This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1994).

Margot Siegel, et al.,

Appellants,

vs.

The Minneapolis Community
Development Agency,

Respondent,

and

The City of Minneapolis,

Respondent.

Minnesota Court of Appeals # C0-95-1637
Hennepin County District Court #94-17966

May 7, 1996

Michael C. Mahoney, Stephen P. Laitinen, Mahoney, Hagberg & Rice, P.A., 1500 Metropolitan Center, 333 South Seventh Street, Minneapolis, MN 55402 (for appellant)

James R. Dorsey, Marc D. Simpson, Steven P. Zabel, Gregory R. Fitzharris, Leonard, Street and Deinard P.A., Suite 2300, 150 South Fifth Street, Minneapolis, MN 55402

Michael T. Norton, James A. Moore, Office of the City Attorney, 300 Metropolitan Centre, 333 South Seventh Street, Minneapolis, MN 55402

Considered and decided by Crippen, Presiding Judge, Willis, Judge, and Mulally, Judge.*

U N P U B L I S H E D   O P I N I O N

CRIPPEN, Judge

Appellants challenge the trial court's judgment that dismisses their complaints for failure to state a claim upon which relief can be granted. We affirm in part and reverse and remand in part.

F A C T S

This opinion incorporates the facts recited in its companion case, 614 Co. v. Minneapolis Community Dev. Agency, ___ N.W.2d ____ (Minn. App. 1996), and adds the following facts that are particular to this case.

In November 1983, respondent Minneapolis Community Development Agency (MCDA) adopted a redevelopment plan for certain properties located in the South Nicollet Mall area of downtown Minneapolis. The new shopping center was to cover three and one-half blocks of property owned in part by appellants Margot Siegel, et al., Katherine D. Binns, et al., Harry A. Johnson, Jr., Paul A. Schmitt Music Company and Schmitt Music Center, Inc.

Prior to negotiations between the MCDA and the developer, La Societe Generale Immobiliere (LSGI), appellants operated their properties as profitable businesses and investments with relatively low vacancy levels and reasonable economic returns. But the volume of retail business of the existing tenants diminished while the MCDA was developing plans with LSGI, and appellants had difficulty marketing the properties to potential tenants. In addition, the fair market value of the properties decreased and appellants' ability to sell the properties was greatly restricted.

In November 1987, appellants brought separate complaints against the MCDA and the City of Minneapolis (the city), alleging, inter alia, that respondents' actions (1) constituted a taking, (2) violated appellants' substantive due process and equal protection rights, (3) violated appellants' procedural due process rights, (4) constituted a breach of contract to which appellants were third-party beneficiaries, and (5) constituted tortious interference with appellants' contracts. In their identical complaints, appellants alleged that:

156. As a direct result of the City's actions and failures to act complained of herein, many existing tenants were frightened away and led to believe that the Subject Properties were to be condemned. The Owners could not obtain new tenants for the Subject Properties to replace those who left.

158. The closing of the Development Contract and the execution of a 99-year lease of property including the Subject Properties to LSGI by the City effected a taking by the City * * * . This taking has denied Plaintiffs all economically reasonable use of the Subject Properties.

159. The actions of the City complained of herein have severely diminished the marketability and the market value of the Subject Properties, and have deprived the Owners of all economically beneficial use of the Subject Properties.

161. The City's actions and failures to act have directly and substantially interfered with the Owners' ownership, use, possession, and enjoyment of the Subject Properties, so as to constitute and unconstitutional taking * * *.

Appellants served their summonses and complaints against the MCDA on its deputy director of administrative services. Appellants served their summonses and complaints against the city on the city council president's secretary, a typist for the city clerk and an assistant city attorney.

Respondents brought motions to dismiss appellants' complaints under Minn. R. Civ. P. 12.02(d) for insufficiency of service of process, under rule 12.02(e) for failure to state a claim upon which relief could be granted, and under rule 12.02(f) for failure to join a party. The district court dismissed all claims made by appellants on the basis of rule 12.02(e), holding that there had not been a compensable taking of appellants' properties and stating that although appellants had incurred substantial losses as a result of the "cloud of condemnation," there "are no facts to indicate that said loses can be attributed to anything more than 'normal activities in connection with an urban renewal project.'"

D E C I S I O N

Appellants contend they are entitled to compensation for their losses under the Takings Clause of the Fifth Amendment of the United States Constitution and the Bill of Rights of the Constitution of the State of Minnesota. See U.S. Const. amend. V (guaranteeing that no "private property be taken for public use without just compensation"); Minn. Const. art. I, § 13 (providing that "[p]rivate property shall not be taken, destroyed or damaged for public use without just compensation"). The trial court dismissed the takings claims under Minn. R. Civ. P. 12.02(e) (1995) (failure to state a meritorious claim). [1]

Because we have discussed the takings issue at length in our published opinion for the companion case, we direct the parties there for a more complete discussion. For the purposes of this opinion, we address application of the same law to the facts of this case. We employ here the same standard of review, the same construction of rule 12, and the same reading of Lucas v. South Carolina Coastal Council, 112 S. Ct. 2886 (1992) and Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646 (1978).

In this case, appellants alleged that the respondents' precondemnation activities substantially and severely interfered with their revenue from rentals and development. Although appellants use no other adjectives to describe the interference, they state the added allegation that the public acts denied them all economically reasonable use of their properties.

