Opinion
C.A. No. 03C-07-213 MMJ.
Submitted: March 10, 2005.
Decided: May 24, 2005.
Upon Plaintiff's Motion to Amend Complaint DENIED
Adam Balick, Esquire, Balick Balick, Wilmington, DE, John J. Yannacone, Yannacone Baldo, Media, PA, Attorneys for Plaintiff.
Peter J. Walsh, Jr., Esquire, Erica L. Niezgoda, Esquire, Potter, Anderson Corroon, LLP, Wilmington, DE, Hamilton P. Fox, III, Esquire, Gail L. Westover, Esquire, Sutherland, Asbill Brennan, LLP, Washington, DC, Attorneys for Defendant.
MEMORANDUM OPINION
Procedural and Factual Context
Wilmington Hospitality, LLC ("WH") filed this action on July 28, 2003 against New Castle County ("NCC"). WH is the former owner of a hotel located alongside Airport Road and I-95 in New Castle County. WH's predecessor submitted a Preliminary Plan to NCC for construction of a hotel consisting of 118,805 square feet. NCC approved the final Record Plan on April 11, 1990. An application for a building permit was filed on June 5, 1998. NCC reviewed the application and issued a building permit on July 21, 1998 for a hotel consisting of 155,480 square feet.
WH invested approximately $25,000,000 to construct the hotel. On May 12, 2000, WH requested an inspection for a certificate of occupancy. NCC Department of Land Use employees visited the site. NCC found that the hotel did not conform to the Record Plan because construction exceeded the Plan by 38,000 square feet. NCC denied the request for a certificate of occupancy.
WH then applied to the NCC Board of Adjustment ("Board") for nine zoning variances that would allow the hotel to open, including: (1) increasing the maximum floor area ratio to allow use of the building as constructed; (2) allowing encroachment onto the flood plain of approximately 4,000 square feet; and (3) reducing the number of required parking spaces from 325 to 202.
The Board conducted hearings on the requested variances on July 13 and 26, 2000. On July 27, 2000, the Board denied the variance requests. WH appealed the Board's decision to this Court. On August 22, 2000, WH asked for permission to open part of the hotel consisting of 102,120 square feet. On October 14, 2000, NCC denied WH's renewed request for a certificate of occupancy.
In the August 4, 2004 Memorandum Opinion, this Court instructed WH "to elect either: (1) to provide a draft order for consolidation of this action with its appeal of the report of the Board of Adjustment; or (2) to provide a draft order dismissing that appeal, with prejudice." As of this date, WH has failed to make the election directed by the Court.
WH's lender instituted foreclosure proceedings in this Court on December 26, 2000. WH filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on June 29, 2001. All Delaware state court matters were automatically stayed.
On November 2, 2001, WH executed a contract to sell the hotel. The agreement of sale was approved by the bankruptcy court. Plaintiff's lender subsequently took title to the property and sold it to a third party. Plaintiff received debt relief as a result of the lender's taking title to the property.
WH filed this action on July 28, 2003. The Complaint contained four counts demanding damages and declaratory relief: (1) pursuant to 42 U.S.C. § 1983 based upon deprivation of due process rights; (2) pursuant to 42 U.S.C. § 1983 for deprivation of property without equal protection; (3) inverse condemnation; and (4) breach of contractual obligation to issue a temporary certificate of occupancy. NCC moved to dismiss the Complaint pursuant to Superior Court Civil Rule 12(b)(6) for failure to state a claim upon which relief may be granted.
By Memorandum Opinion dated August 4, 2004, the Court denied the motion to dismiss as to Count II (claim for relief pursuant to 42 U.S.C. § 1983 for deprivation of property without equal protection) and Count IV (breach of contract). The Court dismissed Count I (claim under 42 U.S.C. § 1983 based upon deprivation of due process rights) and Count 3 (inverse condemnation). WH filed a Motion for Reargument, which was denied by Order dated October 4, 2004.
WH now has filed a Motion to Amend Complaint. WH seeks to amend the complaint to assert alternative theories of recovery. Specifically, WH claims that: (a) in the alternative, NCC temporarily denied WH all economically viable or beneficial use of the hotel property; and (b) in the alternative, to the extent NCC's actions fell short of denying WH all economically viable or beneficial use of the hotel property, NCC nonetheless effected a temporary or permanent taking of WH's property without just compensation based upon the economic effect of NCC's actions by interfering with WH's reasonable investment-backed expectations and the character of NCC's actions.
