Pittsfield Development LLC et al v. City Of Chicago

Filing 54

MEMORANDUM Opinion: The City's motion to reconsider is denied. The City's 12(b)(6) motion is denied. It is so ordered. Signed by the Honorable Charles P. Kocoras on 3/12/2019. Status hearing set for 4/4/2019 at 9:30 AM. Mailed notice(vcf, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PITTSFIELD DEVELOPMENT,
LLC, an Illinois limited liability company,
PITTSFIELD RESIDENTIAL, II, LLC,
an Illinois limited liability company, and
PITTSFIELD HOTEL HOLDING, LLC,
an Illinois limited liability company
Plaintiffs,

v.
CITY OF CHICAGO,
Defendant.

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17 C 1951

MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:
Before the Court is Defendant City of Chicago’s (“City”) motion to dismiss
Plaintiffs Pittsfield Development, LLC, (“Development”) Pittsfield Residential Hall,
LLC, (“Residential”) and Pittsfield Hotel Holdings, LLC’s (“Hotel”) (collectively,
“Pittsfield”) amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6)
and motion for partial reconsideration of this Court’s November 28, 2019 Order
(“November Order”). For the following reasons, the City’s motion to dismiss is denied.
The City’s motion for partial reconsideration is also denied.

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, 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
55 E. Washington Development, LLC, a third party, and is primarily used for student
housing.
At the time of purchase in 2000, the Building was zoned DX-16 Downtown
Mixed Use District (“DX-16”). DX-16 allowed for various uses within the Building,
including the build-out, ownership, and operations 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.

2

On April 2, 2014, Dennis Kulak (“Kulak”)1 sent a letter to the City’s zoning
administrator. Kulak’s letter included a $150.00 review fee and a request seeking 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, Steven
Valenziano (“Valenziano”), the City’s Assistant Zoning Administrator, sent Pittsfield a
letter 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.”
Pittsfield, relying upon the DX-16 zoning classification and Valenziano’s letter,
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 and thousands of dollars” to prepare a construction permit application. On or
about December 10, 2015, the City issued a building permit (the “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

1

Kulak was an individual who represented Pittsfield in some unclear fiduciary capacity.

3

Adam David Partners, I, LLC (“Prospective Buyer”) for $36 million. 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. 2 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 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
made aware of the proposed Zoning Change via a notice posted on a public light pole
across from the building.
On or about March 16, 2016, Ordinance O2016-811 of the City of Chicago
(“Downzoning Ordinance”) approved the Zoning Change. 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 fewer residential units
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

Whether the Prospective Buyer’s discussion with Alderman Reilly occurred before or after the Pittsfield deal fell
through is unclear on the face of the Complaint.
2

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the Building to sit empty. Floors 10-12 and certain retail space on the ground floor
were unaffected.
Almost a full year after the Downzoning Ordinance was passed, Pittsfield
engaged a broker to sell its interests in the Building at an auction held on February 28,
2017 and March 1, 2017. Pittsfield alleges that several buyers were willing and able to
make a purchase, and would have otherwise submitted offers, but were uninterested in
the Building because the Downzoning Ordinance restricted the property’s use.
Pittsfield was unable to sell the property at the auction.
On March 26, 2017, Development filed for Chapter 11 bankruptcy (Case No. 179513 in the United States Bankruptcy Court for the Northern District of Illinois).3
Pittsfield claims that solvency was necessary because the property was unable to
generate any income. On or about May 23, 2017, Pittsfield moved for an order allowing
it to sell the Building in a court-ordered auction. The bankruptcy court granted
Pittsfield’s motion and on or about June 13, 2017, the bankruptcy court entered an order
approving Ten-X, LLC (“Ten-X”) to auction off the property at a liquidation sale.
On June 29, 2017, the property collectively sold for $20,800,000, and the sale
closed on August 26, 2017. Pittsfield alleges that only Residential operated at a profit
and generated any meaningful income.

3

On March 13, 2017, Pittsfield filed its initial complaint and on December 28, 2017, this Court dismissed various
claims and permitted others to survive. Following the Court’s ruling, Pittsfield advised the Court that it sold their real
property in the Building. The City moved, and we granted, an order directing Pittsfield to amend their pleadings to
conform with the Court’s Opinion and to include the new facts pertaining to the sale.

