145 Fisk, LLC v. Nicklas

• Decision Date: 26 January 2021
• Docket Number: No. 20-1868,20-1868
• Citation: 986 F.3d 759
• Parties: 145 FISK, LLC, Plaintiff-Appellant, v. F. William NICKLAS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

986 F.3d 759

145 FISK, LLC, Plaintiff-Appellant,

v.F. William NICKLAS, Defendant-Appellee.

No. 20-1868

United States Court of Appeals, Seventh Circuit.

Argued December 10, 2020

Decided January 26, 2021

Christopher Nicholas Cronauer, Attorney, Cronauer Law LLP, Sycamore, IL, for Plaintiff-Appellant.

Michael L. Resis, Attorney, SmithAmundsen LLC, Chicago, IL, Daniel R. Whiston, Attorney, SmithAmundsen LLC, St. Charles, IL, for Defendant-Appellee.

Before Sykes, Chief Judge, and Flaum and Kanne, Circuit Judges.

Flaum, Circuit Judge.

Illinois authorizes municipalities to invest in revitalizing areas of "commercial blight." See 65 Ill. Comp. Stat. 5/11-74.4 et seq. The City of DeKalb, Illinois (the "City"), entered into a preliminary agreement to allocate just such an incentive to 145 Fisk, LLC ("Fisk"). After more due diligence, however, the City reversed course.

Fisk is convinced the City would have proceeded with the funding as planned but for the meddling of City Manager F. William Nicklas. According to Fisk, Nicklas sought to retaliate against it and favor other local developers in violation of its First and Fourteenth Amendment rights. The district court dismissed Fisk's suit for failure to state a claim upon which relief can be granted and relinquished supplemental jurisdiction over the remaining state law claims. Because we agree that Fisk has not plausibly stated grounds for relief, we affirm the judgment of the district court.

I. Background

Plaintiff-appellant Fisk is a limited liability company. The entity was formed on December 13, 2018, and it consisted of two members, one of whom is an attorney ("Attorney Member").

Fisk alleges that for over two years it collaborated with the City regarding a proposed redevelopment of a dilapidated property at 145 Fisk Avenue in DeKalb. On December 18, 2018, the City adopted Resolution 2018-166 approving a Preliminary Development Incentive Agreement ("PDA") with Fisk regarding potential financing for the project. The PDA, into which the parties entered on or about January 1, 2019, provided that if Fisk met certain contingencies set forth therein, the City would provide an approximate $2,500,000 Development Incentive ("Development Incentive") in Tax Increment Financing ("TIF") to Fisk for the redevelopment. Per the PDA, the Development Incentive was "intended to be repaid as a forgivable incentive, payable through the generation of revenues from the development of the Property after the date of final plan approval."

Both the PDA and the Resolution, however, imposed conditions and obligations on both parties before finalizing the development agreement and distributing the funds. The Resolution provided that the City Council "hereby approves of the Development Incentive Agreement ... subject to such amendments as shall be acceptable to the Mayor with the recommendation of the City Manager. Staff is authorized to negotiate and proceed with presentation of [the] Final Development Agreement for consideration of approval at a future date."

The PDA likewise subjected the Development Incentive to various contingencies. For example, Recital C of the PDA states "the Parties have entered into this Agreement so as to provide an incentive for [Fisk] to ... proceed with the proposed project, subject to the contingencies outlined herein." Recital E continued: "[Fisk] acknowledges that the City is not required to provide the incentive contemplated herein ...." Indeed, the extent of the arrangement is an "agreement to conditionally approve." The PDA further states in Article II(A) that "[Fisk] acknowledges all contingencies outlined in this Agreement, and agrees and acknowledges that until all such contingencies are fully satisfied, it has no basis to detrimentally rely upon the representations of the City with respect to the availability of incentive funding." With respect to costs incurred, under Article II(A) "[Fisk] agrees and acknowledges that any costs incurred prior to approval of a planned development agreement as contemplated herein ... are incurred at [Fisk]’s sole risk and cost until such point in time as the Property is rezoned and the planned development agreement is approved, and any other conditions or contingencies outlined herein are satisfied in full." (Emphasis added). Even in defining the "Development Incentive," Article V(B) states "All provisions of this Article V are contingent upon [Fisk] obtaining final approval of its plans, rezoning the Property, lender financing, and executing a planned development agreement as described above."

