VR Acquisitions, LLC v. Wasatch County

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS April 10, 2017
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
VR ACQUISITIONS, LLC,
Plaintiff - Appellant,
v. No. 15-4138
WASATCH COUNTY; JORDANELLE
SPECIAL SERVICE DISTRICT; THE
JORDANELLE SPECIAL SERVICE
DISTRICT UTAH SPECIAL
IMPROVEMENT DISTRICT NO. 2005-2;
JAY PRICE; DAN MATTHEWS,
Defendants - Appellees.
_________________________________
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:15-CV-00018-DAK-EJF)
_________________________________
Timothy McCaffrey, Freeborn & Peters LLP, Chicago, Illinois (Michael R. Johnson,
Robert G. Wing, and Matthew M. Cannon, Ray Quinney & Nebeker, Salt Lake City,
Utah, with him on the briefs), for Plaintiff-Appellant.
Mark R. Gaylord, Ballard Spahr, Salt Lake City, Utah (Melanie J. Vartabedian and Tyler
Hawkins, Ballard Spahr, LLP, Salt Lake City, Utah, Barton H. Kunz, II, and Bryson R.
Brown, Christensen & Jensen, P.C., Salt Lake City, Utah, with him on the brief), for
Defendants-Appellees.
_________________________________
Before HOLMES, SEYMOUR, and MORITZ, Circuit Judges.
_________________________________
MORITZ, Circuit Judge.
_________________________________
VR Acquisitions, LLC (VRA) owns a roughly 6,700-acre property in Utah’s
Jordanelle Basin (the VR property). VRA brought this action in 2015, asserting three
federal constitutional claims under 42 U.S.C. § 1983 and five state-law claims. All of
the claims rested, to some degree, on VRA’s assertion that an invalid assessment lien
was recorded against the VR property in 2009—three years before VRA bought the
property. The district court dismissed all eight claims with prejudice under Fed. R.
Civ. P. 12(b)(6), and VRA appeals. Because the district court properly dismissed
VRA’s § 1983 claims for lack of prudential standing, we affirm the dismissal of those
claims with prejudice. But because the district court should have declined to exercise
supplemental jurisdiction over VRA’s state-law claims, we reverse its dismissal with
prejudice of those claims and remand with directions for the district court to dismiss
those claims without prejudice. 1
BACKGROUND
In 1993, the Wasatch County Council (the Council) established the Jordanelle
Special Service District (the JSSD) to provide sewer and water services to residents
1
VRA also asserted a separate federal claim for “VIOLATION OF 42 U.S.C.
§§ 1983 & 1988.” App. vol. 1, 58. The district court dismissed “all claims” on four
alternative grounds without separately addressing how those grounds applied to any
particular claim. App. vol. 4, 802, 810. We affirm its dismissal of this purported
fourth federal claim for two reasons. First, § 1983 is the “remedial vehicle for raising
claims based on the violation of constitutional rights,” and “[t]here can be no
‘violation’ of § 1983 separate and apart from the underlying constitutional
violations.” Brown v. Buhman, 822 F.3d 1151, 1161 n.9 (10th Cir. 2016). Second,
§ 1988 “does not create [an] independent cause[] of action” but instead “simply
‘defines procedures under which remedies may be sought in civil rights actions.’”
Schroder v. Volcker, 864 F.2d 97, 99 (10th Cir. 1988) (quoting Brown v. Reardon,
770 F.2d 896, 907 (10th Cir. 1985)).
2
in the Jordanelle Basin. During the time period relevant to VRA’s allegations, Jay
Price was a member of the Council and Dan Matthews was the JSSD’s manager.
At least as early as 2002, the JSSD intended to construct a regional sewage
treatment facility and provide wastewater treatment services to both the JSSD service
area and properties in neighboring special service districts. In 2005, the JSSD
adopted Resolution No. 2005-18 (the Notice of Intention), declaring its intent to
create the Jordanelle Special Service Improvement District No. 2005-2 (the District)
and to levy assessments against properties within the District. In 2006, the JSSD
adopted Resolution 2006-04 (the Creation Ordinance), creating the District and
authorizing financing for the improvements described in the Notice of Intention. In
2009, after a period of public comment, the JSSD enacted Ordinance No. 09-10 (the
Assessment Ordinance), levying assessments against properties within the District—
including the VR property.
