FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

SALLY A. MATSUDA, Trustee of the   
Sally A. Matsuda Self-Trusteed
Trust dated October 15, 1993;
RALPH JAMES MITCHELL; LUCY
MITCHELL; NOOSHA FESHARAKI;
EARL KIDDER; JEENIE MARIE
KIDDER; JAMES RAPISARDA;
JONATHAN VON BRANA; THOMAS
PRESTON; LOREN HOHMAN; HERBERT
CAPLAN; ELENA PECILE, Co-Trustee
of the Herbert Caplan and Elena
V. Pecile Trust dated March 27,          No. 06-15337
2003; WILMA PARKER, Trustee of
the Wilma I. Parker Trust dated           D.C. No.
                                       CV-05-00125-DAE
March 16, 1989 as amended; TROY           OPINION
WILLIAMS; LARRY WEISNER;
DELORES WEISNER; MARIANNE
MARION JAEGER; RICHARD JOHNSON;
WILLIAM GARRETT FUSON; KANG
YUK LEE; SUK JA LEE; CLAUDE
ROTHE, Trustee of the Claude R.
Rothe Living Trust dated March
26, 1998; ALVIN OLSON, Trustee
under Alvin R. Olson Revocable
Trust Agreement dated July 20,
1998;
                                   




                          395
396                 MATSUDA v. HONOLULU


NATALIA INDRASARI; WARREN              
SWEET, Trustee of the Sweet John
Revocable Trust dated June 21,
1991; RHEBA ALICE SWEET; ROBERT
MEHRING; AYUMI WATANABE
MEHRING; ARNOLD FLEMMINGS;
MARIANA FLEMMINGS, Co-Trustee
of the Arnold Theodore
Flemmings and Mariana
Flemmings Revocable Living
Trust dated December 6, 1999;
MELVIN TAKEO MATSUOKA; DELWIN
SCHNEIDER; KATHERINE SCHNEIDER,
                                       
Trustee under the Delwin Byron
Schneider and Katherine Louise
Schneider Family Trust dated
October 14, 1996; RONALD
SILVERMAN; FARHAD SIMYAR; FRANK
WINSTON KERN,
              Plaintiffs-Appellants,
                v.
CITY AND COUNTY OF HONOLULU,
               Defendant-Appellee.
                                       
        Appeal from the United States District Court
                 for the District of Hawaii
         David A. Ezra, District Judge, Presiding

                 Argued and Submitted
           November 2, 2007—Honolulu, Hawaii

                   Filed January 14, 2008

Before: Diarmuid F. O’Scannlain, A. Wallace Tashima, and
           Milan D. Smith, Jr., Circuit Judges.
    MATSUDA v. HONOLULU        397
Opinion by Judge O’Scannlain
                   MATSUDA v. HONOLULU                  399


                        COUNSEL

David A. Nakashima, Alston Hunt Floyd & Ing, Honolulu,
Hawaii, argued the cause for the plaintiffs-appellants, and
filed briefs; Lerisa L. Heroldt and Clyde J. Wadsworth, Als-
ton Hunt Floyd & Ing, Honolulu, Hawaii, were on the briefs.

Don S. Kitaoka, Deputy Corporation Counsel, City and
County of Honlulu, Hawaii, argued the cause for the
400                   MATSUDA v. HONOLULU
defendant-appellee and filed a brief; Carrie K.S. Okinaga,
Corporation Counsel, Paul M. Iguchi and Derek T.
Mayeshiro, Deputy Corporation Counsels, City and County of
Honolulu, Hawaii, were on the briefs.


                            OPINION

O’SCANNLAIN, Circuit Judge:

   We are called upon to determine whether the United States
Constitution imposes any limit on the City of Honolulu’s
power to repudiate a contract to convey property to a private
citizen in connection with its leasehold conversion program.

                                  I

                                 A

   In 1991, the City and County of Honolulu (the “City”)
enacted an ordinance, later codified at Chapter 38 of the
Revised Ordinances of Honolulu (“Chapter 38”), which cre-
ated a mechanism allowing owners of leasehold interests in
condominium units to convert their leasehold interests into fee
interests by using the City’s power of eminent domain.1 We
upheld the constitutionality of Chapter 38 in Richardson v.
City and County of Honolulu, 

(9th Cir. 1995).
As we explained in that case, Chapter 38 was a response to
Hawaii’s long history of feudal land ownership, which sur-
vived well after American acquisition. 

