Gennadiy Nekrilov v. City of Jersey City

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 21-1786

_____________

GENNADIY NEKRILOV; EUGENE NEKRILOV; KWAN

HO TANG;

JAYU JEN; ALAN SUEN

Appellants

v.

CITY OF JERSEY CITY

_____________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil No. 2-19-cv-22182)

District Judge: Honorable Kevin McNulty

_____________

Argued: November 18, 2021

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Before: CHAGARES, Chief Judge, BIBAS and FUENTES,

Circuit Judges

(Filed: August 16, 2022)

_____________

Joseph Tripodi

James M. Van Splinter [ARGUED]

Kranjac Tripodi & Partners

30 Wall Street

12th Floor

New York, NY 10005

Counsel for Appellant

Philip S. Adelman

Stevie D. Chambers [ARGUED]

Jersey City Law Department

280 Grove Street

City Hall

Jersey City, NJ 07302

Counsel for Appellee

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OPINION OF THE COURT

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CHAGARES, Chief Judge.

Gennadiy and Eugene Nekrilov, Kwan Ho Tang, Jayu

Jen, and Alan Suen (together, the “plaintiffs”) filed this lawsuit

under 42 U.S.C. § 1983 challenging a Jersey City ordinance

curtailing the ability of property owners and lease holders to

operate short-term rentals. The plaintiffs alleged that, having

passed an earlier zoning ordinance legalizing short-term rentals

2

in Jersey City (the “City”), which enticed them to invest in

properties and long-term leases, the City violated their

constitutional rights under the Takings Clause of the Fifth

Amendment, the Contract Clause of Article I, and the Due

Process Clauses of the Fifth and Fourteenth Amendments by

passing the new ordinance. The new ordinance, they allege,

undermined their legitimate, investment-backed expectations

and injured their short-term rental businesses. The plaintiffs

also moved for a preliminary injunction against the

enforcement of the new ordinance. The City moved to dismiss

the complaint pursuant to Federal Rule of Civil Procedure

12(b)(6). The District Court granted the motion, dismissed the

complaint with prejudice, and denied the preliminary

injunction motion as moot. For the reasons that follow, we will

affirm the judgment of the District Court.

I.

The plaintiffs are individuals who invest in and operate

short-term rentals in Jersey City using online home-sharing

platforms. Home-sharing platforms, such as Airbnb, provide a

residential alternative to traditional hotels for travelers seeking

to rent a spare room or property on a nightly, weekly, or

monthly basis.

Steven Fulop was elected Mayor of Jersey City in

1

2013. One of Mayor Fulop’s priorities was to incentivize

investment and development in Jersey City. As a part of that

effort, in 2015, Mayor Fulop supported the passage of a zoning

ordinance, Ordinance 15.137, that affirmatively legalized

1

At all relevant times, Fulop was Mayor of Jersey City.

3

short-term rentals in Jersey City. Ordinance 15.137 was the

first of its kind in the state of New Jersey.

Ordinance 15.137 provided, in relevant part:

1. Short Term Rentals are permitted as an

accessory use to a permitted principal residential

use in all zoning districts and redevelopment

plan areas where residential uses are permitted.

a. The person offering a Dwelling Unit

for Short-Term Rental use must be the owner

or lessee of the residence in which the Short-

Term Rental activity occurs. Short-Term

Rental activity may occur in a habitable

accessory building located on the same

premises as the residence.

b. No person offering a Dwelling Unit

for Short-Term Rental use shall be required

to obtain any license for such use . . . unless

such person offers more than 5 separate

Dwelling Units for Short-Term Rental use in

the City. Any person offering more than 5

separate Dwelling Units for Short-Term

Rental use in the City must:

i. obtain a license pursuant to

Section 254-82 to offer each

Dwelling Unit for Short-Term

Rental . . . .

ii. ensure that the Short-

Term Rental use is clearly

4

incidental to the principal

residential uses permitted in the

zone where each such Dwelling

United is located . . . .

Appendix (“App.”) 161–62. Ordinance 15.137 also mandated

that short-term uses of residential properties “shall be

conducted in a manner that does not materially disrupt the

residential character of the neighborhood.” App. 162.

Jersey City issued a press release outlining the goals of

the proposed ordinance. The press release explained that

although the ordinance would “allow[] residents to rent homes

for less than 30 days,” it also “include[d] several commonsense

protections” that would prevent short-term rental operators

from “changing the character of the neighborhood.” App. 167

(quotation marks omitted). To prevent the formation of

informal “Airbnb hotels,” the ordinance would also limit the

number of properties one user could rent to five.

Mayor Fulop was quoted in the press release and made

other public statements in support of the ordinance, describing

companies that participate in the “sharing economy” as the

“future.” App. 102. He also authored an article in the

Huffington Post explaining the purposes and benefits of the

ordinance. Mayor Fulop noted that home-sharing platforms

allow “middle-class folks [to] earn a bit of extra income by

renting out their apartments.” Id. The ordinance had the

support of other Jersey City public officials, several of whom

made statements in support of the ordinance. The Jersey City

Council unanimously approved the ordinance, and on October

30, 2015, Mayor Fulop signed the ordinance into law.

5

Following the passage of Ordinance 15.137, Mayor

Fulop’s relationship with Airbnb purportedly began to

deteriorate. In 2016, Mayor Fulop allegedly sought a donation

from Airbnb to his reelection campaign. Mayor Fulop attended

a fundraiser at Airbnb’s San Francisco headquarters in 2017

but still did not receive a donation. In May 2017, Mayor Fulop

allegedly sent a number of emails to Airbnb expressing his

frustration, and, in response, Airbnb sent a $10,172

contribution to his reelection campaign. Airbnb represented

that, following the delay in the donation, the relationship

“fractured,” and Mayor Fulop began receiving donations from

the hotel industry. App. 231.

Two years later, Mayor Fulop’s office introduced

Ordinance 19-077. Ordinance 19-077 was a significant policy

change from Ordinance 15.137. Although it did not ban short-

term rentals entirely, it imposed a number of new restrictions.

First, short-term rentals in non-owner-occupied rentals were

limited to sixty nights per year. If, as of the date the ordinance

was adopted, an owner operated two properties, the owner

could appoint an agent to reside at the second property without

being subject to the sixty-day limit on that property. Second,

Ordinance 19-077 banned the subleasing of properties by

tenants on a short-term basis. As a result, only those who

owned properties could rent on a short-term basis in Jersey

City. To facilitate a transition period of approximately

eighteen months, Ordinance 19-077 included certain

exceptions. It exempted through January 1, 2021, for instance,

any short-term rental reservations or bookings that were made

before June 25, 2019, the date the ordinance was adopted. In

addition, tenants who were subleasing their properties on a

short-term basis as of the date of adoption could continue to do

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so through January 1, 2021, or through the end of the lease,

whichever came first.

On June 25, 2019, the Jersey City Council held a special

meeting to vote on Ordinance 19-077. Operators of short-term

rentals spoke against the ordinance, and Councilman James

Solomon and Councilman Jermaine Robinson spoke in favor

of the ordinance. Councilman Solomon acknowledged that the

ordinance may have a negative financial impact on short-term

rental operators but also explained that short-term rentals had

a negative impact on union workers in Jersey City.

Councilman Robinson expressed hope that investors could

recoup some of the money they would lose as a result of the

ordinance. The City Council voted 7–2 in favor of adopting

the ordinance. On June 28, 2019, Mayor Fulop signed

Ordinance 19-077 into law.

Between the passage of Ordinance 15.137 and

Ordinance 19-077, the plaintiffs invested in properties in

Jersey City to conduct short-term rental businesses. The

Nekrilovs purchased two properties, which have monthly

mortgage payments of $2,500 and $1,725. The Nekrilovs

earned $9,500 and $5,183 per month, respectively, in short-

term rental revenue, and allege that they would earn only

$3,800 and $1,800 per month in long-term rental revenue.

They also invested a total of $100,000 in renovating these

properties. The Nekrilovs also entered into seventeen long-

term leases with the intention of subleasing on a short-term

basis. Tang and Jen purchased one property, which has a

monthly mortgage payment of $3,300, and which Tang and Jen

spent $40,000 to renovate and furnish. The property earned

$4,500 per month in short-term rental revenue and would earn

$2,600 in long-term rental revenue. Tang and Jen also entered

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into two long-term leases and spent $6,600 and $8,900 to

furnish the properties. Suen purchased two properties, which

have monthly mortgage payments of $2,500 and $3,500. Suen

and his mother invested approximately $383,000 into

renovating the properties, $40,000 into furnishing the

properties, and $130,000 in other costs for the properties. Suen

and his mother earned approximately $30,000 in monthly

short-term rental revenues from the two properties. At the time

of filing the complaint, Suen and his mother had not turned a

profit, but they estimated that they would become profitable in

the near future.

