Cross Continent Dev. Llc v. Town of Akron

Decision Date23 September 2010
Docket NumberCivil Action No. 09–cv–02413–WYD–KMT.
Citation742 F.Supp.2d 1179
PartiesCROSS CONTINENT DEVELOPMENT, LLC, a Colorado limited liability corporation, Plaintiff,v.TOWN OF AKRON, COLORADO, a Colorado municipal corporation; The Akron Town Council; Carl S. McGuire II, Esq., in his official capacity as Attorney for the Town of Akron; The Board of Trustees of the Town of Akron; and The Colorado Plains Regional Airport Development Committee, Defendants.
CourtU.S. District Court — District of Colorado

OPINION TEXT STARTS HERE

Victor M. Morales, Katherine A. Kelley, McElroy Deutsch Mulvaney & Carpenter, LLP, Greenwood Village, CO, for Plaintiff.Geoffrey Race, Lawrence Michael Brooks, Jr., Rachel E. Ollar, Wells, Anderson & Race, LLC, Mary Kathryn Strauss, Peter H. Doherty, Overturf McGath Hull & Doherty, P.C., Denver, CO, for Defendants.

ORDER

WILEY Y. DANIEL, Chief Judge.

THIS MATTER is before the Court on Defendants' Motion to Dismiss. Defendants move, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss Plaintiff's claims asserted under federal law for unlawful taking, deprivation of procedural due process and deprivation of substantive due process. If these claims are dismissed, Defendants also ask the Court to decline to retain supplemental jurisdiction over the remaining state law claims and dismiss them without prejudice.

I. BACKGROUND

This case arises out of a lease between the Town of Akron [Akron] and Cross Continent Development, LLC [CCD], a private entity. CCD alleges that on January 5, 2009, with no prior warning or notice, Akron terminated a 49–year old lease (the “Lease”) with CCD, under which CCD leased property adjacent to the Colorado Plains Regional Airport in Akron.

The Lease states that it may be terminated by a party only upon “written notice” of the existence of a breach and after providing the party alleged to be in breach with, at minimum, a one-year opportunity to cure. (Am. Compl., ¶ 19, Ex. A. p. 10.) CCD alleges that in reliance on the Lease, it sought, secured, and entered into agreements with investors and sublessees that would undertake construction and development of the airport facilities. ( Id., ¶¶ 17, 21–22.) Pursuant to these agreements, CCD was projected to earn more than $60 million during the Lease term. ( Id., ¶ 23.)

Under the Lease, Akron permitted CCD to lease the airport land for a period of 49 years, with five additional ten-year extension options. (Am. Compl., ¶ 15.) In turn, CCD was obligated to develop the leased land. ( Id., ¶ 16.) CCD's development responsibilities under the Lease included preparation of a plan for development of the leased land, to be completed no later than December 31, 2008. ( Id., ¶ 16.)

In November 2008, CCD alleges it fulfilled its obligation under the Lease by presenting to Akron a comprehensive development plan that incorporated Akron's previous suggestions and corrections. (Am. Compl., ¶ 20.) The development plan allegedly satisfied all required elements under the Lease. ( Id.) Despite informing CCD that it would provide additional feedback after the November 2008 presentation, Akron failed to do so. ( Id.) Instead, it terminated the Lease on January 5, 2009, without providing CCD written notice or a one-year opportunity to cure as required.

II. ANALYSISA. Standard of Review

The Federal Rules of Civil Procedure provide that a defendant may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir.2003) (citations and quotation marks omitted). “A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff.” Hall v. Bellmon, 935 F.2d 1106, 1109 (10th Cir.1991).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). Plausibility, in the context of a motion to dismiss, means that the plaintiff pled facts which allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. If the allegations state a plausible claim for relief, the claim survives the motion to dismiss. Id. at 1950. B. Whether Dismissal is Appropriate as to the Federal Claims

1. Unlawful Taking Claim

Defendants assert that the complaint fails to state a claim for an unlawful taking. They argue that a taking claim is only appropriate in connection with a government contract if the plaintiff is foreclosed from bringing a state breach of contract claim. Here, Defendants assert that the rights between the parties were created by contract under the Lease, and that the contract rights are wholly intact. Accordingly, it is argued that Akron has not deprived Plaintiff of the full range of remedies under a breach of contract claim.

