Bellant et al v. SNYDER et al
Filing
27
ORDER granting in part and denying in part 11 defendants' Motion to Dismiss. Signed by District Judge George Caram Steeh (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
RUSS BELLANT, et al.,
Plaintiffs,
Case No. 2:17-CV-13887
v.
HON. GEORGE CARAM STEEH
RICHARD D. SNYDER et al.,
Defendants.
_____________________________/
ORDER GRANTING IN PART AND DENYING IN
PART DEFENDANTS= MOTION TO DISMISS [ECF NO. 11]
This action challenging the constitutionality of Michigan=s Emergency
Manager Law, the Local Financial Stability and Choice Act, Act No. 436,
Public Acts of 2012, Mich. Comp. Laws Ann. '' 141.1451 et seq. (West
2013) (APA 436"), was commenced by plaintiffs who include local elected
officials, unelected citizens, and members of the governing boards of
various religious and civil rights organizations. Defendants, the Governor
and former and current Treasurers of the State of Michigan, move to
dismiss the single count alleged by plaintiffs in their Complaint for
Declaratory Relief. For the reasons stated below, defendants= motion to
dismiss is GRANTED IN PART AND DENIED IN PART.
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FACTS
I.
Procedural Posture
Plaintiffs bring this action under 42 U.S.C. ' 1983, challenging the
constitutionality of PA 436. The claim under the Fourteenth Amendment’s
Equal Protection Clause was originally asserted in an earlier action, Phillips
v. Snyder, No. 13-cv-11370. The parties stipulated to the dismissal of that
claim without prejudice to allow plaintiffs’ appeal of this court’s dismissal of
their other claims. See Phillips v. Snyder, 836 F.3d 707, 713 (6th Cir.
2017). The Sixth Circuit affirmed the dismissal and the Supreme Court
denied plaintiffs’ certiorari petition. Bellant v. Snyder, 138 S. Ct. 66 (2017).
In their complaint, plaintiffs argue that on its face, as applied, and in
practice, PA 436 violates the Equal Protection Clause by disparately
impacting and intentionally discriminating against municipalities and school
districts comprised of majority black populations. Plaintiffs allege that PA
436 is facially discriminatory because it was adopted with knowing intent
that the measures resulting in the total loss of local governing power would
be disproportionately imposed on black communities given the sensitivity of
their revenue streams and human services to economic downturns, while
majority white communities would escape PA 436’s application. As
applied, PA 436 allegedly discriminates against black communities while it
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is not applied to white communities suffering equal or greater financial
distress.
II.
Background of PA 436
Prior to 1988, municipalities in Michigan that were experiencing
financial difficulties could be placed into receivership by the courts. Courtappointed receivers were compensated from the property that the courts
placed within the care of the receiver. In 1988, the State of Michigan
enacted PA 101, which allowed the State to appoint an emergency financial
manager (“EFM”) over cities experiencing a financial emergency. In 1990,
the legislature replaced PA 101 with the Local Government Fiscal
Responsibility Act, PA 72, which authorized Michigan=s local financial
emergency review board to appoint an EFM only after the Governor
declared the local government to be in a financial emergency. The EFM=s
powers extended to matters of finances, including the authority to
renegotiate contracts, while local elected officials remained in control of
administrative and policy matters. Under PA 72, the State’s local financial
emergency review board appointed EFMs in the cities of Benton Harbor,
Ecorse, Flint, Hamtramck, Highland Park and Pontiac, as well as over the
Detroit Public Schools.
In 2011, Michigan repealed PA 72 when it passed the Local
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Government and School District Fiscal Accountability Act, PA 4. PA 4
converted all EFMs into Emergency Managers (AEM@) and expanded the
scope of their powers. EMs could act Afor and in the place of@ the
municipality=s elected governing body, including a general grant of
legislative power.
Citizens gathered signatures to place a referendum on the ballot to
reject PA 4. The petitions were certified on August 8, 2012, and by
operation of law PA 4 was suspended and PA 72 went back into effect. All
PA 4 EMs were reappointed as PA 72 EFMs. At the general election on
November 6, 2012, Michigan voters voted to reject PA 4.