In December 2019, the plaintiffs filed a complaint

seeking a declaratory judgment providing that Ordinance 19-

077 is unconstitutional, injunctive relief against enforcement

of the ordinance, monetary damages, and attorneys’ fees. The

complaint asserted four claims: (1) violations of the Takings

Clause of the Fifth Amendment; (2) violations of the Contract

Clause of Article I; (3) Fifth and Fourteenth Amendments

substantive due process claims; and (4) Fifth and Fourteenth

Amendments procedural due process claims. The plaintiffs

simultaneously filed a motion for a temporary restraining order

(“TRO”) and preliminary injunction. The City moved to

dismiss the complaint for failure to state a claim under Rule

12(b)(6). The District Court dismissed the complaint and

denied as moot the motion for a TRO and preliminary

injunction. The plaintiffs timely appealed.

II.

The District Court had subject matter jurisdiction

pursuant to 28 U.S.C. § 1331. This Court has jurisdiction over

the District Court’s final order dismissing the complaint under

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28 U.S.C. § 1291. We exercise plenary review over the District

Court’s dismissal of the complaint, accepting all well-pled

factual allegations as true and drawing all reasonable

inferences in the plaintiffs’ favor. See Phila. Taxi Ass’n v.

Uber Techs., Inc., 886 F.3d 332, 338 (3d Cir. 2018). “To

survive a motion to dismiss, a complaint must contain

sufficient factual allegations, taken as true, to ‘state a claim to

relief that is plausible on its face.’” Fleisher v. Standard Ins.

Co., 679 F.3d 116, 120 (3d Cir. 2012) (quoting Bell Atl. Corp.

v. Twombly, 550 U.S. 544, 570 (2007)).

III.

The plaintiffs argue that the District Court erred in

holding that the plaintiffs had not stated a regulatory takings

claim. Relatedly, the plaintiffs argue that the court erroneously

failed to recognize the plaintiffs’ forward-looking rights to

conduct their short-term rental businesses as cognizable

property interests for purposes of their takings claim. The

plaintiffs next argue that the District Court erred in dismissing

their Contract Clause claim, which they allege impaired both

short- and long-term rental contracts. Finally, the plaintiffs

argue that the District Court erred in concluding that the

plaintiffs failed to state a claim for a substantive due process

violation.2

A.

The Takings Clause of the Fifth Amendment of the

United States Constitution prohibits the taking of private

2

The plaintiffs did not appeal the dismissal of the procedural

due process claim.

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property “for public use, without just compensation.” U.S.

Const. amend. V. The Takings Clause applies to state and local

governments through the Fourteenth Amendment. Newark

Cab Ass’n v. City of Newark, 901 F.3d 146, 151 (3d Cir. 2018).

A threshold determination in any takings case is whether the

plaintiff has asserted a legally cognizable property interest.

See In re Trustees of Conneaut Lake Park, Inc., 855 F.3d 519,

526 (3d Cir. 2017). “Without a legally cognizable property

interest, [the plaintiff] has no cognizable takings claim.” Id.

Once a legally cognizable property interest has been identified,

we examine whether there has been a taking of that property

interest for public use without just compensation. Id. at 525.

Because there has been no physical taking of the

plaintiffs’ property, this case concerns an alleged regulatory

taking. There are two types of regulatory takings: (1) takings

per se or total takings, where the regulation denies all

economically beneficial productive use of the property, see

Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1019 (1992);

and (2) partial takings that, though not rendering the property

idle, require compensation under the test set forth in Penn

Central Transportation Co. v. City of New York, 438 U.S. 104

(1978).

1.

We must first determine what, if any, legally cognizable

interests are at issue. As the District Court observed, plaintiffs

assert three “uncontroversial” property rights: (1) plaintiffs’

use and enjoyment of their purchased properties; (2) the long-

term leases; and (3) the plaintiffs’ short-term rental contracts.

But the plaintiffs also assert another property interest: their

forward-looking right to pursue their short-term rental

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businesses. Framed this way, the plaintiffs allege that they

have lost “the entire businesses they were expressly invited by

Jersey City to open and operate.” Nekrilov Br. 40 (emphasis

in original). The District Court rejected the argument that this

constituted a legally cognizable property interest for the

purposes of a takings claim.

While the Constitution protects property interests, it

does not create property interests. See Phillips v. Wash. Legal

Found., 524 U.S. 156, 164 (1998). Whether a plaintiff has a

property interest is “determined by reference to ‘existing rules

or understandings that stem from an independent source such

as state law.’” Id. (quoting Bd. of Regents of State Colls. v.

Roth, 408 U.S. 564, 577 (1972)).

That does not mean that every municipal act legalizing

a business activity vests the business owner with a cognizable

property right. The Supreme Court has explained that

“business in the sense of the activity of doing business, or the

activity of making a profit is not property in the ordinary

sense.” Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ.

Expense Bd., 527 U.S. 666, 675 (1999) (emphasis in original).

Consistent with this principle, we decline to recognize a

general right to do business as a property interest cognizable

under the Takings Clause. As the District Court recognized, to

hold otherwise would broaden the scope of the Takings Clause

such that any business regulation could constitute a taking.

The plaintiffs point to several decisions in which, in the

context of New Jersey tort law, courts recognized that the

“[i]nvasion of ‘the right to pursue one’s business, calling or

occupation free from undue interference or molestation’ is an

‘actionable infringement of a property right.’” Longo v.

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Reilly, 114 A.2d 302, 305 (N.J. App. Div. 1955) (quoting

Louis Kamm, Inc., v. Flink, 175 A. 62, 66 (N.J. 1934)); see

also Di Cristofaro v. Laurel Grove Mem’l Park, 128 A.2d 281,

285 (N.J. App. Div. 1957) (same); Zenith Lab’ys, Inc. v.

Abbott Lab’ys, No. Civ. A. 96-1661, 1996 WL 33344963, at

*5 (D.N.J. Aug. 7, 1996) (same). These are tort decisions.

These decisions recognize a property right to pursue one’s

business in the context of unfair competition or tortious

interference claims. As such, they are not applicable to the

plaintiffs’ takings claim. The plaintiffs do not cite any takings

or due process decisions in which a federal court has

recognized a cognizable property interest in the right to pursue

one’s business.

This does not mean that we disregard the impact that

Ordinance 19-077 has had on the plaintiffs’ businesses. To the

extent that the ordinance has affected the economic value or

use of the properties, we address that issue in the takings

analysis. Moreover, we will consider the impact of the change

in policy on the plaintiffs’ reasonable, investment-backed

expectations. We need not recognize a free-standing property

right to pursue one’s business in order to account for the effect

that Ordinance 19-077 has had on the plaintiffs’ short-term

rental businesses.

The plaintiffs’ forward-looking right to pursue their

short-term rental businesses is not cognizable under the

Takings Clause, but the plaintiffs have articulated three

cognizable property rights: (1) use and enjoyment of their

purchased properties; (2) long-term leases, see U.S. Tr. Co. of

N.Y. v. New Jersey, 431 U.S. 1, 19 n.16 (1977) (“Contract

rights are a form of property and as such may be taken for a

public purpose provided that just compensation is paid.”); and

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(3) short-term rental contracts, see id. We next examine

whether the passage of Ordinance 19-077 constitutes a taking

of any of those property rights.

2.

Total takings or takings per se are those that deny the

property owner all economically beneficial use of the property.

See Murr v. Wisconsin, 137 S. Ct. 1942, 1942–43 (2017);

Lucas, 505 U.S. at 1030. A taking has not occurred simply

because a plaintiff has been denied the most profitable use of

the property. See Andrus v. Allard, 444 U.S. 51, 66 (1979).

Rather, a total taking is one that renders the property essentially

idle. See Lucas, 505 U.S. at 1030.

The plaintiffs first allege that, as a result of Ordinance

19-077, they have lost all beneficial use of their purchased

properties. The District Court held that because the properties

retain numerous beneficial uses, they have not been rendered

economically idle. We agree. The plaintiffs can lease the

properties on a long-term basis, live at the properties, or sell

the properties. 3 There is no total taking where the government

3

The plaintiffs argue that because they will be forced to sell

the properties to avoid foreclosure, selling the properties

should not count as a beneficial use. The plaintiffs are correct

that the ability to sell a property does not always constitute an

economically beneficial use. See Lost Tree Vill. Corp. v.

United States, 787 F.3d 1111, 1117 (Fed. Cir. 2015).

Specifically, “[w]hen there are no underlying economic uses,

it is unreasonable to define land use as including the sale of the

land.” Id. (emphasis in original). Such was the case in Lost

Tree, where the regulated parcel had essentially no uses other

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seizes only one strand in the “bundle” of property rights.

