ROY B. DALTON, Jr., District Judge.
This action stems from a dramatic increase in water utility rates assessed for the Oviedo Town Centre (
On May 1, 2017, Plaintiffs moved for summary judgment with respect to the FHA Claims. (See Docs. 57.) That same day, the City simultaneously moved to dismiss Plaintiffs' Due Process Claim (see Doc. 62 (
Plaintiffs in this action comprise a group of professionals with significant experience in developing and managing affordable housing. (See Doc. 82-2, pp. 6, 22-31.) Amid the collapsing housing market, Plaintiffs commenced development of OTC, an affordable-housing apartment community, consisting of twelve buildings and 236 units. (Doc. 70-1, ¶¶ 12, 17; Doc. 82-1, p. 1.)
As is common with complex real estate transactions, Plaintiffs sought construction financing. (See Doc. 70-1, ¶ 9.) In 2007, the Orange County Housing Finance Authority approved bond financing (
After Plaintiffs completed construction of OTC in 2008, each building was equipped with a single master meter that was connected to the City's water distribution system. (Doc. 70-1, ¶¶ 5, 12; see also Doc. 82-1, p. 2.) In accordance with the Individual Meter Requirement, OTC also included sub-meters within each individual unit, which were used to determine each unit's proportional share of the utility cost. (Doc. 54-2, p. 180.) Consequently, OTC residents initially shouldered the responsibility for paying their own utility costs. (Id. at 181.) But, in December of 2011, Plaintiffs began paying for utilities on behalf of OTC residents. (Doc. 84-2, p. 10.) This switch gave Plaintiffs the ability to collect a gross rent without reducing such amount by a utility allowance.
To mitigate the risk of default, Plaintiffs provided several guarantees. (Doc. 82-2, p. 7; Doc. 82-14, pp. 6-8.) Specifically, Plaintiffs' partnership agreements required the general partners to finance operating deficiencies with non-interest bearing loans (
Once a property becomes a utility customer, the City assesses a monthly amount for water comprised of a variable usage charge and a flat fee or base charge.
From 2007 to 2011, the City's Base Charge Resolutions classified water utility customers as either residential or commercial property.
In late 2012, the City engaged a third party consultant, Public Resource Management Group (
In addition to distinguishing between residential and commercial properties as the previous resolutions had done, the 2012 Resolution: (1) differentiated single-family residential properties from master-metered multi-family residential properties (
Following the City's denial of the Exception Request, Plaintiffs filed the FHA Claims against the City, alleging that it arbitrarily refused to return OTC to a per-meter base charge. (Doc. 52.) Specifically, Plaintiffs allege that the 2012 Policy causes them significant financial harm by increasing their base charges by more than 2,000%—about $7,557 per month. (Id. ¶¶ 33, 36, 42.) According to Plaintiffs, they cannot continue to operate OTC as an affordable-housing community under such an inflated utility cost and, if required to close, housing will become "unavailable" in Oviedo. (Id. ¶¶ 39, 41.) A substantial portion of Plaintiffs' FHA Claims seem to rest on the fact that the majority of OTC's heads of household are racial minorities. (See id. ¶¶ 41-42; see also Doc. 70-1, ¶ 26; Doc. 70-2, p. 2.) To this end, Plaintiffs maintain that, if OTC is forced to close, OTC's racial minority residents will be disparately impacted by the reduced housing options. (Doc. 52, ¶ 41.) Additionally, Plaintiffs claim that they will lose the benefits of various operating agreements. (Id. ¶¶ 40-42.)
As for their Due Process Claim, Plaintiffs allege that the City violated their substantive due process rights because the per-unit base charges have no rational nexus to the City's stated purpose for imposing such charges. (Doc. 52 ¶ 74; see also Doc. 100.)
As the motions are fully briefed (see Docs. 80, 81, 85, 94, 95), the matters are now ripe for the Court's determination.
Summary judgment is appropriate only "if the movant shows that there is no genuine dispute as to any material fact and that [it] is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). As to issues for which the movant would bear the burden of proof at trial, "[it] must affirmatively show the absence of a genuine issue of material fact and support its motion with credible evidence demonstrating that no reasonable jury could find for the nonmoving party on all of the essential elements of its case." Landolfi v. City of Melbourne, Fla., 515 F. App'x 832, 834 (11th Cir. 2012) (citing Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993)).