At the time
of Chapter 38’s enactment, a small handful of landowners
owned the vast majority of land in the State. Despite the
efforts of Hawaii’s leaders to divide these large Hawaiian
land estates, the system persisted, driving the price of land in
Hawaii to exorbitant heights. Taking advantage of this status
  1
   The Hawaii Legislature has delegated the power of eminent domain to
local bodies such as the City. Haw. Rev. Stat. § 46-1.5(6) (2006).
                     MATSUDA v. HONOLULU                    401
quo, Hawaiian landowners rarely sold their estates. Instead,
they frequently leased their land for long terms, often to
developers who would construct condominiums on the prop-
erty and then sell the units subject to the ground lease. 

   To break up this pattern and to increase the opportunity for
land ownership, the City enacted Chapter 38. Chapter 38 pro-
vided that when a sufficient number of condominium unit
owners within a condominium complex applied, the City
would take steps to acquire the property on which their con-
dominium complex was built from the landowner by power of
eminent domain. The City would then convey each condo-
minium unit and the appurtenant land to the lessee-applicants
in fee simple.

   Specifically, Chapter 38 required an application from a
minimum of either 25 condominium owners within a develop-
ment or the owners of at least 50% of the condominium units
within the development to trigger its condemnation mecha-
nism. Revised Ordinances of Honolulu § 38-2.2(a)(1). Upon
such application, the City’s Department of Housing and Com-
munity Development (the “Department”) would hold a duly-
noticed public hearing to determine whether the acquisition of
the property though eminent domain would “effectuate public
purposes” as defined in Chapter 38. 

If the
Department issued a finding answering that question in the
affirmative, the Department would initiate condemnation pro-
ceedings unless the landowner agreed to convey the fee inter-
ests to the lessee-applicants directly. 

condemnation could begin, the City Council was required to
adopt a resolution approving the exercise of eminent domain
and appropriating the necessary funds to pay just compensa-
tion. Id.; City & County of Honolulu Rules for Residential
Condominium, Cooperative and Planned Development Lease-
hold Conversion § 2-12.
402                 MATSUDA v. HONOLULU
                              B

   Sally Matsuda and the other appellants in this suit (the
“Lessees”) hold leasehold interests in condominium units at
the Discovery Bay condominium complex in Honolulu,
Hawaii. The Lessees applied to the City under Chapter 38 to
convert their leasehold interests into fee simple interests in
their units and the appurtenant land. Upon receipt of the Les-
sees’ applications, the City entered into individual written
contracts with each Lessee in which the Lessee promised to
pay the City $1,000 in exchange for the City’s promise that,
upon its successful acquisition of the property at Discovery
Bay, the City would convey a fee interest to each Lessee in
her unit and the appurtenant land. Each contract was expressly
conditioned on the City’s successful acquisition of the prop-
erty pursuant to Chapter 38, and each party agreed to use its
best efforts to effectuate the acquisition.

   On July 3, 2004, after a duly-noticed public hearing, the
Department announced its finding that condemnation of the
property at Discovery Bay would serve the public purpose
required by Chapter 38. A few months later, in late October
or early November, the Lessees received written notice of
their final approval to proceed with Chapter 38’s leasehold
conversion procedure. Finally, on November 24, the Depart-
ment designated the Lessees’ leasehold interests in the real
property and other common elements at Discovery Bay for
acquisition through the City’s exercise of eminent domain,
finding that the Lessees had satisfied Chapter 38’s numerosity
requirement, that the condemnation would effectuate the pub-
lic purpose of Chapter 38, and that no agreement for a volun-
tary sale by the landowner had been made.

  As the Lessees’ application was progressing, however, the
Honolulu City Council began considering a proposed bill that
would repeal Chapter 38. As the proposed bill’s statement of
purpose explained, some members of the Council had deter-
mined that Chapter 38’s goal of “provid[ing] affordable hous-
                        MATSUDA v. HONOLULU                          403
ing” and “strengthen[ing] the economy through fee
ownership” had largely been satisfied, rendering the provision
unnecessary.