During the lame-duck session that followed the repeal of PA 4, the
state legislature passed, and the Governor signed, the Local Financial
Stability and Choice Act, PA 436. PA 436 changed the title of EFMs to
EMs and expanded the scope of their powers to cover all the conduct of
local government - both finance and governance. PA 436 contains some
new provisions for local government not present in previous laws, including
expanded local government options to address the financial emergency1
1
A local government has four options when confronted with a finding of a financial
emergency: the local government can (1) enter into a consent agreement with the state
treasurer; (2) accept the appointment of an emergency manager; (3) undergo a neutral
evaluation process, which is akin to arbitration, with its creditors; or (4) enter into
Chapter 9 bankruptcy. § 141.1547(1)(a)–(d).
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and a procedure to remove the EM after he or she has served 18 months.2
The EMs appointed under PA 4 and EFMs appointed under PA 72 all
became EMs under PA 436.
Since PA 436 took effect on March 28, 2013, thirteen local units of
government and five school districts have been under emergency
management. But currently, no local governments in Michigan are subject
to emergency management. Two school districts, Benton Harbor Area
Schools, and Pontiac Public Schools, are subject to consent agreements.
Muskegon Heights School District is under a receivership transition
advisory board (“TAB”)3, but it is not represented by any of the plaintiffs in
this case for purposes of bringing an as-applied challenge.
The City of Detroit, which proceeded through bankruptcy under an
EM, is no longer subject to PA 436. Rather, the City is subject to both the
confirmed bankruptcy plan and a legislatively created financial review
commission created as part of what was referred to as the “Grand Bargain.”
§§ 1631-1638; In re City of Detroit, 524 BR 147, 244 (2014). The Detroit
2
If a local government wishes to have an emergency manager removed before that
emergency manager has served eighteen months, the law provides the local
government with a mechanism for petitioning the governor to do so. § 141.1549(11).
3
PA 436 allows the governor to appoint a receivership transition advisory board (TAB)
once the financial emergency in a given locality has been rectified. § 141.1563. TABs
generally monitor the operations of the local government and ensure that it is operating
in a financially conscious and sound way. Id.
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Public Schools (DPS) and its School Board are no longer subject to PA
436. They have been replaced by the new Community Schools District and
exist only for the limited purpose of paying off DPS debt. Mich. Comp. Laws
§ 380.12b (1)-(15); 380.383; 380.384. Neither the DPS nor the new
Community District is currently subject to PA 436.
III.
Impact of PA 436
Ten of Michigan’s thirteen majority black communities had a solution
under PA 436 imposed upon them by the State. In contrast, only four
majority white communities have come under PA 436, and their city officials
selected whether to have an emergency manager or to enter a consent
agreement.
The Michigan Department of Treasury previously maintained a
scoring system to determine the financial health of the State’s cities and
townships. Fiscal indicator scores between five and seven placed a
municipality on a fiscal watch list, while scores between eight and ten
resulted in the community receiving consideration for review. Six out of
seven communities (85%) with a majority population of racial and ethnic
minorities received EMs when they had scores of seven. At the same time,
none of the twelve communities with a majority white population received
an EM despite having scores of seven or higher.
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In 2010 the State’s scoring system was taken over by a private
company, Munetrix. Munetrix is a municipal financial metrics company that
consults with municipalities on budgeting, forecasting and reporting. Their
numbers allegedly indicate that numerous predominately white school
districts were in as much fiscal distress as those that received EMs, yet no
predominately white school district came under PA 436 or received an EM.
While recognizing that there are presently no EMs in office, plaintiffs
assert that 56% of the State=s black population is under the continuing
effects of an EM, a consent agreement or a TAB, while only 3% of the
State=s white population is similarly impacted.
Plaintiffs allege that as a
result of PA 436, a disproportionate number of minorities are under the
control of an EM instead of the local officials who were voted into office.