As to issues for which the nonmovant would bear the burden of proof at trial, the movant has two options: (1) it may simply point out an absence of evidence to support the nonmoving party's case; or (2) it may provide "affirmative evidence demonstrating that the nonmoving party will be unable to prove its case at trial." U.S. v. Four Parcels of Real Prop. in Green & Tuscaloosa Ctys., 941 F.2d 1428, 1438 (11th Cir. 1991) (citing Celotex Corp., 477 U.S. at 325). "The burden then shifts to the nonmoving party, who must go beyond the pleadings and present affirmative evidence to show that a genuine issue of material fact exists." Porter v. Ray, 461 F.3d 1315, 1320 (11th Cir. 2006) (citing Fitzpatrick, 2 F.3d at 1115-17).
"A factual dispute is genuine `if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Four Parcels, 941 F.2d at 1437 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A court must view the evidence and all reasonable inferences drawn from the evidence in the light most favorable to the nonmovant, Battle v. Bd. of Regents, 468 F.3d 755, 759 (11th Cir. 2006), such that "when conflict arises between the facts evidenced by the parties, [the] court credit[s] the nonmoving party's version," Evans v. Stephens, 407 F.3d 1272, 1278 (11th Cir. 2005). However, "[the] court need not permit a case to go to a jury . . . when the inferences that are drawn from the evidence, and upon which the nonmovant relies, are `implausible.'" Mize v. Jefferson City Bd. of Educ., 93 F.3d 739, 743 (11th Cir. 1996). This standard is not altered by cross motions for summary judgment and "will not, in themselves, warrant a court in granting summary judgment unless one of the parties is entitled to judgment as a matter of law on facts that are not genuinely disputed." Bricklayers Int'l Union Local 15 v. Stuart Plastering Co., 512 F.2d 1017, 1023 (5th Cir. 1979).
The FHA prohibits racial discrimination, in selling, renting, or otherwise making a dwelling unavailable. 42 U.S.C. § 3604(a). Liability under the FHA encompasses both disparate treatment and disparate impact claims. Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S.Ct. 2507, 2533 (2015); see also Hallmark Dev., Inc. v. Fulton Cty., Ga., 466 F.3d 1276, 1286 (11th Cir. 2006); United States v. Marengo Cty. Comm'n, 731 F.2d 1546, 1559 n.20 (11th Cir. 1984). Disparate treatment claims require a plaintiff to establish that "the defendant had a discriminatory intent or motive." Id. (quoting Ricci v. DeStefano, 557 U.S. 557, 577 (2009)). In contrast, disparate-impact claims challenge practices that have a "disproportionately adverse effect on minorities and are otherwise unjustified by a legitimate rationale." Inclusive Cmtys., 135 S. Ct. at 2513. To establish discriminatory effect, and thus demonstrate that housing has become discriminatorily "unavailable" to a protected class, a plaintiff can either show that the decision has a segregative effect or that it makes housing options significantly more restrictive for members of a protected group than for persons outside that group. See Hallmark Dev., Inc., 466 F.3d at 1286; see also 24 C.F.R. § 100.500(a).
In disparate-impact cases, courts employ a burden-shifting framework, which requires plaintiffs to first establish a prima facie case. Id. at 2514. The burden then shifts to the defendant to prove that the challenged practice "is necessary to achieve one or more [of its] substantial, legitimate, nondiscriminatory interests." 24 C.F.R. § 100.500(b)(1), (c)(2). Such interests must be supported by evidence and may not be hypothetical or speculative. 24 C.F.R. § 100.500(b)(2). If the defendant satisfies its burden, the plaintiff may still prevail by proving that the defendant's interests could be served by another practice that has a less discriminatory effect. 24 C.F.R. § 100.500(c)(3).
Additionally, plaintiffs prosecuting FHA claims must demonstrate proximate cause. "The FHA permits any `aggrieved person' to bring a housing-discrimination lawsuit" and "defines `aggrieved person' as any person who either claims to have been injured by a discriminatory housing practice or believes that such an injury is about to occur." Bank of Am. Corp. v. City of Miami, Fla., 137 S.Ct. 1296, 1303 (2017). However, "proximate cause generally bars suits for alleged harm that is `too remote' from the defendant's unlawful conduct." Id. at 1306 (quoting Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1390 (2014)). Thus, "proximate cause under the FHA requires some direct relation between the injury asserted and the injurious conduct alleged." Bank of Am. Corp., 137 S. Ct. at 1306 (quoting Holmes Sec. Inv'r Prot. Corp., 503 U.S. 258, 268 (1992)).
