TJM 64, Inc v. Shelby County Mayor Lee Harris

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TENNESSEE

WESTERN DIVISION

TJM 64, INC., T.J. MULLIGANS, INC., )

RAB MEMPHIS, LLC, HADLEY’S PUB, )

INC., TAVERN 018, INC., BREWSKI’S )

SPORTS BAR AND GRILLE, LLC, )

MURPHY’S PUBLIC HOUSE, INC., and )

CANVAS OF MEMPHIS, LLC, )

)

Plaintiffs, )

) Case No. 2:20-cv-02498-JPM-tmp

v. )

)

SHELBY COUNTY MAYOR, LEE )

HARRIS; SHELBY COUNTY HEALTH )

DEPARTMENT DIRECTOR, ALISA )

HAUSHALTER; and SHELBY COUNTY )

HEALTH OFFICER, BRUCE RANDOLPH )

)

Defendants. )

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS FOR FAILURE TO

STATE A CLAIM

Before the Court is the Defendants’ Motion to Dismiss, filed on August 3, 2020. (ECF

No. 23.) Defendants move the Court pursuant to Fed. R. Civ. P. 12(b)(6) for an order

dismissing the Complaint with prejudice. (ECF No. 23-1 at PageID 174.) Defendants argue

that (1) Plaintiffs’ substantive due process claim fails because they cannot show that Shelby

County Health Department Health Directive 8 is unrelated to any legitimate purposes and (2)

Plaintiffs’ Takings claim fails because (a) the Shelby County Government engaged in a valid

exercise of its police powers and (b) Defendants’ alleged action was neither a physical nor a

regulatory taking. (See generally id.)

Plaintiffs filed a Response on August 30, 2020. (ECF No. 25.) Plaintiffs concede that

their Fourteenth Amendment substantive due process claim should be dismissed. (Id. at

PageID 188.) Plaintiffs continue to assert their Fifth Amendment Takings Clause claim

against the Defendants, arguing that Defendants’ actions constitute (1) a categorical regulatory

taking because Plaintiffs have alleged that there is no economically beneficial use left for their

property or, in the alternative, (2) a non-categorical regulatory taking because the question of

whether Plaintiffs’ property has been taken for public use is a question of fact and cannot be

decided at this stage of the proceedings. (See generally id.) Defendants filed a Reply on

September 9, 2020, in which they provide additional authority in support of their arguments.

(ECF No. 28 at PageID 198.)

For the reasons set forth below, Defendants’ Motion to Dismiss is GRANTED.

I. BACKGROUND

This action was filed on July 13, 2020. (ECF No. 1.) Plaintiffs are the owners of

several establishments licensed as limited service restaurants in Shelby County, Tennessee.

(Id. ¶¶ 19–20.) On July 8, 2020, the Shelby County Health Department issued an order

requiring all “Bars/Limited Service Restaurants and Clubs” to shut down for forty-five days

because of a spike in COVID-19 cases in Shelby County, TN (“the Closure Order”). (Id.

¶¶ 15–16.) The Closure Order allowed all other businesses to remain open, except (1)

“Bars/Limited Service Restaurants and Clubs,” (2) “Adult Entertainment venues,” (3) schools,

and (4) “[f]estivals, fairs, parades, large scale sporting events, and large-scale community

events.” (Id. ¶ 17.) According to local regulation, a “Limited Service Restaurant” is a facility

that “must not have total gross receipts of prepared foods in excess of 50% of their overall

sales.” (Id. ¶ 18.)