Andrus, 444 U.S. at 66. Here, that single strand is use of the

properties for short-term rentals.

The plaintiffs argue that they cannot afford to keep the

purchased properties without short-term rental income because

“it is impossible to sustainably lease them under long-term

leases.” Nekrilov Br. 39 n.12. The plaintiffs cannot

sustainably lease them on a long-term basis because “long-

term rental income is much lower than short-term rental

income, and thus would render [the plaintiffs’] investments

unaffordable,” App. 95, a fact that the plaintiffs considered in

deciding not to enter the long-term rental market. If forced to

rent the properties on a long-term basis, the plaintiffs claim that

they would barely make enough to cover their mortgages and

other costs, and in some cases, not enough to cover “related

debt and expenses.” App. 138.

The comparative disadvantage of long-term rentals does

not amount to an allegation that long-term rentals are not an

economically beneficial use of the property. The plaintiffs are,

as the District Court recognized, attempting to argue that

without the benefit of short-term rentals, they have been denied

all profitable use of their properties. But the central question

for a total taking is not “whether the regulation allows

operation of the property as ‘a profitable enterprise’ for the

than speculative land sale based on the trivial value that the

parcel retained. But here, there are other underlying economic

uses — the plaintiffs (or anyone else) could live in or rent the

properties on a long-term basis. We may therefore consider

the plaintiffs’ ability to sell the properties in determining

whether there has been a total taking.

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owners, but whether others ‘might be interested in purchasing

all or part of the land’ for permitted uses.” Park Ave. Tower

Assocs. v. City of New York, 746 F.2d 135, 139 (2d Cir. 1984)

(quoting Pompa Const. Corp. v. City of Saratoga Springs, 706

F.2d 418, 424 (2d Cir. 1983)). The plaintiffs do not allege that,

across all potential purchasers, long-term leases are not an

economically viable use of these properties. As the District

Court observed, the extent to which Ordinance 19-077 has

impacted the plaintiffs’ anticipated return on their investments

may be relevant to the partial takings analysis under Penn

Central, but it has no relevance here. Because the purchased

properties may still be put to multiple economically viable

uses, there has been no total taking of the purchased properties.

The plaintiffs further argue that they have lost all

economically beneficial use of the long-term leases. The

District Court similarly rejected this argument, explaining that

although the plaintiffs may no longer expect the same profits

from short-term rentals, they may still make economically

viable use of the properties by occupying the properties or sub-

leasing the properties on a long-term basis. We agree. Because

these leases may be put to other uses, there has not been a total

taking of any long-term lease.4

4

In any event, the complaint alleges that only four of the long-

term leases extended past January 1, 2021. Any lease that

ended prior to that date was unaffected by Ordinance 19-077,

which provides that tenants may continue to host unlimited

short-term subleases until January 1, 2021 or the end of the

lease, whichever came first. Although the complaint does not

specify the exact terms for each affected lease, in each case,

the plaintiffs were paying rent and subleasing the affected

properties at the time they filed the complaint in December

15

Finally, the District Court concluded that there had been

no total taking of any of the preexisting short-term rental

reservations. The District Court reasoned that Ordinance 19-

077 did not entirely ban short-term rentals; it provided for a

transition period for tenants and a limit of sixty nights per year

for owners. The ordinance also provided an exception for

short-term rental contracts that existed at the time the

ordinance passed and that concluded before January 1, 2021.

The complaint did not plead that these preexisting reservations

did not qualify for any exception, and so the District Court

concluded that there had been no total takings of the short-term

reservations. Following oral argument on appeal, the plaintiffs

submitted a letter to this Court indicating that “no formal short-

term bookings through AirBnB or similar service were

cancelled solely as a result of Ord. 19-077.” Doc. 43.

Accordingly, there has been no total taking of any of the

plaintiffs’ short-term rental contracts.

Because neither the purchased properties nor the long-

term leases have been deprived of all economically viable use,

the District Court properly concluded that the plaintiffs had not

stated a claim for a total taking or taking per se.

3.

One whose property has not been deprived of all

economically beneficial use may still be entitled to

compensation if the government action constitutes a partial

taking under the Penn Central factors. The factors are: “(1) the

2019. The plaintiffs were able to continue using these leases

for short-term rentals between, at a minimum, December 2019

and January 1, 2021.

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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

governmental action.” Murr, 137 S. Ct. at 1943. Although the

test is flexible, the Penn Central “inquiry turns in large part,

albeit not exclusively, upon the magnitude of a regulation’s

economic impact and the degree to which it interferes with

legitimate property interests.” Lingle v. Chevron U.S.A. Inc.,

544 U.S. 528, 540 (2005).

The District Court held that all three Penn Central

factors weighed against a taking and dismissed the plaintiffs’

partial takings claim. For the reasons that follow, we agree.

a.

We first consider the economic impact of Ordinance 19-

077 on the plaintiffs. It is undisputed that Ordinance 19-077

has impacted the plaintiffs’ short-term rental businesses. In

Appendix A of its opinion, the District Court summarized the

effects, as alleged in the complaint. The court roughly

estimated that plaintiffs may have lost between 50% and 66%

of their potential revenue from short-term rentals. The court

concluded that, even treating this loss of potential revenue as a

loss in the “value” of the property, this factor weighed against

the plaintiffs because they did not account for alternative ways

to exploit the properties. The District Court also declined to

adopt lost profits as a measure of economic impact because the

plaintiffs’ projected lost profits were speculative. The

plaintiffs allege that the District Court engaged in improper

factfinding in holding that their lost profits were too

speculative.

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When evaluating a takings claim under the Penn Central

factors, the economic impact of a regulation is usually

measured in terms of its effect on the value of the property.

See Rose Acre Farms, Inc. v. United States, 559 F.3d 1260,

1268–69 (Fed. Cir. 2009) (collecting cases); see also United

States v. 68.94 Acres of Land, 918 F.2d 389, 393 n.3 (3d Cir.

1990). Here, the plaintiffs do not argue that the values of the

underlying properties or leases have decreased; they instead

argue that they have been denied the opportunity to profit from

and to obtain a “reasonable return” on their investments.

Nekrilov Br. 42 (quoting Penn Cent., 438 U.S. at 136). The

loss of profitable uses of property is occasionally considered in

takings cases as a measure of economic impact, see, e.g., Pace

Res., Inc. v. Shrewsbury Twp., 808 F.2d 1023, 1031 (3d Cir.

1987), but as the Supreme Court explained:

[L]oss of future profits-unaccompanied by any

physical property restriction—provides a slender

reed upon which to rest a takings claim.

Prediction of profitability is essentially a matter

of reasoned speculation that courts are not

especially competent to perform. Further,

perhaps because of its very uncertainty, the

interest in anticipated gains has traditionally

been viewed as less compelling than other

property-related interests.

Andrus, 444 U.S. at 66.

As to the purchased properties, we agree with the

District Court that lost profits are not an appropriate a measure

of economic impact. First, not all of the plaintiffs were

profitable as of the filing of the complaint. Suen, who

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purchased two properties, had not turned a profit on either

property, although he considered himself “at a point where [the

investments] will become profitable in the near future,” based

on his assumption that he would be able to continue operating

his short-term rental business “indefinitely.” App. 137. His

alleged lost profits are entirely speculative. Second, the

Nekrilovs, Tang, and Jen, who have profited from their short-

term rental businesses, do not allege that they could not

profitably sell their purchased properties. As the District Court

explained, their lost-profit claims fail to account for other

potentially profitable uses of the properties, the most obvious

of which is to sell the properties. Suen alone alleges that he

would be forced to sell his two purchased properties at a net

loss, accounting for “two down payments, the two mortgage

payments, and the costs of renovations, etc.” App. 138–39.

But the complaint does not quantify that estimated loss, and it

bases this claim at least in part on a prediction that Ordinance

19-077 “will likely deflate prices” of residences in Jersey City.

App. 139. There is nothing in the complaint to suggest that the

value of the plaintiffs’ purchased properties have declined as a

result of Ordinance 19-077 or otherwise. See Fowler v. UPMC

Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (“[C]onclusory or

‘bare-bones’ allegations will [not] survive a motion to

dismiss . . . .”).

But even if we considered the loss of potential short-

term rental revenue as a decrease in the underlying value of the

properties, that too would be insufficient. The plaintiffs do not

allege that the market values for any of the purchased

properties have decreased or that market values for long-term

rents have decreased as a result of Ordinance 19-077.

Accordingly, the only alleged loss in “value” is the lost revenue

from short-term leases that cannot be recouped from long-term

19

leases or from selling the properties. The complaint does not

specify the value of this loss, but the District Court estimated

that, where both long- and short-term market rents are provided

in the complaint, the plaintiffs stand to lose between

approximately 50% and 66% of their rental revenue, which is

a fraction of the properties’ value. As this Court has observed,

the Supreme Court “has required compensation only in cases

in which the value of the property was reduced drastically.”