5

On January 16, 2018, Pittsfield filed its five-count amended complaint. In Count
I, Pittsfield alleges a regulatory taking claim under the Fifth Amendment, stemming
from the City’s regulatory taking of its property interest in floors 2-9. Count II also
raises the same challenge but alleges a regulatory taking of the building permit itself.
Counts III-V allege substantive due process violations pertaining to the effective
revocation of the Permit, Development’s interest in the Tower, and Residential’s
interest in floors 10-12.
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 Atl. 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
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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
I.

City’s Motion to Reconsider
Preliminarily, the Court addresses the City’s motion for partial reconsideration

of our November Order.

In its motion, the City argues that the Court’s ruling

constituted “clear error of law,” contending: (1) recognition of a property interest in a
permit itself goes against Supreme Court precedent; (2) Illinois law creates no property
interest in Hotel’s building permit; and (3) even if the Illinois’ vested rights doctrine
creates a property right interest in Hotel’s building permit, the vested rights doctrine
does not implicate the Takings Clause.
At its core, the City’s motion centers around its third point. However, because
the City’s third point is strongly correlated with its first and second point, we find a
deeper probing of the first two issues are also appropriate.
Motions to reconsider “serve a limited function: to correct manifest errors of law
or fact or to present newly discovered evidence.” Caisse Nationale de Credit Agricole
v. CBI Indus., Inc., 90 F.3d 1264, 1269 (7th Cir. 1996). While a motion to reconsider
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falls squarely within the Court’s discretion, id. at 1270, such motions are generally
disfavored and should be granted only in rare circumstances. Patrick v. City of Chicago,
103 F. Supp. 3d 907, 911 (N.D. Ill. 2015); Caine v. Burge, 897 F. Supp. 2d 714, 717
(N.D. Ill. 2012). Once judgment has been entered, a party seeking reconsideration bears
a heavy burden to show that there is good reason to set it aside. Hecker v. Deere & Co.,
556 F.3d 575, 591 (7th Cir. 2009). Motions to reconsider are not appropriate vehicles
for relitigating arguments that were previously rejected or for arguing issues that could
have been raised during the pendency of the motion under reconsideration. Caine, 897
F. Supp. 2d at 718.
A.

Recognition of a Property Right Interest in a Permit Itself Does
Not Go Against Supreme Court Precedent

We first evaluate whether the vested rights doctrine under Illinois law can
constitute a Takings claim for a building permit. A takings claim’s premise depends in
large part upon the landowner’s “expectations,” and whether such expectations can be
constitutionally justified to constitute “property.” Penn Cent. Transp. Co. v. New York
City, 438 U.S. 104 (1978). Whether a regulatory taking has occurred depends on three
factors: (1) the economic impact of regulation, (2) “reasonable” investment-backed
expectations, and (3) the “character” of the government action. Penn Central, 438 U.S.
at 124. “The economic impact of the regulation on the claimant and, particularly, the
extent to which the regulation has interfered with distinct investment-backed
expectations are … relevant considerations.” Id. at 124.

8

Landowners’ expectations are enhanced if they are “investment-backed.” Id.;
See Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 494, 95 (1987)
(recognizing that investment-backed expectations are a factor to consider when
examining the “taking” question). While older cases within the Supreme Court’s
jurisprudence flatly denied compensation of property values, Pennsylvania Coal
Company v. Mahon recognized a taking “if regulation goes too far.” 260 U.S. 393, 415
(1922).
Despite an expansion of governmental regulations over the years, the Supreme
Court has failed to establish “a set formula [in determining] where regulation ends and
taking begins.” Penn Central, 438 U.S. at 124. Indeed, “[t]his area of law has been
characterized by ‘ad hoc, factual inquiries, designed to allow careful examinations and
weighing of all the relevant considerations.’” Id. (quoting Tahoe-Sierra Pres. Council,
Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302, 322 (2002)).
The Seventh Circuit has yet to address the head-on question of whether the
holder of a building permit has a Fifth Amendment property right interest in the permit
itself. See CEnergy-Glenmore Wind Farm No. 1, LLC v. Town of Glenmore, 769 F.3d
485, 486 (7th Cir. 2014) (declining to decide whether CEnergy maintained an
identifiable property interest in the permit itself). With no case directly on point, we
relied on Scott v. Greenville Cty., 716 F.2d 1409, 1412 (4th Cir. 1983), which portended
the very situation Pittsfield finds itself in.