Turning to my analysis, it is well established that a plaintiff who is suing in connection with a government contract “is entitled to a takings remedy only if it is foreclosed from bringing a breach of contract action, i.e., if its contract rights have been ‘taken’.” Pi Electronics Corp. v. United States, 55 Fed.Cl. 279, 285 (Fed.Cl.2003); Hughes Communications v. United States, 271 F.3d 1060, 1070 (Fed.Cl.2002); Castle v. United States, 301 F.3d 1328, 1342 (Fed.Cir.2002). In other words, [a] takings claim has limited applicability when a claimant has a viable breach remedy.” Pi Electronics, 55 Fed.Cl. at 285. “This is so because [v]irtually every contract operates, not as a guarantee of particular future conduct, but as an assumption of liability in the event of non-performance.’ Id.

As explained in Hughes, [t]akings claims rarely rise under government contracts because the Government acts in its commercial or proprietary capacity in entering contracts, rather than its sovereign capacity. Hughes, 271 F.3d at 1070.” “Accordingly, remedies arise from the contracts themselves, rather than from the constitutional protection of property rights.” Id. The court also noted that if the government's breach in that case of a launch services agreement with NASA was a taking under the Fifth Amendment, “then nearly all government contract breaches would give rise to compensation under the Fifth Amendment.” Id. It stated that the court's predecessor has cautioned against commingling takings compensation and contract damages.” Id. The court then held that the government was acting in its proprietary capacity when it entered the contract as it ‘obtained certain rights and incurred certain responsibilities as did plaintiffs.’ Id. Accordingly, Hughes could only assert a breach of contract claim.

None of the above cases, however, dealt with leases involving real property. “As a general proposition, a leasehold interest is property, the taking of which entitles the leaseholder to just compensation for value thereof.” Sun Oil Co. v. United States, 215 Ct.Cl. 716, 572 F.2d 786, 818 (1978). “Further, authorized governmental actions can entail such an actual invasion of property rights that a constitutional taking can be implied.” Id. Nonetheless, “the concept of a taking as a compensable claim theory has limited application ... [even when a lease is involved] when those rights have been voluntarily ... created by contract.” Id. In such instances, as with other government contracts, interference with such contractual rights generally gives rise only to a breach of contract action. Id.; see also Zoeller v. United States, 65 Fed.Cl. 449, 460–62 (Fed.Cl.2005).

In this case, CCD does not dispute that Akron was acting in its proprietary capacity when it entered the lease as it can be inferred from the allegations of the Amended Complaint that Akron ‘obtained certain rights and incurred certain responsibilities as did [CCD].’ Hughes, 271 F.3d at 1070. Instead, CCD argues that it is precluded from the full range of remedies associated with any contractual property right it possesses in the lease. CCD asserts that because the Akron Town Council evicted CCD and treated the Lease as extinguished, rather than bringing an action for alleged contract breaches, and then approved subleases to third parties on the property, CCD's ability to enforce its rights under the Lease (including the right to specific performance) is impaired. I reject this argument.

I find the Zoeller opinion instructive on that issue. There, as here, a lessee of government land brought suit against the government alleging that its termination of a lease effected a taking. Zoeller, 65 Fed.Cl. at 452. The court noted that plaintiff's claims arose out of the termination of the lease, and held that the lease between the plaintiff and the government “prescribed the contract rights of the parties upon termination.” Id. at 462. The lease “contemplated and provided a method of resolving damages upon [its] termination”, and [b]y entering into the Lease, the plaintiff agreed to be compensated under the terms of the Lease.” Id. Zoeller further noted that the government did not prevent the plaintiff from seeking contractual remedies for losses related to the termination, and that in fact the plaintiff did pursue a breach of contract case with the state. Id. Accordingly, the Zoeller court dismissed the taking claim.

Here, as in Zoeller, the parties entered into a contract that specified what would occur when a party breached the contract. Under the Lease, CCD has the right to seek damages for Defendants' breach, including the alleged failure to give notice and a right to cure before the Lease's termination. This right has not been impaired....

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    ...substantive due process argument supports dismissal of its takings claim. See id. at 18, 23 (citing Cross Continent Dev., LLC v. Town of Akron, Colo., 742 F.Supp.2d 1179 (D.Colo.2010)). In Cross Continent, a lessee of government land sued the government alleging that the termination of the ......
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    ...Process Clause such that the right is a protected property right protected by due process." Cross Continent Development, LLC v. Town of Akron, Colorado, 742 F.Supp.2d 1179, 1188 (D. Colo. 2010) (quoting Memphis Light, Gas and Water Division v. Craft, 436 U.S. 1, 9, 98 S.Ct. 1554, 56 L.Ed.2d......
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    ...safeguards regarding property rights from leaseholders.152. See, e.g., Cross Continent Dev., LLC v. Town of Akron, Colo., 742 F. Supp. 2d 1179, 1184 (D. Colo. 2010) ("As a general proposition, a leasehold interest is property, the taking of which entitles the leaseholder to just compensatio......

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