301, 712, 2103 and 3151 LLC v. City of Minneapolis ( 2022 )

United States Court of Appeals
For the Eighth Circuit
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No. 20-3493
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301, 712, 2103 and 3151 LLC; 12 Twenty-Second and 1827 LaSalle LLC; 137
East Seventeenth Street LLC; 1522 LaSalle Avenue LLC; 1728 Second Avenue
and 1801 Third Avenue LLC; 1806 and 1810 Third Avenue LLC; 1816, 1820 and
1830 Stevens Avenue LLC; 1817 Second Avenue LLC; 1900 and 1906 Clinton
Avenue LLC; 1924 Stevens Avenue LLC; 2020 Nicollet Avenue LLC; 2101 Third
Avenue LLC; 2323 and 2401 Clinton Avenue LLC; 2417, 2423 and 2439 Blaisdell
Avenue LLC; 2427 Blaisdell and 2432 First Avenue LLC; 25 Twenty-Fifth Street
LLC; 2535 Clinton Avenue LLC; 2545 Blaisdell Avenue LLC; 2609 Hennepin
Avenue LLC; 2633 Pleasant Avenue LLC; 2720 Pillsbury Avenue LLC; 2738 and
2750 Pillsbury Avenue LLC; 2809 Pleasant Avenue LLC; 600 Franklin Avenue
LLC; Amy Smith; Blaisdell 3322, LLC; Bloomington 4035, LLC; Bryant Avenue
Properties LLC; Colfax Apartments LLC; Dupont Properties LLC; Fletcher
Properties, Inc.; Franklin Villa Partnership, L.L.P.; Fremont Apartments, LLC;
Fremont Terrace Apartments, L.L.C.; Garfield Court Partnership, L.L.P.; Gasparre
New Boston Square, LLC; Gateway Real Estate, L.L.C.; JEC Properties, LLC;
Lagoon Apartments, LLC; LL LLC; Northern Gopher Enterprises, Inc.; Patricia L.
Fletcher, Inc.; Ray Peterson
Plaintiffs - Appellants
v.
City of Minneapolis
Defendant - Appellee
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National Apartment Association; Pacific Legal Foundation
Amici on Behalf of Appellant(s)
Home Line; Housing Justice Center; Lawyers' Committee for Civil Rights Under
Law; Mid-Minnesota Legal Aid; Minnesota Collaborative Justice Initiative;
Violence Free Minnesota
Amici on Behalf of Appellee(s)
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Appeal from United States District Court
for the District of Minnesota
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Submitted: October 20, 2021
Filed: March 14, 2022
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Before SMITH, Chief Judge, WOLLMAN and BENTON, Circuit Judges.
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BENTON, Circuit Judge.
The Minneapolis City Council enacted Ordinance No. 244.2030 in 2019. It
requires landlords to evaluate applicants for rental housing by either (1) “inclusive
screening criteria” or (2) “individualized assessment.” Under the first option,
applicants may not be rejected due to specifically listed criminal, credit, or rental
history. Under the second option, applicants may be rejected for these or other
lawful reasons, but the landlord must “accept and consider all supplemental evidence
provided with a completed application to explain, justify, or negate the relevance of
potentially negative information revealed by screening” and must notify the
applicant in writing, specifying the basis for denial and explaining why supplemental
evidence “did not adequately compensate for the factors that informed the landlord’s
decision.”
Owners and managers of multi-unit buildings leased for residential use
challenged the Ordinance under the Fifth Amendment’s Takings Clause and the
Fourteenth Amendment’s Due Process Clause (and similar provisions of the
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Minnesota Constitution).1 The district court 2 denied the landlords’ motion for a
preliminary injunction, ruling they had not shown irreparable harm or a likelihood
of success on the merits. The landlords appeal. Having jurisdiction under 28 U.S.C.
§1292(a)(1), this court affirms.
I.