Rogin v. Bensalem Twp., 616 F.2d 680, 692 (3d Cir. 1980).

The plaintiffs have undeniably lost potential future profits as a

result of Jersey City’s change in policy. But the plaintiffs’

inability to continue to operate their short-term rental

businesses profitably does not equate to a “drastic[]” reduction

in the value of the property so as to require compensation,

especially as the properties retain multiple economically

beneficial uses.

As to the long-term leases, the complaint indicates that

those leases ended in 2020 or 2021. Ordinance 19-077

permitted tenants to continue to sublease on a short-term basis

through January 1, 2021. The complaint identifies four leases

that extended past this transition period: two leases ending on

June 30, 2021, and two leases ending on August 31, 2021. The

complaint is not clear as to precisely when the leases started,

but the plaintiffs were paying rent on the affected leases prior

to the filing of the complaint in December 2019. Accordingly,

the Nekrilovs, Tang, and Jen were able to use the leased

properties for the most profitable use — short term rentals —

for the majority of the lease term. Moreover, as with the

purchased properties, the leased properties retain multiple

beneficial uses. The plaintiffs can live in the properties or

sublet them on a long-term basis. Long-term rental rates are

indisputably lower than short-term rates, but the plaintiffs

20

acknowledge that they pay “market rent.” App. 116, 119–21,

126–27. The District Court properly recognized that the

plaintiffs have not alleged why their losses would be “drastic”

if they can sublet the properties at market rate on a long-term

basis.

“Government hardly could go on if to some extent

values incident to property could not be diminished without

paying for every such change in the general law.” Penn. Coal

Co. v. Mahon, 260 U.S. 393, 413 (1922). To govern

effectively, governments must be able to “execute laws or

programs that adversely affect recognized economic values.”

Penn Cent., 438 U.S. at 124. The plaintiffs have

unquestionably been negatively affected by the City’s change

in residential zoning laws, but the plaintiffs’ inability to

continue to profit at the same levels from their investments is

insufficient to state a takings claim.

For the foregoing reasons, we conclude that this factor

weighs against finding a taking of plaintiffs’ purchased

properties or long-term leases.5

b.

We next turn to the second factor — the extent to which

Ordinance 19-077 has interfered with the plaintiffs’ distinct,

investment-backed expectations. “[D]istinct, investment-

backed expectations are reasonable only if they take into

5

The complaint initially pled that Ordinance 19-077

constituted a taking of existing reservations, but the plaintiffs

subsequently informed this Court that no existing short-term

rentals were cancelled due to the ordinance.

21

account the power of the state to regulate in the public interest.”

Pace Res., 808 F.2d at 1033. The plaintiffs do not suffer a

taking requiring compensation merely because “they have been

denied the ability to exploit a property interest that they

heretofore had believed was available for development.” Penn

Cent., 438 U.S. at 130. Nor does the Takings Clause mean that

“once a property has been devoted to a particular use, the

owner has a reasonable expectation of being able to continue

with that use absent the payment of compensation.” Pace Res.,

808 F.2d at 1032.

Zoning regulations are the “classic example” of

permissible regulations that do not require compensation even

where they “prohibit[] the most beneficial use of the property.”

Penn Cent., 438 U.S. at 125. And even though zoning laws

“generally do not affect existing uses of real property,” the

Supreme Court has rejected takings claims “when the

challenged governmental actions prohibited a beneficial use to

which individual parcels had previously been devoted and thus

caused substantial individualized harm.” Id. at 125–27

(collecting cases). However, the actions of the state can impact

the analysis, in particular, where the state invited the activity

with promises to protect property rights. See, e.g.,

Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1010–11 (1984).

The District Court held that, although a closer question,

this factor ultimately weighed against finding a taking because

the plaintiffs had failed to consider the City’s power to regulate

residential housing in the public interest. We concur.

The plaintiffs make three arguments that Ordinance 19-

077 undermines their distinct, investment-backed

expectations. First, the plaintiffs argue that this case differs

22

from Penn Central and Pace in that the applicable statutes in

both of those decisions affected prospective uses of the

properties. Here, Ordinance 19-077 affects an already-existing

use of the purchased properties and long-term leases. But this

Court has made clear that disruption of a present use is not

enough. See Pace Res., 808 F.2d at 1032–34.

Second, the plaintiffs emphasize that this case is unique

because Ordinance 15.137 and the statements made by Jersey

City officials invited and encouraged them to invest in Jersey

City real estate for the purpose of exploiting the properties as

short-term rentals. These actions, the plaintiffs argue,

established an expectation that they could continue to lease

their properties indefinitely on a short-term basis. The

plaintiffs point to various statements made by Mayor Fulop and

City Council members encouraging investors to come to Jersey

City.6 By affirmatively legalizing short-term rentals — and

advertising that legalization — the City communicated to the

plaintiffs that their short-term rental businesses were welcome

there. That does not mean that the plaintiffs’ expectations that

they could run those businesses, indefinitely, without

additional restrictions, were reasonable. As the District Court

noted, Ordinance 15.137 and the very articles cited by

plaintiffs also contain statements that qualify the legalization

of short-term rentals. 7 Mayor Fulop cautioned that lessors

6

Some of these articles, as the District Court noted, quote city

officials but were not written or specifically endorsed by

anyone associated with the City. The complaint does not allege

that the City approved the broader contents of these articles.

7

Courts may consider in deciding a motion to dismiss

documents that are “integral to or explicitly relied upon in the

complaint” without converting the motion to a motion for

23

could not “rent out so many rooms as to create an informal

hotel” or “change the nature of the neighborhood.” App. 223.

Jersey City did not want to be “in the business of disallowing

a service like Airbnb . . . that lets middle-class folks earn a bit

of extra income by renting out their apartments.” Id. And

Ordinance 15.137 provided that short-term rentals may not

“materially disrupt the residential character of the

neighborhood.” App. 162.

Third, plaintiffs argue that “where the government itself

affirmatively engenders the property owner’s investment-

backed expectation, its subsequent subversion of that

expectation can be so overwhelming as to dispose of the

takings question entirely.” Nekrilov Br. 31 (emphasis in

original). The plaintiffs point to two decisions in which courts

found takings where the state made explicit promises to

property owners. See Ruckelshaus, 467 U.S. at 1005, 1010–

11; Kaiser Aetna v. United States, 444 U.S. 164, 179–80

(1979). Both decisions involve explicit promises that are not

present here. In Ruckelshaus, the plaintiff, Monsanto Co.,

submitted trade secret data to the Environmental Protection

Agency (“EPA”) based on “explicit assurance[s]” that the data

would not be publicly disclosed. 467 U.S. at 1011. After the

EPA later disclosed the data, the Supreme Court held that

Monsanto had a reasonable expectation that its data would not

be published and that a taking had occurred. See id. at 1011–

13. In Kaiser, the plaintiff owned a private pond and received

permission from government officials to connect the pond to

navigable waters, permission that was not conditioned on

summary judgment. Schmidt v. Skolas, 770 F.3d 241, 249 (3d

Cir. 2014) (quoting In re Burlington Coat Factory Sec. Litig.,

114 F.3d 1410, 1426 (3d Cir. 1997)) (emphasis omitted).

24

public access to the pond. See 444 U.S. at 179. The

government subsequently attempted to require the pond owner

to permit public access to the pond on the basis that it was

connected to navigable waters, imposing a navigable servitude

on the former pond. See id. at 179–80. Although consent of a

government official cannot estop the government, the Supreme

Court held that it can “lead to the fruition of a number of

expectancies embodied in the concept of ‘property’—

expectancies that, if sufficiently important, the Government

must condemn and pay for before it takes over.” Kaiser, 444

U.S. at 179. The Court acknowledged that “the ‘right to

exclude,’ so universally held to be a fundamental element of

the property right, falls within this category of interests.” Id.

at 179–80. The Court concluded that if the government wanted

public access to the former pond “after petitioners [had]

proceeded as far as they [had] . . . , it may not, without

invoking its eminent domain power and paying just

compensation, require them to allow free access to the dredged

pond.” Id. at 180.

Both decisions rest on explicit assurances that are not

present in this case.8 Ordinance 15.137 placed qualifications

8

The plaintiffs also cite to Washington Market Enterprises,

Inc. v. City of Trenton, 343 A.2d 408, 409 (N.J. 1975). That

decision is inapplicable. As the first step in an urban renewal

project, Trenton first declared the plaintiff’s property

“blighted.” Id. at 410. That designation had a negative effect

on the property, and the plaintiff could no longer find tenants.

