Dukuly v. City of New Hope

Background

Dr. Sheikh Dukuly, Sekou AM Dukuly, Ashton Homes LLC, and Berkeley Heights Homes, LLC operated two assisted-living facilities in the City of New Hope. The LLCs had licenses from the Minnesota Department of Health and rental permits from the City. After residents made emergency calls and received citations for disorderly behavior, the City Council revoked the rental permit for each facility. The resolutions also required the tenants to leave and temporarily restricted the Dukuly Brothers’ ability to obtain permits or hold an ownership interest in an entity applying for permits.

Plaintiffs alleged that the revocations eliminated their profit streams, affected their rental contracts, and forced them to sell the properties at a loss. They alleged that the two resolutions caused $2,000,000 in losses. Their federal claim alleged an uncompensated taking under the Fifth Amendment. Their Minnesota claim sought compensation or a court order requiring the City to begin eminent-domain proceedings.

Prior State-Court Proceedings

Before filing this federal case, Plaintiffs sued the City and city officials in Minnesota state court. The state court dismissed their non-takings claims with prejudice and dismissed their takings claim without prejudice because it concluded that the inverse-condemnation claim had to be brought through a mandamus action. The federal court held that the issues presented in the federal case had not been decided by the state court, so the City’s collateral-estoppel arguments did not require dismissal.

Rule 12(c) Standard

The City moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court applied the same standard used for a motion to dismiss for failure to state a claim. At this stage, the court accepted the complaint’s factual allegations as true and asked whether they plausibly showed an entitlement to relief.

Federal Regulatory-Takings Claim

The court determined that the relevant property interest was Plaintiffs’ fee-simple ownership of the two parcels, rather than separate interests in their licenses, profits, leasing rights, or rental-income contracts. The Minnesota Department of Health licenses were not transferable or assignable, and the court found no basis to predict that Minnesota’s highest court would treat those licenses as private property subject to a takings claim. The court also concluded that profits and leasing rights were parts of the broader ownership interest, not separate property interests for this analysis. Plaintiffs did not develop their argument concerning rental-income contract rights, so the court treated that argument as waived.

Because Plaintiffs did not claim a permanent physical invasion or a complete loss of all economically beneficial use, the court applied the three-part test from Penn Central Transportation Co. v. New York City. That test considers economic impact, interference with reasonable investment-backed expectations, and the character of the government action.

For economic impact, the court said the two parcels should be evaluated separately because they were not contiguous, were owned and operated by different entities, had different permits and licenses, and were subject to separate proceedings. Plaintiffs alleged a $2,000,000 loss and sales at a loss, but they did not allege the properties’ remaining value. Without that information, the court could not determine the percentage of value lost. The court therefore found insufficient factual content to plausibly show that this factor favored a taking.

For investment-backed expectations, the court noted that the properties were residentially zoned and that the rental-permit ordinance existed before Plaintiffs purchased them. Plaintiffs operated the properties as assisted-living facilities for about a year before the permits were revoked. The court concluded that enforcement of the preexisting ordinance, limiting use of the residentially zoned properties to residential use, was not inconsistent with reasonable investment-backed expectations.

For the character of the government action, the court found that the City’s conduct was not a physical invasion. It was ordinary housing regulation through a generally applicable permitting ordinance. The court also found that the resolutions were intended, to the extent relevant, to address disorderly conduct affecting surrounding communities, did not force Plaintiffs to bear a public burden for the public’s benefit, and did not regulate the properties for the City’s own enterprise or financial benefit.

The court concluded that all three Penn Central factors weighed against finding a taking. It held that Plaintiffs therefore failed to plausibly state a federal regulatory-takings claim.

Nuisance Defense

The City alternatively argued that Plaintiffs had no protected property interest in maintaining a nuisance. The court did not accept that argument as an alternative basis for dismissal. It explained that the City needed to identify background principles of Minnesota property law making Plaintiffs’ use a nuisance and show that revoking the permits did no more than what could have been achieved through court proceedings. The City had not identified those principles, and the land-use records supporting its argument were not considered because they were outside the pleadings and involved disputed facts.

Minnesota Constitutional Claim

The court held that Plaintiffs also failed to state a regulatory-takings claim under the Minnesota Constitution. Although Minnesota’s Takings Clause provides broader language than the federal clause, Minnesota courts generally apply the Penn Central test to regulatory, noncategorical takings. For the reasons discussed in the federal analysis, the court rejected Plaintiffs’ Minnesota claim. It also found that a Minnesota exception concerning an abuse of condemnation authority did not apply because this case did not involve that type of conduct.

Disposition

The court granted the City’s motion for judgment on the pleadings and dismissed the Complaint with prejudice. It ordered that judgment be entered accordingly.