   On November 10, 2004, a councilmember introduced a
measure seeking a City Council resolution to approve the ini-
tiation of condemnation proceedings at Discovery Bay. Even
though the Lessees’ applications had met all the requirements
of Chapter 38, the Council deferred consideration of the reso-
lution pending the possible repeal of Chapter 38.

   On January 26, 2005, the Council enacted Ordinance 05-
001, repealing Chapter 38. The ordinance permitted any con-
demnation proceeding approved by City Council resolution
before the effective date of the repeal to continue, but because
the City Council never took such a step to approve the con-
demnation of the property at Discovery Bay, the project
failed.

   The Lessees filed suit against the City in the district court,
arguing that Ordinance 05-001 violated the Contracts Clause,
the Fourteenth Amendment’s Due Process Clause, and 42
U.S.C. § 1983, and seeking declaratory and injunctive relief.2
Shortly thereafter, the Lessees moved for a preliminary
injunction to enjoin the implementation of the ordinance,
which the district court denied. The Lessees then filed a
motion for summary judgment, which the district court denied
as well, granting summary judgment in favor of the City
instead. Matsuda v. City and County of Honolulu, 378 F.
Supp. 2d 1249 (D. Haw. 2005). The district court concluded
that the Lessees could not challenge Ordinance 05-001 under
the Contracts Clause because the Lessees’ contracts with the
City were unenforceable. It reasoned that the “reserved pow-
ers” doctrine precluded the City from entering into the con-
  2
   The Lessees also argued that the ordinance was an unconstitutional bill
of attainder, U.S. Const. art. I, § 10, a claim they do not raise on this
appeal.
404                    MATSUDA v. HONOLULU
tracts because they purported to limit the City’s discretion
over the use of its eminent domain power, a power which has
been labeled an “essential attribute of sovereignty.” 

(quoting United States v. Winstar Corp., 

,
888 (1996)).

  The Lessees timely appeal.

                                  II

   We begin with the Lessees’ claim that Ordinance 05-001
impaired their contracts with the City in violation of the Con-
tracts Clause of the United States Constitution. The Contracts
Clause provides that “[n]o State shall . . . pass any . . . Law
impairing the Obligation of Contracts.” U.S. Const. art. I,
§ 10. Despite the sweeping terms of its literal text, the
Supreme Court has construed this prohibition narrowly in
order to ensure that local governments retain the flexibility to
exercise their police powers effectively. See Allied Structural
Steel Co. v. Spannaus, 

, 240 (1978); El Paso v.
Simmons, 

(1965); Home Bldg. & Loan Ass’n. v.
Blaisdell, 

(1934). Nevertheless, when a state’s
action interferes with its own contractual obligations, as
opposed to mere private contracts, the Court has made clear
that we are to examine the state’s conduct with a higher level
of scrutiny.3 U.S. Trust Co. v. New Jersey, 

, 20-21
(1977).

   Under this heightened scrutiny test, first announced in U.S.
Trust, we consider (1) “whether the state law has, in fact,
operated as a substantial impairment of a contractual relation-
ship,” Energy Reserves Group, Inc. v. Kan. Power & Light
Co., 

, 411 (1983) (citations and internal quota-
tion marks omitted); (2) whether the state law is justified by
  3
   The Contracts Clause applies to a municipality such as the City. See
Rui One Corp. v. City of Berkeley, 

, 1141, 1147 (9th Cir.
2003).
                     MATSUDA v. HONOLULU                      405
a “significant and legitimate public purpose,” id.; and (3)
whether the impairment resulting from the law is both “rea-
sonable and necessary to fulfill [such] public purpose,” S. Cal.
Gas Co. v. City of Santa Ana, 

, 889-90 (9th Cir.
2003) (per curiam) (citations and internal quotation marks
omitted).

   In the case before us, however, the district court did not
apply the U.S. Trust test to the Lessees’ Contracts Clause
claim, concluding instead that heightened scrutiny was not
appropriate because the reserved powers doctrine rendered the
Lessees’ contracts with the City void ab initio. 

.

