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First State Bank v. City of Elkins

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

May 16, 2019

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.

         The Plaintiff banks (collectively, "First State Bank" or the "Bank") received deeds in lieu of foreclosure to 105 residential building lots in the Stokenbury Farms Subdivision, in Elkins, Arkansas. In November 2016, as the Bank was marketing the lots, the Defendant, City of Elkins ("Elkins" or "City"), imposed a moratorium on the issuance of building permits in the subdivision-citing public safety concerns having to do with defective and unmaintained drainage detention ponds. In April of 2017, First State Bank sued Elkins in state circuit court for-among other things-a declaration that the moratorium was illegal and damages for an unlawful taking of its property without compensation. Because two of the Bank's claims presented federal questions, the City elected to remove the suit to this Court. The Bank sought a remand to state court. Thus began a now two-year procedural saga during which the parties have completely reversed their original positions on litigating these issues in federal court. Along the way, all concerned-certainly including this Court-have endeavored to pursue a prudent and judicially efficient path forward. Unfortunately, and with much regret in hindsight, the Court now concludes that it is without jurisdiction, and therefore the journey in this forum must end.

         In summary, what has occurred is that Elkins inserted a brand-new one-paragraph jurisdictional argument into its 25-page response to the Bank's motion for summary judgment, see Doc. 63 at 5. Elkins briefly mentioned the same argument again in its own cross-motion for summary judgment, see Doc. 68 at 7. In stark contrast to its removal arguments two years ago, the City now asserts that the Court lacks subject-matter jurisdiction over the Bank's Fifth Amendment taking claim, as well as the closely related Fourteenth Amendment due-process claim, which alleges that Elkins failed to provide the Bank with sufficient notice before it enacted the moratorium. Collectively, the City's briefing on this argument was superficial, at best. So, it came as no surprise that First State Bank's response to this late-comer was terse and dismissive, with no detailed discussion of the relevant authorities, see Doc. 80 at 6-7. In effect, the Bank's bottom-line response was that we've all come too far down the federal path to turn back now. The Court was inclined to agree. But after exploring the City's argument, the Court uncovered a rather deep vein of authority that undermined the appropriateness of federal jurisdiction.

         After inviting the parties to take a deeper look for themselves, see Docs. 91, 92, the Court is now well persuaded that the federal claims are not ripe, and the case must be remanded to state court for further resolution. An analysis of the procedural history of the case appears below, followed by a discussion of the legal authority supporting the Court's decision.

         I. PROCEDURAL BACKGROUND

         First State Bank originally filed its complaint in the Circuit Court of Washington County, Arkansas, on April 12, 2017. The Bank's suit was predicated on the notion that Arkansas statutory law granted cities of the first class the exclusive authority to issue- or refuse to issue-residential building permits. Since Elkins was (at the time) a mere city of the second class, the Bank alleged that the City's prohibition on development of the Stokenbury subdivision was illegal. Thus, the Bank argued, Elkins' unlawful moratorium constituted an economic taking of constitutional dimension. Elkins removed the case to this Court on May 12, 2017, noting that the complaint asserted both state-law questions and federal-law questions. The Bank's claims are summarized as follows:

• Count One was a cause of action for declaratory judgment under the Arkansas Uniform Declaratory Judgments Act ("AUDJA"), Ark. Code Ann. § 16-111-101, et seq., seeking a legal declaration from the Court that Elkins lacked the statutory authority-as a city of the second class-to regulate the construction of homes within the city limits.
• Count Two was also a claim under the AUDJA seeking a declaration that the building moratorium issued by Elkins was without a rational basis and was therefore unlawful and improper.
• Count Three asserted that Elkins' issuance of the building moratorium on undeveloped lots in a subdivision owned by the Bank deprived the Bank of all economic use of the lots and thereby constituted a taking under both the Arkansas and the United States Constitutions.
• Count Four alleged a violation of the Arkansas Private Property Protection Act, Ark. Code Ann. § 18-15-1701, et seq., as a result of Elkins' constructive taking of the Bank's land.
• Count Five asserted a due-process claim under both the Arkansas and United States Constitutions, as well as a violation of 42 U.S.C. § 1983.

