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Two Tennessee, LLC v. City of North Little Rock

August 23, 2006


The opinion of the court was delivered by: J. Leon Holmes United States District Judge


The complaint in this case alleges that the North Little Rock City Council refused to correct an erroneous zoning designation for property that Razorback Concrete Company sought to purchase and Two Tennessee, LLC, ultimately purchased; and, by that refusal, the defendants impaired a contractual obligation in violation of the Constitution, took property without paying just compensation, deprived the plaintiffs of equal protection of the laws, and violated the plaintiffs' right to substantive due process. The defendants now move to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

In ruling on a Rule 12(b)(6) motion to dismiss, the court construes the complaint in the light most favorable to the plaintiff and accepts the allegations in the complaint as true. Coleman v. Watt, 40 F.3d 255, 258 (8th Cir. 1994). A motion to dismiss should not be granted merely because the complaint "does not state with precision all elements that give rise to a legal basis for recovery." Schmedding v. Tnemec Co., Inc.,187 F.3d 862, 864 (8th Cir. 1999). A complaint need only contain "'a short and plain statement of the claim showing that the pleader is entitled to relief.'" Id. (quoting FED. R. CIV. P. 8(a)). "'[A]s a practical matter, dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief.'" Gebhardt v. ConAgra Foods, Inc., 335 F.3d 824, 829 (8th Cir. 2003) (quoting Parnes v. Gateway 2000, Inc., 122 F.3d 539, 546 (8th Cir.1997)). In other words, a motion to dismiss should be granted only if "it appears beyond a doubt that the plaintiff can prove no set of facts which would entitle him to relief." Schmedding, 187 F.3d at 864.

The complaint alleges that Razorback Concrete, an Arkansas corporation with its principal place of business in West Memphis, Arkansas, sought to purchase a parcel of land in North Little Rock known as the Tullos property for use as a concrete plant; and that Two Tennessee, a Tennessee limited liability company with its principal place of business in Memphis, Tennessee, ultimately purchased the property.

According to the complaint, in 1985, before the property had been put to any significant use, the city council zoned the property R4/Conservation (residential). In 1997, the city council rezoned the property I-2 (industrial) in response to the owner's objections to the property's residential zoning. In 2005, the city council adopted a zoning ordinance ("Ordinance #7697") that amended the zoning rules and established a digital zoning map for general use. The map, as adopted, mistakenly showed the Tullos property to be zoned as R4/Conservation rather than I-2. Noting the error and the potential for litigation because that the property was under contract for sale, the city attorney recommended that the city council correct the designation. The complaint alleges that Eugene Pfeifer spoke out against the proposed corrective legislation at a city council meeting, allegedly arguing that North Little Rock residents did not want a West Memphis business operating at that location and urging the city council "to vote against plaintiffs because they were 'outsiders.'" The defendants refused to correct the error in the zoning map. Razorback Concrete and Two Tennessee allege that the decision not to correct the error had no legal or rational basis, was made with the intent to deprive them of their rights, and was motivated by ill will, spite, and malice towards them because they were not natives of North Little Rock and by an unlawful desire to benefit Pfeifer, who also sought to purchase the property.

The defendants argue that the complaint fails to state a claim under the Contracts Clause, the Takings Clause, the Due Process Clause, or the Equal Protection Clause of the United States Constitution. They further assert that the complaint gives no notice of any state-law claim and that the individual defendants are entitled to legislative immunity from suit in their individual capacities.

Contracts Clause

Article I, § 10 of the Constitution of the United States provides, "No State shall . . . pass any . . . Law impairing the Obligation of Contracts . . . ." When analyzing a claim under the Contracts Clause, courts "first ask whether the change in state law has operated as a substantial impairment of a contractual relationship." Gen. Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 1109, 117 L.Ed. 2d 328 (1992) (quotations and citation omitted). "This inquiry has three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial." Id.

The defendants argue that Razorback Concrete and Two Tennessee fail on the second prong of the analysis because (1) the action of which they complain is not a change in the law and (2) it does not impair their contractual relationship in that it does not act on any contract itself. That argument is correct. The city council did not impair a contractual obligation. To impair a contractual obligation within the meaning of the Contracts Clause, "the challenged law must act on the contract itself as distinguished from the property which is the subject of the contract." Metro. St. Louis Sewer Dist. v. Ruckelshaus, 590 F. Supp. 385, 389 (E.D. Mo.1984). See also Quality Refrigerated Servs., Inc. v. City of Spencer, 908 F. Supp. 1471, 1492 (N.D. Iowa 1995); Bannum, Inc. v. City of St. Charles, Mo.,No. 90-0667-C(4), 1992 WL 521779, *4 (E.D. Mo. Oct. 15, 1992), aff'd, 2 F.3d 267 (8th Cir. 1993) (citations omitted). Modification of the contract itself, for example, an alteration of an express term of or obligation under a contract, constitutes an impairment, whereas an indirect or incidental effect upon the subject of a contract does not. See Northwestern Nat'l Life Ins. Co. v. Tahoe Reg'l Planning Agency, 632 F.2d 104 (9th Cir. 1980).

The defendants cite Quality Refrigerated in support of their argument. In that case, the plaintiff entered into a written agreement with the city for acquisition and development of an industrial facility for use as a refrigerated warehouse and processing plant. Quality Refrigerated, 908 F. Supp. at 1478. At the time of the agreement, the property was located in an area zoned "heavy industrial," which allowed for all of the facility's intended uses. Id. After some time, the city changed the zoning designation to "highway commercial," which affected one of the uses for which the plaintiff was to lease its facility. Id. at 1479. The plaintiff applied for rezoning and the city denied the application. Id. Concerning a proposed contracts clause claim, the court held:

The zoning regulation in this matter did not alter the terms of the contract between Quality Refrigerated and the City of Spencer, but simply affected the uses which could be made of the Spencer Pack facilities. Thus, the zoning regulation's only effect is on the property which is the subject matter of the contract. . . . [T]he City of Spencer's actions may have made performance of the contract less profitable and less likely, but this gives rise only to an action between the parties for breach of contract -- not a constitutional claim. Thus, the court concludes that Defendants have not substantially impaired an extant contract with Quality Refrigerated.

Id. at 1493.

In a similar case, a plaintiff who had received a federal contract to operate a community corrections center in the city alleged that the city unlawfully denied zoning to allow that use. Bannum, 1992 WL 521779, at *1. The court held that, insofar as the complaint alleged a violation of the Contracts Clause, it failed to state a claim because "[t]he zoning ordinance acted solely on the property, not on the terms of the contract . . . ." Id. at *4.

Razorback Concrete and Two Tennessee cite no authority that shows that the facts they have alleged, if true, would constitute a violation of the Contracts Clause. Here, as in Quality Refrigerated and Bannum, the defendants' action (or inaction) had no effect on contractual obligations that the plaintiffs had towards another person or vice versa; it had no direct effect on the contractual obligations between Razorback Concrete and the seller, assuming they had a contract, nor on the contractual obligations between Two Tennessee and the seller. The unchanged zoning designation restricted the use of the property but did not impair the ...

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