Opinion
Case No. 10-24710-dob Adv. Pro. No. 11-2169-dob
03-25-2015
IN RE: MILFORD HOUSING LLC, Debtor. MILFORD HOUSING LLC, Plaintiff, v. VILLAGE OF MILFORD, Defendant.
Chapter 7 Proceeding
REPORT AND RECOMMENDATION OF PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
Milford Housing, LLC ("Plaintiff") initiated this adversary proceeding alleging claims for inverse condemnation and violation of substantive due process. The Court conducted a trial on July 15 and 16, 2014. Randall Sapelak, Timothy Brandt, Jennifer Gatti, John Cini, and Rodney Sabourin were called as witnesses. Exhibits 1-37 and A-SS were admitted by stipulation. The Court has considered the pleadings filed by the parties, the testimony of the witnesses at trial, the exhibits admitted at trial, the proposed findings of fact and conclusions of law, and the post-trial briefs. After careful review of the pleadings and evidence in this matter, the Court submits the following Report and Recommendation.
PROCEDURAL BACKGROUND AND FINDINGS OF FACT
The Plaintiff purchased a property located at 200 Peters Road, Milford, Michigan (the "Property") in June, 2000. The Property is a 24-unit apartment building situated on over five acres of land. During the Plaintiff's ownership of the Property, the Village of Milford ("Defendant"), through its building official, Randall Sapelak, had concerns about the building. Mr. Sapelak has been the building official for the Defendant since 1996, and is, among other things, responsible for investigating ordinance violations and other complaints concerning buildings located in the Village of Milford.
Over time, Mr. Sapelak became concerned about the condition of the building largely due to complaints from residents of the Property or family members of residents as to the condition of the building. One of the more serious issues related to the boiler heating system in the building. Specifically, on January 30, 2003; March 11, 2008; and in December 2008; several of the heating pipes in the ceiling burst due to the cold weather, causing the ceiling drywall to become saturated and eventually collapse. After the incident in 2003, the Plaintiff made the necessary repairs. After the incident in March 2008, the Plaintiff made the necessary repairs and insulated the heating pipes in an effort to correct the problem. On December 18, 2008, Mr. Sapelak was notified that the ceiling collapses were occurring again.
On December 30, 2008, Mr. Sapelak sent a letter the Defendant's attorney, seeking advice to come up with a "plan of attack." In the letter, Mr. Sapelak indicated that his goal was "to close the place down or, if that can't happen, have the building totally vacated until all repairs are completed." He further stated that "[t]he problem with having it closed only temporarily is that the problems will repeat themselves as long as the building is owned by the same person that has it now." Specifically, he noted the following issues:
To date, I know the roof needs complete replacement and probably some of the roof sheathing will have to be removed. Some of the trusses may be compromised due to water damage. Some ceilings and walls are missing drywall and heat in some of the unoccupied units. Mold is in some of the ceilings. Some of the brick outside has pulled away from the walls and is open to the weather. A lot of external flashing needs repair. I am not certain about the safety of any of the interior mechanical systems.
On January 22, 2009, Mr. Sapelak prepared a letter in which he listed the known issues with the building and concluded that "[t]he building is in immediate need of repair and should be vacated while the repairs are taking place." Specifically, certain noted issues included foundation sagging in both the east and south wings, causing sinkage and leaving open air visible from some apartments; varied and insufficient heating; water damage; and the roof being in need of immediate repair. He stated that it was his "opinion that the two wings that continue to settle be demolished if not the whole building and if it is restored that it is inspected monthly, using all trades, due to the current owner[']s history, while charging the owner for the time involved."
Mr. Sapelak testified that, by January 22, 2009, he had concluded that the owner would not take care of the building, he was not interested in taking care of the building, and he didn't care who lived in the building or if it was safe enough for the residents of the building.
On January 26, 2009, Mr. Sapelak concluded in a memo:
Anything we can do to condemn the entire building until the entire building is brought up to code and site plan compliance by providing a live-in manager before even one unit is reoccupied will be the best solution. Until that time I would like to see the place vacated entirely (all units) and to forbid any advertising of any rent space until that happens.