                                A

   [1] The reserved powers doctrine is a label the Supreme
Court has applied to describe the uncontroversial proposition
that a state may not enter a contract that “surrenders an essen-
tial attribute of its sovereignty” and that, as a consequence,
the Contracts Clause may not be used to compel a state to
adhere to a contract that purports to achieve such a result. U.S.

. Although a complete list of the essential
attributes of sovereignty which may not be contracted away
has never been established, it is well-settled that “a State can-
not be bound to a contract forbidding the exercise of its police
power,” U.S. 

n.21 (citing Stone v. Mis-
sissippi, 

, 817 (1880)), and that “a State cannot
contract away [its] power of eminent domain,” 

River Bridge Co. v. Dix, 

(1848)).

   [2] Despite this, most contracts in which a state agrees to
limit its power to act in the future will not be subject to prohi-
bition. 

Indeed, as “the Court has regularly held,”
a state will be bound by contracts that limit the use of its tax-
ing and spending powers, even though such contracts limit the
state’s future exercise of discretion in material ways. 

v. HONOLULU
   In turning to the question of whether the City’s contracts
with the Lessees in this particular case are subject to the
reserved powers doctrine, we note that the Supreme Court has
explained that our initial task is to determine whether the state
had the “power to create irrevocable contract rights in the first
place.” 

The City argues that it did not, because these
contracts purport to limit its discretion over its essential
power of domain. The Supreme Court has twice decided cases
in which a Contracts Clause claim implicated a state’s power
of eminent domain, as the City argues has occurred here, and
so, we examine those precedents.

   In West River Bridge, a corporation received a charter from
the State of Vermont which entitled it to operate a toll bridge
across a river and to collect tolls from 

. Several years later, the State initiated condemnation pro-
ceedings which extinguished the corporation’s franchise and
converted the bridge into a free public highway. 

Just compensation was assessed. 

asserted
a Contracts Clause claim, which the Court rejected, conclud-
ing that the Constitution did not prohibit the State from using
its eminent domain power, even where the property taken was
previously conveyed by the State. 

As the Court
explained, all contracts, whether they are between a state and
a private actor or private actors alone, are made subject to the
understanding that the state may one day take the subject
property for public use, provided that just compensation is
paid. 

situation arose in Contributors to Pennsylvania
Hospital v. City of Philadelphia, 

(1917). In that
case, a hospital entered a contract with the State of Pennsylva-
nia which resulted in a state statute specifically forbidding the
State from opening any street or alley on hospital grounds
without the hospital’s consent. 

Several years later,
however, the City of Philadelphia, through the power con-
ferred upon it by the State, initiated condemnation proceed-
ings against the hospital’s land for the purpose of opening a
                        MATSUDA v. HONOLULU                           407
public street. 

The hospital asserted a Contracts
Clause claim, which the Court again rejected, concluding that,
regardless of Pennsylvania’s promise to the hospital, states
lack the power to divest themselves of their right to perform
“essential governmental duties” such as exercising the power
of eminent domain when a public need so requires. 

   [3] West River Bridge and Contributors to Pennsylvania
Hospital stand for the proposition that the Contracts Clause
cannot be used to bind a state to a contract that prevents it
from exercising its power of eminent domain. Yet such facts
have not been alleged here. In this case, the Lessees have not
accused the City of impairing its contracts with them by exer-
cising its power of eminent domain to take for public use
property which it previously conveyed to the Lessees. Instead,
the Lessees accuse the City of reneging on its contractual
promise to use its best efforts to effectuate a condemnation
proceeding against the property at Discovery Bay and, if suc-
cessful, to convey the property to the Lessees. Accordingly,
we find the Lessees’ claim to be distinct from those Contracts
Clause claims to which the Supreme Court has applied the
reserved powers doctrine in the past.

   The district court held otherwise, concluding that the con-
tracts at issue required the City to exercise its eminent domain
power and that “[a] contract requiring a sovereign to exercise
the power [of eminent domain] is just as limiting as a contract
prohibiting it from doing so.” 

(emphasis added).4 We disagree.
  4
    The district court drew support for this conclusion from Kelo v. City
of New London, 

(2005). As the district court noted, Kelo
emphasized that states remain free to impose limitations on their own
exercise of any power, including the takings power, stricter than the limi-
tations required by the United States Constitution. 

