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TBS Group, LLC v. City of Zion

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

November 6, 2017

TBS GROUP, LLC, Plaintiff,
v.
CITY OF ZION, ILLINOIS, Defendant.

          MEMORANDUM OPINION AND ORDER

          Honorable Edmond E. Chang United States District Judge.

         TBS Group, LLC, brought suit against the City of Zion, Illinois, alleging that Zion's adoption of a rental unit inspection ordinance and a “Comprehensive Plan” (the City's official development strategy), violates the Fair Housing Act, 42 U.S.C. § 3601 et seq. by allegedly seeking to shrink the amount of available housing for African-Americans and Latinos.[1] R. 23, Am. Compl.[2] Zion now brings a motion to dismiss, R. 32, Def.'s Mot. to Dismiss, under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. For the reasons discussed below, the motion to dismiss is granted.

         I. Background

         For purposes of this motion, the Court accepts as true the allegations in the Amended Complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). TBS Group owns dozens of rental units in Zion, Illinois. Am. Compl. ¶¶ 1, 15. According to TBS, all of its properties are in neighborhoods populated mostly with minorities and TBS rents almost exclusively to African-American or Latino tenants. Id. ¶ 1.

         In July 2015, Zion adopted Ordinance 15-O-33, which added rental housing inspection and certification regulations to Zion's Municipal Code. Zion Code § 10-180;[3] see also Am. Compl. ¶ 20; Def.'s Mot. to Dismiss at 1. The ordinance requires all Zion property owners who rent out units to maintain a “current and valid city-issued certificate of compliance.” Id. § 10-180(2)(a). To get a certificate, a unit needs to pass an inspection, [4] id. § 10-180(5)(a), for which landlords are charged “$75.00 per dwelling unit, ” id. § 10-9(c) (fee schedule for inspections).[5]

         In order to obtain a compliance certificate for a dwelling unit, the unit must be free of any condition “that would constitute a hazard to the health and safety of the occupants” and must be “otherwise fit for occupancy.” Zion Code § 10-180(5)(c). Landlords must keep the unit in a “safe, habitable, and code-compliant condition” or else lose the certificate upon re-inspection. Id. § 10-180(5)(d). If a unit fails an inspection, then the code official reports the violations to the owner and issues a notice to comply. Id. §§ 10-180(5)(c), 10-180(5)(h). A new inspection is scheduled and the process repeats until the owner gets it right. Id. § 10-180(5)(i). Units that passed inspection without a problem get a compliance certificate that is good for two years; those that needed to correct a violation get a certificate that lasts only one year. Id. § 10-180(3)(a)(ii).[6] Any rental unit that is out of compliance is fined between $100 and $750 a day as a penalty. § 10-180(9)(a).[7]

         TBS received notices from the Zion Building Department, notifying TBS of the requirement to obtain certificates of compliance. See Am. Compl., Exh. A. The group exhibit attached to the Amended Complaint includes 15 initial letters, which cover various TBS rental properties and notify TBS of the rental inspection regulations and requirements, and another 15 follow-up letters, labelled “FINAL NOTICE, ” covering those same properties. Id.; Am. Compl. ¶ 21.

         TBS Group contends that Zion's rental inspection ordinance violates Section 804(a) of the Fair Housing Act, 42 U.S.C. § 3604(a), in that it allegedly makes “housing unavailable because of race, national origin, or color …” Am. Compl. ¶ 25. TBS says, “[o]n information and belief, ” that the ordinance is being “enforced selectively against landlords who have African-American and Latino tenants.” Id. ¶ 24. This selective enforcement is made possible, TBS argues, because “[t]he criteria for the inspections is not defined” and therefore Zion has “latitude in deciding which properties ‘pass' and which do not.” Id. ¶ 23. This “vague[ness]” allows rental unit inspection compliance decisions to be made in a discriminatory way, “deem[ing] properties occupied by African-American and Latino tenants unrentable.” Id. TBS also appears to contend that, even if its properties were all deemed code-compliant, the inspection fees themselves are unaffordable. Id. As a result, TBS asserts, the ordinance makes fewer housing units available to blacks and Latinos because it prices out landlords like TBS who rent primarily to those racial minorities.