The trial court premised its dismissal of the case on the conclusion that appellants' pleadings were inconsistent with the notion of a total taking, explaining that appellants' pleadings were deficient in their description of specific losses in rental and development activity. The court observed, "[a]lthough Plaintiffs incurred substantial losses" these losses "do not constitute a de facto taking, thus requiring compensation."

Dismissal of appellants' claims on the pleadings requires an unduly constricted view of the holding of Lucas. Although the pleadings state no claim of total worthlessness, the pleadings permit proof that the city's and the MCDA's actions left appellants without economically viable rental and development uses for their property and, therefore, that appellants have a right to recovery under the Takings Clause.

We conclude that the trial court erroneously deprived appellants of the opportunity to offer evidence supporting their allegations of a taking.

As in the companion case, we also address the question of whether appellants' allegations state a claim that the city's and MCDA's precondemnation activities actually controlled appellants' use of its property. See Orfield v. Housing & Redev. Auth., 305 Minn. 336, 342, 232 N.W.2d 923, 927 (1975) (recognizing that a "de facto" taking occurs when eminent domain powers are abused and are directed against a particular parcel); Fitger Brewing Co. v. State, 416 N.W.2d 200, 208 (Minn. App. 1987) (reviewing cases on de facto taking; finding no taking where condemnation plans are directed at a parcel but public authority (a) makes it clear taking may not occur, (b) urges continued improvement of affected parcel, and (c) does not abuse its discretion in abandoning the taking plan), review denied (Minn. Feb. 23, 1988).

The precondemnation cases raise a number of questions pertinent to the actions of respondents with respect to the property of appellants. As in the companion case, a development commitment existed for over two years. Appellants' properties were included in tracts that "[were] to be acquired or may be acquired." The trial court concluded that there was no taking as a matter of law because the public bodies did not prevent appellants from using or improving their property.

The Fitger court examined the breadth of control imposed in precondemnation activity, finding that the public authority in that case actually encouraged the property owner to make improvements for its continued use of the parcel. Fitger, 416 N.W.2d at 208. Appellants contend that respondents' public development plan was targeted at their property and adjoining business parcels and that city and MCDA commitment to the plan left them with no means to protect their property from damage. It is true that appellants enjoyed legal rights to use and improve their property. But appellants allege that a taking was "effected" by the actions of respondents, a "direct result" of public actions, and that respondents "directly and substantially interfered" with appellants' otherwise lawful freedom to use their properties. Although appellants' takings claim may not be provable, its pleadings are not flawed as a matter of law.

The Fitger court's primary rationale highlighted the tentative nature of state activity in that case. As we concluded in the companion case, respondents only determined that they "may" take affected properties, but (a) the development commitment in this case existed for over two years, (b) the state in Fitger had carefully said that a condemnation might not occur and had encouraged further development of the Fitger property, (c) the public determination in this case included its commitment to a development contract, and (d) Fitger was decided on a trial record, not on the pleadings in the case. Id. The rationale of Fitger may indeed govern this case, but we cannot make that decision based only on the pleadings. Appellants' pleadings are sufficient to withstand rule 12 scrutiny. To permit a correct characterization of respondents' commitment to a taking in this case, there is a need for a more thorough examination of the facts.

Finally, the precondemnation taking law summarized in Fitger called for determining whether the public authority had abused its discretion in abandoning its condemnation plan. Id. at 207-08. The holding of the Eighth Circuit Court of Appeals tells us that respondents' abandonment of the project did not constitute a breach of contract with LSGI. La Societe Generale Immobiliere, 44 F.3d 629, 637 (8th Cir. 1994). But appellants allege wrongful conduct of respondents in their abandonment of the condemnation plan, actions in that regard taken in bad faith, and even a conspiracy of interference with the developer's activity. Here again, bearing in mind the precondemnation case standards, appellants' pleadings are sufficient to withstand rule 12 scrutiny.

As we noted in the companion case, these matters are decided with ample doubts about appellants' ability to prove its cause of action. But appellants' pleadings are adequate.

Alternatively, appellants contend the respondents (a) violated their due process and equal protection rights, (b) violated their third-party beneficiary of contract rights, and (c) tortiously interfered with their contracts. We affirm the trial court's dismissal of these claims for failure to state claims upon which relief can be granted, for reasons stated in 614 Co., ___ N.W.2d at ____ .

Respondents also moved for dismissal under Minn. R. Civ. P. 12.02(d) for insufficiency of service of process and under Minn. R. Civ. P. 12.02(f) for failure to join a party. As we determined in the companion case, the procedural questions are not dispositive.

As in the companion case, we reverse and remand on appellants' claims of a compensable taking, but we otherwise affirm the trial court's decision.

Affirmed in part and reversed and remanded in part.

Dated May 1, 1996


Footnotes

* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals pursuant to Minn. Const. art. VI, 10.

[1]Although the district court granted a rule 12 dismissal, it treated the prevailing motion as one for summary judgment because "[n]umerous exhibits were submitted with the parties' motion." See Minn. R. Civ. P. 12.02 (1995) (stating that when "matters outside the pleading are presented to * * * the court, the motion shall be treated as one for summary judgement"). Attention to these exhibits does not significantly alter the rule 12 standard of law on dismissal of the case.