On February 4, 2009, Mr. Sapelak sent a letter to the Plaintiff listing the issues with the Property and indicating that the "building would be considered a Dangerous Building under Article IV, Sec. 18-92 in Village Ordinance #231." The letter further stated:
Since the building is in a dangerous and unsafe condition the building is ordered to be demolished per Section 18-93. A dangerous building hearing will be held
on February 17, 2009 at 9:am at the Village of Milford offices located at 1100 Atlantic Street, Milford, Michigan. You will have the opportunity to show case why the building should not be demolished. The hearings officer shall hear testimony of the Building Official and the owner of the property at 200 Peters.
A dangerous building hearing was conducted on that date. The Plaintiff sought an adjournment of that hearing, but the request was denied. Despite the denial of its request, the Plaintiff, represented by one of its members, Mr. Sabourin, participated at that hearing and represented that the building could be repaired and that it was willing to shut the building down while the repairs were made. The Plaintiff indicated that, through its members, it had assets and financial resources which could be accessed to make any necessary repairs, which the Plaintiff estimated would total approximately $125,000.00. Specifically, the Plaintiff's members had equity in a home in Park City, Utah, an insurance claim that had been filed under its policy of insurance with Lloyds London, and other companies that could have contributed financial to fund repairs to the Property. Furthermore, Equity Funding, the Plaintiff's mortgage holder, indicated that it would have been able to contribute some amount toward funding the repairs.
At the conclusion of that hearing, the building hearing officer, Timothy Brandt, made specific findings that the building was a dangerous building under the ordinance and ruled that the building should be demolished by May 1, 2009. After that hearing, the Plaintiff appealed the decision of the dangerous building hearing officer to the Village of Milford's council ("Village Council"). A hearing was conducted before the Village Council on June 15, 2009. At that hearing, Mr. Sapelak prepared a letter/memo which was given to the Village Council, stating, in part:
Due to all of the problems associated with this site I can only see this situation getting worse as time progresses. Even though the owner seems to express that doing some work with change the situation . . . I have no confidence that this building will ever be a fit place to live for anyone.Mr. Sabourin submitted repair proposals and estimates to the Village Council. He further indicated that the Plaintiff intended to make the necessary repairs and, since all of the tenants had vacated the building, there was no danger to anyone in allowing the Plaintiff to make the repairs. At the conclusion of the hearing, the Village Council affirmed the decision of the dangerous building hearing officer and ordered that the building be demolished.
Shortly after that hearing, the Plaintiff ceased making mortgage payments to Equity Funding and Equity Funding eventually commenced foreclosure proceedings.
On July 6, 2009, the Plaintiff filed a complaint in the Circuit Court for the County of Oakland seeking an Order of Superintending Control. On October 28, 2009, the Honorable Michael Warren of the Oakland County Circuit Court issued his Opinion and Order Dismissing Complaint for Superintending Control.
Plaintiff thereafter filed an appeal with the Michigan Court of Appeals. On March 29, 2010, an Order was issued denying the Plaintiff's Application for Leave to Appeal. Plaintiff thereafter sought leave to appeal to the Michigan Supreme Court. On September 9, 2010, the Michigan Supreme Court entered its Order Denying Plaintiff's Application.
On December 28, 2010, the foreclosure sale took place and the Plaintiff filed its Chapter 7 bankruptcy petition. Plaintiff filed an adversary complaint on July 22, 2011, alleging one count: Inverse Condemnation.
It was not until after the automatic stay was lifted by stipulation of the parties on November 11, 2011, that the building was finally demolished by the Defendant.
On March 15, 2013, Plaintiff filed its Motion for Leave to File Amended Complaint. On July 24, 2013, the Court entered an Order Allowing the Plaintiff to file an Amended Complaint. On July 25, 2013, the Plaintiff filed its First Amended Complaint, including two counts: Inverse Condemnation and Violation of Due Process.
On May 23, 2014, the Plaintiff filed a Motion for Leave to File a Second Amended Complaint and the Court entered an Order Granting Plaintiff's Motion. On June 20, 2014, the Plaintiff filed its Second Amended Complaint, including two counts: Inverse Condemnation and Violation of Substantive Due Process. As noted, the Court conducted the trial on July 15 and 16, 2014, and allowed the parties to submit written briefs after the conclusion of the trial.
CONCLUSIONS OF LAW
DISCUSSION
A. Violation of Substantive Due Process
The federal due process provision guarantees that no person shall be deprived of "life, liberty, or property, without due process of law." Prior caselaw has interpreted this language to "guarante[e] more than fair process," but to encompass a substantive sphere as well, "barring certain government actions regardless of the fairness of the procedures used to implement them."
