Agreements included a closing date of November 13, 2018. In addition, the Agreements made LXR, as buyer, responsible to order a U&O Certificate and to make any repairs necessary to obtain a U&O Certificate.

On October 25, 2018, LXR applied for zoning permits for the Properties. Because Norristown was still processing the zoning permit applications as of the date of the scheduled closing, LXR agreed with the property owners to delay the closing from November 13, 2018, until January 11, 2019. Norristown issued zoning permits on November 20, 2018, and November 28, 2018. The zoning permits identified the need for a U&O inspection to take place as an "Additional Step[] To Be Taken By Applicant."

LXR applied for U&O Certificates on November 28, 2018. Norristown conducted an inspection of the Properties approximately one month later, on December 27, 2018. That same day, Norristown issued a Warning Notice to one of the owners of the Properties, noting violations that the inspection revealed. However, Norristown did not issue a temporary access certificate or a U&O Certificate. Instead, it apparently insisted that the property owners correct the violations so that Norristown could avoid declaring the properties uninhabitable and turning out the residents. (ECF No. 9, Ex. H.)

LXR and the owners of the Properties extended the closing deadline at least two more times, once to February 8, 2019, and a second time to March 25, 2019. On March 6, 2019, Norristown issued temporary U&O Certificates for the Properties.

C. Procedural History

LXR filed this action in the Court of Common Pleas for Montgomery County. In its original Complaint, LXR sought a writ of mandamus and a declaratory judgment under Pennsylvania law. Norristown removed the case to this Court and moved to dismiss the case. LXR then filed an Amended Complaint, in which it seeks a writ of mandamus and a declaratory judgment and in which it asserts claims for a temporary taking, violation of substantive due process, violation of procedural due process, and violation of the Civil Rights Act. Norristown again moved to dismiss under Rules 12(b)(1) and 12(b)(6). (ECF No. 18.)

Among other things, Norristown argues in its Motion that the Court cannot hear LXR's takings claim because LXR did not pursue remedies in state court. Since the Parties filed their briefs, the Supreme Court has ruled that a property owner "has suffered a violation of his Fifth Amendment rights when the government takes his property without just compensation, and therefore may bring his claim in federal court under § 1983 at that time." Knick v. Twp. of Scott,Pennsylvania, 139 S. Ct. 2162, 2168 (2019). In July, the Court conducted a status conference with the Parties, during which Norristown acknowledged that the Knick decision renders its argument about Pennsylvania state court remedies moot. The Court therefore will not address that argument.

II. LEGAL STANDARD

Dismissal for failure to state a claim pursuant to F.R.C.P. 12(b)(6) is proper if "the allegations in a complaint, however true, could not raise a claim of entitlement to relief." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007). In other words, "only a complaint that states a plausible claim for relief survives a motion to dismiss." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). In evaluating a 12(b)(6) motion to dismiss, a court must accept all factual allegations in the complaint as true and construe the complaint in the light most favorable to the plaintiff. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). While factual allegations need not be detailed, they "must be enough to raise a right to relief above the speculative level." Bell Atl. Corp, at 555; Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). The Court must disregard legal conclusions, conclusory statements, and rote recitals of the elements of a cause of action. James v. City of Wilkes-Barre, 700 F.3d 675, 679 (3d Cir. 2012); Iqbal, 556 U.S. at 678.

III. ANALYSIS

A. Takings Claim

In the Third Circuit, courts evaluating takings challenges ask three questions: (1) whether a taking occurred; (2) whether that taking was for public use; and (3) whether the claimant received just compensation. See In re Trustees of Conneaut Lake Park, Inc., 855 F.3d 519, 525 (3d Cir. 2017). Takings may occur either by physical appropriation of property or by regulatory activity. See id. Here, the Parties' dispute arises out of a regulatory action (or lack of action) and centers on the first element—whether a taking occurred. The Court concludes there was no taking, and therefore the takings claim is not viable.

As a threshold matter, a plaintiff in a takings claim must show that the government's action affected a legally cognizable property interest. See Prometheus Radio Project v. FCC, 373 F.3d 372, 428 (3d Cir. 2004), as amended (June 3, 2016). Only if the plaintiff actually possesses such an interest will a reviewing court then determine whether the deprivation or reduction of that interest constitutes a taking. Givens v. Alabama Dept of Corr., 381 F.3d 1064 (11th Cir. 2004). The Constitution does not create property interests. Instead, they arise under some independent source of law, including state law. See Checker Cab Operators, Inc. v. Miami-Dade Cty., 899 F.3d 908, 917 (11th Cir. 2018) (quoting Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984)).

Under Pennsylvania law, once a party executes a contract for the sale of real estate, the purchaser holds equitable title and is thus the equitable owner of the real estate. See, e.g., Carter Lumber Co., Inc. v. Bales, No. 180 MDA 2019, 2019 WL 3778436, at *2 (Pa. Super. Ct. Aug. 12, 2019); Floyd v. Com., Dept. of Public Welfare, 407 A.2d 1388, 1390 (Pa. Cmwlth. 1979) ("[a] purchaser under a contract of sale ... obtains a legally cognizable interest in property") (quoting Payne v. Clark, 187 A.2d 769, 770 (Pa. 1963)). Purchasers, as "holders of an equitable interest in land[,]" are "entitled to participate in a condemnation award." Redevelopment Auth. of City of Philadelphia v. New Eastwick Corp., No. 2087 APRIL TERM 2003, 2005 WL 705976, at *5 (Pa. Com. Pl. Mar. 23, 2005), aff'd sub nom. Redevelopment Auth. v. New Eastwick Corp., 894 A.2d 830 (Pa. Super. Ct. 2005) (internal quotations omitted). The Court therefore concludes that Pennsylvania law vests a legally cognizable interest in parties that have executed a valid contract for the purchase of real property.

That is not the end of the analysis, however. The Takings Clause of the Fifth Amendment "requires the payment of compensation whenever the government acquires private property for a public purpose." Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency,535 U.S. 302, 321 (2002). "[T]emporary takings which ... deny a landowner all use of his property, are not different in kind from permanent takings, for which the Constitution clearly requires compensation." First English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 318 (1987). Moreover, courts recognize a regulation as a taking if the regulation precludes all economically beneficial and productive use of land. Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1019 (1992). There is no precise formula for determining whether governmental regulation has deprived a landowner of economically viable use of his property. Instead, the court must make "ad hoc, factual inquiries into the circumstances of each...