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The City takes exception however, claiming that Scott’s contemplation of a building
permit obtaining vested right interests under the takings clause goes against precedent
set forth in Wheeler v. City of Pleasant Grove, 664 F.2d 99, 100 (5th Cir. Unit B 1981)
and Maher v. City of New Orleans, 516 F.2d 1051, 1065 (5th Cir. 1975).
The Court’s assertion does not constitute clear error of law. A deeper analysis
of Maher and Wheeler illustrates the unique position Pittsfield finds itself in. The City
correctly asserts that in Maher, the effect of precluding the issuance of a permit “does
not alone make out a case of taking” and “[a]s the ordinance was applied to [the
plaintiff], the denial of the permit to demolish and rebuild does not operate as a classic
example of eminent domain, namely a taking of [the plaintiff’s] property for
government use.” Maher, 516 F.2d at 1066. However, the City overlooks a critical
distinction. In Maher, the plaintiff’s permit was subsequently rescinded and litigation
commenced upon city council’s final refusal to re-issue the permit. Here, Pittsfield
relied on a valid permit that was never formally rescinded throughout the entire course
of its litigation.
Pittsfield’s situation is also distinct from Goldblatt v. Town of Hempstead, N.Y.,
369 U.S. 590, 593 (1962). The City correctly points out that municipalities validly
exercise their police power when the government infringes on a property owner’s use
of property. Goldblatt, 369 U.S. at 593. However, in Goldblatt, no evidence was

10

proffered to prove that the ordinance would reduce the value of the lot. Here, Pittsfield
alleges that its property lost all its value as a result of the Permit being confiscated.4
At its core, the interest Pittsfield argues for derives from a concept that a
landowner should be free from retroactive application of a land use regulation, which,
contrarily, the City correctly argues is prima facie valid exercises of the State’s police
powers. These conflicting theories were contemplated by Justice Scalia in Lucas v.
South Caroline Coastal Council, 112 U.S. 2886, 2894 n.7 (1992), when he stated that
additional guidelines may be needed for courts to adequately resolve this issue. With
no clear answer derived from federal law, our attention turns to applicable Illinois state
law.
B.

The Building Permit Is A Property Right Interest Under Illinois
Law

The Permit fits squarely within the Illinois’ vested rights doctrine. A permit must
be issued once a developer meets the criteria imposed by a governmental unit.5 General
Baking Co. v. Board of Street Comm’rs, 242 Mass. 194, 196-98 (1922) (a builder may
claim protection once he has complied with the permit requirements). While a permit
is revocable by subsequent legislation, Illinois inflects this rule by evaluating the
owner’s reliance on the permit. See Pioneer Trust & Sav. Bank v. County of Cook, 377
N.E.2d 21, 26 (Ill. 1978) (“[W]here there has been a substantial change of position,

For purposes of this 12(b)(6) motion, this Court must accept true Pittsfield’s claim that the Pittsfield Building lost
all of its property value as a result of the Permit being confiscated.
5
A validly issued building permit affirms that substantive and procedural safeguards designed to protect the public
welfare have been accounted for. I. R. POWELL, THE LAW OF REAL PROPERTY, 91-135 (1977).
4