Bonner v. City of Brighton, 495 Mich. 209, 225, 848 N.W.2d 380, 390 cert. denied sub nom. Bonner v. City of Brighton, Mich., 135 S. Ct. 230 (2014).
The Plaintiff in this case alleges that its property rights have been violated by the Defendant's decision to order its structure demolished without providing it the opportunity to repair the structure. "Explicit in our state and federal caselaw is the recognition that an individual's vested interest in the use and possession of real estate is a property interest protected by due process." Id. at 226. "Where the right asserted is not fundamental, the government's interference with that right need only be reasonably related to a legitimate governmental interest." Id.
A zoning ordinance must similarly stand the test of reasonableness—that it is " 'reasonably necessary for the preservation of public health, morals, or
safety' "—and, as we have stated, it is presumed to be so until the plaintiff demonstrates otherwise. Accordingly, a plaintiff may successfully challenge a local ordinance on substantive due process grounds, and therefore overcome the presumption of reasonableness, by proving either "that there is no reasonable governmental interest being advanced by the present zoning classification itself ... or, secondly, that an ordinance [is] unreasonable because of the purely arbitrary, capricious and unfounded exclusion of other types of legitimate land use from the area in question." The reasonableness of the ordinance thus becomes the test of its legality.Bonner, 495 Mich. at 227-28.
The parties agree that Bonner v. City of Brighton, 495 Mich. 209, 848 N.W.2d 380, cert. denied sub nom. Bonner v. City of Brighton, Mich., 135 S. Ct. 230 (2014), is instructive on the substantive due process issue in this case. In Bonner, the plaintiff alleged that their property rights had been violated by the City of Brighton's decision to order their structures demolished without providing the plaintiffs the opportunity to repair the structures. The ordinance in that case stated that if a structure is determined to be unsafe under the standards in the ordinance and the cost of the repairs would exceed 100 percent of the true cash value of the structure before it was deemed unsafe, the repairs were presumed to be unreasonable and the structure was presumed to be a public nuisance that could be ordered demolished without providing the owner an option to repair it. The plaintiff argued that the city's order under the ordinance to demolish three unoccupied residential structures on their property violated their procedural due process rights and was a facial violation of its substantive due process rights.
The Michigan Supreme Court stated:
[W]e are unaware of any court that has ever granted a property owner the fundamental right of an absolute repair option involving property that has fallen into such disrepair as to create a risk to the health and safety of the public. Indeed, that conclusion would hardly be compatible with the line of cases in which this Court and the United States Supreme Court have held that reasonableness is essential to the validity of an exercise of police power affecting the general rights of the land owner by restricting the character of the owner's use, which would include the opportunity to repair unsafe structures.
Bonner, 495 Mich. at 228-31.
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In our view, however, if permitting demolition of unsafe structures (notwithstanding the willingness and financial ability of property owners to undertake corrective repairs) is not unconstitutional in itself, it does not become so simply because it is shown to be less desirable than some other action. While affording a property owner the opportunity to perform corrective repairs is one method by which the dangers posed by an unsafe structure may be remedied, it is by no means the only method—much less the only constitutional method—of doing so. As long as certain minimum standards have been met, and the ordinance does not encroach upon a property owner's fundamental rights, the decision to exceed those standards by providing a property owner with an automatic right of repair, as some municipalities have chosen to do, is a policy judgment, not a constitutional mandate.
***
Without question, property owners have a constitutional right of property use, but this does not translate into an absolute constitutional right to repair unsafe structures.
The Michigan Supreme Court ultimately held that the ordinance did not constitute a facial violation of substantive due process because the ordinance's unreasonable-to-repair presumption was rebuttable and was reasonably related to the city's legitimate interest in promoting the health, safety, and welfare of its citizens.