The assessment against the VR property totaled nearly $17.5 million. The
property’s prior owner elected to pay the assessment over 20 years. On September
24, 2009, the JSSD recorded a Notice of Assessment Interest (the Assessment Lien)
against the VR property.
ATC Realty Sixteen, Inc. obtained title to the VR property from the prior
owner in 2010 through a deed in lieu of foreclosure. VRA bought the VR property
from ATC Realty in 2012 with knowledge of the Assessment Lien. 2
2
VRA’s complaint doesn’t allege that VRA bought the VR property in 2012 or
that it took title with knowledge of the Assessment Lien. But VRA doesn’t dispute
3
Nearly three years later, VRA brought this action asserting three § 1983
claims: (1) a Fourteenth Amendment procedural due process claim, (2) a Fourteenth
Amendment substantive due process claim, and (3) a Fifth and Fourteenth
Amendment takings claim. VRA primarily sought a declaration that the Assessment
Ordinance, the Creation Ordinance, and the Notice of Intention are void ab initio, and
also sought removal of the Assessment Lien.
In support of these claims, VRA primarily alleged that the JSSD intentionally
issued a false and misleading Notice of Intention in 2005 so property owners
wouldn’t object to the creation of the District or the proposed assessments against
their properties. VRA further attacked the validity of the Assessment Lien by
alleging that the JSSD misused bond money and unlawfully permitted non-assessed
property owners to benefit from water and sewer improvements that were paid for
only by assessed property owners. Finally, VRA alleged that Price and Matthews
abused their public positions by funneling bond money to friends and family through
questionable real estate and water rights transactions related to construction of the
improvements.
The defendants moved under Rule 12(b)(6) to dismiss VRA’s complaint. The
district court granted the defendants’ motion and dismissed all of VRA’s claims with
prejudice, reasoning that (1) the claims are time-barred under Utah Code Ann. § 11-
these facts and doesn’t argue, in the context of its challenge to the district court’s
ruling on standing, that we shouldn’t consider them as true. Moreover, VRA
acknowledged at oral argument that it knew of the assessment lien when it bought the
property.
4
42-106’s 30-day limitation period for contesting an assessment; (2) the claims are
time-barred under Utah Code Ann. § 78B-2-307(3)’s four-year statute of limitations;
(3) VRA lacks standing to assert claims that belong to the VR property’s prior owner;
and (4) the Notice of Intention isn’t false because it contained all information
required by Utah Code Ann. § 17A-3-205 (2005).
DISCUSSION
We review a Rule 12(b)(6) dismissal de novo. Childs v. Miller, 713 F.3d 1262,
1264 (10th Cir. 2013). We accept a plaintiff’s well-pleaded factual allegations as true
and determine whether the plaintiff has provided “enough facts to state a claim to
relief that is plausible on its face.” Hogan v. Winder, 762 F.3d 1096, 1104 (10th Cir.
2014) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
As the plaintiff, VRA bears the burden of establishing standing to bring its
claims. Brown, 822 F.3d at 1164. Here, the district court dismissed VRA’s § 1983
claims based, in part, on its conclusion that VRA failed to carry that burden: it ruled
that VRA “cannot demonstrate Article III [s]tanding.” App. vol. 4, 806. But
according to VRA, the district court’s analysis reflects that the court actually found
that VRA lacks prudential—as opposed to Article III—standing.
We agree. In concluding that VRA lacks standing, the district court noted that
VRA “did not even exist in 2005 when [the defendants] issued the alleged
constitutionally deficient 2005 Notice of Intention.” Id. And it reasoned that VRA
was therefore attempting to assert constitutional claims that belong to the VR
property’s prior owner. Thus, the court concluded, VRA’s assertion of standing is
5
foreclosed by our decision in Kemmerer Coal Co. v. Brigham Young University, 723
F.2d 54 (10th Cir. 1983). See id. at 57 (“[T]he general rule is that ‘a litigant may only
assert his own constitutional rights or immunities.’” (quoting McGowan v. Maryland,
366 U.S. 420, 429 (1961))).
This analysis is clearly rooted in principles of prudential, rather than Article
III, standing. Compare RMA Ventures Cali. v. SunAmerica Life Ins. Co., 576 F.3d
1070, 1073 (10th Cir. 2009) (explaining that under doctrine of prudential standing,
“litigants cannot sue in federal court to enforce the rights of others”), with Rector v.