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expenditures or incurrence of obligations made in good faith by an innocent party under
a building permit or in reliance upon the probability of its issuance, such party has a
vested property right …).
In our November Order, we determined that the Permit acquired “vested property
rights” under the “Illinois property right doctrine.” Illinois precedent reveals that its
“vested property right” doctrine is narrow in scope. Image Media Advert., Inc. v. City
of Chic., WL 6059921, at *5 (N.D. Ill. 2017). This doctrine states:
[W]here there has been a substantial change of position, expenditures
or incurrence of obligations made in good faith by an innocent party
under a building permit or in reliance upon the probability of its
issuance, such party has a vested property right and he may complete
the construction and use of the premises for the purposes originally
authorized, irrespective of subsequent zoning or a chance in zoning
classification.
Sgro v. Howarth, 203 N.E.2d 173, 177 (Ill. App. 1964)
Indeed, the doctrine makes clear that for estoppel to apply, there must be a
reasonable reliance that a building permit would issue. Vaughn v. Speaker, 126 Ill. 2d
150, 162-163 (1988); see Lucas v. Village of La Grange, 831 F. Supp. 1407, 1413 (N.D.
Ill. 1993) (finding a party has a “vested property right” under Illinois law if the party
relied on the probable issuance of a building permit in good faith). Taking it a step
further, “Illinois is one of the few states which recognizes that actual expenses incurred
before a permit is ever granted may provide the basis for a claim to vested rights.” First
Nat. Bank & Trust Co. v. City of Rockford, 47 Ill.App.3d 131, 145 (1977). “The vesting
of the right presupposes a legal building permit and a substantial change of position
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incurred in good faith reliance thereon by the property owner.” Ganley v. City of
Chicago, 18 Ill.App.3d 248, 254 (1974).
Pittsfield sufficiently pled facts affording property right interests to the Permit.
Pittsfield has alleged that it was issued a valid permit. As discussed at great lengths in
the November Order, the Court need not question whether Pittsfield’s demolition of
three whole floors anticipated some presupposed permit, because an actual permit, the
Permit, was issued after both extensive demolition and the spending of hundreds of
thousands of dollars on the Permit application.
As it appears that Illinois law recognizes the vesting of an actionable right in a
permit that issued on the heels of considerable expenditure and construction, the Permit
acquired vested property rights under the Illinois property right doctrine. Accordingly,
finding no clear error of law, we next evaluate whether Pittsfield has asserted the kind
of property interest compensable under the Takings Clause.
C.

Whether The Permit Gives Rise To a Property Interest
Compensable As a Taking

The last hurdle we must evaluate is whether the Illinois vested rights doctrine
contemplates a compensable taking under the Fifth Amendment takings clause.
Whether Pittsfield has a constitutionally protected private property interest under the
Takings Clause turns on “existing rules or understandings that stem from an
independent source such as state law.” Daniels v. Area Plan Comm’n of Allen Cnty.,
306 F.3d 445, 459 (7th Cir. 2002). This analytical framework is derived from Pro-Eco,

13

Inc. v. Board of Com’rs of Jay County, Ind., 57 F.3d 505, 513 (7th Cir. 1995) (Pro-Eco
II).
In Pro-Eco II, the plaintiff developer held an option contract to buy a plot of land
in which it intended to build a landfill. Id. at 509. One of the questions presented to
the court was whether the option contract was “property in itself for which the owner
must be compensated if its value is destroyed by a zoning regulation that goes too far.”
Id. Analogizing to a Supreme Court case derived from California, see Nollan v.
California Coastal Comm’n, 438 U.S. 825 (1987), the court turned to state law to
determine the option contract’s protections under the Fifth Amendment. On similar
facts to those of Pro-Eco II, the Nollan Court found an actionable takings claim, while
the Seventh Circuit in Pro-Eco II did not. The reason for the divergent decision fell
upon a simple premise: “California recognizes a compensable property right in
unexercised options to purchase real estate. Indiana, apparently, does not.” Pro-Eco,
Inc., 57 F.3d at 509 (internal citations omitted).
Taking our cue from Pro-Eco II, we must determine whether Illinois law,
particularly the Illinois vested rights doctrine, recognizes a compensable taking under
the Fifth Amendment. The City argues that even if Pittsfield acquired a “vested
property right” in the Permit, that right does not give rise to a property interest
compensable as a taking under Illinois law. Pittsfield responds that the Permit’s status
as a vested right is so complete and unconditional that it may be equated with a property
interest.
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The Takings Clause provides: “[N]or shall private property be taken for public
use, without just compensation.” U.S. Const., Amdt. 5. The takings clause is intended
to compensate with money an individual whose property rights are impacted by
government action.

Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional

Planning Agency, 535 U.S. 302, 322 (2002).
At its core, the Court must determine whether the Permit is an interest that
warrants its own substantive Takings analysis. The City says no, arguing that the
Illinois vested rights doctrine does not offer compensable relief and and is premised on
an individual’s ability to retain a “writ of mandamus,” allowing the injured party to
“complete the construction and use of the premises for the purposes originally
authorized.” Fifteen Fifty North State Bldg. Corp. v. City of Chicago, 155 N.E. 2d 97,
37 (Ill. 1958).

To support this contention, the City directs the Court’s attention to

Image Media Advertising, Inc. v. City of Chicago, et al., 2017 WL 6059921 (N.D. Ill.
2017), which explains that every Illinois “vested property” case identifies a “writ of
mandamus” as the proper form of equitable relief. See Pioneer Trust & Sav. Bank v.
Cook Cnty, 377 N.E.2d 21, 22 (Ill. 1978). Pittsfield argues that a substantive Takings
analysis is warranted because the Permit is a vested right so complete and unconditional
that it may be equated with a property interest. See Bell v. City of Country Club Hills,
841 F.3d 713 (7th Cir. 2016). We agree with Pittsfield.