One notable difference between this case and the Bonner case is the fact that the Plaintiff in this case does not argue that the Defendant's order under the ordinance was a facial violation of its substantive due process rights. In this case, the Plaintiff makes an as-applied challenge, asserting that the application of the ordinance in this particular instance was an unconstitutional violation of substantive due process. An as applied challenge alleges "a present infringement or denial of a specific right or of a particular injury in process of actual execution" of government action. Village of Euclid, Ohio v. Amber Realty Co., 272 U.S. 365, 395; 47 S. Ct. 114; 71 L. Ed. 303 (1926). In this case, the Plaintiff alleges that the building official, Mr. Sapelak, acted arbitrarily when he enforced the ordinance, due to severe animosity toward the Plaintiff based on perceived past negative dealings with the Plaintiff. The Plaintiff argues that Mr. Sapelak's actions were arbitrary in that there was no reason for him to believe that repairs would not have been made successfully, as they had been in previous years, and that his prejudice against the Plaintiff and its representative, Mr. Sabourin, was an overriding factor in his decisions and actions. The Defendant argues that Mr. Sapelak's course of action with regard to the Property was not arbitrary or capricious and was rather the unfortunate result of years of ongoing and repetitious problems with the Property. The Defendant further argues that, although Mr. Sapelak was an advocate for the position that the building on the Property should be deemed dangerous and be ordered demolished, he was not the ultimate decision maker.
In this case, there were several major issues with the building over the course of the Plaintiff's ownership of the Property, the most troubling for the tenants apparently being the lack of sufficient heat and the issues with the pipes repeatedly bursting with the resulting damage to the rooms of the tenant. Although the Plaintiff took actions to repair and correct some of these issues as they arose, the issues were often reoccurring and the number of major problems with the building showed general neglect. Although it appears that Mr. Sapelak moved rather quickly after seeing the problems in December, 2008, there were clear problems with the building by February, 2009, and the status of the building was deteriorating very quickly. Mr. Sapelak's actions to enforce the ordinance were expedited due to the fact that the tenants at the building were mostly seniors and the issues with the building were becoming more apparent, numerous and increasing in severity.
The Court closely examined the demeanor of all of the witnesses and found Mr. Sapelak's and Mr. Brandt's testimony to be particularly credible. Based on his testimony, it appeared that, prior to the issues that presented shortly before February, 2009, Mr. Sapelak was the type of individual who wanted to merely have the building repaired, not condemned. After the issue with the pipes bursting presented again, Mr. Sapelak took a closer look at the numerous issues with the building and came to the conclusion that the owners of the Property would not properly address the issues and sought to have some action taken under the ordinance to either mandate the repairs or demolish the building. Based on the evidence presented at trial, the Court must conclude that the Plaintiff has failed to prove that Mr. Sapelak's actions were arbitrary or capricious or that that they were based solely on some prejudice against the Plaintiff.
Moreover, the fact that Mr. Sapelak was not the ultimate decision maker with regard to the decision to have the building deemed dangerous and have it demolished is compelling. Mr. Brandt, the dangerous building hearing officer, toured the building with Mr. Sapelak prior to the dangerous building hearing and, based on his own observations of the building and the evidence provided at the hearing, ordered that the building be demolished. Mr. Brandt testified that he believed his decision was fair and that he set the demolition date for May 1, 2009, specifically to allow for winter weather conditions and to allow the Plaintiff to have sufficient time to propose restoration plans if they chose to appeal the decision to the Village Counsel. The Plaintiff appealed the decision to the Village Council and did make some attempt to propose a restoration plan. Mr. Sabourin testified that the restoration plan the Plaintiff proposed called for a complete repair and restoration of the building that would total approximately $125,000.00. However, that plan apparently did not cover all of the real issues that Mr. Sapelak noted and the proposal was rejected by the Village Council. The Plaintiff never made another proposal to restore or repair the building. The Village Council ultimately upheld the decision to demolish the building.
Although Mr. Sapelak played a large role in commencing the dangerous building proceedings and at the hearings, the Court must conclude that the Plaintiff has failed to prove that his or the Defendant's decision not to allow the Plaintiff to repair the building was arbitrary or capricious. The Plaintiff did not present sufficient evidence that Mr. Sapelak had some underlying prejudice against the Plaintiff and did not present any evidence that Mr. Brandt or the Village Council acted arbitrarily or capriciously. The Court cannot conclude that the decision to order the building be demolished was unreasonable merely because there exists an arguably preferred method of addressing the objective sought to be attained, especially where Mr. Sapelak, Mr. Brandt, and the Village Council all apparently had significant doubts that the issues with the building would ever be properly addressed by the Plaintiff. Therefore, the Court reports and recommends that the Plaintiff's Substantive Due Process claim be dismissed.