City and Cty. of Denver, 348 F.3d 935, 942 (10th Cir. 2003) (noting that to
demonstrate Article III standing, plaintiff must plausibly allege (1) injury in fact, (2)
fairly traceable to defendants’ conduct, (3) that is redressable by favorable judicial
ruling). Accordingly, despite the district court’s explicit reference to Article III
standing, we conclude that the district court actually dismissed based on a finding
that VRA lacks prudential standing. 3
3
Whatever the actual basis for the district court’s ruling, we would normally
have an independent obligation to verify that VRA has Article III standing to bring
its § 1983 claims before proceeding any further. See Hobby Lobby Stores, Inc. v.
Sebelius, 723 F.3d 1114, 1126 (10th Cir. 2013) (“[W]henever standing is unclear, we
must consider it sua sponte to ensure there is an Article III case or controversy before
us.”); see also Valenzuela v. Silversmith, 699 F.3d 1199, 1204-05 (10th Cir. 2012)
(explaining that federal courts can’t “assume they have subject matter jurisdiction for
the purpose of deciding claims on the merits”). But because we ultimately agree that
VRA lacks prudential standing to bring its § 1983 claims, we may affirm the district
court’s order dismissing those claims without first assessing whether VRA has
Article III standing to bring them. See Wilderness Soc’y v. Kane Cty., 632 F.3d 1162,
1168 (10th Cir. 2011) (en banc) (“Because [plaintiff] lacks prudential standing, we
proceed directly to that issue without deciding whether [plaintiff] has constitutional
standing . . . .”).
6
VRA contends this was error. 4 First, VRA asserts that as the VR property’s
current owner, it’s being harmed by the defendants’ actions. Specifically, VRA
complains that the VR property is “burdened and clouded by illegal assessment
liens,” and that “the government will forcibly take that property if [VRA] fails to pay
the government tens of millions of dollars.” Aplt. Br. 24.
But VRA’s emphasis on its alleged injuries blurs the distinction between
Article III standing and prudential standing. See Wilderness Soc’y, 632 F.3d at 1171(stating that “[p]rudential standing imposes different demands than injury in fact,”
and explaining that even if a party suffers “a cognizable injury” that party may “not
possess a right to relief”). Thus, even assuming VRA is being harmed, that doesn’t
4
Because VRA hasn’t argued otherwise, we assume without deciding that it is
appropriate to dismiss a complaint under Rule 12(b)(6), rather than Rule 12(b)(1),
when the plaintiff lacks prudential standing. Because such standing isn’t
jurisdictional, see Wilderness Soc’y, 632 F.3d at 1168 n.1, other courts have
concluded that dismissals under Rule 12(b)(6) for lack of prudential standing are
appropriate, see, e.g., Harold H. Huggins Realty, Inc. v. FNC, Inc., 634 F.3d 787, 795
n.2 (5th Cir. 2011) (“Unlike a dismissal for lack of constitutional standing, which
should be granted under Rule 12(b)(1), a dismissal for lack of prudential or statutory
standing is properly granted under Rule 12(b)(6).”); Genesee Cty. Emps. Ret. Sys. v.
Thornburg Mortg. Sec. Trust 2006-3, 825 F. Supp. 2d 1082, 1212 (D. N.M. 2011)
(citing Fifth Circuit’s view that prudential and statutory standing issues should be
resolved under Rule 12(b)(6)). And because VRA doesn’t challenge the district
court’s decision to dismiss the § 1983 claims with prejudice, we likewise need not
consider whether the district court should have dismissed those claims without
prejudice. Cf. Brumfiel v. U.S. Bank, 618 F. App’x 933, 935-38 (10th Cir. 2015)
(unpublished) (affirming Rule 12(b)(1) dismissal without prejudice on alternative
ground that plaintiff lacked prudential standing without analyzing whether dismissal
should have been with or without prejudice).
7
necessarily demonstrate that VRA has prudential standing to bring its constitutional
claims.