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“Remedies are the life of rights, and are equally protected by the constitution.
Deprivation of a remedy is equivalent to a deprivation of a right which it is intended to
vindicate, unless another remedy exists, or is substituted for that which is taken away.”
Bd. of Educ. of Normal Sch. Dist. v. Blodgett, 155 Ill. 40 N.E. 1025, 1027 (1985).
“Whether acting through its judiciary or through its Legislature, a state may not deprive
a person of all existing remedies for the enforcement of a right, which the state has no
power to destroy, unless there is, or was, afforded to him some real opportunity to
protect it.” Hogan, 29 Ill. 2d at 187-88.
We agree with Pittsfield that it had no real opportunity to protect its rights
because applying for a writ of mandamus was not a viable option after the Downzoning
Ordinance. Pittsfield has plausibly alleged that reputable hotel brands and operators
could not be reasonably expected to proceed with such a development given the hostile
political environment. The Downzoning Ordinance and lack of subsequent funding for
Hotel’s development ultimate forced the bankruptcy of the Pittsfield building and
disposition of the Properties at a liquidation sale. Pittsfield’s assertions are especially
plausible because the Downzoning Ordinance was not enacted until after Alderman
Reilly publicly voiced his opposition to the operation of a hotel in the Building, which
curiously happened two months after the issuance of the Permit.
Given the circumstance, we also find that in this instance that the vested right
doctrine is a procedural statute and not a remedial or substantive one. Pittsfield has
alleged that the valid Permit was issued, demolition had already begun, significant costs
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were incurred, and the Downzoning Ordinance effectively revoked Hotel’s permission
to build. The Court is not aware of, and the City does not illustrate, any Illinois case
addressing the vesting of a property right in an already-issued permit where takings
considerations are at stake. This includes the Illinois vested rights doctrine. Therefore,
because Illinois law has not contemplated such a scenario, Pittsfield remedial rights are
not limited to what is ascertainable within the vested rights doctrine. Accordingly,
Pittsfield has demonstrated that it has a constitutionally protected property right interest
under the Takings Clause.
Having determined that the Permit is a constitutionally protected property right
interest under the Takings Clause, we direct our attention to the City’s motion to
dismiss.
II.

City’s Motion To Dismiss
A.

Fifth Amendment Takings Claims

In Counts I and II of the amended complaint, Pittsfield alleges a confiscatory
taking of its property interest in floors 2-9 and of the Permit.
The Takings Clause of the Fifth Amendment, made applicable to the States
through the Fourteenth Amendment, provides that private property shall not “be taken
for public use, without just compensation.” Lingle v. Chevron U.S.A. Inc., 544 U.S.
528, 536, 125 S. Ct. 2074, 2080, 161 L. Ed. 2d 876 (2005) (internal citations omitted).
The Takings Clause “does not prohibit the taking of private property, but instead places

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a condition on the exercise of that power.” First English Evangelical Lutheran Church
of Glendale v. County of Los Angeles, 482 U.S. 304, 314 (1987).
To establish a claim under the Takings Clause, a plaintiff “must identify a
property interest protected by the Fifth Amendment … and prove that the state has
effected a taking of that property.” Wield v. Raemisch, 296 F. App’x 535 (7th Cir.
2008) (internal citations omitted). Ordinarily, a plaintiff “cannot claim that the Takings
Clause has been violated until after he has sought compensation from the state, though
immediate relief may be available in federal court if the plaintiff is making a facial
challenge to a state regulation or legislative action authorizing a taking.” Id. (internal
citations omitted).
Of the four categories of regulatory action that “generally will be deemed per se
takings for Fifth Amendment purposes,” the parties solely address whether the City’s
Downzoning Ordinance “completely deprive[d] [Pittsfield] of ‘all economically
beneficial use’” of its property. Lingle, 544 U.S. at 536.
A party alleging complete deprivation of all economically beneficial use of a
property must clear an exceptionally high hurdle.