LEGAL STANDARD
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the
sufficiency of the complaint. Viewing the facts in a light most favorable to
the plaintiff, the court assumes that the plaintiff=s factual allegations are true
in determining whether the complaint states a valid claim for relief. See
Bower v. Fed. Express Corp., 96 F.3d 200, 203 (6th Cir. 1996). ATo survive
a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to >state a claim to relief that is plausible on its face.=@
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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). AA claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct
alleged.@ Id. at 678 (citing Twombly, 550 U.S. at 556).
ANALYSIS
I.
Mootness
“The test for mootness ‘is whether the relief sought would, if granted,
make a difference to the legal interests of the parties . . . .’” McPherson v.
Michigan High Sch. Ath. Ass'n, 119 F.3d 453, 458 (6th Cir. 1997) (citation
omitted). No local governments in Michigan have an EM at this time, so
defendants argue that plaintiffs’ lawsuit is moot. However, under P.A. 436,
the EM’s budget cannot be amended for two years following a community’s
exiting of receivership – including all contractual and employment
agreements – and EM orders and ordinances cannot be amended for one
year following receivership. MCL 141.1561(2). For this reason, plaintiffs
argue that most communities are still under PA 436’s ongoing restrictions.
Plaintiffs describe the residual effect of PA 436. The EM is given
broad authority during the period of supervision and their decisions have a
lasting impact. This is no different than a new city council that is bound by
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decisions made by its predecessor. Viewed this way, only the two school
districts that are currently under a consent agreement, Benton Harbor Area
Schools and Pontiac Public Schools, have a claim under the Equal
Protection Clause that is not moot.
Plaintiffs’ next argument, that PA 436 is likely to be invoked again
with the next economic downturn, is speculative. As the Sixth Circuit
found, PA 436 is not triggered by the wealth of a community but rather by
its solvency, which is the result of how a community manages its
resources. Phillips, 836 F.3d at 719. While there is an exception to
mootness where the issues presented are capable of repetition and review
may again be evaded, Chirco v. Gateway Oaks, L.L.C., 384 F.3d 307, 309
(6th Cir. 2004), financial management of a community is not predictable for
purposes of the mootness exception.
The court finds that plaintiffs’ Equal Protection Clause claim is moot
as to all the local units of government and school districts represented by
plaintiffs except for the Benton Harbor Area Schools and Pontiac Public
Schools.
II.
Standing
To invoke the subject matter jurisdiction of an Article III federal court,
individual plaintiffs must establish, among other things, an injury-in-fact that
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is concrete and particularized, not conjectural or hypothetical. Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). The harm that
plaintiffs allege is from the enforcement of any of PA 436’s four remedial
options, not only the loss of locally elected officials’ governing authority due
to the appointment of an EM. Defendants concede that if the court
construes the complaint to encompass all four of PA 436’s options, then the
two school districts have standing.
Benton Harbor Area Schools and Pontiac Public Schools are
currently subject to PA 436 consent agreements. The consent agreement
applicable to Pontiac Public Schools provides that if the governor chooses
to place the school district into a “receivership,” which means an EM will be
appointed in response to a material breach of the consent agreement, the
district cannot contest that decision. Benton Harbor Area Schools’ consent
agreement contains very similar provisions. Therefore, in addition to still
being subject to PA 436 because they are bound by consent agreements, it
is possible that each school district could have an EM reappointed if either
district is found to have breached the consent agreement.
The court finds that Pontiac City Council Member Kermit Williams and
Benton Harbor Commissioners Donald Watkins, Duane Seats, Juanita
Henry and Mary Alice Adams have standing to bring this lawsuit on behalf
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of Benton Harbor Area Schools and Pontiac Public Schools.
III.
Former State Treasurer Defendants Dillon and Clinton
Plaintiffs stipulate to dismiss their claims against former State
Treasurers Dillon and Clinton for the reason that the claims are barred by
the Eleventh Amendment.