Plaintiffs' FHA Claims rest on two interrelated theories of harm. First, that the 2012 Policy's increased utility rates will force OTC to close. (See Doc. 52, ¶¶ 39, 42.) Second, that OTC's closure, will have a disparate impact on minorities living in OTC by reducing their affordable housing options. (See id. ¶ 41.) To succeed on their FHA Claims, Plaintiffs must establish that both their projected financial injuries and the resulting disparate impact on OTC's residents flow from the 2012 Policy.
After review of the record, the Court finds that the FHA Claims fail. As an initial matter, Plaintiffs have not demonstrated that their own injuries were proximately caused by the City's imposition of the 2012 Policy. Additionally, Plaintiffs have not: (1) carried their burden of establishing a prima facie case of disparate impact; or (2) rebutted the City's evidence that its imposition of the 2012 Policy and denial of Plaintiffs' Requested Exception were necessary to achieve a legitimate, nondiscriminatory interest.
The Court begins its analysis be addressing proximate causation—that is, whether the City's imposition of the 2012 Policy proximately caused Plaintiffs to become economically unviable. The Court finds that it did not. Under the FHA, a plaintiff must demonstrate more than foreseeability to establish that a challenged housing practice proximately caused its injuries. Bank of Am. Corp., 137 S. Ct. at 1305-06. Rather, as previously mentioned, there must be "some direct relation between the injury asserted and the injurious conduct alleged," so that the alleged harm is not "too remote from the defendant's unlawful conduct." Id. at 1306. As the U.S. Supreme Court recently noted, "the housing market is interconnected with economic and social life. A violation of the FHA may, therefore, be expected to cause ripples of harm to flow far beyond the defendant's misconduct." Id. at 1306. But the FHA was not intended "to provide a remedy wherever those ripples travel." Id. Here, the ripples have traveled too far.
Throughout their briefing, Plaintiffs argue that affordable housing will become "unavailable" because OTC cannot remain economically viable under the burden of the 2012 Policy's per-unit base charge. (See Doc. 57, p. 7; Doc. 81, pp. 11-12; Doc. 95, pp. 4-5.) As a result, Plaintiffs maintain that they will be deprived of the benefits of various operating agreements. (Doc. 52, ¶ 42.) In support, Plaintiffs submit an affidavit from Paul Missigman (
For its part, the City paints a drastically different picture of OTC's continued economic viability. (Doc. 64, pp. 18-22; Doc. 94, pp. 7-8.) Specifically, the City's expert, forensic accountant Gail Markham (
In turn, Plaintiffs attack Ms. Markham's findings as inaccurate, contending that she ignored OTC's other debt obligations. (Doc. 81, pp. 11-12.) But even if the Court were to accept this argument, Plaintiffs have still failed to rebut Ms. Markham's findings concerning the significant guarantees that ensure OTC's continued operation.
Importantly, the "[p]roximate cause analysis is controlled by the nature of the statutory cause of action. The question it presents is whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits." Lexmark, 134 S. Ct. at 1390. To prevail on their FHA Claims, Plaintiffs must demonstrate that the 2012 Policy has unequally reduced housing for racial minorities, see Hallmark, 466 F.3d at 1286, and that this violation is sufficiently connected to their alleged harm, see Lexmark, 134 S. Ct. at 1390. The latter would be true if Plaintiffs could demonstrate that the 2012 Policy will ultimately cause OTC to close and that Oviedo has no other affordable housing options, but the City has refuted Plaintiffs' closure claim and Plaintiffs have not provided any evidence of the 2012 Policy's impact on other affordable housing in Oviedo.
What is left then is evidence that the 2012 Policy will deflate Plaintiffs' profits, but this is not the type of harm the FHA seeks to vindicate. So while the precise boundaries of proximate cause under the FHA remain undefined, Bank of Am. Corp., 137 S. Ct. at 1306, they do not extend to Plaintiffs' alleged financial injuries, as the purpose of the FHA is not to provide guaranteed protection against changes in market conditions or to ensure that Plaintiffs receive the benefits of private contracts. Hence Plaintiffs have failed to draw the close connection that proximate cause requires.