The United States and Minnesota constitutions prohibit the taking of private
property for public use without just compensation. U.S. Const. amend. V; Chicago,
Burlington & Quincy R.R. v. Chicago, 166 U.S. 226, 241 (1897) (applying the
Takings Clause to the states through the Fourteenth Amendment); Minn. Const. art.
I, § 13. The “clearest sort of taking” is when the government physically invades or
appropriates private property, whether permanently or temporarily. Cedar Point
Nursery v. Hassid, 141 S. Ct. 2063, 2071, 2074 (2021). A taking may also occur
“[w]hen the government, rather than appropriating private property for itself or a
third party, instead imposes regulations that restrict an owner’s ability to use his own
property.” Id. at 2071. A use restriction “goes too far” if it fails “the flexible test
developed in Penn Central, balancing factors such as the economic impact of the
regulation, its interference with reasonable investment-backed expectations, and the
character of the government action.” Id. at 2072, citing Penn Cent. Transp. Co. v.
New York City, 438 U.S. 104, 124 (1978).
The landlords argue that the Ordinance is either a physical-invasion taking or
a Penn Central taking. According to the district court, the landlords failed to show
a likelihood of success on either claim. This court reviews the district court’s
material factual findings for clear error, its legal conclusions de novo, and its
1
The landlords also claimed that the Ordinance compelled speech and was
unconstitutionally vague and overbroad, issues not raised on appeal.
2
The Honorable Paul A. Magnuson, United States District Judge for the
District of Minnesota.
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ultimate decision to grant or deny the injunction for an abuse of discretion.
Heartland Acad. Cmty. Church v. Waddle, 335 F.3d 684, 689-90 (8th Cir. 2003).
A.
The landlords argue that the Ordinance is a physical-invasion taking. They
claim it “authorizes a permanent physical invasion” by “requiring landlords to rent
to individuals they would otherwise disqualify.” They rely on Tahoe-Sierra Pres.
Council, Inc. v. Tahoe Reg’l Plan. Agency, 535 U.S. 302 (2002), where owners
challenged a multi-year moratoria on property development around Lake Tahoe.
The Court acknowledged that “compensation is mandated when a leasehold is taken
and the government occupies the property for its own purposes.” Tahoe-Sierra, 535
U.S. at 322. But the Court rejected the dissent’s view that “even a temporary, use-
prohibiting regulation”—“the functional equivalent of a forced leasehold”—should
be governed by physical-taking cases rather than Penn Central. Id. at 324 n.19,
addressing id. at 348-49 (dissenting opinion of Rehnquist, C.J.). In Cedar Point, the
Court reiterated Tahoe-Sierra’s distinction between physical appropriations and use
restrictions. Cedar Point Nursery, 141 S. Ct. at 2072 (“The essential question . . . .
is whether the government has physically taken property for itself or someone else—
by whatever means—or has instead restricted a property owner’s ability to use his
own property. See Tahoe-Sierra, 535 U.S. at 321–323, 122 S.Ct. 1465.”).
The City stresses the case of Yee v. City of Escondido, 503 U.S. 519 (1992).
That city’s rent-control ordinance (and a state statute) prevented owners of mobile-
home rental properties from “decid[ing] who their tenants will be.” Yee, 503 U.S.
at 526 (alteration added). The Supreme Court rejected the owners’ physical-invasion
argument:
This argument, while perhaps within the scope of our regulatory taking
cases, cannot be squared easily with our cases on physical takings. The
government effects a physical taking only where it requires the
landowner to submit to the physical occupation of his land.
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....
Petitioners voluntarily rented their land to mobile home owners . . . .
Put bluntly, no government has required any physical invasion of
petitioners’ property. Petitioners’ tenants were invited by petitioners,
not forced upon them by the government.
....
