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North Grove Street Properties, LLC v. City of Elgin

United States District Court, N.D. Illinois, Eastern Division

September 29, 2016

CITY OF ELGIN, et al., Defendants.


          Andrea R Wood, United States District Judge

         This case arises out of the municipal politics of a redevelopment project in the City of Elgin. Plaintiffs North Grove Street Properties, LLC, and Gasthaus Zur Linde, Inc., who own and operate a restaurant in the redevelopment zone, allege that the City of Elgin (“the City”) and its local officials unconstitutionally retaliated against them for opposing proposed zoning changes related to the redevelopment project. Plaintiffs further claim that the City conspired with private parties involved in the redevelopment project to disrupt Plaintiffs' business operations. Based on these allegations, Plaintiffs have sued the City; David Kaptain, Mayor of Elgin; William A. Cogley, Elgin Corporation Counsel and Chief Development Officer; and Terry Gavin, Elgin City Council Member (together, “City Defendants”) pursuant to 42 U.S.C. § 1983 for alleged violations of Plaintiffs' constitutional rights. Specifically, the Complaint alleges that City Defendants used the City's legislative, regulatory, and enforcement powers to retaliate in various ways against Plaintiffs for their exercise of their First Amendment rights in speaking at a zoning hearing and filing a state court lawsuit challenging the City's redevelopment plans. The Complaint also sets forth a civil conspiracy claim under Illinois common law, alleging that City Defendants and private parties Capstone Development Group, LLC (“Capstone”), William Luchini (together with Capstone, “Capstone Defendants”), Souyoul Properties, Inc. (“Souyoul Properties”), and Richard Souyoul (together with Souyoul Properties, “Souyoul Defendants”), unlawfully agreed to cause Plaintiffs' restaurant to close down and to drive down the market value of the property. Defendants' respective motions to dismiss are now before the Court. For the reasons set forth below, the Court dismisses, without prejudice, the § 1983 claim against Defendants Kaptain, Cogley, and Gavin, [1] as well as the state law civil conspiracy claim against all Defendants. The motion to dismiss the § 1983 claim against the City, however, is denied.


         I. The City of Elgin's Redevelopment Program

         From 2000 to 2005, the City adopted a series of plans to redevelop certain commercial areas, including its riverfront and city center. (Compl. ¶¶ 20-22, Dkt. No. 1.) As part of this effort, the City passed tax-increment financing in an area designated as the Central Area TIF (“TIF District”). North Grove Street Properties, LLC owns a property in the TIF District- namely, 11-13-15 North Grove Street, Elgin, IL (“North Grove Building”). The first floor of the North Grove Building is leased to the Gasthaus, a restaurant-tavern operated by Gasthaus Zur Linde, Inc. Both companies are owned by Marco Muscarello. (Id. ¶¶ 3-4.)

         Carrying on its redevelopment program, in 2014 the City sought to redevelop another building in the TIF District, the Tower Building. (Id. ¶ 24.) The owner of the Tower Building, the Stickling Foundation (“Stickling”), entered into an option agreement giving Souyoul Properties the right to buy the Tower Building for $1, 000, 000. After Stickling and Souyoul Properties executed this option agreement, Capstone entered into negotiations with the City to carry out the redevelopment. While the Tower Building had previously been a commercial space, Capstone proposed converting the Tower Building into all residential units. (Id. ¶¶ 25-27.) In October 2014, the City passed Resolution 14-153, which approved the Redevelopment Agreement between Capstone and the City. (Id. ¶ 27.) That Agreement provided that Capstone would apply to the Elgin City Council to rezone the Tower Building as residential, while the City would provide funding for the redevelopment project and would designate a certain number of parking spaces for use by the Tower Building. (Id.)

         Capstone submitted its rezoning application and the matter came up for public hearing on December 1, 2014. Plaintiffs appeared at this hearing and “offered evidence, performed cross-examination, and made numerous objections” to Capstone's rezoning application. (Id. ¶¶ 32-33.) Despite Plaintiffs' objections, the Elgin City Council voted to recommend approval of Capstone's application. In short order, by mid-January 2015, the City Council passed the required ordinance and Capstone received its conditional use permit allowing it to convert the Tower Building into a residential complex. (Id. ¶¶ 34-36.) On March 13, 2015, Plaintiffs filed suit in the Circuit Court of Kane County, Illinois seeking a determination that the variance was improperly granted and that Capstone and the City had entered into an improper agreement. (Id. ¶ 38.)