Plaintiffs assert two constitutional violations: (1) the Closure Order (also known as

Shelby County Health Directive 8) violates the Takings Clause of the Fifth Amendment, as a

regulatory taking; and (2) the Closure Order violates substantive due process under the

Fourteenth Amendment. (Id. at PageID 5, 10.) Plaintiffs have conceded that their Fourteenth

Amendment substantive due process claim should be dismissed, so Plaintiffs’ only assertion

still at issue is that the Closure Order violates the Takings Clause. (ECF No. 25 at PageID

188.) Plaintiffs assert that the Closure Order “prohibits all economically beneficial and

profitable uses of the Plaintiffs’ Tangible Property and Physical Location[,] [and that] [t]he

entirety of the Plaintiffs’ property rights have been extinguished.” (Id. ¶ 33.) Plaintiffs assert

that the Closure Order qualifies as a categorical taking under Lucas v. South Carolina Coastal

Council, 505 U.S. 1003, 1019 (1992), and, alternatively, qualifies as a regulatory taking under

the framework established by Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (1978).

(Id. ¶¶ 37–45.)

On July 29, 2020, this Court entered an Order Denying Plaintiffs’ Application for

Temporary Restraining Order (“TRO Order”). (ECF No. 22.) In the TRO Order, the Court

held that Plaintiffs “are unlikely to succeed on the merits of their constitutional claims and

given the potential public health consequences of allowing Plaintiffs to continue to operate

their business unfettered by [] public safety and health regulations, the issuance of a TRO

preventing the enforcement of the Closure Order is not appropriate in this case.” (Id. at

PageID 153.)

II. LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) allows dismissal of a complaint that “fail[s]

to state a claim upon which relief can be granted.” A Rule 12(b)(6) motion permits the

“defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if

everything alleged in the complaint is true.” Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.

1993) (citing Nishiyama v. Dickson Cnty., 814 F.2d 277, 279 (6th Cir. 1987)). A motion to

dismiss only tests whether the plaintiff has pled a cognizable claim and allows the court to

dismiss meritless cases which would waste judicial resources and result in unnecessary

discovery. Brown v. City of Memphis, 440 F. Supp. 2d 868, 872 (W.D. Tenn. 2006).

When evaluating a motion to dismiss for failure to state a claim, the Court must

determine whether the complaint alleges “sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). If a court decides that the

claim is not plausible, the case may be dismissed at the pleading stage. Iqbal, 556 U.S. at 679.

“[A] formulaic recitation of the elements of a cause of action will not do.” Twombly, 550

U.S. at 555. The “[f]actual allegations must be enough to raise a right to relief above [a]

speculative level.” Ass’n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548

(6th Cir. 2007) (quoting Twombly, 550 U.S. at 555). A claim is plausible on its face if “the

plaintiff pleads factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550

U.S. at 556).

A complaint need not contain detailed factual allegations. Twombly, 550 U.S. at 570.

A plaintiff without facts who is “armed with nothing more than conclusions,” however, cannot

“unlock the doors of discovery.” Iqbal, 556 U.S. at 678-79; Green v. Mut. of Omaha Ins. Co.,

No. 10-2487, 2011 WL 112735, at *3 (W.D. Tenn. Jan. 13, 2011), aff’d, 481 F. App’x 252

(6th Cir. 2012). A court “need not accept as true legal conclusions or unwarranted factual

inferences.” Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). “While

legal conclusions can provide the framework of a complaint, they must be supported by

factual allegations.” Iqbal, 556 U.S. at 679. A court is “not bound to accept as true a legal

conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555.

Assessing the facial sufficiency of a complaint ordinarily must be undertaken without

resort to matters outside the pleadings. Wysocki v. Int’l Bus. Mach. Corp., 607 F.3d 1102,

1104 (6th Cir. 2010). “[D]ocuments attached to the pleadings become part of the pleadings

and may be considered on a motion to dismiss.” Commercial Money Ctr., Inc. v. Illinois

Union Ins. Co., 508 F.3d 327, 335 (6th Cir. 2007) (citing Fed. R. Civ. P. 10(c)); see also

Koubriti v. Convertino, 593 F.3d 459, 463 n.1 (6th Cir. 2010). Even if a document is not

attached to a complaint or answer, “when a document is referred to in the pleadings and is

integral to the claims, it may be considered without converting a motion to dismiss into one

for summary judgment.” Commercial Money Ctr., 508 F.3d at 335–36. When evaluating a

motion to dismiss, the Court may also take judicial notice of pertinent matters of public

record, including bankruptcy filings. Signature Combs, Inc. v. United States, 253 F. Supp. 2d

1028, 1040 n.5 (W.D. Tenn. 2003).

