FFV Coyote LLC v. City of San Jose

Background

Plaintiffs are members of three families who own 126.5 acres across four adjacent parcels in North Coyote Valley. The City’s land-use plans had designated the properties for industrial development for much of the period described in the complaint. In 2021, the City changed the designation from “Industrial Park” to “Agricultural,” which allows agricultural uses and significantly limits building intensity. Plaintiffs alleged that the change caused a developer to terminate a $44.1 million purchase agreement and prevented economically viable uses of the land.

Plaintiffs also alleged that the City treated their properties differently from the Brandenburg East properties. The City purchased those properties for preservation purposes, while changing the designation of plaintiffs’ properties without purchasing them or offering compensation. Plaintiffs brought three claims under 42 U.S.C. § 1983: a Fifth Amendment takings claim, a Fourteenth Amendment equal-protection claim, and a Fourteenth Amendment substantive due process claim.

Legal standard

The City moved to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). At that stage, the court generally accepts well-pleaded factual allegations as true and asks whether they plausibly support a legal claim. The court does not resolve factual disputes.

Takings claim

The court denied the motion to dismiss the takings claim. Plaintiffs alleged that the land-use change had a severe economic impact, including the termination of the purchase agreement and the loss of previously permitted uses. They also alleged long-term investment-backed expectations based on the properties’ earlier industrial designations, prior investments, and infrastructure improvements in North Coyote Valley.

The court concluded that these allegations plausibly stated a regulatory-taking claim under the factors identified in Penn Central Transportation Co. v. City of New York. Those factors examine the regulation’s economic impact, its interference with reasonable investment-backed expectations, and the character of the government action. Because the Penn Central claim could proceed, the court did not decide whether plaintiffs also adequately pleaded a categorical taking under Lucas v. South Carolina Coastal Council.

Equal-protection claim

The court denied the motion to dismiss the equal-protection claim. Plaintiffs pursued a “class of one” theory, under which a plaintiff alleges intentional treatment different from that of similarly situated property owners without a rational basis.

The court found that plaintiffs plausibly alleged that the Brandenburg East properties and their properties were similarly situated. Plaintiffs alleged that the properties were adjacent, had the same “Industrial Park” designation, had similar uses and accessibility, and attracted developer interest for similar purposes. The court also found that plaintiffs adequately alleged intentional differential treatment and that whether the City had a rational basis presented factual issues that could not be resolved on a motion to dismiss.

Substantive due process claim

The court granted the motion to dismiss the substantive due process claim. Plaintiffs alleged that the City acted arbitrarily by purchasing some properties for preservation while changing the land-use designation of plaintiffs’ properties without purchasing them or providing compensation.

The court explained that a substantive due process claim may challenge irrational land-use regulations, but the Fifth Amendment takings clause precludes a separate due process challenge when the alleged conduct is actually covered by a recognized takings theory. Because plaintiffs’ due process theory was based on the City’s alleged failure to compensate them and overlapped with their takings claim, the court held that plaintiffs could not maintain both claims as pleaded.

The court gave plaintiffs leave to amend the substantive due process claim because it was not clear that the claim could not be supported by additional facts. The court’s conclusion did not dismiss the takings or equal-protection claims.

Disposition

The court denied the City’s motion to dismiss the takings and equal-protection claims. It granted the City’s motion to dismiss the substantive due process claim, with leave to amend. Any amended complaint had to be filed by November 9, 2022.