Trenton subsequently abandoned the project without

condemning and acquiring the property, and therefore without

paying the plaintiff. Id. at 410. That was the source of the

25

on the operation of short-term rentals, including that such

rentals could not change the character of the neighborhood and

a limit on the number of rentals an investor could operate

without obtaining a license. Mayor Fulop publicly explained

that the purpose of Ordinance 15.137 was to permit the middle-

class to earn additional income by renting out their homes but

not to permit investors to create “informal hotel[s].” App. 224.

And as this Court has explained, “[t]he general expectation of

regulatory change is no less present where the value of the

property interest is derived from the regulation itself.” Newark

Cab Ass’n, 901 F.3d at 153 (quoting Minneapolis Taxi Owners

Coal., Inc. v. City of Minneapolis, 572 F.3d 502, 509 (8th Cir.

2009)) (alteration in original).

The plaintiffs may have relied on Ordinance 15.137 in

deciding to invest in short-term rentals in Jersey City, but they

failed to take into account the restrictions in place in the

original ordinance and the City’s strong interest in regulating

residential housing. On balance, this factor weighs against the

plaintiffs.

c.

Finally, we turn to the character of Ordinance 19-077.

As the District Court observed, a taking is more “readily . . .

found when the interference with property can be characterized

as a physical invasion by government, than when interference

arises from some public program adjusting the benefits and

burdens of economic life to promote the common good.” Penn.

Cent., 438 U.S. at 124 (quotation marks omitted). This is

unfairness identified by the New Jersey Supreme Court. This

decision is, therefore, inapposite.

26

especially true when the regulation concerns housing. The

Supreme Court has “consistently affirmed that States have

broad power to regulate housing conditions in general.” Yee

v. City of Escondido, 503 U.S. 519, 528 (1992) (citation

omitted). In particular, courts are more likely to uphold a

regulation that “applies generally to a broad class of

properties.” Rogin, 616 F.2d at 690. However, a regulation

that “substantially furthers important public policies may so

frustrate distinct investment-backed expectations as to amount

to a ‘taking.’” Penn Cent., 438 U.S. at 127 (citing Mahon, 260

U.S. at 414); see also Mahon, 260 U.S. at 414–16 (holding that

a regulation banning mining that caused subsistence of the

surface property was a taking of the plaintiffs’ mining rights

where the regulation merely “shift[ed] the damages” from the

plaintiffs to the surface owners).

The plaintiffs contend that the City, Mayor Fulop, and

the City Council did not act in good faith in passing Ordinance

19-077. They argue that Mayor Fulop, after deliberately

enticing investors to come to Jersey City, turned on short-term

rentals as a result of his personal frustrations with Airbnb. But

as the District Court observed, regardless of Mayor Fulop’s

subjective motivations, the council members voted 7-2 for the

regulation, and the complaint does not attribute bad faith

motives to these council members.

The plaintiffs next argue that Councilman Solomon

admitted to voting for the 2019 Ordinance to benefit those in

hotel trade unions and that “alone is sufficient for a finding of

a taking.” Nekrilov Br. 47. The plaintiffs rely on Arkansas

Game & Fish Commission v. United States, 736 F.3d 1364

(Fed. Cir. 2013), for the proposition that where the government

legislates to benefit a certain industry or trade group, there has

27

been a taking. Arkansas Game concerned a physical taking,

which is not subject to the Penn Central analysis. In Arkansas

Game, the government temporarily flooded an area in response

to requests from agricultural interests. See id. at 1370.

Ordinance 19-077 by contrast is targeted at residential housing

generally, regardless of Councilman Solomon’s subjective

intentions. The plaintiffs also ignore the larger context of

Councilman Solomon’s statement. Councilman Solomon

expressed support for hotel union workers, but he also

commented on the harmful effects that short-term rentals had

on the residential housing market and on the potential benefits

of more long-term residents in Jersey City. 9 Councilman

Solomon’s statements reflect the same public purposes

articulated in Ordinance 19-077.

Ordinance 19-077 is a general zoning regulation

restricting the permissible uses of residential housing with the

goals of protecting the residential housing market in Jersey

City and promoting public safety by reducing the nuisance

behavior associated with short-term rentals. We agree with the

District Court’s conclusion that this factor weighs against a

taking.

* * * * *

The Penn Central takings test serves to “identify

regulatory actions that are functionally equivalent to the classic

taking in which government directly appropriates private

property or ousts the owner from his domain.” Lingle, 544

9

The complaint relies on and incorporates by reference the

remarks made at the special council meeting held on June 25,

2019.

28

U.S. at 539. The ordinance effects neither a taking per se nor

its functional equivalent of the plaintiffs’ property. The

plaintiffs have certainly suffered losses as a result of Ordinance

19-077, but they have not been denied all economically

beneficial use of their properties and therefore have not

suffered a total taking. Nor have the plaintiffs stated a partial

takings claim under the Penn Central factors. Accordingly, we

will affirm the District Court’s dismissal of the plaintiffs’

takings claim.

B.

The plaintiffs next argue that the District Court erred in

dismissing their Contract Clause claim. We disagree and will

affirm the District Court’s dismissal of this claim.

The Contract Clause of Article I of the Constitution

provides that “[n]o State shall . . . pass any . . . Law impairing

the Obligation of Contracts.” U.S. Const. art. I, § 10, cl. 1.

Despite its broad language, the Contract Clause does not

disrupt a state’s ability to exercise its police powers in service

of the public interest, even if it affects existing contracts. See

Watters v. Bd. of Sch. Dirs. of Scranton, 975 F.3d 406, 412 (3d

Cir. 2020). To decide whether legislation violates the Contract

Clause, the court first determines whether the legislation has

substantially impaired the contractual relationship. See Sveen

v. Melin, 138 S. Ct. 1815, 1821–22 (2018). If so, the court then

“turns to the means and ends of the legislation” and evaluates

whether the legislation (1) has “a significant and legitimate

public purpose,” and (2) “is drawn in an appropriate and

reasonable way to advance” that public purpose. Id. at 1822

(quotation marks omitted); see also United Steel Paper &

Forestry Rubber Mfg. Allied Indus. & Serv. Workers Int’l

29

Union AFL-CIO-CLC v. Gov’t of Virgin Islands, 842 F.3d

201, 211 (3d Cir. 2016). When determining whether

legislation is drawn in a necessary and reasonable way, and

where the state is not itself a party to the affected contract, “the

State is ordinarily entitled to deference in its legislative

judgment.” United Steel, 842 F.3d at 212. The Contract

Clause “applies equally to municipal ordinances” as it does to

state legislation. Alarm Detection Sys., Inc. v. Village of

Schaumburg, 930 F.3d 812, 822 (7th Cir. 2019).

The District Court dismissed the plaintiffs’ Contract

Clause claim based on both the long-term leases and the short-

term contracts. The court concluded that the plaintiffs had not

alleged facts sufficient to show that the City did not have a

substantial public purpose in passing Ordinance 19-077. The

Contract Clause claim must therefore fail regardless of whether

Ordinance 19-077 had substantially impaired any existing

contract.

The plaintiffs originally alleged that Ordinance 19-077

impaired both short-term rental contracts and the long-term

leases into which the Nekrilovs, Tang, and Jen entered.

However, as discussed before, the plaintiffs submitted a letter

following oral argument to this Court indicating that the

plaintiffs did not cancel any existing short-term rentals solely

due to Ordinance 19-077. Because the Contract Clause

protects only existing contracts, see Bray v. Ins. Co. of Pa., 917

F.2d 130, 135 (4th Cir. 1990) (“To violate the [C]ontracts

[C]lause the legislature must alter an existing contract.”); see

also Sveen, 138 S. Ct. at 1821; Watters, 975 F.3d at 412,

contracts entered into after the passage of Ordinance 19-077

are not impaired within the meaning of the Contract Clause,

see Easthampton Sav. Bank v. City of Springfield, 736 F.3d

30

46, 50 n.5 (1st Cir. 2013) (“[A] state law with only prospective

effect will not violate the Contracts Clause because it will not

impair an existing contractual relationship.”). The District

Court therefore did not err in dismissing the plaintiffs’ Contract

Clause claim to the extent that it was based on the alleged

impairment of any short-term rental contracts.

The plaintiffs further argue that Ordinance 19-077

impaired the long-term leases. To determine whether a

regulation has substantially impaired an existing contract, we

“consider[] the extent to which the law undermines the

contractual bargain, interferes with a party’s reasonable

expectations, and prevents the party from safeguarding or

reinstating his rights.” Sveen, 138 S. Ct. at 1817. The

plaintiffs have not articulated how Ordinance 19-077 has

substantially impaired the contractual relationships between

the lessors and the plaintiffs. Ordinance 19-077 has no effect

on the plaintiffs’ obligations to pay rent to the long-term

landlords or the landlords’ obligations to provide the plaintiffs

with access to the property. Ordinance 19-077 does not negate

the plaintiffs’ ability to sublet but limits the plaintiffs to long-

term sublets. The plaintiffs suggest that because unlimited

short-term rentals were legal at the time they entered into the

long-term leases, Ordinance 19-077 undermines their

legitimate expectations that they could indefinitely conduct

short-term sublets. As we have explained, it is not reasonable

for the plaintiffs to conclude from the passage of Ordinance

15.137 that they could continue to conduct short-term rentals

indefinitely without additional restrictions. The plaintiffs do

not articulate any other way in which Ordinance 19-077 has

impaired their long-term leases.