         To support its argument, TBS relies on demographic statistics set forth in the Amended Complaint. TBS contends that blacks are overrepresented as renters in the area, making up 31% of Zion's population but accounting for 39.3% of the renting community. Id. ¶ 7. Whites, on the other hand, are 48.9% of Zion's population, but only 39% of renters. Id.[8] TBS suggests (at least as far as data from 1980 to 2000 can show) that the number of black renters has been increasing sharply while the number of white renters has fallen over time. Id. ¶¶ 8-9.

         With these population numbers as a background, TBS goes on to list incidents-over the past few decades-that allegedly show Zion's attempts to discriminate and limit rental units available to blacks and Latinos. See Am. Compl. at 3-7. First, in 1982, a real estate developer brought a fair housing case against Zion, alleging that the city was trying to curtail construction of “Section 8” housing. Id. ¶ 12. “Section 8” refers to Section 8 of the Housing and Community Development Act of 1974, 42 U.S.C. 5301 et seq., which authorizes the Secretary of Housing and Urban Development to enter into contracts with landowners in order to help low-income families finding suitable housing. The developer's suit alleged that Zion did not want any more “undesirable” people. Id. ¶ 12.[9]

         Moving forward to the mid-1990s, TBS asserts that “[i]n a[n] … attempt to eliminate rental housing for African-Americans, ” Zion passed ordinances declaring 2100-2700 Hebron Avenue, the heavily black area where TBS's properties are located, as “blighted.” Am. Compl. ¶ 15(b). TBS does not cite the ordinances, but gives a link to a 1994 Chicago Tribune article on Zion's “blight” declarations and a related federal housing investigation assessing possible discrimination. Id. ¶ 15(b) (citing Steve Mills, Hud Probes Bias in Zion's Blight, Chicago-Tribune, Dec. 22, 1994, http://articles.chicagotribune.com/1994-12-22/news/94122202731blighted-blocks-landlords (accessed Sept. 14, 2017)). According to TBS, the blight ordinances ramped up segregation in the area, leading to a higher concentration of minorities in the 2100-2700 Hebron Avenue neighborhood. Am. Compl. ¶ 15(c). By its reckoning, whites went from occupying about half of the available housing in the area in the early 1990s to 38 percent in 2010. Id.

         TBS also alleges that Zion's “Comprehensive Plan, ” approved in December 2015, is another example of the city's discriminatory approach to housing. Am. Compl. ¶ 16.[10] According to TBS, that Plan “will make housing unavailable” for racial minorities in violation of the Fair Housing Act, because it “includes multiple-family housing (rental) relegated almost exclusively to a south-eastern area next to industrial uses and remote from green space.” Id. ¶¶ 16, 26. As another example of discrimination, TBS mentions another Zion ordinance that allegedly classifies properties as “nuisance” properties merely because the residents of the property call the police for help. Id. ¶ 17.[11]

         In addition to the ordinances and the Comprehensive Plan, the Amended Complaint also offers certain remarks made by Zion mayors in support of the allegations of discrimination. Around 2005, then-Mayor Lane Harrison allegedly said to TBS that he did “not want more African-Americans to move into” TBS's property. Am. Compl. ¶ 11. Around ten years later, in 2015, Zion Mayor Al Hill allegedly said that he wanted to shrink the rental percentage of housing in Zion from its current level of 60% to a “healthy” 20% to 30%. Id. ¶ 10. Then, in deliberating over the rental inspection ordinance in February 2017, Mayor Hill said that “Zion has 3.5 percent [of] the population of Lake County” but “38 percent of the Section 8 vouchers” awarded by the county. He called this “an issue that we have to address, ” and cited “issues that are associated with too many rental units and too much Section 8 rental units.” Id. ¶ 18. TBS also cites an incident at a public forum on the rental inspection ordinance, where a resident “referred disparagingly to ‘Section 8' and ‘these people, '” and officials responded by pointing to the “disproportionate number of ‘Section 8' vouchers in Zion.” Id. ¶ 19.