Analysis
In dismissing Count 3 of the complaint (inverse condemnation), the Court found:
It is undisputed that WH now has sold the property at issue to a third party. In order to sustain a claim for inverse condemnation, WH must show that it has been deprived by NCC of all economic value of the property by NCC's zoning regulations. Even assuming for purposes of this decision that NCC's actions prevented WH from ever opening the hotel, the property a fortiori retained some economic value as clearly evidenced by the recent sale. This is not a case in which a governmental entity has capriciously deprived an individual of the ability to utilize land in a manner that presents irreparable harm to the individual. The principals of WH are sophisticated developers. The property was developed for commercial use. Accepting as true WH's claims of severe financial loses, the property still retained some economic value. Therefore, WH has failed to state a claim for inverse condemnation based upon zoning regulation.
Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992). In contrast, a claim of inverse condemnation based upon physical seizure by a governmental entity need not allege denial of all economically viable use of the property. Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001).
WH now seeks to assert the alternative theories of recovery of a temporary denial of all economically viable or beneficial use, and a temporary or permanent taking based upon NCC's interference with WH's reasonable investment-backed expectations and the character of NCC's actions.
The Court generally will grant an amendment to a complaint unless there is evidence of undue delay, bad faith or dilatory motive on the part of the movant. In addition, amendment will be denied if the claims sought to be added are futile. Because the Court finds the issue of futility to be dispositive, this opinion will not address any conduct or motive on the part of WH.
Catamaran Acquisition Corp. v. Spherion Corp., 2001 WL 755387, at *3 (Del.Super.).
In order for WH to demonstrate prima facie viability of the proposed claims for relief, WH first must assert facts supporting a reasonable investment-backed expectation in the property taken. The government actions at issue are: (1) NCC's initial denial of WH's request for a certificate of occupancy on the basis that construction by WH exceeded the Record Plan by 38,000 square feet; (2) the NCC Board of Adjustment's denial of WH's request for nine zoning variances that would allow the hotel to open; and (c) NCC's denial of WH's renewed request for a certificate of occupancy for a portion of the hotel consisting of 102,120 square feet.
For purposes of WH's motion to amend its complaint, the issue is whether, as a matter of law, WH has stated any facts supporting its claim of a cognizable property interest taken by the actions of NCC. All real estate property interests are cognizable under the Fifth Amendment. Although there was no physical taking by NCC in this case, the question is whether NCC's regulatory actions constitute compensable interference with WH's property rights.
Wyatt v. United States, 271 F.3d 1090, 1096 (Fed. Cir. 2001), cert. denied, 535 U.S. 1077 (2002).
United States v. General Motors Corp., 323 U.S. 373, 378 (1945).
See Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency, 535 U.S. 302, 324 (2002).
The Court already has ruled that because WH was not deprived of all economically viable use, NCC's actions cannot be deemed a categorical taking. Because WH has not suffered a 100% diminution in value, the legal sufficiency of WH's taking claims will be analyzed under the factors established by the United States Supreme Court in Penn Central Transportation Co. v. City of New York. To determine whether there has been a temporary or partial regulatory taking, the factors are: (1) the economic impact of the regulation on the plaintiff; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action.
See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1017 (1992).
438 U.S. 104 (1978).
Id. at 124.
WH has failed to set forth any facts, disputed or otherwise, that present a prima facie case that WH had any legitimate investment-backed expectations of economic benefit from construction of a hotel exceeding the Record Plan by 38,000 square feet. WH's reasonable expectation was a property interest in a hotel not to exceed 118,805 square feet. For purposes of application of the Penn Central factors, WH did not have a compensable property interest in the 38,000 excess square footage.
The character of NCC's actions is denial of zoning variances and a building permit. NCC's decisions not to act, rather than any affirmative actions, are the root of WH's claims. NCC did not enact new regulations that would interfere with WH's property interests ex post facto. Instead, WH's principals, who are without dispute experienced and sophisticated commercial real estate investors and developers, built a hotel that they knew or should have known would not be in compliance with zoning regulations in place at that time.
In short, the character of NCC's actions does not necessitate a finding that, as a matter of law, NCC has engaged in a regulatory taking of WH's property interests, whether partial or temporary. WH has failed to present a prima facie case that it had any distinct investment-backed expectation of economic benefit from construction of a hotel exceeding the Record Plan by 38,000 square feet. For purposes of reviewing this case in light of the Penn Central factors, any adverse economic impact suffered by WH is not the result of a regulatory taking by NCC.
WH's claims for damages are more properly pursued through the remaining causes of action, pursuant to 42 U.S.C. § 1983 for deprivation of property without equal protection, and breach of contract.
THEREFORE, Plaintiff's Motion to Amend Complaint is hereby DENIED.