IV. Equal Protection Clause
The Fourteenth Amendment of the United States Constitution
provides in relevant part that A[n]o state shall make or enforce any law
which shall . . . deny to any person within its jurisdiction the equal
protection of the laws.@ The Supreme Court has stated that this language
Aembodies the general rule that States must treat like cases alike but may
treat unlike cases accordingly.@ Vacco v. Quill, 521 U.S. 793, 799 (1997).
Equal protection prevents states from making distinctions that burden a
fundamental right, target a suspect class, or intentionally treat one
individual differently from others similarly situated without any rational
basis. Radvansky v. City of Olmstead Falls, 395 F.3d 291, 312 (6th Cir.
2005). To state an equal protection claim, a plaintiff must Aadequately
plead that the government treated the plaintiff >disparately as compared to
similarly situated persons and that such disparate treatment either burdens
a fundamental right, targets a suspect class, or has no rational basis.=@ Ctr.
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for Bio-Ethical Reform, Inc. v. Napolitano, 648 F.3d 365, 379 (6th Cir. 2011)
(citations omitted).
Invidious discriminatory intent is an impermissible justification for
state action, which triggers strict scrutiny. See Arlington Heights, 429 U.S.
at 265-66 (AWhen there is a proof that a discriminatory purpose has been a
motivating factor in the decision, [judicial] deference is no longer justified.@);
Yick Wo, 118 U.S. at 373 (AThough the law itself be fair on its face . . . if it
is applied and administered by public authority . . . so as practically to make
unjust and illegal discriminations between persons in similar circumstances
. . . the denial of equal justice is still within the prohibition of the
Constitution.@). A plaintiff need not demonstrate racial discrimination was
dominant in the reasoning for state action to trigger strict scrutiny, but only
that it was a motivating factor. United States v. City of Birmingham, 727
F.2d 560, 565 (1984).
The Supreme Court “‘has identified objective factors that may be
probative of racially discriminatory intent among legislative bodies.” Id. at
565 (citing Arlington Heights v. Metro. Hous. Dev. Corp., 429 U.S. 252,
266-68 (1977)). First, “the fact…that the law [or practice] bears more
heavily on one race than another” supports an inference of racial
discrimination. Farm Labor Org. Comm., 308 F.3d at 534 (quoting
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Washington v. Davis, 426 U.S. 229, 242 (1976)). See also NAACP v.
Lansing Bd. of Educ., 559 F.2d 1042, 1047-48 (6th Cir. 1977). Plaintiffs
alleging race-based discrimination can demonstrate discriminatory effect
“through the use of statistical” evidence showing that one class is being
treated differently from another class that is otherwise similarly situated.
Farm Labor Org. Comm., 308 F.3d at 534 (internal citations omitted). In
addition, courts consider the historical background of the decision, the
sequence of events, procedural and substantive departures from normal
procedure, and legislative or administrative history.” Arlington Heights, 429
U.S. at 267-68 (1977). These factors, which consider both direct and
circumstantial evidence of intent, are not exhaustive, and no one factor is
dispositive. Id. at 266.
At the motion to dismiss stage, plaintiffs need only state a plausible
claim for relief. Iqbal, 556 U.S. at 678. To support their claim, plaintiffs’
complaint avers that over 50% of Michigan’s black population came under
PA 436’s emergency management. At the same time, only about 3% of
Michigan’s white citizens lived in communities that were governed by an
EM. To further support an inference of discriminatory intent, plaintiffs
argue: other majority white communities were experiencing the same or
greater financial distress; numerous academics who studied the issue have
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found clear discrimination under the law; the statute was passed under
highly unusual and rushed circumstances; and it was adopted in response
to biases against African-American school boards in Detroit.
A plaintiff can challenge the constitutionality of a statute in two ways.
“A facial challenge to a law's constitutionality is an effort to invalidate the
law in each of its applications, to take the law off the books completely.”
