# Lrl Properties v. Portage Metro Housing Authority

> Court of Appeals for the Sixth Circuit · July 6, 1995 · 55 F.3d 1097

URL: https://www.frixlaw.com/law-library/cases/9488100

## Case

- **Full name:** LRL PROPERTIES, Et Al., Plaintiffs-Appellants, v. PORTAGE METRO HOUSING AUTHORITY, Et Al., Defendants-Appellees
- **Court:** Court of Appeals for the Sixth Circuit
- **Decided:** July 6, 1995
- **Citations:** 55 F.3d 1097; 1995 WL 314429
- **Precedential status:** Published
- **Opinion:** Dissent by Jones
- **Judges:** Jones, Ryan, Batchelder
- **Cited by:** 321 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9488100

## How later opinions describe it (automated extraction)

- explaining that the Sixth Circuit “squarely addressed this issue in Browning v. Pendleton, 869 F.2d 989 (6th Cir. 1989) and definitively held that “the appropriate statute of limitations for 42 U.S.C. § 1983 civil rights actions arising in Ohio ... requires that actions ... be…
- declining to apply the longer statute of limitations under a' "continuing violation" theory where the facts pled constituted a series of discrete and separate acts that were separate incidents of discrimination
- holding that property owners have no liberty interest in continued participation in Section 8 housing rental assistance program
- explaining that a claim for negligent misrepresentation under Colorado law requires justifiable reliance
- affirming denial of motion to amend complaint and taking no position on prejudice, notwithstanding dissent’s position that defendants would not have been prejudiced by amendment