31

But as the District Court observed, even assuming

Ordinance 19-077 substantially impaired the long-term leases,

the plaintiffs have still failed to plead a Contract Clause claim

because the City has articulated a legitimate public purpose for

the Ordinance, which was drawn in an appropriate and

reasonable manner. A legitimate public purpose is one that is

“aimed at remedying a broad and general social or economic

problem.” United Steel, 842 F.3d at 211. Ordinance 19-077

articulates multiple public purposes, including the desire to

protect the residential character of neighborhoods and reduce

nuisance activity associated with short-term rentals. The

plaintiffs suggest that these purposes are not legitimate because

of Mayor Fulop’s personal dissatisfaction with Airbnb. The

plaintiffs do not cite any decision which would permit this

Court to take into account the subjective intent of the

individual legislators.

That there is a significant and legitimate public purpose

for Ordinance 19-077 does not end our inquiry. See id. We

must next decide whether the ordinance is “both necessary and

reasonable to meet the purpose advanced by the [City] in

justification.” Id. But as the Supreme Court has repeatedly

held, where the state is not itself a party to the affected contract,

“courts should properly defer to legislative judgment as to the

necessity and reasonableness of a particular measure.”

Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S.

470, 505 (1987) (quotation marks omitted). The City is not a

party to any of the long-term leases and therefore is entitled to

deference in its judgments regarding the necessity and

reasonableness of Ordinance 19-077. The City has expressed

in Ordinance 19-077 that short-term rentals can negatively

affect the long-term housing supply, have “deleterious” affects

on residential neighborhoods, and impact the character of

32

residential neighborhoods and determined that restrictions on

such rentals are necessary. App. 147. We therefore “refuse to

second-guess the [the City’s] determinations” that restrictions

on short-term rentals “are the most appropriate ways of dealing

with the problem.” DeBenedictis, 480 U.S. at 505.

Accordingly, we will affirm the District Court’s

dismissal of the plaintiffs’ Contract Clause claim.

C.

The plaintiffs next argue that the District Court erred in

dismissing their substantive due process claim. The Fourteenth

Amendment provides that “[n]o State shall . . . deprive any

person of life, liberty, or property, without due process of law.”

U.S. Const. amend. XIV, § 1. Substantive due process is a

“component of the [Fourteenth Amendment] that protects

individual liberty against ‘certain government actions

regardless of the fairness of the procedures used to implement

them.’” Collins v. City of Harker Heights, 503 U.S. 115, 125

(1992) (quoting Daniels v. Williams, 474 U.S. 327, 331

(1986)). There exist two “threads” of substantive due process

actions: “substantive due process relating to legislative action

and substantive due process relating to non-legislative action.”

Newark Cab Ass’n, 901 F.3d at 155. Legislative acts are

subjected to rational basis review. See Am. Exp. Travel

Related Servs., Inc. v. Sidamon-Eristoff, 669 F.3d 359, 366 (3d

Cir. 2012).10 The City must demonstrate “(1) the existence of

10

A non-legislative action “violates substantive due process if

arbitrary, irrational, or tainted by improper motive, or if so

egregious that it shocks the conscience.” Cnty. Concrete Corp.

33

a legitimate state interest that (2) could be rationally furthered

by the statute.” Id. This Court has held that where a New

Jersey municipal body votes for “‘a change in the permitted

uses in a zoning district,’ the act is legislative in character.”

Cnty. Concrete Corp., 442 F.3d at 169 (quoting Timber Props.,

Inc. v. Chester Twp., 500 A.2d 757, 763 (N.J. Super. Ct. App.

Div. 1984)).

The test is easily satisfied here. As the District Court

observed, Ordinance 19-077 articulates several legitimate state

interests furthered by the change in regulation: (1) protecting

the long-term housing supply; (2) reducing “deleterious

effects” on neighborhoods caused by short-term rentals; and

(3) protecting the residential character and density of

neighborhoods. App. 147. This Court has reversed a grant of

a motion to dismiss substantive due process claims related to

zoning changes where the complaint contained no facts “that

would indicate any possible motivation for the enactment of

the Ordinance other than a desire to prevent appellants from

continuing to operate and expand their . . . business.” Cnty.

Concrete Corp., 442 F.3d at 170. But here, the face of the

ordinance articulates the very state interests that the ordinance

furthers.

The plaintiffs argue that Mayor Fulop was subjectively

motivated by his dissatisfaction with Airbnb over campaign

donations. But the subjective intentions of the legislators are

“constitutionally irrelevant.” Flemming v. Nestor, 363 U.S.

603, 612 (1960). And the plaintiffs do not make any other legal

arguments in support of their substantive due process claim.

v. Town of Roxbury, 442 F.3d 159, 169 (3d Cir. 2006)

(quotations omitted).

34

For these reasons, we will affirm the District Court’s

dismissal of the substantive due process claim.11

IV.

For the foregoing reasons, we will affirm the judgment

of the District Court.

11

Finally, the plaintiffs challenge the District Court’s denial of

their motion for a preliminary injunction. The District Court,

having dismissed the complaint, denied the motion as moot.

Because we will affirm the District Court’s dismissal of the

complaint, this issue is moot, and we will affirm the District

Court’s denial of the plaintiffs’ injunction motion.

35

BIBAS, Circuit Judge, concurring.

I join the majority’s excellent opinion in full. And I write

separately only to offer thoughts on a question that the majority

need not resolve today: what should be the test for regulatory

takings?

Modern regulatory-takings doctrine has a laudable goal:

protecting property owners against novel, potent, and intrusive

regulations. To make that happen, the Supreme Court has given

us a few different tests. But they overlap and are notoriously

hard to apply. Worse, they are unmoored from the Constitu-

tion’s text.

The better solution is to go back to the Takings Clause’s

original public meaning. Under that standard, the government

would have to compensate the owner whenever it takes a prop-

erty right and presses it into public use—even if the taking did

not involve a physical invasion.

I. THE LAY OF THE LAND: TAKINGS DOCTRINE TODAY

The Takings Clause bans “tak[ing]” “private property …

for public use, without just compensation.” U.S. Const. amend.

V. A century ago, the Supreme Court suggested that not only

confiscations, but also regulations, can be takings if they “go[ ]

too far.” Pa. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922).

But regulatory-takings doctrine is a mess. To identify reg-

ulations that “go[ ] too far,” we apply various tests. Regulations

that authorize even a temporary physical invasion are per se

takings, regardless of their economic impact. Cedar Point

Nursery v. Hassid, 141 S. Ct. 2063, 2073–74 (2021). So are

regulations that leave land “without economically beneficial or

productive options for its use.” Lucas v. S.C. Coastal Council,

505 U.S. 1003, 1018–19 (1992).

But for all other regulations, we conduct an “essentially ad

hoc, factual inquir[y].” Penn Cent. Transp. Co. v. New York

City, 438 U.S. 104, 124 (1978). As with the other tests, we ask

whether the regulation can be characterized as a “physical in-

vasion.” Id. (also describing this prong as the “character of the

governmental action”). But we look at its “economic impact”

as well, especially how much it “interfere[s] with distinct in-

vestment-backed expectations.” Id. And we may weigh other

unidentified, “relevant” factors too. Tahoe-Sierra Pres. Coun-

cil, Inc. v. Tahoe Reg’l Plan. Agency, 535 U.S. 302, 322 (2002)

(internal quotation marks omitted).

Applying the Penn Central factors is challenging. For one,

they are hard to define and thus hard to meet. See Bridge Aina

Le’a, LLC v. Hawaii Land Use Comm’n, 141 S. Ct. 731, 731–

32 (2021) (Thomas, J., dissenting from denial of certiorari);

Steven J. Eagle, The Four-Factor Penn Central Regulatory

Takings Test, 118 Penn. St. L. Rev. 601, 605 (2014).

This case highlights some of the difficulties. Take “eco-

nomic impact.” The investors argue that the city’s regulation

destroyed two thirds of their properties’ profitability. But prec-

edent is muddy on whether lost profits count as an economic

burden. Compare Penn Cent., 438 U.S. at 127, 129 n.26 (con-

sidering the property owners’ “ability to profit”), and Keystone

Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 499

(1987) (same), with Andrus v. Allard, 444 U.S. 51, 66 (1979)

2

(suggesting that lost profits “provide[ ] a slender reed upon

which to rest a takings claim”).