Speet v. Schuette, 726 F.3d 867, 871 (6th Cir. 2013) (internal quotation
marks omitted). The plaintiff must establish “‘that no set of circumstances
exist under which [the statute] would be valid.’” Id. at 872 (quoting United
States v. Stevens, 559 U.S. 460, 472 (2010)). In contrast, an as-applied
challenge “argues that a law is unconstitutional as enforced against the
plaintiffs before the court.” Id. at 872.
“[T]he distinction between facial and as-applied challenges is not so
well defined that it has some automatic effect or that it must always control
the pleadings and disposition in every case involving a constitutional
challenge.” Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 331,
130 S.Ct. 876, 175 L.Ed.2d 753 (2010). In fact, a claim can have
characteristics of as-applied and facial challenges: it can challenge more
than just the plaintiff's particular case without seeking to strike the law in all
its applications. John Doe No. 1 v. Reed, 561 U.S. 186, 194, 130 S.Ct.
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2811, 177 L.Ed.2d 493 (2010). In constitutional challenges reaching
beyond the plaintiff's circumstances, the plaintiff must satisfy the “standards
for a facial challenge to the extent of that reach.” Id.; Green Party of
Tennessee v. Hargett, 791 F.3d 684, 691–92 (6th Cir. 2015).
A. Facial Challenge
A facial challenge to a legislative act is the most difficult challenge to
mount successfully, since the challenger must establish that no set of
circumstances exists under which the act would be valid. United States v.
Salerno, 481 U.S. 739, 745, 107 S. Ct. 2095, 2100, 95 L. Ed. 2d 697
(1987). In the earlier appeal of this case, the Sixth Circuit upheld PA 436
as a legitimate tool to address and resolve “the financial situation of a
distressed locality . . . .” Phillips, 836 F.3d at 718. The Court reasoned:
An entity in a distressed financial state can cause harm to its
citizenry and the state in general. Improving the financial
situation of a distressed locality undoubtedly is a legitimate
legislative purpose, and PA 436, while perhaps not the perfect
remedy, is one that is rationally related to that purpose. The
emergency manager’s powers may be vast, but so are the
problems in financially distressed localities, and the elected
officials of those localities are most often the ones who —
through the exercise of their powers — led the localities into
their difficult situations.
Id.
Plaintiffs’ asserted constitutional violation is that PA 436 has a
discriminatory purpose and violates equal protection guarantees because
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the law “reduced residents of predominantly black municipalities to
powerless political placeholders for those who maintained for their benefit
the fiction of local democracy in places where emergency managers are in
charge.” (R. 1, Compl. ¶ 87). In plaintiffs’ words, by revoking or restricting
the political power of residents in majority African-descended communities,
while exempting residents in similarly-situated majority white communities,
PA 436 discriminates on the basis of race, both on its face and in its
application.
A facially neutral law with a legitimate purpose will be subject to strict
scrutiny “only if the plaintiff can prove that it ‘was motivated by a racial
purpose or object,’ or ‘is unexplainable on grounds other than race.’”
Moore v. Detroit Sch. Reform Bd., 293 F.3d 352, 369 (6th Cir. 2002)
(citations omitted). To make this determination, the court analyzes the five
factors identified by the Supreme Court and the Sixth Circuit. Village of
Arlington Heights, 429 U.S. at 266-68; Moore v. Detroit Sch. Reform Bd.,
293 F.3d 352, 369-70 (6th Cir. 2002).
1. Impact on Particular Racial Groups
Because PA 436 impacts financially troubled communities, all citizens
residing in those Michigan communities are impacted by the fiscal
emergency. While an overwhelming number of Michigan’s black citizens
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who were affected by the Act reside in just two of Michigan’s cities—Flint
and Detroit—both Detroit and Flint had objective financial difficulties.
Predominantly white communities have also been subject to the Act, just as
have predominantly black communities. In fact, four of the 14 jurisdictions
under emergency management when this lawsuit was initially filed in 2013
were made up of more than 50% white citizens, with two overwhelmingly
so: Allen Park (92.9% white and 2.1% black); Lincoln Park (84.2% white
and 5.9% black); Hamtramck (53.6% white), and Wayne County (52.3%
white).
