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Pittsfield Development LLC v. City of Chicago

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

November 28, 2017

PITTSFIELD DEVELOPMENT, LLC, PITTSFIELD RESIDENTIAL II, LLC, and PITTSFIELD HOTEL HOLDINGS, LLC, Plaintiffs,
v.
CITY OF CHICAGO, Defendant.

          MEMORANDUM OPINION

          CHARLES P. KOCORAS, District Judge:

         Before the Court is Defendant City of Chicago's (“City”) Motion to Dismiss (“Motion”) Plaintiffs Pittsfield Development, LLC, (“Development”) Pittsfield Residential Hall, LLC, (“Residential”) and Pittsfield Hotel Holdings, LLC's (“Hotel”) (collectively, “Pittsfield”) Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the City's Motion is granted in part and denied in part.

         BACKGROUND

         The Court accepts as true the following well-plead allegations from Pittsfield's Complaint and attached exhibits. All possible inferences are drawn in Pittsfield's favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).

         On or about July 12, 2000, Development purchased the forty-story Pittsfield Building (“Building”) located in downtown Chicago, Illinois. The Building has since been divided into four separate subdivisions. Development owns and operates the ground floor, all basement and sub-basement levels, floors 23-40 (“Tower”), as well as portions of floor 22. Hotel, which was organized for the purpose of constructing and operating a hotel in the Building, owns floors 2-9. Residential owns floors 10- 12. Development, Hotel, and Residential are all related entities. Floors 13-21 are owned and operated by a third party, 55 E. Washington Development, LLC, and is used primarily for student housing.

         At the time of purchase in 2000, the Building was zoned DX-16 Downtown Mixed Use District (“DX-16”). DX-16 zoning allowed for then, and would continue to allow for, various uses within the Building, including the build-out, ownership, and operation of a hotel and twenty-seven additional residential units. Pittsfield intended to establish a hotel on floors 2-9 and develop “spectacular city residential dwelling units" on the Tower floors.

         On April 2, 2014, a letter was sent from Dennis Kulak (“Kulak”), an individual representing Pittsfield in some unclear fiduciary capacity, to the City's Zoning Administrator. The letter included a $150 review fee alongside Kulak's request for a “written opinion that a Boutique Hotel with two hundred and ten rooms would conform to the City of Chicago Municipal Zoning Ordinance.” On May 1, 2014, the City's Assistant Zoning Administrator, Steven Valenziano (“Valenziano”), sent a letter to Pittsfield indicating that “a 210-room hotel with associated hotel operations…is a permitted use in the DX-16 district and therefore would be allowed to establish by-right at the subject site.”

         In reliance upon the DX-16 zoning classification, “as confirmed in” Valenziano's letter, Pittsfield arranged to empty the Building of all tenants save those on floors 10-12 and certain retail tenants on the ground floor. Pittsfield then completely demolished floors 7-9 in anticipation of hotel construction on floors 2- 9. As a result, Pittsfield gave up the opportunity to earn regular income from office tenants who could no longer rent space after the demolition. Pittsfield also expended professional fees and costs “in excess of hundreds of thousands of dollars” to prepare a construction permit application. On or about December 10, 2015, the City issued a building permit (“Permit”) to Hotel to construct a hotel with up to 191 units on floors 2-9 of the Building.

         On or about August 3, 2015 - four months before the issuance of the Permit - Pittsfield entered into a contract to sell all of its property interests in the Building to Adam David Partners, I, LLC (“Prospective Buyer”) for $36, 000, 000. Although the parties ultimately failed to close on the sales contract, at some point, a representative for the Prospective Buyer met with Alderman Brendan Reilly to express the Prospective Buyer's interest in converting the entire building into residential units.[1]Shortly thereafter, Alderman Reilly publicly voiced his opposition to the operation of a hotel in the Building.

         On February 10, 2016, two months after Hotel received the Permit and well after the demolition of floors 7-9, Alderman Reilly introduced an ordinance to the City of Chicago City Council to change the zoning of the Building (“Zoning Change”) from DX-16 Downtown Mixed Use to DR-10 Downtown Residential Use (“DR-10”). Pittsfield was only made aware of the proposed Zoning Change via a notice posted on a public light pole across from the Building, notice which Pittsfield contends was improper. On March 14, 2016, the Zoning Change was recommended for approval at a meeting of the Committee on Zoning, Landmarks, and Building Standards. Pittsfield alleges that a quorum was not present at this meeting, rendering the recommendation invalid.