Had Plaintiffs successfully demonstrated proximate cause, they still must establish a prima facie case of disparate impact. To that end, they must demonstrate that the 2012 Policy "caused or predictably will cause a discriminatory effect." Inclusive Cmtys., 135 S. Ct. at 2514 (citing 24 C.F.R. § 100.500(c)(1)). They have failed to do so.
At this stage, Plaintiffs must satisfy a "robust causality requirement" by showing facts or statistical evidence establishing a "causal connection" between the challenged policy and the alleged disparate impact. Inclusive Cmtys., 135 S. Ct. at 2523-24; see also Hallmark Dev., Inc., 466 F.3d at 1286. A plaintiff who fails to produce statistical evidence demonstrating a causal connection fails to make out a prima facie case of disparate impact. Inclusive Cmtys., 135 S. Ct. at 2523.
Here, Plaintiffs unsuccessfully attempt to establish that the 2012 Policy has a discriminatory effect that makes housing options significantly more restrictive for racial minorities living in OTC. (See Doc. 57, pp 9-10.) In support, they rely exclusively on self-created statistical evidence whereby OTC residents self-reported their race (
The Demographic Survey fails in large measure to demonstrate that the 2012 Policy change from per-meter to per-unit base charges affected racial minorities differently than non-minorities. Rather, it reveals only that more racial minorities live in OTC than the rest of Oviedo. (Doc. 70-2, p. 2.) Standing alone, such a statistical disparity is insufficient to impose liability under a disparate impact theory. See Inclusive Cmtys., 135 S. Ct. at 2522-23.
The inconvenient truth is that OTC's racial imbalance is endemic to affordable housing, as such housing caters to a disproportionately higher percentage of racial minorities.
Even if Plaintiffs had established a prima facie case, the Court also finds that the City has demonstrated a legitimate, nondiscriminatory interest in implementing the 2012 Policy, which Plaintiffs have failed to rebut. In shifting the burden, the City is given "leeway to state or explain the valid interests served by [its] policies." Inclusive Cmtys., 135 S. Ct. at 2522. Policies "are not contrary to the disparate-impact requirement unless they are artificial, arbitrary, and unnecessary barriers." Id. at 2525. Here, the City contends that its obligation to adequately fund its utility system is reasonable, proper, and necessary to the City's interest in serving its citizens. (Doc. 64, p. 7.) The Court agrees.
As support, the City points to the deposition of Gerald Boop (
Plaintiffs attempt to refute the City's evidence by: (1) pointing to the prior utility rates that did not apply a per-unit base charge to Multifamily Properties; and (2) alleging that OTC was the only community impacted by the 2012 Policy. (Doc. 81, pp. 9-10.) But Plaintiffs' arguments are unavailing. First, Plaintiffs do not offer support for their bald assertion that OTC was singularly affected by the 2012 Policy. Second, while the City admits that prior to implementing the 2012 Policy, its published utility rates did not contain a Multifamily Property classification (Doc. 60-1, ¶ 12), it contends that it mistakenly billed OTC on a per-meter basis from 2008 to 2012 (Doc. 64, p. 2). In support, Mr. Boop testified that when he joined the City, he conducted an internal audit of its utility systems, which revealed that the City had incorrectly billed OTC as a single-family property instead of as a Multifamily Property. (Doc. 65-1, p. 32; see also Doc. 60-1, ¶ 17.) Correcting its mistake, in 2013, the City began charging OTC by reading each of the sub-meters in OTC's 236 units—rather than the master meters in each of its twelve buildings. (Doc. 60-1, ¶ 18.) Hence the record reflects that it was the City's longstanding practice to bill Multifamily Properties per unit, not per meter. The City's failure to bill OTC in this manner prior to 2013 was an anomaly, the correction of which does not implicate the FHA.
A pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "[D]etailed factual allegations" are not required, but "[a] pleading that offers `labels and conclusions' or `a formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Rather, "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows [a] court to draw the reasonable inference that defendant is liable for the misconduct alleged." Id. at 678; see also Bailey v. Wheeler, 843 F.3d 473, 480 (11th Cir. 2016).