Amid the negotiations over the redevelopment project, a transition in the City's personnel marked the beginning of the end for Fisk's proposed Development Incentive. Around January 1, 2019, F. William Nicklas became the new City Manager. Unsatisfied with previous due diligence, Nicklas opened his own inquiries into Fisk's financial affairs and development plans. This included a series of in-person meetings and exchanges during February and March 2019 between Nicklas and Fisk's principals. Nicklas requested "personal information" about the principals, their affiliates, and their financial situation. Nicklas even spoke with the Attorney Member's personal banker. Nicklas also requested information about the corporate entity itself, including a worksheet to indicate its "financial viability." Fisk never, however, affirmatively states in the record what amount of working capital the principals or the corporate entity specifically had to fund the project contemplated by the PDA. By Fisk's account, all Nicklas's requests duplicated the City's prior ones and were not required by the Resolution or PDA.

Nicklas's review exposed cracks in the project's foundation. In an email to Fisk dated April 1, 2019, Nicklas stated he felt "duty-bound" to inform the Council that in his opinion Fisk did not have "the financial capacity or the experience" needed for the funding. Nicklas based this conclusion on submissions from Fisk, including the financial worksheet, a budget for three years of operation following 145 Fisk Avenue's completion, and the principals’ own "acknowledgment" during a March 2019 meeting that neither "ha[d] ever developed a hotel property in the past." Nicklas recommended Fisk withdraw its application. Specifically, Nicklas stated:

[M]y judgment is based upon the following conclusions:

1. No balance sheet for 145 Fisk LLC has been submitted, but your submittal shows no current or long-term assets that can be pledged as collateral. The corporation controls a 24,000 square foot, uninhabitable facility with an estimated market value of only $300,000.

2. 145 Fisk LLC has not secured any sources of income to complete the project or operate the project upon its completion.

3. 145 Fisk LLC has no working capital and its operations are not generating any capital to pay for current expenses, much less the ongoing professional consulting fees incurred to date in the conceptual planning phase of the project.

4. On the basis of your submittal, it appears that 145 Fisk LLC is relying upon a $2.5 million TIF grant from the City and 100% of the balance of the equity funding from one or more financial institutions. Your submittal offers no working cash from the principals, or pledged private assets, or lines of credit, or other private equity to help finance the project.

5. You do not reveal the real and comparable hotel development upon which you are basing the projected three-year profit and loss prospectus you submitted. Since you have not developed a hotel, your numbers are not rooted in an actual operation, so far as you have revealed. They [sic] are so many numbers on a page.

6. As you may know, TIF assistance carries a federal income tax liability. Your submittal shows no indication that 145 Fisk LLC could carry that liability except at the expense of the project's development.¹

Disagreement ensued. In a series of subsequent exchanges, the Attorney Member reiterated that the corporate entity was "simply a holding [LLC] at this point" and Nicklas's "specific comments 1-6 [were]n't accurate, include[d] erroneous assumptions, [we]re disingenuous, or [we]re completely out of context." The Attorney Member emphasized "[a]ll [they] need is a loan commitment to proceed, but ... commitment and income sources cannot be secured until a formal commitment from the City is finalized." Fisk also rejected Nicklas's recommendation to withdraw its application for the Development Incentive.

As it turns out, the events of 2019 were not the first encounter between Nicklas and Fisk's members. The Attorney Member represented a client in a state court lawsuit involving the City of Sycamore. In response to an interrogatory dated April 21, 2017, that client identified Nicklas—who was previously Sycamore's City Manager—as a witness. Through the proceedings, an email surfaced in which Nicklas referred to regulatory requirements imposed by "[t]hat pesky Constitution" which "has strictures against artificial distinctions." However, the client in that suit was not Fisk. In fact, Fisk had not yet come into corporate existence.

During that same period, Nicklas considered two other development projects with which, Fisk alleges, Nicklas had previous financial and personal ties for funding incentives. The first was a TIF-backed hotel project with a developer named Shodeen. Nicklas had previously collaborated on a hotel with Shodeen that never came to fruition. The second was a TIF-backed apartment development project with John Pappas. Nicklas had previously represented Pappas's major investor, who intended to invest in the TIF-backed apartment, in consulting work.

Nicklas ultimately recommended the City terminate the PDA with Fisk. During an April 22, 2019, meeting, the City Council addressed Nicklas's findings. The City's Agenda notes indicated the City did not receive "the necessary financials and development plans to justify a permanent commitment to the allocation of $2.5 million" within 120...