[P]etitioners conten[d] that the ordinance amounts to compelled
physical occupation because it deprives petitioners of the ability to
choose their incoming tenants. Again, this effect may be relevant to a
[Penn Central] regulatory taking argument . . . . But it does not convert
regulation into the unwanted physical occupation of land. Because they
voluntarily open their property to occupation by others, petitioners
cannot assert a per se right to compensation based on their inability to
exclude particular individuals.
Id. at 527, 527-28, 530-31 (alterations added). Based on this voluntariness rationale,
Yee held: “When a landowner decides to rent his land to tenants, the government
may place ceilings on the rents the landowner can charge, or require the landowner
to accept tenants he does not like, without automatically having to pay
compensation.” Id. at 529 (citations omitted).
The landlords counter by emphasizing cases—decided before and after Yee—
indicating that a law may be a physical-invasion taking even if property owners can
avoid the law by leaving the regulated industry.
Before Yee, the Court considered a New York statute requiring landlords to
install television cables on their residential buildings. Loretto v. Teleprompter
Manhattan CATV Corp., 458 U.S. 419, 421 (1982). The Court held that the statute
was a physical-invasion taking, even though the landlords could avoid it by leaving
the rental business: “It is true that the landlord could avoid the requirements of §
828 by ceasing to rent the building to tenants. But a landlord’s ability to rent his
property may not be conditioned on his forfeiting the right to compensation for a
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physical occupation. Teleprompter’s . . . argument proves too much.” Id. at 439
n.17, discussed in Yee, 500 U.S. at 531-32.
After Yee, the Court considered a Department of Agriculture mandate that
raisin growers set aside part of their crop to the federal government. Horne v. Dep’t
of Agric., 576 U.S. 350, 355 (2015). The Department, relying on Yee, argued that
the mandate was not a physical-invasion taking “because raisin growers voluntarily
choose to participate in the raisin market.” Id. at 365. The Court rejected the
Department’s voluntariness argument:
In Loretto, we rejected the argument that the New York law was not a
taking because a landlord could avoid the requirement by ceasing to be
a landlord. We held instead that “a landlord’s ability to rent his
property may not be conditioned on his forfeiting the right to
compensation for a physical occupation.” As the Court explained, the
contrary argument “proves too much” . . . . As the Court concluded,
property rights “cannot be so easily manipulated.”
Id., citing Loretto, 458 U.S. at 439 n.17. The dissenting opinion, emphasizing Yee,
concluded that “the Government may condition the ability to offer goods in the
market on the giving-up of certain property interests without effecting a per se
taking.” Id. at 384 (Sotomayor, J., dissenting). The Court did not cite Yee. It did
discuss cases involving “voluntary exchange” for a “valuable government benefit.”
Id. at 365-66, discussing Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1007 (1984);
Nollan v. California Coastal Comm’n, 483 U.S. 825, 834 n.2 (1987). But, the Court
concluded: “selling produce in interstate commerce . . . is not a special governmental
benefit that the Government may hold hostage, to be ransomed by the waiver of
constitutional protection.” Id. at 366.
This court, before Horne, applied Yee’s voluntariness rationale. See Iowa
Assur. Corp. v. City of Indianola, 650 F.3d 1094, 1098 (8th Cir. 2011) (“Watson is
not required to continue storing vehicles on his property, and so long as he still may
choose whether to build the fence or forgo placing more than one vehicle outside,
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he cannot establish . . . a Loretto [physical-invasion taking] claim.” (alteration
added)), citing Yee, 503 U.S. at 527. See also L.L. Nelson Enters., Inc. v. County
of St. Louis, 673 F.3d 799, 806 (8th Cir. 2012) (“[T]he Takings Clause requires
compensation if the government authorizes a compelled physical invasion of
property”), quoting Yee, 503 U.S. at 527. But, since Horne, this court has not cited
Yee, while acknowledging Horne and its voluntary exchange principle. See Se.
Arkansas Hospice, Inc. v. Burwell, 815 F.3d 448, 450 (8th Cir. 2016) (citing
Horne’s voluntarily exchange principle as a limit on a general voluntariness
approach to takings analysis).