Yet Kelo
provides no guidance regarding the question presented here: whether a
state actor’s contract to convey property if successfully acquired through
eminent domain is subject to U.S. Trust’s heightened scrutiny analysis or
is void on its face.
408                     MATSUDA v. HONOLULU
   As an initial matter, the City’s contracts with the Lessees
did not expressly require the City to condemn the property at
Discovery Bay. As discussed above, Chapter 38 imposed sev-
eral requirements for a successful condemnation which were
beyond the City’s power to control, and the City only agreed
to use its best efforts to achieve those results. Thus, if an
insufficient number of condominium owners applied to the
City or if the public hearing held by the Department failed to
produce a finding that condemnation would serve a valid pub-
lic purpose, the City would not have been obligated under the
contracts to proceed with the condemnation.

   [4] More importantly, however, the City’s contracts with
the Lessees do not restrict its ability to exercise its eminent
domain power in any way. The contracts reflect the City’s
voluntary undertaking to use its best efforts to effect a con-
demnation of the property at Discovery Bay and to convey
that property to the Lessees if successful. The contracts do not
purport to require the City to refrain from the exercise of any
sovereign power, including the power of eminent domain.5
Instead, the contracts reflect the City’s decision to initiate pro-
ceedings to exercise its power of eminent domain over the
property at Discovery Bay, and to convey the property to the
Lessees if successful. This is not the type of agreement to
which the reserved powers doctrine applies and, accordingly,
we conclude that U.S. Trust’s heightened scrutiny test pro-
vides the mandatory analysis.6
  5
     Indeed, there is no provision in the contracts that purports to prevent
the City from conveying the property to the Lessees and later taking the
property for public use. Thus, these contracts contain none of the same
elements the Court found unenforceable in West River Bridge and Con-
tributors to Pennsylvania Hospital.
   6
     Indeed, as a survey of our Contracts Clause jurisprudence indicates,
Ordinance 05-001 is quite analogous to the state actions this court and the
Supreme Court have assessed under U.S. Trust. See U.S. 

(holding that concurrent and parallel New York and New Jersey
statutes that retroactively repealed a covenant between the States and
                        MATSUDA v. HONOLULU                            409
                                    B

   [5] Turning to the U.S. Trust test, our first inquiry is
whether Ordinance 05-001 “operated as a substantial impair-
ment of a contractual relationship.” 

(quoting Gen. Motors Corp. v. Romein, 

,
186 (1992) (internal quotation marks omitted)). The Supreme
Court has subdivided this inquiry into three separate ques-
tions: (1) “whether there is a contractual relationship”; (2)
“whether a change in law impairs that contractual relation-
ship”; and (3) “whether the impairment is substantial.” Seltzer
v. Cochrane, 

, 236 (9th Cir. 1996) (quoting Gen.
Motors 

).

   [6] The parties do not dispute that a contractual relationship
existed prior to the enactment of Ordinance 05-001. Turning
to the questions of whether the ordinance impaired that con-
tractual relationship and whether such impairment was sub-
stantial, the parties are in disagreement and the record is not
fully developed.7 Whether there was a substantial impairment
is precisely the question U.S. Trust instructed the district court
to answer in the first step of its analysis. Because the district
court determined that the reserved powers doctrine rendered

bondholders in the state-owned Port Authority was subject to Contracts
Clause analysis); 

(concluding that a congres-
sional statute that prohibited federal entities from complying with their
contracts to provide various financial institutions with certain accounting
treatment was subject to the Contracts Clause and that the reserved powers
doctrine did not relieve the federal government from liability); 

(determining that a Hawaii statute that repealed the pay-
roll system for state employees agreed to under a collective bargaining
agreement and implemented a new system in its place was subject to a
Contracts Clause claim).
   7
     The contracts were “expressly conditioned” upon the City’s successful
acquisition of the property, but it is unclear whether the repeal of Chapter
38 under a mechanism such as Ordinance 05-001 was contemplated under
the agreement, although as the City conceded at oral argument, the City
was, at minimum, under an implied duty of good faith and fair dealing.
410                  MATSUDA v. HONOLULU
the City’s contracts unenforceable, it never reached this
threshold question. We believe this analysis is most appropri-
ate for the district court to engage in on remand as a matter
of first impression.