         On or about March 16, 2016, the Zoning Change was approved by Ordinance O2016-811 of the City of Chicago (“Downzoning Ordinance”). The Downzoning Ordinance affected only the Building and changed its zoning classification from DX-16 to DR-10. Pittsfield contends that DR-10 zoning allowed for significantly less residential units to be put in the Building than already existed, essentially barring construction of new units in the Tower. Additionally, DR-10 zoning prohibited the Building from being used as a hotel, effectively revoking the Permit and requiring most of Pittsfield's property interests in the Building to sit empty; floors 10-12 and certain retail space on the ground floor were unaffected.

         Almost a full year after the passage of the Downzoning Ordinance, Pittsfield engaged a broker to sell its interests in the Building at an auction held on February 28 and March 1, 2017. Pittsfield alleges that several buyers who were willing and able to make a purchase, and would have otherwise submitted offers, were uninterested in the Building because the Downzoning Ordinance restricted use of the property. Pittsfield was unable to sell the property at the auction, which it alleges effectively denied it all viable economic uses of the Building.

         On March 13, 2017, Pittsfield filed its six-count Complaint. In Count I, Pittsfield seeks a declaratory judgment pursuant to 42 U.S.C. §§ 2201 and 2202 that the Downzoning Ordinance is an unconstitutional violation of (i) the due process and equal protection clauses of the Fourteenth Amendment; (ii) the Fifth Amendment's Takings Clause; and (iii) Illinois law and City ordinances requiring a quorum to be present for a Committee vote. Count II raises the same challenges but seeks injunctive relief. Count III also raises the same challenges, seeking monetary relief under 42 U.S.C. § 1983. Count IV pleads a state law inverse condemnation claim. Count V challenges the Downzoning Ordinance under a promissory estoppel theory. And Count VI is a damages claim based on purported violations of the Illinois Constitution's due process, equal protection, and takings clauses.

         LEGAL STANDARD

         A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) “tests the sufficiency of the complaint, not the merits of the case.” McReynolds v. Merrill Lynch & Co., 694 F.3d 873, 878 (7th Cir. 2012). The allegations in a complaint must set forth a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A plaintiff need not provide detailed factual allegations, but must provide enough factual support to raise his right to relief above a speculative level. Bell Atlantic. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         A claim must be facially plausible, meaning that the pleadings must “allow…the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The claim must be described “in sufficient detail to give the defendant ‘fair notice of what the…claim is and the grounds upon which it rests.'” E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “[D]ocuments attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim, ” and may be considered in a district court's ruling on a motion to dismiss. Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1248 (7th Cir. 1994). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, ” are insufficient to withstand a 12(b)(6) motion to dismiss. Iqbal, 556 U.S. at 678.

         DISCUSSION

         While Pittsfield requests separate forms of relief in Counts I, II, and III, all three set forth substantively identical federal constitutional claims. Therefore, rather than proceed count-by-count, the Court has organized its opinion according to the distinct legal claims that underpin Pittsfield's Complaint.

         I. State Law Inverse Condemnation Claims (Count IV) and Illinois Constitution Claims (Count VI)

         Pittsfield concedes the City's position that federal damages are unavailable for the state law claims in Counts IV and VI. The City's Motion is therefore granted with respect to both counts.

         II. Fifth Amendment Takings Claims[2]

         A. Preliminary Considerations

         i. Severability of the Building for Takings Analysis

         Before we dive into the viability of the pleadings, two preliminary matters require our attention. First, for nearly all of the claims alleged, both parties treat and discuss the collected plaintiffs as one entity, Pittsfield, with one interest in the Building. For a takings analysis, however, Pittsfield contends that it can sever its property holdings among the individually named plaintiffs for “purposes of determining whether they have been denied all economically beneficial use” of each distinguishable interest in the Building - i.e., Development's interest, Hotel's interest, and Residential's interest. The City appears to concede this position, stating in a footnote that because Residential, the owner of floors 10-12, chose not to vacate its tenants, its severable interest from Development's and Hotel's interests remains unaffected by the Downzoning Ordinance. Therefore, the City asks that the Court dismiss Residential's Fifth Amendment takings claim. Because we find no disagreement between the parties on the question of the Building's severability, we agree with both: Residential's takings claim is dismissed for failing to state a claim, and the Fifth Amendment interests of Development and Hotel will be considered separately following a more thorough discussion of the law.

         ii. Property Interest in the Permit ...


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