Under Federal Rule of Civil Procedure 12(b)(6), a party may request dismissal of a pleading that falls short of these requirements. In resolving such motions, courts limit their consideration to the face of the complaint, its attachments, "documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23 (2007); see also Hoefling v. City of Miami, 811 F.3d 1271, 1277 (11th Cir. 2016). Dismissal is warranted if, assuming the truth of the factual allegations of the complaint in a plaintiff's favor, there is a dispositive legal issue which precludes relief. Neitzke v. Williams, 490 U.S. 319, 326 (1989).
In their operative complaint, Plaintiffs allege that the City's imposition of the 2012 Policy violates their substantive due process rights. (See Doc. 52, ¶¶ 74, 75); see also Doc. 100, p. 5.) The Due Process Clause of the Fourteenth Amendment contemplates both substantive and procedural due process protections. Zinermon v. Burch, 494 U.S. 123, 125-26 (1990). A violation of either of these rights may form the basis for a claim under 42 U.S.C. § 1983. McKinney v. Pate, 20 F.3d 1550, 1555 (11th Cir. 1994) (en banc).
The substantive component of the Due Process Clause protects against deprivations of fundamental rights—that is, those created by the Constitution. Greenbriar Vill., L.L.C. v. Mountain Brook, City, 345 F.3d 1258, 1262 (11th Cir. 2003); see also Collins v. City of Harker Heights, Tex., 503 U.S. 115, 125 (1992). "Property interests, of course, are not created by the Constitution. Rather they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law." See Bd. of Regents of State Colleges v. Roth, 408 U.S. 564, 577 (1972). Thus, state-created rights are generally not subject to substantive due process protection. McKinney, 20 F.3d at 1556.
However, the Eleventh Circuit has recognized at least one exception—the legislative act exception. Lewis v. Brown, 409 F.3d 1271, 1273 (11th Cir. 2005). Under this exception, "[w]here an individual's state-created right is infringed by a `legislative act,' the substantive component of the Due Process Clause generally protects him from arbitrary or irrational action by the government." Lewis, 409 F.3d at 1273 (citing McKinney, 20 F.3d at 1557 n. 9). Typically, a "legislative act" is one that applies to a larger segment, if not all, of society. Lewis, 409 F.3d at 1273.
Here, both parties agree that the legislative act exception applies because the 2012 Policy affects all Oviedo utility customers, not just OTC. (Doc. 100, p. 5; Doc. 102, p. 2.) But, according to the City, the Due Process Claim still fails because: (1) it is barred by the applicable statute of limitations; and (2) it fails under a rational basis review. (Doc. 62, pp. 6-8; Doc. 102, pp. 2-4.)
Even assuming that Plaintiffs' Due Process Claim is not barred by the applicable statute of limitations, the Court finds that the 2012 Policy withstands rational basis scrutiny. Because, at best, Plaintiffs assert a state-created property right, the Court must review the Due Process Claim under a rational basis test. See Kentner v. City of Sanibel, 750 F.3d 1274, 1281 (11th Cir. 2014) (applying a rational basis test at the motion to dismiss stage after concluding that the legislative act exception applied to the plaintiff's substantive due process claim).
Under rational basis scrutiny, Plaintiffs have the burden of establishing that the challenged governmental action is arbitrary and not rationally related to a legitimate governmental purpose. See Cook v. Bennett, 792 F.3d 1294, 1300 (11th Cir. 2015); see also Kentner, 750 F.3d at 1281. This standard is highly deferential, as legislative acts are found unconstitutional "in only the most exceptional circumstances." Kentner, 750 F.3d at 1281 (citing Williams v. Pryor, 240 F.3d 944, 948 (11th Cir. 2001)).
With these legal principles in mind, the Court concludes that Plaintiffs cannot show that the 2012 Policy lacks a rational basis. Plaintiffs themselves plead at least one rational basis for the 2012 Policy in the operative Complaint—generating sufficient funds to operate the City's utility systems. (Doc. 52, ¶ 29.) Plaintiffs may not agree with the wisdom or fairness of this rationale, but this is not the test under a rational basis review. Fresenius Med. Care Holdings, Inc. v. Tucker, 704 F.3d 935, 945 (11th Cir. 2013). Hence the MTD is due to be granted in part.
Accordingly, it is