Next, VRA argues the district court erred in relying on Kemmerer Coal to
conclude that it lacks prudential standing. There, the plaintiff brought an action in
federal court, seeking to quiet title to certain coal deposits. 723 F.2d at 54. The
district court granted summary judgment in the plaintiff’s favor. Id. at 55. In doing
so, the court reasoned that because the plaintiff’s predecessor-in-interest—the San
Rafael Fuel Company—didn’t receive notice of the tax proceedings that gave rise to
the defendants’ tax titles, the related property assessment and subsequent tax sale
were void for lack of due process. Thus, the court ruled, the plaintiff wasn’t barred
by the Utah statute of limitations from attacking the defendants’ tax titles. Id.Sitting in diversity, we reversed. Id. at 54, 58. After discussing the parties’
arguments as to whether the plaintiff’s claim was time-barred, we concluded that we
need not decide that issue because the plaintiff “itself ha[d] suffered no due process
injury.” Id. at 57. Instead, we reasoned that if a constitutional violation had indeed
occurred, “it was the taking of San Rafael’s property without due process.” Id.Because the plaintiff was therefore improperly seeking “to advance its claim by
asserting a third-party’s constitutional rights,” we concluded that the Utah Supreme
Court would hold that the plaintiff lacked standing. Id. Critically, in reaching that
conclusion, we specifically noted that the general rule against asserting a third-
party’s rights applies “to bar a grantee’s assertion that its grantor’s due process rights
were violated.” Id.8
VRA attempts to distinguish Kemmerer Coal on its facts, arguing that it didn’t
involve a claim based on “any ongoing restrictions on land that could affect a
subsequent owner, and certainly did not involve a 20-year assessment lien.” Aplt. Br.
34. Instead, VRA argues, Kemmerer Coal “involved a discrete taking of title from
[the original] owner”—a taking that, according to VRA, “uniquely injured only the
prior landowner.” Id. VRA suggests that unlike the plaintiff in Kemmerer Coal, VRA
is suffering injury as the current landowner from “the existence of liens that run with
the land and continue to burden the land for years, coupled with the government’s
enforcement of those liens and the ongoing requirement that [VRA] pay tens of
millions of dollars going forward to avoid foreclosure.” Id.But again, the fact that VRA may be suffering an injury isn’t dispositive of the
prudential-standing inquiry. See Wilderness Soc’y, 632 F.3d at 1171. Moreover, even
if we grant credence to VRA’s distinctions, we find the similarities between these
cases more significant. Like the plaintiff in Kemmerer Coal, VRA alleges a due
process injury because alleged deficiencies in the Notice of Intention deprived the
prior owner of notice and an opportunity to be heard. And, as in Kemmerer Coal, any
constitutional violations the defendants committed in issuing a false and misleading
Notice of Intention injured the due process rights of the prior owner, not of VRA.
Accordingly, the district court didn’t err in relying on Kemmerer Coal.
Finally, VRA relies on three additional cases to support its position that it has
prudential standing. But we agree with the defendants that none of these cases
actually support VRA’s assertion.
9
First, VRA cites Commonwealth Property Avocates v. Mortgage Electronic
Registration Systems, Inc., 680 F.3d 1194 (10th Cir. 2011). There, we concluded that
the plaintiff had prudential standing to challenge the legality of foreclosure
proceedings concerning three properties that the plaintiff purchased from defaulting
borrowers. Id. at 1196, 1201. And in doing so, we specifically rejected one
defendant’s argument that the plaintiff was impermissibly asserting the original
borrower’s rights, reasoning, “Because Plaintiff is the current owner of the real
property, a foreclosure would injure Plaintiff directly. Therefore, Plaintiff also has
prudential standing.” Id. at 1201.
VRA argues that, like the plaintiff in Commonwealth Property Advocates, it’s
asserting its own rights “as the current owner of property that will be taken by
foreclosure absent relief from the Court.” Aplt. Br. 25. But unlike the plaintiff in
Commonwealth Property Advocates, VRA doesn’t allege any legal violations in the
context of current foreclosure proceedings. Instead, VRA alleges due process
violations in the context of past legislative proceedings creating a special
improvement district and levying an assessment against the VR property. And if any
due process rights were violated by those past proceedings, they were the due process
rights of the prior owner, not VRA. Thus, VRA’s reliance on Commonwealth
Property Advocates is misplaced.
So too is its reliance on Palazzolo v. Rhode Island, 533 U.S. 606 (2001); that
case speaks to ripeness, not prudential standing. And if anything, Palazzolo’s
ripeness discussion undermines VRA’s position. Palazzolo reaffirmed the general
10
rule that the rights to assert a Takings Clause claim for a physical taking and to
receive just compensation belong to the owner of the property at the time of the
taking because “the fact and extent of the taking are known.” 533 U.S. at 628.
