Northwestern Nat. Life Ins. Co. v. Tahoe Regional Planning Agency

• Citation: 632 F.2d 104
• Decision Date: 07 November 1980
• Docket Number: No. 78-2006,78-2006
• Parties: NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY et al., Plaintiffs/Appellants, v. TAHOE REGIONAL PLANNING AGENCY, etc., et al., Defendants and James J. Jordan et al., Defendants/Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 104

632 F.2d 104

NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY et al., Plaintiffs/Appellants, v. TAHOE REGIONAL PLANNING AGENCY, etc., et al., Defendants and James J. Jordan et al., Defendants/Appellees.

No. 78-2006.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 10, 1980.

Decided Nov. 7, 1980.

Harold E. Rogers, Jr. & Associates, San Francisco, Cal., for plaintiffs/appellants.

Gary A. Owen, Shaw, Heaton & Doescher, Ltd., Carson City, Nev., argued for defendants/appellees; C. Clifton Young, Reno, Nev., on brief.

Appeal from the United States District Court for the District of Nevada.

Before HUG, FARRIS and POOLE, Circuit Judges.

FARRIS, Circuit Judge:

Northwestern National Life Insurance Co. and other bondholders appeal the dismissal for failure to state a claim of their complaint which alleged that the Tahoe Regional Planning Agency's land use plan and ordinance impaired the assessment bonds issued by Round Hill General Improvement District in violation of Article 1, section 10, clause 1 of the United States Constitution. Northwestern argues that the land use ordinance violated the contract clause because it deterred payment of the underlying assessments and effectively destroyed the lien securing the bonds' indebtedness. We affirm.

I. FACTS

The Round Hill General Improvement District is a municipal corporation encompassing 643 acres on the south shore of Lake Tahoe in Douglas County, Nevada. The district was created on May 22, 1964, for the purpose of providing streets, water, sewer, drainage, and other facilities for a real estate development within the district, called Round Hill. See generally General Improvement District Law, Nev.Rev.Stat. §§ 318.010-.535 (1973, 1975 & 1977).

Pursuant to statutory authority, the district issued assessment bonds in 1964 and 1965 in order to construct the necessary support facilities for the Round Hill real estate development. All of the bonds issued are payable from assessments, secured by liens, against 443 acres of land located in the district.

In December 1969 Congress consented to the formation of the Tahoe Regional Planning Compact between Nevada and California. Act of Dec. 18, 1969, Pub.L. No. 91-148, 83 Stat. 360. The Compact established the Tahoe Regional Planning Agency to adopt ordinances, rules, regulations, and policies to effectuate a regional plan setting minimum standards for water purity, zoning, and shoreline development. On February 10, 1972, the Planning Agency adopted a comprehensive land use ordinance which limited the use of various lands including 243 acres within the Round Hill District. The 243 acres were rezoned as "General Forest District." Under this classification, property can be used only for recreation and for timber growing and harvesting. Residential uses are permitted only on preexisting lots.

In September 1977 Northwestern filed suit against the Tahoe Regional Planning Agency claiming that the Agency's land use ordinance violated the contract clause of the United States Constitution. After our decision in Jacobson v. Tahoe Regional Planning Agency, 558 F.2d 928 (9th Cir. 1977), the district court dismissed Northwestern's suit on the ground of sovereign immunity. On February 3, 1978, Northwestern filed an amended complaint naming the appellees herein. The district court concluded that Northwestern failed to allege an impairment under the contract clause and dismissed the action. Northwestern National Life Insurance Co. v. Jordan, 447 F.Supp. 856 (D.Nev.1978). Northwestern appeals.

II. DISCUSSION

The contract clause of the United States Constitution provides that: "No State shall ... pass any ... Law impairing the Obligation of Contracts ...." U.S.Const. Art. I, § 10, cl. 1. Northwestern contends that the Planning Agency's actions have unconstitutionally impaired the bond obligations of the Improvement District. This contention raises the threshold question of whether the Planning Agency is a "State" within the meaning of the contract clause. We need not answer that question. Even if congressional approval of the Compact deprives the Planning Agency of its "State" character and therefore prevents direct application of the contract clause, the Fifth Amendment's due process clause provides essentially the same restraint against federal impairment of the obligation of contracts. See Thorpe v. Housing Authority, 393 U.S. 268, 278-80 & n.31, 89 S.Ct. 518, 524-25 & n.31, 21 L.Ed.2d 474 (1969); Lynch v. United States, 292 U.S. 571, 579, 54 S.Ct. 840, 843, 78 L.Ed. 1434 (1934). See also Perry v. United States, 294 U.S. 330, 350-54, 55 S.Ct. 432, 434-36, 79 L.Ed. 912 (1935). Thus, the prohibition of the contract clause is either directly or indirectly applicable to the actions of the Tahoe Regional Planning Agency.

In order to invalidate legislative action, a challenge under the contract clause must clear two hurdles. The challenged action must first be shown to substantially impair some contractual obligation. See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S.Ct. 2716, 2723, 57 L.Ed.2d 727 (1978); United States Trust Co. v. New Jersey, 431 U.S. 1, 17, 97 S.Ct. 1505, 1515, 52 L.Ed.2d 92 (1977). After showing such an impairment, the challenger must demonstrate that legitimate governmental interests do not justify the impairment. See 438 U.S. at 245, 98 S.Ct. at 2723; 431 U.S. at 21, 97 S.Ct. 1517.

Northwestern must first show that the Tahoe Regional Planning Agency's land use plan and ordinance substantially impaired a contractual relationship. Allied Structural Steel Co. v. Spannaus, 438 U.S. at 244, 98 S.Ct. at 2723. "Minimal alteration of contractual obligations may end the inquiry at its first stage. Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state (action)." Id. at 245, 98 S.Ct. at 2723 (footnote omitted). The state action complained of must alter the obligations or duties of the parties to a contract before the state can be found to have violated the contract clause. See, e. g., id. at 244, 98 S.Ct. at 2723; United States Trust Co. v. New Jersey, 431 U.S. at 17 & n.14, 97 S.Ct. at 1515 & n.14; Keefe v. Clark, 322 U.S. 393, 396, 64 S.Ct. 1072,...