Southpark Square Ltd. v. City of Jackson, Miss.

• Decision Date: 27 December 1977
• Docket Number: No. 76-1806,76-1806
• Citation: 565 F.2d 338
• Parties: SOUTHPARK SQUARE LIMITED, a Mississippi Corporation, Plaintiff-Appellee, v. CITY OF JACKSON, MISSISSIPPI, Defendant-Appellant, State Highway Department of the State of Mississippi, Defendant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 338

565 F.2d 338

SOUTHPARK SQUARE LIMITED, a Mississippi Corporation Plaintiff-Appellee, v. CITY OF JACKSON, MISSISSIPPI, Defendant-Appellant State Highway Department of the State of Mississippi, Defendant.

No. 76-1806.

United States Court of Appeals Fifth Circuit.

Dec. 27, 1977.

John E. Stone, City Atty., Jackson, Miss., for defendant-appellant.

Alvin M. Binder, Jackson, Miss., for plaintiff-appellee.

Robert G. Nichols Jr., Jackson, Miss., for other interested parties.

Appeal from the United States District Court for the Southern District of Mississippi.

Before COLEMAN, SIMPSON and TJOFLAT, Circuit Judges.

SIMPSON, Circuit Judge:

For want of a building permit, financing could not be obtained. For want of financing, the balance of the purchase price of the property could not be paid. For want of payment, the property went into foreclosure and was sold at auction. So says Southpark Square Limited, the aggrieved property owner. In the court below, Southpark prevailed on its claim that, because of these unfortunate consequences, the denial of a building permit by the Permit Department of the City of Jackson, Mississippi, amounted to a taking of property without just compensation in violation of the Fifth and Fourteenth Amendments, ¹ and received a judgment for damages. We determine that the district court lacked subject matter jurisdiction and reverse.

I. THE FACTS

On December 3, 1973, after earlier negotiations, Southpark acquired title to a plot of land fronting on Interstate 55 in Jackson, Mississippi. The aggregate purchase price was $434,000, in addition to $10,000 earlier paid for an option on the property. On this date, Southpark made a down payment of $50,000 and executed a note for the balance, payable on October 18, 1974, at an interest rate of 10 percent per annum. Southpark's purpose in acquiring the property was to build on it a Ramada Inn.

On February 4, 1974, Southpark applied to the City of Jackson Permit Department for a building permit to construct a foundation for the hotel. The application immediately encountered minor obstacles because of a local zoning ordinance and the unavailability of water and sewerage lines. A more serious problem arose when the city permit department learned from the State Highway Department that an interchange at Beasley Road on I-55 was in the planning and would require a right of way over a portion of the road frontage of Southpark's property. On February 15, 1974, Murry Stewart, the City Engineer, informed Southpark of the proposed Beasley Road interchange, noting that "(t) he exact amount of right of way needed has not been determined as yet". Six days later, Stewart again wrote to Southpark about the eventual need to acquire some of the frontage property and stated that issuance of the building permit was being deferred until city officials knew more precisely the extent of right of way needed. The City admits that it declined to issue a permit out of concern that the award of compensation when it eventually condemned the land would be substantially higher if the hotel was then in being. Stewart did suggest to Southpark, in a letter dated March 18, 1974, that "the developer alter his construction plans so as to, if possible, have his development confined to property that will remain after this right-of-way acquisition." Faced with this denial, counsel for Southpark, on May 1, 1974, wrote to the Mayor and City Commissioners of Jackson to inform them of Southpark's precarious financial position, threatening to bring suit if the permit did not issue. The City, through its attorney, responded that until the State Highway Department finalized its plans "we cannot give you at this time any further information other than that previously furnished you".

Southpark was unable to pay the balance of the purchase price when it fell due late in 1974, and contends that it could not obtain financing because of its inability to secure a building permit. It thus forfeited the property to the vendor. On December 18, 1974, Southpark filed its complaint against the City of Jackson and the State of Mississippi Highway Department in this case, claiming damages of (a) $10,000, for loss of earnest money paid for the property; (b) $50,000, for loss of down payment on the property; (c) $48,000, for loss of sums advanced for architectural and development fees; (d) $3100 for loss of attorneys' fees expended; and (e) 10% Interest on the unpaid balance of the purchase price of the property. The court dismissed the claims against the State Highway Department and awarded damages against the City for items (a), (b) and (e), totalling $88,068.50. This appeal timely followed.