Plus, we do not know how severe an economic loss must be

to satisfy that factor. Indeed, the Supreme Court has declined

to spell out a “mathematically precise” formula. Tahoe-Sierra,

535 U.S. at 326 & n.23 (internal quotation marks omitted).

Precedent suggests that very few regulatory takings suffice.

Though wiping out almost all of a property’s value might

count, other severe devaluations do not. Compare Lucas, 505

U.S. at 1016–19 nn.7–8 (suggesting that 95% reduction in

value might suffice), with Penn Cent., 438 U.S. at 131 (cata-

loguing rejected claims for 75% and 87.5% reductions), and

Pace Res., Inc. v. Shrewsbury Twp., 808 F.2d 1023, 1031 (3d

Cir. 1987) (rejecting 90% reduction). And that calculation is

tricky for another reason: it is “unclear” whether total depriva-

tions of one use of land should be treated as deprivations of one

property right or “a mere diminution in the value of the tract as

a whole.” Lucas, 505 U.S. at 1016 n.7.

Or consider “investment-backed expectations.” Here, the

investors argue that city officials’ statements led them to rea-

sonably expect that they could keep short-term leasing. But

“investment-backed expectations are reasonable only if they

take into account the power of the state to regulate in the public

interest.” Pace Res., 808 F.2d at 1033; see also Good v. United

States, 189 F.3d 1355, 1361–62 (Fed. Cir. 1999). Perhaps the

investors must point to something close to a promise that their

property interests would be protected. See, e.g., Ruckelshaus v.

Monsanto Co., 467 U.S. 986, 1008–10 (1984). If so, it is

3

unclear where “investment-backed expectations” fall in the

gray area between expected regulations and formal contracts.

Even considering these issues, this case is clear. The inves-

tors have not shown a regulatory taking. But in closer cases,

the lack of rules and guidance invites chaos.

Applying Penn Central can be hard for a second reason: we

do not know how much weight to give each factor. Courts often

knock out regulatory-takings claims for lacking one factor.

See, e.g., Palazzolo, 533 U.S. at 634–35 (O’Connor, J., con-

curring) (chiding lower court for giving “investment-backed

expectations … exclusive significance”); Guggenheim v. City

of Goleta, 638 F.3d 1111, 1123 (9th Cir. 2010) (en banc) (Bea,

J., dissenting) (objecting that the majority “converts a three-

factor balancing test into a ‘one-strike-you’re-out’ checklist”);

Adam R. Pomeroy, Penn Central After 35 Years: A Three Part

Balancing Test or a One Strike Rule?, 22 Fed. Cir. Bar J. 677,

689 (2013) (empirical study “show[ing] that the actual practice

of the courts is to use the Penn Central test not as a balancing

test but as a checklist, … habitually failing to utilize or analyze

all three factors”).

This one-strike-you’re-out practice is especially troubling

because Penn Central overlaps with per se regulatory takings

claims. The first Penn Central factor considers whether the

regulation can be characterized as a physical invasion. But

physical invasions are also per se takings. Cedar Point, 141 S.

Ct. at 2073–74. Smart lawyers will frame their challenges as

per se takings if they can. But where does that leave Penn

Central?

4

Perhaps most importantly, Penn Central is hard to apply

because it is not “ground[ed] … in the Constitution as it was

originally understood.” Murr v. Wisconsin, 137 S. Ct. 1933,

1957 (2017) (Thomas, J., dissenting). Thus, rather than look to

history for answers to regulatory-takings questions, we must

puzzle through Penn Central’s factors. Recognizing these

problems, Justice Thomas recently encouraged his colleagues

to clarify whether there is any “such thing as a regulatory tak-

ing” and “if there is, … make clear when one occurs.” Bridge

Aina, 141 S. Ct. at 732.

Though I am bound by Supreme Court precedent, I can still

take up part of Justice Thomas’s challenge. I suggest that the

Takings Clause, originally understood, would have allowed

regulatory-takings claims for regulations that take a state-law

property right and press it into public use.

II. REGULATORY TAKINGS AND THE

ORIGINAL PUBLIC MEANING

To discern the Constitution’s original public meaning, we

start with its text. The Fifth Amendment bars the government

from “tak[ing]” “private property” “for public use, without just

compensation.” U.S. Const. amend. V. That spare clause holds

three key textual puzzles: What counts as “private property”?

When is it “taken”? And when is that taking “for public use”?

The answers reveal that the Constitution requires compensat-

ing regulatory takings only when a law takes a recognized

property right.

First comes “property.” At the Founding, “property” in-

cluded more than just the right to exclude. Blackstone’s

5

Commentaries, for example, had a “broad” conception of prop-

erty that extended beyond physical possession. See William

Michael Treanor, The Original Understanding of the Takings

Clause and the Political Process, 95 Colum. L. Rev. 782, 827

(1995) (summarizing Blackstone). It defined the right to prop-

erty as consisting in the “free use, enjoyment, and disposal of

all of [one’s] acquisitions, without any control or diminution.”

1 William Blackstone, Commentaries *134.

The Founders shared this broad conception. See Treanor at

827 & n.234 (describing the Founders’ definitions). James

Madison, for instance, approvingly quoted Blackstone’s under-

standing that property included the whole “dominion which

one man claims and exercises over the external things of the

world.” James Madison, Property, National Gazette (Mar. 27,

1792), https://perma.cc/WN9Q-X3FE. (Indeed, he would have

gone further and defined property as anything of “value” or any

“right.” Id.) This approach treats “property” broadly enough to

include rights beyond physical possession of land or chattels.

Second is “taken.” Dictionaries of the time defined “to

take” in many ways. But because property encompassed both

physical and intangible rights, the “aptest, most likely sense[ ]”

covered both physical seizure and non-physical deprivation.

Antonin Scalia & Bryan Garner, Reading Law 418 (2012); see

Take (defs. 2, 67), Samuel Johnson, A Dictionary of the Eng-

lish Language (1755) (defining “take” to cover both physical

seizure (“[t]o seize what is not given”) and intangible depriva-

tions (“[t]o deprive of”)); To Take, Thomas Sheridan, A Com-

plete Dictionary of the English Language (5th ed. 1789)

(same).

6

Indeed, in other contexts, the Framers used “take” to refer

to non-physical deprivations. In Federalist No. 44, for exam-

ple, James Madison discussed “tak[ing]” the “right of coining

money” from the states. The Federalist No. 44, at 231 (James

Madison) (George W. Carey & James McClellan eds., Gideon

ed. 2001). A few essays later, he mentioned the rights “taken

away” from slaves. The Federalist No. 54, at 283 (James Mad-

ison). And at the Constitutional Convention, delegates dis-

cussed “tak[ing]” sovereignty and authority over the militia

from the states and “tak[ing]” responsibility from the executive

branch. 1 The Records of the Federal Convention of 1787, at

42, 545 (Max Farrand ed. 1911); 2 Records at 331. So at the

Founding, deprivations of property rights would have been tak-

ings, regardless of whether they involved physical intrusions.

Last is “for public use.” In the eighteenth century, that

would have signified “employing” the taken property interest

“to any purpose” for the “good of the community.” Use (def.

1) and Publick (def. 4), Samuel Johnson, A Dictionary of the

English Language (1755) (emphasis added). “Employing”

property means more than just regulating the owner’s chosen

use. It means pressing property into a government-approved

use instead. See Jed Rubenfeld, Usings, 102 Yale L.J. 1077,

1150 (1993). Grammatically, the clause limits only “use[s]” for

the public, not bans or limits. Id. at 1114–18. So preventing a

nuisance is not “us[ing]” the property and does not require just

compensation. See Kelo v. City of New London, 545 U.S. 469,

510 (2005) (Thomas, J., dissenting) (“Blackstone and Kent, for

instance, both carefully distinguished the law of nuisance from

the power of eminent domain.”).

7

The text of the Takings Clause naturally reads broadly

enough to reach not only physical seizures, but also depriva-

tions of any property right to serve a governmental use. And

cases leading up to the Fourteenth Amendment—which may

well be relevant to the meaning of the Clause as incorporated

against the states—confirm that reading. See generally

Michael B. Rappaport, Originalism and Regulatory Takings:

Why the Fifth Amendment May Not Protect Against Regulatory

Takings, but the Fourteenth Amendment May, 45 San Diego L.

Rev. 729 (2008). But cf. N.Y. State Rifle & Pistol Ass’n v.

Bruen, 142 S. Ct. 2111, 2163 (2022) (Barrett, J., concurring)

(noting the open question whether, for rights incorporated

against the states, courts should consider the original public

meaning as of 1791 or 1868).