The Supreme Court has posed the essential question as “whether the
government has physically taken property for itself or someone else—by whatever
means—or has instead restricted a property owner’s ability to use his own property.”
Cedar Point Nursery, 141 S. Ct. at 2072. True, an ordinance that would require
landlords to rent to individuals they would otherwise reject might be a physical-
invasion taking. Regardless, the Ordinance here has an “individualized assessment”
option that allows landlords to reject individuals due to undesirable criminal, credit,
rental, and other history so long as they comply with the Ordinance’s procedural
requirements (including considering supplemental evidence and providing a written
explanation of rejection). Due to the individualized assessment option, the
Ordinance is a restriction on the landlords’ ability to use their property, not a
physical-invasion taking.
B.
The landlords argue that the individualized assessment option is “illusory”
because it is “time-consuming, onerous, expensive, and inefficient to review
supplemental information and evidence”—anything the “applicant believes to be
relevant”—and because it “would require significant time and attention, including
the cost of hiring legal counsel, to properly evaluate and prepare rejections.” The
landlords emphasize that failure to comply with the Ordinance may result in criminal
and administrative penalties, as well as civil suits by aggrieved applicants.
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This argument is analyzed under Penn Central. See Cedar Point Nursery,
141 S. Ct. at 2072. The question is whether the landlords demonstrated a likelihood
of proving that the individualized assessment option “amounts to a taking” in light
of (1) its economic impact, (2) the extent to which it has interfered with distinct
investment-backed expectations, and (3) its character. Id., citing Penn Cent., 438
U.S. at 124; Outdoor Graphics, Inc. v. City of Burlington, 103 F.3d 690, 695 (8th
Cir. 1996).
The district court found that the landlords “offer no evidence in support of
their asserted economic harm” and “have not sufficiently demonstrated that the
ordinance interferes with their distinct investment-backed expectations . . . .” As the
district court noted, the landlords might (but did not) show that, “in the months since
the ordinance’s effective date, prospective tenants have submitted voluminous
additional materials that [landlords] were required to review” or that “third-party
screening services . . . now charge [landlords] more for their services because of the
ordinance’s requirements.” These findings of fact are not clearly erroneous. The
district court properly ruled that the landlords offered nothing but conclusory
assertions of economic impact and interference with investment-backed
expectations. See Get Away Club, Inc. v. Coleman, 969 F.2d 664, 667-68 (8th Cir.
1992) (dismissing taking challenge where tavern offered only “conclusory
assertions” that state-trooper roadblocks caused “great revenue losses”).
The district court’s findings also resolve the third Penn Central factor—the
character of the government action. “A ‘taking’ may more readily be found when
the interference with property can be characterized as a physical invasion by
government than when interference arises from some public program adjusting the
benefits and burdens of economic life to promote the common good.” Penn Cent.,
438 U.S. at 124 (citation omitted). The Ordinance here is, as discussed, not a
physical invasion. It is more akin to “some public program adjusting the benefits of
economic life.” Compare Hawkeye Commodity Promotions, Inc. v. Vilsack, 486
F.3d 430, 442 (2007) (character of state law banning lottery game was more like a
public program than a physical invasion because the owner of video lottery machines
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“still has the right to possess, lease and sell the machines”) with Hodel v. Irving, 481
U.S. 704, 716 (1987) (“extraordinary” character of federal statute abrogating the
right to leave property to one’s heirs—recognized by “the Anglo-American legal
system since feudal times”—showed a Penn Central taking).
None of the Penn Central factors support a taking in this case.
II.
The doctrine of substantive due process, under the Due Process Clause of the
Fourteenth Amendment, “protects unenumerated fundamental rights.” Gallagher v.
City of Clayton, 699 F.3d 1013, 1017 (8th Cir. 2012), citing Washington v.