         In January 2017, the previously assigned judge dismissed TBS's original complaint for failure to state a claim, but gave TBS the chance to amend it. R. 22, Opinion and Order (Jan. 23, 2017). TBS did so, and now Zion moves to dismiss the Amended Complaint for failure to state a claim. See Def's. Mot. to Dismiss; R. 37, Def's. Rep. Br.

         II. Standard of Review

         Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need only include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This short and plain statement must “give the defendant fair notice of what the ... claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (internal quotation marks and citation omitted). The Seventh Circuit explained that this rule “reflects a liberal notice pleading regime, which is intended to ‘focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court.” Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).

         “A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[A] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). These allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Allegations that are entitled to the assumption of truth are those that are factual, instead of mere legal conclusions. Iqbal, 556 U.S. at 678-79.

         III. Analysis

         Among other things, the Fair Housing Act prohibits race and color discrimination in the selling and renting of housing. 42 U.S.C. § 3601 et seq. It is illegal to “refuse to sell or rent ... or otherwise make unavailable or deny, a dwelling” to someone because of race or color (among other protected characteristics), 42 U.S.C. § 3604(a), or to “discriminate against any person [based on race, color, or other protected characteristics] in the terms, conditions, or privileges of sale or rental of a dwelling.” Id. § 3604(b). At its core, then, individuals who are denied housing based on their race may bring suit under the Fair Housing Act. Havens Realty Corp. v. Coleman, 455 U.S. 363, 375 (1982). Covering more than those individuals, however, the Fair Housing Act authorizes any “aggrieved person” to bring a fair-housing suit, 42 U.S.C. § 3613(a), that is, any person who “claims to have been injured by a discriminatory housing practice, ” or is about to be injured. Id. § 3602(i). Supreme Court precedent instructs that any person or entity whose alleged injury falls within the Fair Housing Act's “zone of interests” qualifies as an aggrieved person. Bank of America Corp. v. City of Miami, Fla., 137 S.Ct. 1296, 1302-03 (2017); see also Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 209 (1972) (“The language of the [Fair Housing Act] is broad and inclusive.”). This gives “aggrieved person” a “broad” construction. Bank of America Corp. v. City of Miami, Fla., 137 S.Ct. at 1303. And, specifically, financial injuries caused by discriminatory housing practices qualify as the type of injury that an aggrieved person may file suit against. See Id. at 1304 (city was an aggrieved person because the alleged discriminatory practice caused a concentration of foreclosures and vacancies, reduced property values, and diminished property-tax revenue). Although Zion makes a cursory argument that TBS has not sufficiently alleged injury under the Fair Housing Act, the Amended Complaint readily sets forth a financial injury-the certificate-compliance fees for rental units-that allegedly is the product of race discrimination. That sort of alleged injury is well within the zone of interests of the Fair Housing Act.

         That said, even if TBS has alleged a covered injury, the question remains whether the Amended Complaint sufficiently alleges that Zion adopted the compliance-certificate Ordinance in order to deny housing to racial minorities. There are two pertinent forms of discrimination barred by the Fair Housing Act (1) disparate treatment; and (2) disparate impact. Cty. of Cook v. HSBC N. Am. Holdings Inc., 136 F.Supp.3d 952, 966 (N.D. Ill. 2015). In the Amended Complaint, TBS did not spell out specifically what type of discrimination claim it was bringing, but it later clarified that it was pursuing both the disparate treatment and disparate impact avenues. See Pl's. Resp. Br. at 5. The Court turns to those next.

         A. Intentional Discrimination

         To state a disparate treatment claim under the Fair Housing Act (“disparate treatment” is just another way of saying intentional discrimination), TBS must plausibly allege that Zion had a discriminatory intent or motive. Ricci v. DeStefano, 557 U.S. 557, 577 (2009). Intentional discrimination can be alleged through “either direct or circumstantial evidence.” Daveri Dev. Grp., LLC v. Vill. of Wheeling, 934 F.Supp.2d 987, 997 (N.D. Ill. 2013). “Proof of discriminatory motive … can in some situations be inferred from the mere fact of differences in treatment.” Int'l Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n. 15 (1977). In this case, TBS does not plead enough facts to plausibly suggest that Zion has intentionally discriminated against racial minorities in its housing practices.

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