“[I]n at least some cases the

landowner with 95% loss will get nothing, while the landowner with total loss will
recover in full …. Takings law is full of these ‘all-or-nothing situations.’” Lucas, 505
U.S. at 1019 n.8. In both Murr v. Wisconsin, 137 S. Ct. 1933, 1949 (2017) and
Palazzolo v. Rhode Island, 533 U.S. 606, 631 (2001), the Supreme Court declined to
find complete deprivations of economically beneficial use where the landowners at
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issue retained permission to build residences on their property. In both cases, neither
property was resigned to sit “economically idle.” Lucas, 505 U.S. at 1019. “In order
to qualify as a regulatory taking, the measure must place such onerous restrictions on
land as to render it useless.” Muscarello v. Ogle County Bd. of Com’rs, 610 F.3d 416,
421 (7th Cir. 2010).
i.

Count I
a.

Pittsfield’s Interest in Floors 2-9

Count I alleges a regulatory taking of Pittsfield’s building because the
Downzoning Ordinance served to deny allowance of any economically viable uses for
the Hotel Property. The City puts forth various arguments in its motion to dismiss, but
perhaps the most significant one is its reliance on existing court filings pertaining to
Pittsfield’s bankruptcy sale of its interests in the building. The City claims that the
Downzoning Ordinance did not render Hotel’s floors valueless because court filings
from the bankruptcy sale establishes that at least 60 percent of the value of the purchase
offers Pittsfield received “was allocable” to floors 2-9.
Pittsfield alleges that only the Residential Property – floors 10-12 – of the
Building was generating income. Therefore, Pittsfield claims that the Hotel Property
had no independent value, and while all three properties sold as a single block generated
bid, “nobody would have even bid on [floors 2-9] alone.” Pittsfield argues that for
purposes of this motion, the City has no basis to dispute this issue.

19

In essence, the parties’ discussion hinges on whether at this stage of the pleadings
we may take judicial notice of the bankruptcy sale, and to what exacting detail we may
consider it.
The Court’s review on a 12(b)(6) motion is typically limited to the pleadings in
the Complaint and any attachments. Limestone Dev. Corp. v. Vill. of Lemont, 473 F.
Supp. 2d 858, 867 (N.D. Ill. 2007). The Court may, however, take judicial notice of
“facts that are (1) not subject to reasonable dispute and (2) either generally known
within the territorial jurisdiction or capable of accurate and ready determination through
sources whose accuracy cannot be questioned.” Ennenga v. Starns, 677 F.3d 766, 773–
774 (7th Cir. 2012).
At this point in the proceeding, we find that the Hotel Property’s value is subject
to a reasonable dispute. We find that it is much better to permit discovery to address
material facts and all the surrounding facts and circumstances bearing at them.
*

*

*

Pittsfield further contends it also alleges a Penn Central claim.

When a

regulation impedes the use of property without depriving the owner of all economically
beneficial use, “a taking still may be found based on a ‘complex of factors,’ including
(1) the economic impact of the regulation on the claimant; (2) the extent to which the
regulation has interfered with distinct investment-backed expectation; and (3) the
character of the governmental action.” Murr v. Wisconsin, 137 U.S. 1933, 1943 (2017).

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Given the breadth of the Plaintiffs’ claims in the amended complaint and its
alleged reliance on the City’s actions prior to its downzoning action, particularly as
regards to the substantial investment in pursuing its plans to reinvigorate the building,
we believe it is appropriate to reconsider the application of a Penn Central claim in the
face of the unique facts alleged. For these reasons, the jurisprudence set forth in the
Penn Central opinion shall be fully considered by this Court as the facts develop.
ii.

Count II
a.

The Permit

In Count II, Pittsfield alleges a confiscatory taking of the Permit itself. The City
argues that the sale of the Pittsfield Building renders Counts II moot because Pittsfield
is no longer able to request a writ of mandamus. Pittsfield alleges that its claim is not
moot because the writ of mandamus was not a viable option after the enactment of the
Downzoning Ordinance. We agree.
“The doctrine of mootness stems from Article III of the Constitution, which
limits the jurisdiction of federal courts to live cases or controversies.” Damasco v.
Clearwire Corp., 662 F.3d 891, 894 (7th Cir. 2011). The mootness doctrine requires
that parties possess “a personal stake in the outcome at all stages of the litigation.” Id.
at 895. “A case becomes moot, and the federal courts lose subject matter jurisdiction,
when a justiciable controversy ceases to exist between the parties.” Aslin v. Financial
Indus. Regulatory Auth., Inc., 704 F.3d 475, 477 (7th Cir. 2013). Simply put, “[f]ederal