True, there are not many cases from the Founding to

Reconstruction. At the Founding, a handful of state constitu-

tions did not limit takings, and those with takings clauses did

not require compensation. Steven G. Calabresi, Sarah E.

Agudo & Kathryn L. Dore, State Bills of Rights in 1787 and

1791: What Individual Rights Are Really Deeply Rooted in

American History and Tradition?, 85 S. Cal. L. Rev. 1451,

1505–06 (2012). And the federal government sometimes relied

on states to condemn property for federal use. See Kohl v.

United States, 91 U.S. 367, 373 (1875). But the cases that exist

show that takings were not limited to physical invasions. Reg-

ulations could count if they deprived owners of a valid property

right for some public use.

In Gardner v. Trustees of Newburgh, for instance, a New

York law empowered a village to divert a stream to supply

8

itself with water. 2 Johns. Ch. 162, 163–64 (N.Y. Ch. 1816). In

doing so, the village cut off the flow of water to Gardner’s land.

Id. The Chancery Court held that this was a taking because

Gardner’s “right to a stream of water is as sacred as a right to

the soil over which it flows.” Id. at 165–66; accord Cooper v.

Williams, 5 Ohio 391, 392 (1832); see also Stevens v. Propri-

etors of the Middlesex Canal, 12 Mass. 466, 468 (1815). See

generally Kris W. Kobach, The Origins of Regulatory Takings:

Setting the Record Straight, 1996 Utah L. Rev. 1211, 1234–45

(discussing Gardner, Cooper, and other riparian cases).

Or consider Patterson v. City of Boston, 37 Mass. (20 Pick.)

159 (1838). There, the city widened a street. Id. at 163. For two

years, the construction prevented a store owner from accessing

his shop. Id. at 165. Even though the city never occupied the

premises, it had to compensate the store owner. Id. at 164–66.

As Chief Justice Lemuel Shaw recognized, the construction de-

prived him of his “paramount right of occupation and enjoy-

ment.” Id. at 164.

Intangible rights were likewise property protected from tak-

ings. The revocation of a franchise, for instance, was treated as

a compensable taking “on the theory that the revocation was a

seizure of intangible property.” Treanor at 792 n.54; see W.

River Bridge Co. v. Dix, 47 U.S. (6 How.) 507, 523, 533–34

(1848); id. at 543 (Woodbury, J., concurring); 2 James Kent,

Commentaries on American Law 340 n.a (4th ed. 1840). Since

property need not be physical, takings need not be physical either.

In short, when the government takes a property right for

some governmental use, it must compensate the owner. I now

turn to how that rule squares with current doctrine.

9

III. APPLYING ORIGINALISM TO

MODERN REGULATORY TAKINGS

Courts must identify both a property right that has been

taken and a public use into which that right has been pressed.

If we look at takings that way, only the first Penn Central factor

aligns closely with the original meaning of the Takings Clause.

1. The character of the government’s invasion. Penn Central

reasoned that courts should more readily find physical invasions

to be takings “than when interference arises from some public

program adjusting the benefits and burdens of economic life.”

438 U.S. at 124. As early takings practice shows, we should read

this factor to ask whether the government has taken a property

right from the “collection of individual rights” that “constitute

property.” United States v. Craft, 535 U.S. 274, 278 (2002).

To define each right, we look to state property law. Classi-

cally, the central right is the right to exclude others. See 2

Blackstone *2; Kaiser Aetna v. United States, 444 U.S. 164,

176 (1979). Another is the right to occupy your property. 2

Blackstone *8, *10. Current per se takings doctrine properly

secures these rights. See Cedar Point, 141 S. Ct. at 2073–74.

But these are not the only property rights. Property law his-

torically includes the rights to dig or mine below the land and

to keep others from building into the airspace above it. 2 Black-

stone *18. It also includes the rights to graze, to fish, and to

draw water. Id. at *32–36. There is the right to pass property

on to one’s heirs. Id. at *11; see Hodel v. Irving, 481 U.S. 704,

716 (1987). And there are easements, like rights of way and

access to light and air. Restatement (Third) of Property

10

(Servitudes) § 1.2; J.A. Robinson, Implied Easements of Light

and Air, 4 Yale L.J. 190 (1895).

If the state deprives property owners of one of these rights,

it may commit a taking. Existing doctrine hints as much. For

example, the government may not ban all economically valua-

ble use without paying compensation. Lucas, 505 U.S. at 1019.

Nor can it ban bequests and devises to one’s heirs. Hodel, 481

U.S. at 716–18. Nor may it demand a right of way over private

property without paying for the easement. Nollan v. Calif.

Coastal Comm’n, 483 U.S. 825, 827, 841–42 (1987). It can

regulate coal mining without paying compensation, but it may

well have to pay if it bans mining entirely (at least if it does so

for a public use). Hodel v. Va. Surface Mining & Reclamation

Ass’n, 452 U.S. 264, 268–72, 295–97 (1981); Pa. Coal Co.,

260 U.S. at 412–13 (holding that a ban on coal mining below

homes to prevent their collapse is a taking).

Here, Jersey City’s regulation did not take over the owners’

right to rent. Indeed, they could still lease out their property as

long as they followed the duration limits. And maintaining

those use restrictions is within the state’s ordinary police

power. See, e.g., Sobel v. Higgins, 590 N.Y.S.2d 883, 884

(N.Y. App. Div. 1992) (“The regulation of rental housing …

has long been upheld … as a valid exercise of the government’s

police power to protect the public health, safety, and general

welfare.”).

Of course, not all burdens on these rights amount to takings.

See, e.g., Penn Central, 438 U.S. at 124–27. To draw the line

between impermissible deprivations and permissible regula-

tion, we should look to the historical common law. Cf. Bruen,

11

142 S. Ct. at 2127 (courts may assess the scope of rights by

examining the “historical tradition that delimits the outer

bounds of the right”). Historically, states have been able to reg-

ulate “for the protection of the health, morals, and safety of the

people” without “directly encroaching upon private property.”

Mugler v. Kansas, 123 U.S. 623, 668 (1887). Indeed, as far

back as the Founding, states have forbidden nuisances and im-

posed regulatory burdens on land use that stop short of confis-

cating property rights. See generally John F. Hart, Land Use

Law in the Early Republic and the Original Meaning of the

Takings Clause, 94 Nw. U. L. Rev. 1099 (2000).

2. Economic impact & investment-backed expectations.

Though the first Penn Central factor fits with the original un-

derstanding of the Takings Clause, the rest of the test is hard to

square with the Constitution’s text and history. The second and

third factors look to “[t]he economic impact of the regulation

on the claimant and, particularly, the extent to which the regu-

lation had interfered with distinct investment-backed expecta-

tions.” Penn Cent., 438 U.S. at 124. These expectations must

be more than mere hopes or mental plans. See id. at 130. But

Penn Central stopped short of tying those expectations to ac-

tual property rights.

Yet it is hard to see how merely diminishing something’s

value amounts to taking property. An owner has no right to

have his property hold a specific economic value. Its value of-

ten fluctuates with the market or the neighborhood. Indeed,

current precedent already recognizes as much. See Lucas, 505

U.S. at 1016 n.7 (leaving open whether a 90% diminution in

value would suffice).

12

Similarly, the Penn Central test fails to ground “invest-

ment-backed expectations” in an owner’s recognized property

rights. This is not to say that property owners do not enjoy any

protections. If the expectation arises from a contract with the

government, then the owner can pursue contract remedies. See,

e.g., 41 U.S.C. §§ 7101–09. Plus, the Contracts Clause prevents

states from “impairing the Obligation of Contracts.” U.S.

Const. art. I, § 10, cl. 1. That bar applies to contracts with a

state as well as those between private parties. Fletcher v. Peck,

10 U.S. (6 Cranch) 87, 137 (1810); Trs. of Dartmouth Coll. v.

Woodward, 17 U.S. (4 Wheat.) 518, 652, 664, 712 (1819).

Thus, states may not defeat the “reasonable expectations” of a

party to a contract. Sveen v. Melin, 138 S. Ct. 1815, 1822

(2018). The investors here never explain how the short-term

rental policy harms a “contractual relationship.” United Steel

Paper & Forestry Rubber Mfg. Allied Indus. & Serv. Workers

Int’l Union v. Virgin Islands, 842 F.3d 201, 210 (3d Cir. 2016)

(emphasis added). So they have no contractual claim. But the

Contracts Clause, not the Takings Clause, provides a better

guide for analysis here.

*****

We properly reject the investors’ takings claim today, but

only after applying a fuzzy test. The Takings Clause’s text and

history focus cleanly on whether a state has taken a property

right and pressed it into public use. Of course, the Supreme

Court’s precedent binds us. But if the Court reconsiders, going

back to the Clause’s text and historical understanding will pro-

vide not only a surer constitutional footing but also needed

clarity.

13