III. ANALYSIS

The Fifth Amendment Takings Clause provides that private property shall not “be

taken for public use, without just compensation.” U.S. Const. amend. V. “The purpose of

forbidding uncompensated takings of private property for public use is ‘to bar the Government

from forcing some people alone to bear public burdens, which, in all fairness and justice,

should be borne by the public as a whole.’” Connolly v. Pension Benefit Guar. Corp., 475

U.S. 211, 277 (1986) (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960)).

There are two recognized categories of takings: (1) physical takings and (2) regulatory

takings. Waste Mgmt. v. Metro Gov’t, 130 F.3d 731, 737 (6th Cir. 1997). Plaintiffs allege in

their Complaint that the Closure Order was an unconstitutional regulatory taking of their

property. (ECF No. 1 at PageID 5.) Defendants raise three arguments that Plaintiffs have

failed to state a claim for relief for regulatory taking under the Takings Clause. (See generally

ECF No. 23-1.) Defendants argue that the enactment of the Closure Order (1) was a valid

exercise of the Shelby County Government’s police powers and there is no taking for “public

use” where the government acts pursuant to its police power; (2) was not a categorical

regulatory taking because the Closure Order did not completely prohibit use of Plaintiffs’

property; and (3) was not a non-categorical regulatory taking because the character of the

government action here outweighs any economic impact the Plaintiffs face as a result of their

businesses’ closures. (Id. at PageID 170–74.)

A. Defendants Acted Pursuant to Shelby County’s Police Powers

Defendants first argue that “there is no taking for ‘public use’ where the government

acts pursuant to its police power.” (ECF No. 23-1 at PageID 170.) Plaintiffs do not respond

to this argument.

The Supreme Court has consistently stated that the Takings Clause does not require

compensation when a government entity validly exercises its police powers. See Keystone

Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 491 (1987) (“‘[A]ll property in this

country is held under the implied obligation that the owner’s use of it shall not be injurious to

the community,’ and the Takings Clause did not transform that principle to one that requires

compensation whenever the State asserts its power to enforce it.” (citations omitted));

Goldblatt v. Town of Hempstead, 369 U.S. 590, 592 (1962) (“If this ordinance is otherwise a

valid exercise of the town’s police powers, the fact that it deprives the property of its most

beneficial use does not render it unconstitutional.”); Mugler, 123 U.S. at 668–69 (1887) (“A

prohibition simply upon the use of property for purposes that are declared, by valid

legislation, to be injurious to the health, morals, or safety of the community, cannot, in any

just sense, be deemed a taking or an appropriation of property for the public benefit.”); see

also Support Working Animals, Inc. v. DeSantis, 457 F. Supp. 3d 1193, 1215 (N.D. Fla. 2020)

(collecting cases) (finding that plaintiffs did not allege a compensable taking of their property

where an amendment to the Florida Constitution prohibiting commercial dog racing in

connection with wagering was a valid exercise of Florida’s police powers).

Several circuit courts, including the Sixth Circuit, have also specifically held that

actions the government performs pursuant to its police power, as compared to its power of

eminent domain, cannot constitute a taking for “public use.” See United States v. Droganes,

728 F.3d 580, 591 (6th Cir. 2013) (quoting Innovair Aviation, Ltd. v. United States, 632 F.3d

1336, 1341 (Fed. Cir. 2011)); Lech v. Jackson, 791 F. App’x 711, 715 (10th Cir. 2019) (citing

Mugler v. Kansas, 123 U.S. 623, 668–69 (1887)); Zitter v. Petruccelli, 744 F. App’x 90, 93,

96 (3d Cir. 2018) (unpublished) (citing Bennis v. Michigan, 516 U.S. 442, 452 (1996));

AmeriSource Corp. v. United States, 525 F.3d 1149, 111150, 1153–54 (Fed. Cir. 2008) (citing

Bennis, 516 U.S. at 443–44, 452–53)); Johnson v. Manitowoc Cty., 635 F.3d 331, 333–34,

336 (7th Cir. 2011) (citing Bennis, 516 U.S. at 452)). Although these cases primarily

involved the seizure of property in criminal cases pursuant to the government’s power to

enforce laws, the Closure Order is no less a legitimate exercise of Defendants’ police power

than the seizure of property pursuant to criminal forfeiture laws. Hill v. Colorado, 530 U.S.