Palazzolo then recognized an exception in the land-use regulation context: it
explained that a regulatory Takings Clause claim may involve a ripening period. And
the Court held that title transfers occurring during that period don’t preclude a
subsequent purchaser or successive title holder from challenging the taking when the
claim ripens. Id.Here, assuming the assessment against the VR property constitutes a taking, 5
“the fact and extent of [that] taking [were] known” in 2009 when the JSSD enacted
the Assessment Ordinance and approved the approximately $17.5 million assessment.
See id. Thus, at the very latest, any claim arising from the assessment ripened on
September 24, 2009, when the JSSD recorded the Assessment Lien against the
property. The VR property’s prior owner held title at both points in time and, at
either point, could have asserted a Takings Clause claim absent any ripening period.
5
VRA argues that the district court erred in failing to separately analyze
VRA’s standing to assert its Takings Clause claim. According to VRA, “the District
extracts an illegal cash payment from [VRA] every year,” and that annual demand for
money constitutes the taking. Aplt. Br. 49. But this claim too rests on VRA’s theory
that the Assessment Ordinance itself is illegal because the JSSD issued a false and
misleading Notice of Intention and the defendants misused bond funds and engaged
in self-dealing during construction of the improvements. And for the reasons
discussed above, VRA isn’t the proper party to attack the validity of the Notice or the
defendants’ alleged misconduct. Moreover, the annual payments result from the
choice that the VR property’s prior owner made to pay the assessment over 20 years,
not from the defendants’ actions leading to the assessment. Thus, we see no reason to
separately address VRA’s standing to assert its Takings Clause claim.
11
Accordingly, the title transfer at issue here didn’t occur during a ripening period, and
Palazzolo doesn’t support permitting VRA, as a twice-removed successive title
holder, to squeeze the juice of just compensation out of an overripe Takings Clause
claim.
The facts of the third case that VRA cites—Pater v. City of Casper, 646 F.3d
1290 (10th Cir. 2011)—are more analogous to the facts present here. But like
Palazzolo, Pater doesn’t speak to standing. And the Pater plaintiffs’ ownership
status of the properties at issue was significantly different from VRA’s ownership
status here. Unlike the plaintiffs in Pater, who actually owned their properties when
the city recorded notices of assessments against those properties, Id. at 1291-94,
VRA didn’t own the VR property when the JSSD issued the Notice of Intention,
enacted the Creation Ordinance, enacted the Assessment Ordinance, and recorded the
Assessment Lien. Thus, even though we said in Pater that “an encumbrance with the
characteristics of the Notices of Assessment can be a deprivation of a property
interest,” id. at 1297, we did so when the plaintiffs who owned the properties at the
time the notices were recorded asserted that their own procedural due process rights
had been violated. Here, VRA didn’t own the VR property when the JSSD recorded
the Assessment Lien against the property. So again, if anyone was deprived of
procedural due process when that lien was recorded, it was the property’s prior
owner—not VRA.
In sum, the cases VRA relies on don’t convince us that VRA has prudential
standing to assert due process and Takings Clause violations. Instead, even assuming
12
the defendants engaged in the misconduct VRA alleges, any constitutional violations
arising from that misconduct violated the VR property’s prior owner’s constitutional
rights, not VRA’s. Thus, we affirm the district court’s ruling that VRA lacks
prudential standing to assert § 1983 claims based on those alleged violations and its
order dismissing VRA’s federal claims with prejudice.
That leaves VRA’s five state-law claims, which the district court also
dismissed with prejudice. While the district court didn’t make clear which of its “four
independent reasons” justified such dismissal, App. vol. 4, 802, we need not parse the
district court’s ruling to discern its justifications. Instead, we conclude that the
district court should have simply declined to exercise supplemental jurisdiction over
VRA’s state-law claims after it dismissed VRA’s federal claims. See 28 U.S.C.
§ 1367(c)(3); Smith v. City of Enid ex rel. Enid City Comm’n, 149 F.3d 1151, 1156
(10th Cir. 1998) (“When all federal claims have been dismissed, the court may, and
usually should, decline to exercise jurisdiction over any remaining state claims.”).
Thus, we reverse the district court’s order dismissing VRA’s state-law claims with
prejudice and remand with instructions to dismiss those claims without prejudice. See
Brooks v. Gaenzle, 614 F.3d 1213, 1230 (10th Cir. 2010) (affirming district court’s
dismissal of federal claims, reversing grant of summary judgment on state-law claim,
and remanding with instructions to dismiss state-law claim without prejudice).
13