2. Historical Background of Challenged Act
In enacting PA 436, the Legislature determined that local fiscal
stability is necessary for the State’s health, welfare, and safety, and thus,
PA 436 is necessary to protect those interests. This is a reasonable nonracial explanation for the Act.
3. Sequence of Events Preceding Act
The legislative history of PA 436 demonstrates that addressing
problems presented by the growing fiscal instability among the State’s local
governments was a significant concern of the Legislature.
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4. Departures from Government’s Normal Procedural Process
The Sixth Circuit rejected plaintiffs’ argument that the passage of PA
436 departed from the normal procedure because it was passed during a
“lame duck session.” See Phillips, 836 F.3d at 721 (“Michigan would have
been allowed to pass P.A. 436 even if it were identical to P.A. 4. See
Michigan Farm Bureau v. Hare, 151 N.W.2d 797, 802 (Mich. 1967).”).
Plaintiffs’ general dissatisfaction with the legislative process that preceded
the enactment of PA 436 does not inevitably lead to an inference of racial
discrimination.
5. Legislative or Administrative History
The legislative history of PA 436 was recounted in the statement of
facts above. Plaintiff has not demonstrated that the legislature had a
racially discriminatory intent.
There is a clear non-racial explanation for why the majority of
Michigan’s black population came under emergency management, that
being to restore financial stability among local governments. PA 436 is a
facially neutral law with a legitimate purpose. Where plaintiffs fail to prove
that the law is unexplainable on grounds other than race, the law will be
subject to rational basis review. Such is the case here with plaintiffs’ facial
challenge.
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To survive rational basis scrutiny, PA 436 need only be Arationally
related to legitimate government interests[,]@ Doe v. Mich. Dep=t of State
Police, 490 F.3d 491, 501 (6th Cir. 2007), and Amust be upheld against
equal protection challenge if there is any reasonably conceivable state of
facts that could provide a rational basis for the classification.@ FCC v.
Beach Comm=ns, Inc., 508 U.S. 307, 313 (1993). AWhen social or
economic legislation is at issue, the Equal Protection Clause allows the
States wide latitude, and the Constitution presumes that even improvident
decisions will eventually be rectified by the democratic processes.@ City of
Cleburne v. Cleburne Living Center, Inc., 473 U.S. 432, 440 (1985);
Sailors, 387 U.S. at 109 (ASave and unless the state, county, or municipal
government runs afoul of a federally protected right, it has vast leeway in
the management of its internal affairs.@)
This court recognizes Michigan=s legitimate government interest in
preventing or rectifying the insolvency of its political subdivisions. Mich.
Comp. Laws Ann. '141.1543 (West 2013) (finding it necessary to protect
the credit of the state and the fiscal stability of the local governments in
order to protect the health, safety, and welfare of the citizens of the state).
The court thus finds that PA 436 survives rational basis review with regard
to plaintiffs’ facial challenge.
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B. As-Applied Challenge
Plaintiffs’ statistical evidence supports an inference of racial
discrimination in that PA 436 treats majority black school districts differently
than similarly situated majority white school districts. The court finds that
the two school districts that have standing to challenge PA 436 have stated
a plausible claim that the act violates the Equal Protection Clause as
applied to them. Plaintiffs will be given the opportunity to engage in
discovery limited to their as-applied challenge. However, plaintiffs will need
to show much more than the statistical evidence they have presented at the
complaint stage to survive summary judgment.
CONCLUSION
Defendants= motion to dismiss for mootness and lack of standing is
granted as to all plaintiffs except for Pontiac Public Schools and Benton
Harbor Area Schools. Defendants’ motion to dismiss plaintiffs’ facial
challenge is granted. Defendants’ motion to dismiss plaintiffs’ as-applied
challenge is denied. In addition, the claims against defendants Dillon and
Clinton are dismissed as stipulated to by plaintiffs.
Dated: September 5, 2018
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
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CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
September 5, 2018, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk
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