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First State Bank v. City of Elkins, Arkansas

United States District Court, W.D. Arkansas, Fayetteville Division

October 17, 2017

FIRST STATE BANK and PINNACLE BANK n/k/a CENTRAL BANK PLAINTIFFS
v.
CITY OF ELKINS, ARKANSAS DEFENDANT

          MEMORANDUM OPINION AND ORDER

          TIMOTHY L. BROOKS, UNITED STATES DISTRICT JUDGE

         Now before the Court are a number of pending motions. The first two were filed on July 11, 2017, by Plaintiffs First State Bank and Pinnacle Bank n/k/a Central Bank (collectively, "First State Bank"): a Motion to Voluntarily Dismiss Without Prejudice Federal Claims Only (Doc. 22) and a Renewed Motion to Remand (Doc. 23). First State Bank had filed a motion to remand earlier in the litigation, see Doc. 10, which had been denied by the Court during a hearing on June 27, 2017. The Court explained its reasons for the denial in a written Order (Doc. 17), essentially finding that Counts III and V of the Complaint concern issues of federal law, and the Court may therefore exert federal subject-matter jurisdiction over these federal claims, as well as supplemental jurisdiction over the state-law claims in Counts I, II, and IV. Also during the hearing, the Court suggested to counsel for First State Bank that if his client wished to voluntarily dismiss its federal claims and renew its motion to remand, the Court would be more amenable to that strategy if it were done in the next two weeks, rather than months into the litigation. See Transcript, Doc. 21, pp. 72-73. It appears that counsel heeded the Court's warning and filed First State Bank's Motion to Voluntarily Dismiss and Renewed Motion to Remand to Washington County Circuit Court exactly two weeks after the hearing.

         In an interesting turn of events, on July 14, 2017, before the Court could consider and rule on First State Bank's pending motions, Defendant City of Elkins, Arkansas ("Elkins") filed its own Motion to Dismiss (Doc. 24) and Brief in Support (Doc. 25), arguing in favor of the Court dismissing the entire case for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). In addition, or perhaps in the alternative, Elkins argued that First State Bank failed to exhaust its administrative/appellate remedies prior to filing suit, and as a result, this Court-and indeed any court-lacked jurisdiction to hear all claims related to Elkins' decision to issue a building moratorium on houses in a subdivision owned by First State Bank.

         Elkins also filed Responses to First State Bank's Motion to Dismiss and to the Renewed Motion to Remand, see Docs. 26-28, suggesting that the only possible reason why First State Bank would want to dismiss its federal claims was to engage in impermissible forum shopping, and that dismissing the federal claims at this juncture would result in a net waste of judicial time and effort (presumably because the Court had already invested some amount of time and resources in the case up until then). Not surprisingly, First State Bank filed a Reply (Doc. 29) to Elkins' Responses, first denying that it was forum shopping, and next observing that it has argued consistently that the issues of state law presented in this lawsuit are both substantive and novel, and should therefore be heard by a state tribunal.

         Yet another motion was filed in the case on August 4, 2017-this time by First State Bank. It requested judgment on the pleadings as to Count I of the Complaint. See Doc. 31. The strategy of filing such a motion was a bit confusing to the Court because the Renewed Motion to Remand was still pending. Nevertheless, Elkins responded to the Motion for Judgment on the Pleadings, see Doc. 33, and First State Bank promptly moved to strike that Response, see Doc. 34, arguing that the brief was improper because it responded to the pending Motion and also replied to another motion entirely, without first seeking leave to do so.

         Finding itself inundated with motions, the Court held a telephonic status hearing on October 3, 2017, for the purpose of clarifying what relief the parties now desired from the Court. The parties agreed that the first issue for the Court to take up was raised in Elkins' Motion to Dismiss, namely, that the Court's lacks jurisdiction to hear all claims relating to the moratorium. The parties further agreed that if the Court's jurisdiction over these claims is found to be proper, then the next issue to address would be the parties' cross-motions for judgment as to Count I of the Complaint.

         I. BACKGROUND

         According to the Complaint, on October 5, 2006, the Elkins City Council accepted the Final Plat for the Stokenbury Farms subdivision, which consisted of 138 lots, 136 of which were residential, and 2 of which contained detention ponds used to hold the subdivision's storm-water runoff. On the same day the Final Plat was submitted for approval, the Mayor of Elkins, City Clerk, Chairman of the Planning Commission, Building Inspector, and representatives from the Water, Police, and Fire Departments all approved the Final Plat. The subdivision's engineer executed and stamped the Final Plat and then filed it of record in the office of the Circuit Clerk and Ex-Officio Recorder of Washington County, Arkansas.