703, 715 (2000) (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 476 (1996) (“It is a

traditional exercise of the States’ ‘police powers to protect the health and safety of their

citizens.’”)).

The Court finds that because the Closure Order was a legitimate exercise of

Defendants’ police powers, it was not a taking for “public use” and therefore the Takings

Clause does not require compensation. But assuming arguendo that the exercise of police

powers in an effort to protect citizens’ health and safety does not categorically prevent a

finding that a government action was a taking for “public use,” the Court will also analyze the

sufficiency of Plaintiffs’ claims under the traditional regulatory taking doctrines.

B. The Closure Order Was Not a Categorical Regulatory Taking

A categorical regulatory taking occurs in “the extraordinary circumstance when no

productive or economically beneficial use of land is permitted.” Tahoe-Sierra Pres. Council,

Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302, 330 (2002) (emphasis in original)

(quoting Lucas, 505 U.S. at 1017). “Anything less than a ‘complete elimination of value,’ or

a ‘total loss,’ [] would require the kind of analysis applied in Penn Cent[.]” Tahoe-Sierra, 535

U.S. at 330 (quoting Lucas, 505 U.S. at 1019–20, n.8).

Plaintiffs fail to plausibly allege that the Closure Order took away all economically

beneficial uses of their properties. The Closure Order at issue limited the use of their property

to providing in-building services while their gross receipts for prepared food constituted less

than 50% of their overall sales. Other business models remained available to them, including

the option to provide curb-side, pick-up or delivery options, to become full-service

restaurants, or to use the facilities for non-restaurant purposes. “A taking does not occur just

because the owner is denied the highest and best use of the property.” Loreto Dev. Co., Inc.

v. Vill. of Chardon, 149 F.3d 1183 (Table), at *2 (6th Cir. 1998) (citing Goldblatt, 369 U.S. at

592). Plaintiffs’ decision not to pursue the available business alternatives “prevents them

from demonstrating that they have suffered a total loss.” TJM 64, Inc. v. Harris, 475 F. Supp.

3d 828, 838 (W.D. Tenn. 2020) (citing McCarthy v. Cuomo, No. 20-cv-2124 (ARR), 2020

WL 3286530, at *5 (E.D.N.Y. June 18, 2020)).

Plaintiffs argue that the Court must accept as true the allegation in the Complaint that

the Closure Order has deprived them of any economically beneficial use of their property.

(ECF No. 25 at PageID 186.) But whether a regulation deprives the plaintiff of any

economically beneficial use of his property is the critical legal issue in a categorical regulatory

taking analysis; this allegation is therefore a legal conclusion couched as a factual allegation.

Twombly, 550 U.S. at 555. The Court does not have to accept as true legal conclusions

asserted in the Complaint. Plaintiffs have not provided sufficient factual allegations in the

Complaint to support their assertion that the Closure Order deprived them of any

economically beneficial use of their property. The Court therefore finds that Plaintiffs fail to

plausibly allege that the Closure Order constituted a categorical regulatory taking.

C. The Closure Order Was Not a Regulatory Taking under the Penn Cent. Analysis

Where a regulation does not deprive owners of all economically beneficial uses of

their property, the Court must analyze whether there has been a regulatory taking under the

Penn Cent. multi-factor analysis. See Tahoe-Sierra, 535 U.S. at 302. Penn Cent. provided

three factors for the Court to consider when determining whether a regulatory taking has

occurred: “(1) the economic impact of the regulation on the claimant; (2) the extent to which

the regulation has interfered with distinct investment-backed expectations; and (3) the

character of the government action.” Connolly, 475 U.S. at 224–25.