   [7] Accordingly, we vacate the district court’s grant of
summary judgment to City on the Lessees’ Contracts Clause
claim and remand to allow the district court to consider the
Lessees’ claim under the framework set forth in U.S. Trust.

                              III

   [8] Having addressed the Lessees’ Contracts Clause claim,
we next turn to their contention that Ordinance 05-001 vio-
lates the Due Process Clause of the Fourteenth Amendment.
The Due Process Clause provides that no State shall “deprive
any person of life, liberty, or property, without due process of
law.” U.S. Const. amend. XIV. We have held that contracts
such as the Lessees’ may give rise to property interests pro-
tected by this provision. See Brewster v. Bd. of Educ., 

, 982-83 (9th Cir. 1998). Further, the Due Process
Clause confers both procedural and substantive rights. Rich-

(citing United States v. Salerno, 

, 746 (1987)). In evaluating a substantive due process
claim such as the Lessees’, we have determined that state
action which “neither utilizes a suspect classification nor
draws distinctions among individuals that implicate funda-
mental rights” will violate substantive due process only if the
action is “not rationally related to a legitimate governmental
purpose.” 

v. Sullivan, 

,
1404 (9th Cir. 1991)).

  [9] The burden this places on the plaintiff is “extremely
high.” 

Monte Dunes v. City of Monterey, 

, 1508 (9th Cir. 1990)). To prove that the City’s
enactment of Ordinance 05-001 violated their substantive due
process rights, the Lessees must demonstrate first that their
contracts were the type of property the Due Process Clause
                      MATSUDA v. HONOLULU                      411
protects and, second, that the City deprived them of their
rights under the contracts in a way that “shocks the con-
science” or “interferes with rights implicit in the concept of
ordered liberty.” Nunez v. City of Los Angeles, 

,
871 (9th Cir. 1998) (quoting 

) (inter-
nal quotation marks omitted).

   [10] The district court did not evaluate the Lessees’ claim
under this framework because it determined that the reserved
powers doctrine relieved the City of its obligations and left
the Lessees without any enforceable contractual rights that
could be protected by the Due Process Clause. 

. Because we have already concluded that the
district court’s application of the reserved powers doctrine
was in error, we remand to the district court to reconsider the
Lessees’ due process claim once it has determined whether
the Lessees had any contractual rights that could give rise to
a protected property interest.

   We express no opinion as to whether any property interests
potentially arising from the Lessees’ contracts could meet the
“exceedingly high” burden our Due Process jurisprudence
imposes. Furthermore, we express no opinion as to whether
our decision in Armendariz v. Penman, 

(9th Cir.
1996) (en banc), precludes the Lessees from asserting a sub-
stantive due process claim in this case, where the Contracts
Clause provides a specific source of constitutional protection
against the government conduct of which they complain. 

                                IV

   [11] Finally, we turn to the Lessees’ contention that the
City’s alleged violations of the Contracts Clause and Due Pro-
cess Clause violate § 1983. As an initial matter, we note that
from the face of the Lessees’ complaint and their subsequent
filings in the district court, it is unclear whether they have pre-
served a claim for damages under § 1983 in the event the dis-
412                  MATSUDA v. HONOLULU
trict court determines on remand that a constitutional violation
has occurred. Nevertheless, both the Contracts Clause and the
Due Process Clause may give rise to a claim under § 1983.
See S. Cal. Gas 

(holding that a Con-
tracts Clause violation may support a § 1983 claim); Young-
berg v. Romeo, 

(1982) (recognizing a plaintiff’s
§ 1983 claim predicated on an alleged violation of his sub-
stantive due process rights). Accordingly, because we con-
clude that the district court erred in applying the reserved
powers doctrine to find that no constitutional violations
occurred, we vacate the district court’s grant of summary
judgment to the City on the Lessees’ § 1983 claims and
remand. If the district court on remand determines that the
Lessees’ contractual rights survived Chapter 38’s repeal, the
Lessees may be able to assert a claim under § 1983 under
either constitutional provision.

                               V

  Based on the foregoing, we VACATE the district court’s
grant of summary judgment in favor of the City and
REMAND for further proceedings. Each party shall bear its
own costs on appeal.