## Opinion text

NATHANIEL R. JONES, Circuit Judge,
dissenting.
After considering the decision of my esteemed colleagues, which affirms the district court’s dismissal of Plaintiffs’ complaint and denial of leave to file an amended complaint, I respectfully dissent for a number of reasons.
I. Statute of Limitations
First, the majority agreed with the district court’s determination that all of the Plaintiffs’ section 1983 claims based on acts allegedly occurring prior to October 21, 1990, were time-barred because of the applicable two-year statute of limitations. Maj. Op. at 1107. Although I agree that this court is bound to follow the two-year statute of limitations delineated in Browning v. Pendleton, 869 F.2d 989 (6th Cir.1989) (en banc), I disagree with the majority’s conclusion that all of the Plaintiffs’ section 1983 claims, based on acts occurring before October 21, 1990, are time-barred.
Under the “discovery” doctrine, the limitations period on an injury begins to run only after the plaintiff knows, or through reasonable diligence, should know of his injury. Sevier v. Turner, 742 F.2d 262, 273 (6th Cir.1984). The Plaintiffs clearly pleaded that they did not discover their injury until the spring of 1991. See J.A. at 105 (Am.Compl. ¶ 105). Because we are obligated to construe the complaint in the light most favorable to the Plaintiffs and accept all factual allegations as true, Meador v. Cabinet for Human Resources, 902 F.2d 474, 475 (6th Cir.), cert. denied, 498 U.S. 867 , 111 S.Ct. 182 , 112 L.Ed.2d 145 (1990), it follows that, at least in this early stage of the litigation, the Plaintiffs’ claims pertaining to events occurring prior to October 1990 ought not to be barred by the statute of limitations. If, after discovery, it turns out that the Plaintiffs’ allegations of late discovery of injury are insupportable, then the pre-limitations period claims should be barred. Barring them on the basis of the pleadings alone, however, particularly when the Plaintiffs have specifically pleaded late discovery, is premature.
II. Procedural Due Process
Second, the majority agreed with the district court that the Plaintiffs’ procedural due process claims failed because they did not state a cognizable liberty or property interest under the Fourteenth Amendment. Maj. Op. at 1108-1110. The majority correctly noted that the Plaintiffs’ liberty interest was “premised on their claims of defamation, failure to receive rent increases, defendants’ inducing of plaintiffs’ tenants to breach their lease agreements, restriction of availability of Section 8 housing at plaintiffs’ property, arbitrary and capricious inspections by defendants to harass plaintiffs, and denial to plaintiffs of Section 8 Moderate Rehabilitation funds.” Maj. Op. at 1108. The majority refused to address all but the last of these asserted liberty interests because they occurred outside the two-year statute of limita *1113 tions. Based on my earlier analysis, I believe the majority erred in not considering all of these alleged liberty interests.
For example, the Plaintiffs contend that PMHA’s alleged acts of defamation and tor-tious interference induced tenants into breaching their leases, thereby resulting in the Plaintiffs’ loss of existing contractual rights. In Mertik v. Blalock, 983 F.2d 1353, 1362 (6th Cir.1993) (citing Paul v. Davis, 424 U.S. 693, 710-11 , 96 S.Ct. 1155, 1164-66 , 47 L.Ed.2d 405 (1976)) this court held that “when a plaintiff alleges the- loss, infringement or denial of a government right or benefit previously enjoyed by him, coupled with communications by government officials having a stigmatizing effect, a claim for deprivation of liberty without due process of law will lie.” This is not to say that mere defamation rises to the level of a constitutional claim, for “[ijnjury to reputation, standing alone, is not a liberty interest protected by the Fourteenth Amendment.” Id. (citing Paul, 424 U.S. at 708-09 , 96 S.Ct. at 1164 ). In order for defamation by governmental officials to rise to the level of a constitutional cause of action, the defamatory conduct ‘“must accompany the alteration of a recognized interest or status created by the state.’ ” Id. (quoting Naegele Outdoor Advertising Co. v. Moulton, 773 F.2d 692, 702 (6th Cir.1985), cert. denied, 475 U.S. 1121 , 106 S.Ct. 1639 , 90 L.Ed.2d 184 (1986)). Thus, if the Plaintiffs could show that these contractual rights were created by the state rather than by private contract, this would suffice to show a liberty interest under Mer-tik. It is not clear from the record, at this early stage of the litigation, whether the contracts that were allegedly breached were created by the state such that they were constitutionally protected. Viewing the pleadings in the light most favorable to the Plaintiffs, it follows that dismissal of this claim was premature.
Regarding a property interest, the Plaintiffs alleged that based on federal and PMHA procedures, they were entitled to receive HUD funds. “ ‘To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.’” Mertik, 983 F.2d at 1359 (quoting Board of Regents v. Roth, 408 U.S. 564, 577 , 92 S.Ct. 2701, 2709 , 33 L.Ed.2d 548 (1972)). Furthermore, one has no constitutionally protected property interest in procedure in and of itself. United of Omaha Life Ins. Co. v. Solomon, 960 F.2d 31, 34 (6th Cir.1992). In order for a “disappointed bidder” to show a legitimate claim of entitlement, then, it is not enough for the bidder to show merely that procedures were violated; the bidder must also show either that the contract was actually awarded to the bidder, or that “local rules limited the discretion of state officials as to whom the contract should be awarded.” Id.
The Plaintiffs assert that PMHA’s initial screening procedures provided a mechanical decision-making procedure that, properly applied, left PMHA with little or no discretion as to which applicant would receive HUD funds. The Plaintiffs argue that the feasibility analysis and ranking are later steps not reached if the initial screening criteria are not met. Moreover, the Plaintiffs allege that PMHA implicitly told them that they passed the initial screening when PMHA failed to notify them otherwise and told them that they received a low ranking, insofar as failure to pass the initial screening would result • in no ranking at all. Further, the Plaintiffs assert that the right to an appeal — which was allegedly denied by PMHA — implies that HUD intended to limit discretion and that HUD believed a bidder’s interests warranted protection. Finally, the Plaintiffs contend that they have other property interests arising from existing contracts with PMHA and HUD, and that these interests are burdened by PMHA’s alleged violations.