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courts lack subject matter jurisdiction when a case becomes moot.” Pakovich v. Verizon
LTD Plan, 653 F.3d 488, 492 (7th Cir. 2011).
We find that Count II is not moot because as thoroughly explained, the Permit
is an interest that warrants its own substantive Takings analysis and that Pittsfield has
plausibly alleged both a Lucas and Penn Central claim. We are unpersuaded by the
City’s argument that Pittsfield’s claim is moot because as previously explained, seeking
a writ of mandamus was not a viable option for Pittsfield after the enactment of the
Downzoning Ordinance.
Therefore, Count II is not dismissed as moot.
B.

Substantive Due Process Claims

In Counts III through V, Pittsfield asserts substantive due process violations
alleging that the Ordinance arbitrarily interfered with their property interests in the
Pittsfield Building.
The Seventh Circuit has recognized the potential for a substantial due process
claim “in the content of land-use decisions that are arbitrary and unreasonable, bearing
no substantial relationship to the public health, safety or welfare.” Doherty v. City of
Chicago, 75 F.3d 318, 325 (7th Cir. 1996), amended (March 28, 1996). However,
“[f]ederal courts are not boards of zoning appeals,” and a “disciplined jurisprudence in
this area is required.” Id. (internal citations omitted). Therefore, “in addition to
alleging that the decision was arbitrary and irrational, ‘the plaintiff must also show

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either a separate constitutional violation or the inadequacy of state law remedies.’” Id.
(quoting Polenz v. Parrott, 883 F.2d 551, 558 (7th Cir. 1989)).
“Some circuits have indicated that cases of political bias in land-use decision
making may give rise, at least under some circumstances, to a substantive due process
claim despite the seeming adequacy of state remedies.” Id.; See Brady v. Town of
Colchester, 863 F.2d 205, 215-16 (2d Cir. 1988). Others have indicated “that cases of
political bias ought to be resolved under the First Amendment rather than under a
substantive due process approach.” Id.; See Nestor Colon Medina & Sucesores v.
Custodio, 964 F.2d 32, 46-47 (1st Cir. 1992). However, Seventh Circuit precedent is
clear, stating that “a plaintiff desiring to bring a substantive due process claim is
required to show either the inadequacy of state law remedies or an independent
constitutional violation.” Id.
i.

Count III

Count III alleges a substantive due process claim in the revocation of the Permit.
The City argues that Pittsfield has failed to sufficiently allege such a claim because no
constitutional violation occurred, and Pittsfield had a sufficient state remedy in the form
of a writ of mandamus. Pittsfield alleges that it has a constitutionally protected interest
in the Permit and state law fails to provide an adequate remedy.
Pittsfield has successfully alleged a substantive due process claim in the Permit
itself because the Permit is an interest that warrants its own substantive Takings

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analysis. Also, Pittsfield correctly points out that it did not have a viable state remedy
because a writ of mandamus was not a viable option.
Therefore, Pittsfield has sufficiently alleged a substantive due process claim
pertaining to the Permit.
ii.

Counts IV and V

Counts IV and V allege substantial due process violations pertaining to
Development and Residential. With regards to these Counts, the Court refers to its
November Order when discussing the inherent uncomfortable dilemma facing us
because of the factual nature of the rational basis test. Therefore, as previously detailed
in the November Order, the Court finds that it is ill-equipped at this juncture to dismiss
these substantive due process claims based on rational bases surmised entirely without
the benefit of fact discovery.
The Downzoning Ordinance affected but a single property, was passed in direct
contravention of the City’s previously issued Permit, and went into effect well after a
significant portion of the Building had been demolished – all of which allegedly
contributed to substantial pecuniary loss on Pittsfield’s behalf. These allegations raise
the reasonable inference that the Downzoning Ordinance was arbitrary in nature. At
the pleadings stage, this is enough; the City will have ample opportunity in discovery
to unearth facts suggesting otherwise.

The motion is denied as to Pittsfield’s

substantive due process claims in Counts IV and V.

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CONCLUSION
For the reasons stated above, the City’s motion to reconsider is denied. The
City’s 12(b)(6) motion is denied. It is so ordered.

Dated: 3/12/2019

_____________________________________
Charles P. Kocoras
United States District Judge

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