         After the Final Plat was recorded, First State Bank agreed to refinance the debt that Stokenbury Farms, LLC, had incurred in developing and constructing the subdivision. About two years later, on September 26, 2008, Elkins filed a lawsuit against Stokenbury Farms, LLC, and some other entities that were involved in the construction and engineering of the detention ponds. The lawsuit alleged that the ponds failed to perform as a result of defective workmanship and did not drain. It appears the lawsuit was non-suited by Elkins, allegedly because Elkins had decided to wait and let the subdivision be "built out" first before taking further action. (Doc. 3, p. 6).

         At some point after August 30, 2010, Stokenbury Farms, LLC defaulted on its financial obligations, and in lieu of foreclosure, deeded 105 undeveloped residential lots to First State Bank. Importantly, First State Bank did not take back two of the lots-the ones that contained the problematic detention ponds that had been the source of conflict with Elkins for the past several years. The Complaint explains that the detention-pond lots remained in the ownership of "an entity related to the developer or this entity's member(s)." Id. at 7. The Complaint also makes clear that First State Bank believes it bears no financial responsibility for the condition and upkeep of the ponds, since it does not own the lots that contain the ponds.

         Concern about the condition of the detention ponds continued to ebb and flow throughout the next two years until, finally, in late 2014, Elkins began complaining to First State Bank about the high grass surrounding the ponds. Elkins mowed the grass at some point, and then charged First State Bank for the mowing service-allegedly double what the service actually cost. First State Bank then refused to pay the bill, which led to more litigation, and the relationship between Elkins and the Bank deteriorated. On November 17, 2016, Elkins' City Council enacted a moratorium "on issuance of building permits in Stokenbury Farms Subdivision until an engineer certifies the functionality of the existing retention ponds." See City Council Minutes, id. at 24.

         First State Bank maintains that it did not receive notice that Elkins was even considering issuing such a moratorium, and did not receive actual notice that the moratorium had been passed until February 28, 2017, after First State Bank issued a direct request to Elkins for this information. Although at the time First State Bank believed that Elkins lacked the legislative authority to issue a moratorium on building, the Bank nonetheless requested that Elkins supply it with "definitive conditions upon which Elkins would agree to lift the moratorium . . . ." Id. at 12. In First State Bank's view, Elkins' response to this request was "vague and non-committal." Id. First State Bank then attempted "to obtain a building permit for residential lots within the Subdivision" but was "rebuffed by Elkins." Id. Fearing that it would lose money on its investment in the subdivision due to the imposition of the moratorium on further construction, First State Bank filed suit in Washington County Circuit Court on April 12, 2017, challenging the constitutionality of the moratorium and Elkins' authority to enforce it. The case was ultimately removed to this Court on May 12, 2017. See Notice of Removal, Doc. 1.

         Setting aside for now the substantive issue of whether Elkins, a city of the second class as defined by the Arkansas legislature, see Ark. Code Ann § 14-37-103, possessed the authority to issue the moratorium in the first place, Elkins argues in its brief in support of its Motion to Dismiss that this Court lacks jurisdiction to decide this issue at all, due to the fact that First State Bank failed to comply with Arkansas District Court Rule 9(f)(2)(A) ("ADC Rule 9"), which pertains to appeals of "any final administrative decision" through the "filing [of] a notice of appeal with the clerk of the circuit court having jurisdiction of the matter within thirty (30) days from the date of that decision." The time to file the appeal starts to run on either "the date of the vote, if any, or the date that a written record of the vote is made." Id. Elkins' argument is that First State Bank failed to file an ADC Rule 9- compliant notice of appeal of the City Council's moratorium within 30 days of the date the moratorium was passed, so the Bank's ability to contest the legality of the moratorium now, in this venue, has been forfeited, and this Court lacks jurisdiction to decide it.

         First State Bank responds that ADC Rule 9's requirements only apply to decisions concerning the planning-commission statute, as described in Ark. Code Ann. § 14-56- 425(a). That section of the Arkansas Code states as follows:

Appeals from the final administrative or quasi-judicial decision by the municipal body administering this subchapter shall be taken to the circuit court of the appropriate county using the same procedure as for administrative appeals of the District Court Rules of the Supreme Court.

Id. (emphasis added). First State Bank suggests that the "municipal body administering this subchapter" refers to a city's planning commission, which is responsible for administering the city's zoning laws, ordinances, and rules regarding land use. The Bank argues that Elkins' moratorium was a legislative decision by the City Council, not "an administrative or quasi-judicial decision" ...


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