II. JURISDICTION OF THE DISTRICT COURT

At the heart of this appeal lies the question of jurisdiction whether the district court was statutorily empowered to hear this case. In its complaint, Southpark alleged that "this action arises under the Fifth and Fourteenth Amendments to the Constitution . . . and the matter in controversy herein exceeds, exclusive of interest and costs, the sum of $10,000.00". ² The district court concluded that it had subject matter jurisdiction under Title 28, U.S.C. § 1331 (1970). ³

" Jurisdiction is essentially the authority conferred by Congress to decide a given type of case one way or the other". Hagans v. Lavine, 415 U.S. 528, 538, 94 S.Ct. 1372, 1379-80, 39 L.Ed.2d 577 (1974). In federal question cases under § 1331, "where the complaint . . . is so drawn as to seek recovery directly under the Constitution or laws of the United States, the federal court, but for two possible exceptions . . . must entertain the suit". Bell v. Hood, 327 U.S. 678, 681-82, 66 S.Ct. 773, 776, 90 L.Ed. 939 (1946). The two exceptions are where the federal question "clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous". Id.

"A case arises under the Constitution or law of the United States whenever . . . the title or rights set up by the party may be defeated or sustained by a particular construction of (either)." Fountain v. New Orleans Public Service, Inc., 387 F.2d 343, 344 (5th Cir. 1967), citing Gully v. First National Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936). Southpark alleges that the City's actions have violated its Fifth Amendment right not to have its property taken without just compensation. Only by construing that constitutional provision can we determine the validity of this claim. Thus, a question "arising under" the Constitution is presented in this case. Ballard Fish & Oyster Co. v. Glaser Construc. Co., 424 F.2d 473 (4th Cir. 1970); Creel v. City of Atlanta, Ga., 399 F.2d 777, 778 (5th Cir. 1968); Foster v. Herley, 330 F.2d 87, 91 (6th Cir. 1964); ⁴ Sanfilippo v. County of Santa Cruz, 415 F.Supp. 1340, 1343-44 (N.D.Cal.1976).

The more difficult question presented is whether the federal question involved is "wholly insubstantial and frivolous". ⁵ To make this determination we must apply a two-pronged test:

(L)ack of substantiality in a federal question may appear either because it is obviously without merit or because its unsoundness so clearly results from the previous decisions of (the Supreme Court) as to foreclose the subject.

Mays v. Kirk, 414 F.2d 131, 135 (5th Cir. 1969), quoting from California Water Service Co. v. City of Redding, 304 U.S. 252, 58 S.Ct. 865, 867, 82 L.Ed. 1323 (1938).

This case presents a novel question of constitutional law: whether a city's denial of a building permit, ultimately resulting in the owner's loss of his property for inability to obtain financing, is a compensable taking. We can find no prior cases which make it "apparent to a legal certainty that no constitutional violation had been committed as alleged." Rodriguez v. Ritchey, 556 F.2d 1185, 1192 (5th Cir. 1977) (en banc). Courts dealing with the taking question in roughly analogous fact situations have reached disparate conclusions hinging on subtle distinctions and not clearly foreclosing a finding for the plaintiff in this case. ⁶ A dispositive prior decision would be difficult to find because traditionally, the Supreme Court has "treated the issue as to whether a particular governmental restriction amounted to a constitutional taking as being a question properly turning upon the particular circumstances of each case". United States v. Central Eureka Mining Co., 357 U.S. 155, 168, 78 S.Ct. 1097, 1104, 2 L.Ed.2d 1228 (1958). Also, while the City of Jackson did not condemn or physically occupy Southpark's land, "(g)overnmental action short of acquisition of title or occupancy has been held, if its effects are so complete as to deprive the owner of all or most of his interest in the subject matter, to amount to a taking". United States v. General Motors Corp., 323 U.S. 373, 378, 65 S.Ct. 357, 359-60, 89 L.Ed. 311 (1945).

Even though Southpark's claim is not foreclosed by prior authoritative decisions, it must be more than frivolous to support federal question jurisdiction. In determining substantiality, we must ask "whether there is any legal substance to the position the plaintiff is presenting". C. Wright & A. Miller, 13 Federal Practice and Procedure § 3564, at 426 (1975). The test here "is a rigorous one and if there is any foundation of plausibility to the claim federal jurisdiction exists". Id. at 428, quoted in Hilgeman v. National Ins. Co. of America, 547 F.2d 298, 300 n. 1 (5th Cir. 1977). ⁷

However hard we strain to find "any legal substance" to Southpark's position, we cannot avoid the conclusion that its claim is "wholly insubstantial and frivolous". Southpark lost its property as a direct consequence of its own financial arrangements and tactical decisions, not because the City committed any act remotely resembling a taking.

The City of Jackson denied Southpark's application for a building permit pending a decision by the State Highway Department...