Posted by: Patricia Salkin | June 15, 2021

Fed. Dist. Court of AZ Concluded Rejection of Conditional Use Permit Extension Did Not Constitute a Compensable Taking

This post was authored by Olena Botshteyn, Esq.

The Bennetts, plaintiffs in this case, own a five-acre property in Mohave County, Arizona (“Property”). They have a storage unit business on the part of the property, and 3.4 acres of land remain undeveloped. In 2005, the Kingman City Council passed Ordinance 1471, by which it rezoned the Bennetts’ Property and prohibited building storage units in the newly created zone. In 2012, the Bennetts learned about rezoning and in 2013 they applied for a Conditional Use Permit (“CUP”) to build additional storage units on the undeveloped part of their property. The Council granted a CUP which would expire within one year, if the Bennetts fail to obtain a building permit within this time. Due to engineering delays, the Bennetts sought, and the City approved, two one-year extensions of the CUP. In 2016, the Bennetts applied for a third extension, which was rejected following a public hearing and comments about the negative effects of the proposed project from nearby property owners. In 2018, the Bennetts applied for a new CUP and the City Council rejected the application. In January 2019, Bennetts commenced this action, asserting violation of the federal and state Takings Clause, vested rights violation, Due Process Clause violation as well as breach of contract. Both parties moved for summary judgment.

First the court considered the Bennetts’ mandamus relief request to void Ordinance 1471, and concluded that since the City is neither an “officer or employee of the United States” nor an “agency thereof,” the request for mandamus relief shall be denied. The court then declined to exercise supplemental jurisdiction and consider the same request under the state law.

Further, the court went on to evaluate whether any of the parties is entitled to a summary judgment. To do so, the court first determined whether any of the claims is barred by a two-year statute of limitations. The federal Takings claim could potentially arise from three different events: the enaction of Ordinance 1471 in 2005, denial of CUP extension request in 2017 and rejection of renewed CUP application in 2018. The court thus concluded that only the claims that arise from the events that occurred within two years of this lawsuit, filed on January 2, 2019, survive the statute of limitations.

When the court evaluated the Takings Clause claim, the City argued that there is no constitutional right to a CUP, since its granting is discretionary. The court agreed, however, it concluded that an interest in a particular use may constitute a protected property interest if it “has vested in equity based on principles of detrimental reliance.” Bennetts had spent more than fifty thousand dollars for site plans and surveys in anticipation of applying for a building permit, and the court concluded that there is a genuine issue of material fact whether the plaintiffs’ interest in the CUP vested based on detrimental reliance. However, there was no detrimental reliance when the Bennetts applied for a new CUP in 2018. The court ultimately concluded that the City was entitled to summary judgment on the federal Takings Clause claim to the extent it arised from the City’s denial of Bennetts’ CUP application.

The court went on to evaluate whether the City’s action may constitute a compensable taking, and employed the Penn Central factors first to “compare the value that has been taken from the property with the value that remains in the property” and then to see if the Bennetts have “distinct investment-backed expectations.” The court concluded that the Bennetts’ mere expectation of additional income from expanded storage does not establish a taking. In addition to this, expansion was contingent on their ability to secure financing and obtain necessary building permits. Therefore, the court determined that the Bennetts did not have distinct investment-backed expectations and granted summary judgment on the federal Takings Clause claim to the City.

The court then granted summary judgment on all remaining claims to the City. The due process claim arising out of the adoption of Ordinance 1471 was barred by the statute of limitations, and the court also agreed with the City that no procedural or substantive due process violation existed because the City Council “conducted a hearing, received input from the community and made a reasoned determination,” when it denied the CUP extension and CUP renewal applications. Finally, after the court dismissed federal claims of the plaintiffs, it refused to exercise supplemental jurisdiction over the remaining state law claims. Plaintiffs remained with an opportunity to refile in a state court.

Bennett v City of Kingman, 2021 WL 2439290 (D. AZ 6/15/2021)

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