B.Inverse Condemnation
Eminent domain is an inherent right of a state to condemn private property for public use. In re Acquisition of Land-Virginia Park, 121 Mich.App. 153, 158, 328 N.W.2d 602 (1982). When exercising its power of eminent domain, the state, or those to whom the power has been lawfully delegated, must pay the owner just compensation. Id. Where the property has been damaged rather than completely taken by governmental actions, the owner may be able to recover by way of inverse condemnation. Id. An inverse condemnation suit is one instituted by a private property owner whose property, while not formally taken for public use, has been damaged by a public improvement undertaking or other public activity. Id. Inverse condemnation is "'a cause of action against a governmental defendant to recover the value of property which has been taken in fact by the governmental defendant, even though no formal exercise of the power of eminent domain has been attempted by the taking agency.' " Id. at 158-159, 328 N.W.2d 602 (citation omitted).Merkur Steel Supply Inc. v. City of Detroit, 261 Mich. App. 116, 129, 680 N.W.2d 485, 494-95 (2004).
A plaintiff in an inverse condemnation case "has the burden of proving ... that the government's actions were a substantial cause of the decline of its property" and "must also establish that the government abused its legitimate powers in affirmative actions directly aimed at the plaintiff's property." Id. at 130.
The Plaintiff does not argue that the Defendant's actions in determining that the building was a dangerous building were erroneous or that it was not afforded procedural due process. Instead, the Plaintiff argues that the Defendant abused its legitimate power to abate a nuisance because the Defendant's ordering that the building be vacated and demolished, without providing the Plaintiff the opportunity to repair the building, had no reasonable relationship to promote the health, safety, and welfare of the public. The Plaintiff specifically notes the fact that the building was not actually demolished until years after the Village Council ordered the demolition.
The Defendant argues that, because an inverse condemnation claim requires that "no formal exercise of the power of eminent domain has been attempted by the taking agency", it is not legally possible for the Court to conclude that inverse condemnation took place in this case. Alternatively, it argues that it did not abuse its legitimate power in ordering the demolition of the building.
The Plaintiff has presented evidence that the demolition of the building on the Property decreased the value of the Property. However, the Plaintiff has failed to present sufficient evidence that the Defendant "abused its legitimate powers in affirmative actions directly aimed at the plaintiff's property." In this case, after years of noting issues with the Property and making efforts to insure that the Property was maintained, the Defendant instituted an action pursuant to the Village ordinance to find that the building on the Property was a dangerous building. The building official and the Village Council ruled that the building was dangerous and that it should be demolished. As noted, the Plaintiff has conceded that it was afforded due process. This is not a case where "no formal exercise of the power of eminent domain has been attempted by the taking agency." Despite that fact, as noted, the Plaintiff argues that the Defendant's failure to allow the Plaintiff to make repairs was an abuse of its legitimate powers.
As discussed above, in Bonner, the Supreme Court of Michigan stated: "It is firmly established that nuisance abatement, as a means to promoting public health, safety, and welfare, is a legitimate exercise of police power and that demolition is a permissible method of achieving that end." Bonner, 495 Mich. at 229. Although it took several years to actually commence the demolition of the building on the Property (which was no doubt due, in part, to the repeated appeals by the Plaintiff and the Plaintiff's bankruptcy case), that fact does not diminish the fact that the building was deemed dangerous and the Defendant chose to act on its legitimate powers promote the public health, safety, and welfare by ordering the demolition of the building. Although the Defendant's course of action was not the only method of achieving its objective, or the Plaintiff's preferred method, it was not an abuse of the Defendant's legitimate power to order the building be demolished. Accordingly, the Court recommends that the Plaintiff's Inverse Condemnation claim be dismissed.
CONCLUSION
The Court recommends that the United States District Court enter the proposed District Court Order, granting judgment in favor of the Defendant and that the Plaintiff's complaint be dismissed. Signed On March 25, 2015
The proposed District Court Order is attached to this Report and Recommendation.
/s/ Daniel S. Opperman
Daniel S. Opperman
United States Bankruptcy Judge
ORDER GRANTING JUDGMENT IN FAVOR OF DEFENDANT AND DISMISSING PLAINTIFF'S COMPLAINT
This matter having come before the Court upon the Report and Recommendation of the Bankruptcy Court pursuant to 28 U.S.C. § 157(c)(1); the Court having reviewed the Report and Recommendation; the Court being otherwise advised in the premises.
NOW, THEREFORE, IT IS HEREBY ORDERED that Judgment is entered in favor of Defendant;
IT IS FURTHER ORDERED that Plaintiff's Complaint is DISMISSED.