         On June 9, 2017, the Bank filed a motion to remand the case back to state court (Docs 10-11). Although the Bank conceded that there were federal constitutional questions presented in the lawsuit, its motion urged the Court to stay the federal questions, decline supplemental jurisdiction of the state-law causes of action, and send the case back to state court. More specifically, the Bank argued: (1) that the case presented, at its core, a novel issue of state law that the state court would be better equipped to decide, and (2) the state-law claims, collectively, substantially predominated over any of the federal claims.[1]

         In response to the remand motion, Elkins emphasized that "the validity of moratoria is governed by United States Supreme Court precedent" and "[t]he dispositive issue [will be] determined through analysis under federal jurisprudence" because "[t]he Arkansas Supreme Court's 'takings' jurisprudence is in lockstep and explicitly relies on U.S. Supreme Court precedent." (Doc. 14 at 3 (emphasis added)). Elkins also argued that "the state claims here are subsumed in the federal claims and this Court should exercise its supplemental] jurisdiction to address all five Counts." Id. at 4. All of that is to say that at no point during the remand debate in mid-2017 did Elkins suggest that this Court lacked the ability or authority to adjudicate the federal taking and due-process claims because of a lack of subject-matter jurisdiction, or due to a lack of ripeness of the claims, or due to reasons of comity/deference to state law/procedure. Quite to the contrary, the City argued during the motion hearing that this Court's jurisdiction-including over the state-law claims-was "clear."[2]

         During the hearing on the remand motion, the parties agreed that Count One presented a novel issue of statutory interpretation that was likely dispositive of the remaining causes of action, less and except for damages. As the Bank's counsel explained: "the doorknob issue in this case, you've got to turn it to open up the entire case, ... is whether under [Ark. Code Ann. § 14-56-] 201 versus 202, ... Elkins had the right to regulate the construction of houses." (Doc. 21 at 62). The Bank argued that this presented a novel issue of state statutory interpretation, which weighed in favor of remand. This point led the Court to discuss the possibility of certifying the issue to the Arkansas Supreme Court. The Court observed (and parties discussed) whether certifying the question would be a more expedient and cost-efficient path forward, while also in keeping with the principles of federalism and comity. The Court suggested that the parties brief this "doorknob issue" early in the case, and if the Court could not (or should not) predict how the Arkansas Supreme Court would rule, then it would certify the question. See Doc. 21 at 64-65, 78-79.

         Ultimately, the Court denied the motion to remand because the Bank agreed that its suit presented federal constitutional claims, and therefore it conceded that federal jurisdiction had been properly exercised. See Doc. 17. Further, the Court found no good reason under 28 U.S.C. § 1367(c) to decline supplemental jurisdiction over the Bank's interrelated state-law claims. Id. The Court had also observed during the hearing that the Bank could non-suit its federal questions and seek remand again, but the Court would nevertheless have discretion as to whether to retain the remaining state-law claims, or not. So, if the Bank were of a mind to pursue that course, the Court stated it should do so within two weeks, before "the Court had expended substantial time and resources becoming more familiar with the issues." (Doc. 21 at 69-70, 72-73).

         On July 11, 2017, exactly two weeks after the Order denying remand was issued, the Bank filed a motion to nonsuit the federal claims (Doc. 22) and a renewed motion to remand (Doc. 23). Three days later, Elkins filed a motion arguing that the Bank's request to nonsuit its federal claims should be denied to prevent the Bank from engaging in improper forum shopping. Instead, the City said the Court should dismiss the entire complaint for failure to state a claim (Doc. 24). Elkins also argued that remand would cause it prejudice and constitute a waste of time and judicial resources. Finally, Elkins offered an alternative argument: First State Bank was barred from raising arguments about the moratorium in any court, because the Bank had failed to comply with Arkansas District Court Rule 9(f)(2)(A) ("ADC Rule 9"), and the time to do so had expired. As Elkins explained in its briefing, ADC Rule 9 concerns the procedure by which aggrieved parties must appeal a final administrative decision issued by a city planning commission.

         On August 4, 2017, the Bank changed tactics, and despite its renewed motion to remand, the Bank filed for judgment on the pleadings as to Count One of the complaint, seeking a legal declaration that Elkins lacked the authority and any rational basis for issuing the building moratorium in the first place. See ...


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