         II. Defendants' Offers to Purchase the North Grove Building

         Around February 21, 2015, prior to Plaintiffs filing suit in Illinois state court, Muscarello received a phone call from Neil Pitcher, allegedly an agent for Stickling. Pitcher suggested Plaintiffs sell their property to Capstone at $20 per square foot, the price at which the Tower Building was being sold. Pitcher offered to put Muscarello in touch with William Luchini, Capstone's principal. Muscarello declined this offer. (Id. ¶¶ 74-75.)

         On February 28, 2015 and March 10, 2015, acting on behalf of the City in his role as Counsel and Chief Development Officer, Cogley contacted Plaintiffs and offered $260, 000 for the North Grove Building. Muscarello countered that he and Plaintiffs would consider $960, 000 or $800, 000 along with a two-year free lease for the Gasthaus. Cogley responded that, if the City purchased the North Grove Building, it would not be interested in the Gasthaus continuing to operate in the location. (Id. ¶¶ 76-81.)

         In late March or early April 2015, after Plaintiffs' state court suit had been filed, Muscarello was contacted by Dave Shelton, a long-time business partner. Shelton stated that he had been contacted by Richard Souyoul, who asked him to serve as an intermediary for negotiating a sale of the North Grove Building. Shelton also represented that he could negotiate a purchase price for the North Grove Building of around $500, 000. After consulting with his counsel, Muscarello informed Shelton that he did not want Shelton serving as an intermediary in the sale of the property. (Id. ¶¶ 83-85.)

         On August 13, 2015, Plaintiffs contacted Cogley to determine if the City was interested in purchasing the property. Cogley responded that the City was not, but suggested that Capstone might be and that he would notify Luchini, Capstone's principal. Luchini never contacted Plaintiffs in response. (Id. ¶¶ 87-88.)

         On August 18, 2015, Souyoul contacted Muscarello to inform him that, though neither Souyoul Properties nor Capstone needed to acquire the North Grove Building for the redevelopment project to proceed, Souyoul Properties and Capstone would consider buying the North Grove Building at $20 per square foot, the same price at which Souyoul Properties was purchasing the Tower Building. Muscarello rejected this offer as well. (Id. ¶¶ 88.)

         III. Plaintiffs' Allegations of Retaliatory Conduct

         After Plaintiffs filed suit, in April 2015, the Gasthaus applied to the Local Liquor Control Commission (“LLCC”) to renew its exterior liquor sales permit. The LLCC's membership is made up of the members of the Elgin City Council, with the Mayor-Kaptain-serving as the Chairman. The Gasthaus's application came up for hearing on May 6, 2015. As in prior years the Gasthaus's permit had been granted without issue or the need for a personal appearance, the Gasthaus did not send a representative. Unlike prior hearings, however, this time the LLCC denied the Gasthaus's application. (Id. ¶¶ 41-42.) During the hearing, Council Member Gavin mocked the Plaintiffs, stating:

‘Oh, you're picking on us and we're going to file a lawsuit, ' which seems to be a hobby with these folks. I don't know if I can say that but I just did.

(Id. ¶ 43.)

         Two days later, on May 8, 2015, the City terminated the Right-of-Way Encroachment License Agreement between the City and the Gasthaus. This License had provided the Gasthaus with access to the space in front of its premises for the purpose of conducting exterior sales. (Id. ¶ 44.)

         On May 27, 2015, the City, acting through Kaptain and the City Council, passed an ordinance amending the Elgin Municipal Code to preclude U-Class liquor license holders from obtaining an exterior liquor sales permit. Cogley, though not a voting member of the City Council, advised in favor of this change to the Municipal Code, as did the LLCC. (Id. ¶ 46.) At the time, the Gasthaus was the only holder of a U-Class license and thus the only business directly affected by the change. (Id. ¶ 47.)

         In July 2015, Plaintiffs' counsel attended an LLCC meeting to challenge the denial of the Gasthaus's exterior liquor sales permit application. (Id. ¶ 50) During the course of the meeting, Cogley, Kaptain, and other City Council members “publicly lambasted” Plaintiffs' counsel for his representation of the Gasthaus. (Id.) Kaptain also threatened Plaintiffs' counsel, stating:

[I]f you accuse me of connecting those two [i.e., the opposition to the zoning variance afforded to Capstone Defendants and the subsequent amendment of the U-Class liquor license provisions of the Elgin Municipal Code], you and I are going to go to ...

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