The Court finds that the first and second Penn Cent. factors weigh in favor of

Plaintiffs. It can reasonably be inferred from the fact that Plaintiffs had to close their

businesses for at least some period of time that the Closure Order had an economic impact on

the Plaintiffs. And although Plaintiffs’ businesses are highly regulated entities and their

reasonable investment-backed expectations would include “the possibility of regulatory

changes over the years,” the Closure Order in light of the global pandemic is not the type of

regulation that Plaintiffs could reasonably have expected when investing in their businesses.

See TJM 64, 475 F. Supp. 3d at 838 (citing Elmsford Apartment Asssocs., LLC v. Cuomo,

469 F. Supp. 3d 148, 167 (S.D.N.Y. 2020) & Connolly, 475 U.S. at 227).

However, the third factor weighs overwhelmingly in favor of the Defendants. Even if

the fact that this regulation is a legitimate exercise of the Shelby County Government’s police

powers is not on its own fatal to Plaintiffs’ claim, it is undeniable that this exercise of police

powers was intended to promote the common good in response to a global pandemic that

impacted public safety and the economy across the country; the Closure Order was an effort to

“adjust[] the benefits and burdens of economic life to promote the common good.” Connolly,

475 U.S. at 225 (citations omitted). Courts have found that the character of a government

action weighs against finding a taking where, as here, the government action “is a temporary

exercise of the police power to protect the health and safety of the community[.]” Bimber’s

Delwood, Inc. v. James, --- F. Supp. 3d ----, 20-CV-1043S, 2020 WL 6158612, at *17

(W.D.N.Y. Oct. 21, 2020) (citing Connolly, 475 U.S. at 225); see also Tennessee Scrap

Recyclers Ass’n v. Bredesen, 556 F.3d 442, 457 (6th Cir. 2009) (finding that a regulatory

burden was not a taking where it was temporary and was passed for a legitimate public

purpose); Luke’s Catering Serv., LLC v. Cuomo, --- F. Supp. 3d ----, 20-CV-1086S, 2020 WL

5425008, at *12 (W.D.N.Y. Sept. 10, 2020) (citations omitted) (finding that a 50-person limit

on non-essential gatherings due to the threat of COVID-19 did not constitute a taking on the

basis that it was temporary and a negative restriction as compared to an affirmative

exploitation, physical invasion or permanent appropriation of the plaintiffs’ assets for the

government’s own use); Buffalo Teachers Fed’n v. Tobe, 464 F.3d 362, 375 (2d Cir. 2006)

(citations omitted) (finding that a temporary wage freeze was not a taking on the basis that it

was “a negative restriction rather than an affirmative exploitation by the state” and arose

“from a public program that undoubtedly burdens the plaintiffs in order to promote the

common good”).

The Court finds that the Closure Order, as a valid exercise of Defendants’ broad police

powers, was not a taking; “Defendants’ need to effectively and quickly respond to the

COVID-19 pandemic by promulgating the [] Closure Order outweighs any other

considerations warranting a finding that the Order amounts to a taking.” TJM 64, 475 F.

Supp. 3d at 840. “Where a state ‘reasonably conclude[s] that ‘the health, safety, morals, or

general welfare’ would be promoted by prohibiting particular contemplated uses of land,’ the

state is not required to provide just compensation to the citizens affected by the regulation.”

Id. at 839 (citing Penn Cent., 438 U.S. at 125).

IV. CONCLUSION

For each of the reasons set forth above, Defendants’ Motion to Dismiss is

GRANTED. And because both this case and Case No. 2:20-cv-02497-JTF-atc have been

dismissed, the Joint Motion to Consolidate filed on July 15, 2020 (ECF No. 15) is hereby

DENIED AS MOOT.

SO ORDERED, this 8th day of March, 2021.

/s/ Jon P. McCalla

JON P. McCALLA

UNITED STATES DISTRICT JUDGE