Glucksberg, 521 U.S. 702, 720 (1997). If a state law infringes a fundamental right,
it must survive strict scrutiny. Id., citing Glucksberg, 521 U.S. at 721. Otherwise,
this court reviews a statute by “the standard of ‘rationally advancing some legitimate
governmental purpose.’” Doe v. Miller, 405 F.3d 700, 714 (8th Cir. 2005), quoting
Reno v. Flores, 507 U.S. 292, 306 (1993). The landlords argue that the Ordinance
infringes their fundamental right to exclude others from entering and using their
property.
True, the right to exclude is “one of the most fundamental elements of
property ownership.” Alabama Ass’n of Realtors v. Dep’t of Health & Hum.
Servs., 141 S. Ct. 2485, 2489 (2021). See Kaiser Aetna v. United States, 444 U.S.
164, 179-80 (1979) (right to exclude “universally held to be a fundamental element
of the property right”); Loretto, 458 U.S. at 435 (right to exclude “one of the most
treasured strands in an owner’s bundle of property rights”); Lingle v. Chevron
U.S.A. Inc., 544 U.S. 528, 539 (2005) (right to exclude “perhaps the most
fundamental of all property interests”); Cedar Point Nursery, 141 S. Ct. at 2077
(right to exclude “a fundamental element of the property right,” not “an empty
formality, subject to modification at the government’s pleasure”).
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The landlords, however, do not cite any authority that the right to exclude is
a fundamental right for the purposes of substantive due process. The Supreme Court
has indicated otherwise. See PruneYard Shopping Ctr. v. Robins, 447 U.S. 74, 84-
85 (1980) (rejecting argument that shopping-mall owners’ Fourteenth Amendment
due process rights were violated by state constitution provision prohibiting them
from excluding individuals for free speech on mall property); Dolan v. City of
Tigard, 512 U.S. 374, 384 n.5 (1994) (objecting to dissent’s suggestion that the
Court analyzed a taking claim under substantive due process rather than the Takings
Clause). Cf. Fletcher Props., Inc. v. City of Minneapolis, 931 N.W.2d 410, 418-20
(Minn. Ct. App. 2019) (concluding that “neither Minnesota nor the nation overall
has a history of recognizing the right to rent property as a fundamental right”), aff’d
on other grounds, 947 N.W.2d 1 (Minn. 2020).
This court need not address whether the right to exclude is a fundamental right
under substantive due process. As discussed, the Ordinance does not infringe any
right to exclude others from entering and using landlords’ property. Rather, it
requires them to follow tenant-screening procedures before excluding others,
including considering supplemental materials and later providing a written
explanation. In evaluating substantive due process claims, it is important to consider
the Supreme Court’s admonition: “Substantive due process analysis must begin with
a careful description of the asserted right.” Doe, 405 F.3d at 710, quoting Flores,
507 U.S. at 302. A careful description of the right asserted here is not “the right to
exclude others from property,” but rather “the right to exclude others from property
without following tenant-screening procedures like considering supplemental
materials and providing a written explanation.” The landlords have not shown that
such a right is “objectively, deeply rooted in this Nation’s history and tradition.”
Gallagher, 699 F.3d at 1017, quoting Glucksberg, 521 U.S. at 720-21.
Because the Ordinance does not infringe a fundamental right, it is subject to
rational basis review. The landlords argue that the Ordinance is not rationally related
to a legitimate government purpose because it is ill-designed to accomplish the
City’s 25 stated “Findings and purpose,” including alleviating housing burdens. But
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as the district court ruled, even if the Ordinance fails to serve these purposes—or has
the unintended effect of reducing affordable rental housing—“[e]nsuring that
citizens have access to affordable housing is undoubtedly a legitimate governmental
objective, and the ordinance is directed at ameliorating problems that often prevent
people from finding housing” such as criminal records, past evictions, and poor
credit. The Ordinance withstands rational basis review.
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The judgment is affirmed.
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