After reviewing the Plaintiffs’ complaint, it is clear that they alleged that PMHA failed to follow its own procedures, but it is not clear whether these procedures protect and give rise to an independent property interest. Unanswered questions remain. How much discretion did PMHA really have under these procedures? How was ranking accomplished? Do any rights attach to the mere passing of the initial screening? What is the effect of PMHA’s alleged violations on the *1114 Plaintiffs’ other alleged legitimate claims of entitlement? The record provides no basis upon which to answer these questions. Again, viewing the pleadings in the light most favorable to the Plaintiffs, it follows that the granting of the motion to dismiss on this particular ground was premature.
The district court agreed with PMHA that, in accordance with Parratt v. Taylor, 451 U.S. 527 , 101 S.Ct. 1908 , 68 L.Ed.2d 420 (1981), even if the Plaintiffs had sufficiently alleged a liberty or property interest, the availability of postdeprivation procedures under Ohio law sufficed to provide them with due process. Because the majority, on appeal, did not find a liberty or property interest, they did not address the adequacy of state remedies, but given the district court’s conclusion, I shall proceed to do so.
In Parratt , the Court held that where a state actor negligently deprives an inmate of his property, postdeprivation remedies made available by the state can satisfy the requirements of procedural due process. 451 U.S. at 537-38 , 101 S.Ct. at 1913-14 . 1 In Zinermon v. Burch, 494 U.S. 113 , 110 S.Ct. 975 , 108 L.Ed.2d 100 (1990), however, the Court clarified that the Constitution usually requires procedural protections 'preceding the complained-of deprivation and that postdepri-vation procedures are usually inadequate to protect due process rights. 494 U.S. at 127-28 , 110 S.Ct. at 984-85 . Under the facts presented in Parratt , however, “postdeprivation tort remedies [were] all the process that [was] due, simply because they [were] the only remedies the State could be expected to provide.” Id. at 128, 110 S.Ct. at 985 . The Court pointed out that in Parratt , the particular deprivation that was at issue — -a prison employee negligently lost a prisoner’s property — was unforeseeable. Id. at 129, 136, 110 S.Ct. at 985, 989 . Thus, it could not have been prevented by any possible predeprivation procedural safeguard; “the very nature of the deprivation made predeprivation process ‘impossible.’ ” Id. at 129, 137 , 110 S.Ct. at 985, 989 . Further, in Parratt , the state actor’s conduct was unauthorized, not in the sense that it was an abuse of authority, but rather in the sense that the state actor was acting entirely without authority. Id. at 138, 110 S.Ct. at 990 .
Construing Zinemnon, the Sixth Circuit has held that:
Cases in which a due process challenge is made to deprivations resulting from the enforcement of an established state procedure stand in sharp contrast to Parratt . ... In such cases, the actions at issue are not random or unauthorized, and it is both practical and feasible for the state to provide pre-deprivation process to the aggrieved party. A § 1983 plaintiff making this type of claim need not plead or prove the inadequacy of state remedies.
Mertik, 983 F.2d at 1365 (citing Macene v. MJW, Inc., 951 F.2d 700, 706 (6th Cir.1991)). The Mertik court held that, where the plaintiff pleaded that the deprivations of which she complained were neither random nor unauthorized, and that predeprivation procedures were feasible and practicable, the lower court erred in granting a Rule 12(b)(6) motion to dismiss pursuant to Parratt , on the ground that postdeprivation state remedies were available. Id. at 1367.
In the present case, the deprivations allegedly suffered by the Plaintiffs were foreseeable, the alleged conduct of PMHA was intentional, and it constituted an abuse of authority rather than conduct entirely outside of PMHA’s authority. In short, the deprivations allegedly suffered by the Plaintiffs could have been prevented by predeprivation process. Assuming the truth of the Plaintiffs’ allegations, had PMHA merely followed its own procedures for determining which applicants will receive HUD funds, it would not have deprived the Plaintiffs of the property interest to which they were allegedly entitled. Similarly, had PMHA offered some sort of fair hearing before it encouraged tenants to breach their leases, it would not have deprived the Plaintiffs of the liberty interest to which they were allegedly enti- *1115 tied. Under Zinermon and Mertik , then, Parratt does not apply. I believe the district court erred to hold otherwise.
III. Substantive Due Process
The majority holds that “there is no set of facts under which the plaintiffs could prove a substantive due process claim” because “[t]he right to participate in a federal housing funds program simply does not rise to the level of a right ‘so rooted in the traditions and conscience of our people as to be ranked as fundamental,’ and the actions of [the] defendants alleged in the complaint and proposed amended complaint do not even approach the level of ‘shocks the conscience.’ ” Maj. Op. at 1111. The majority fails to address the substantive due process right, which is at the heart of the Plaintiffs’ claim, the right not to be subject to arbitrary or capricious state action, either by legislative or administrative means. “[T]he Due Process Clause, like its forebear in the Magna Carta, was ‘intended to secure the individual from the arbitrary exercise of the powers of government,’” which “serves to prevent governmental power from being ‘used for purposes of oppression.’ ” Daniels v. Williams, 474 U.S. 327, 331-32 , 106 S.Ct. 662, 665 , 88 L.Ed.2d 662 (1986) (quoting Hurtado v. California, 110 U.S. 516, 527 , 4 S.Ct. 111, 117 , 28 L.Ed. 232 (1884); Den ex dem. Murray v. Hoboken Land & Improvement Co., 18 How. (59 U.S.) 272, 277, 15 L.Ed. 372 (1855); and citing Edward S. Corwin, The Doctrine of Due Process of Law Before the Civil War, 24 Harv.L.Rev. 366, 368 (1911)); see also Collins v. City of Harker Heights, 503 U.S. 115, 126 , 112 S.Ct. 1061, 1069 , 117 L.Ed.2d 261 (1992) (“The Due Process Clause of the Fourteenth Amendment was intended to prevent government from abusing its power, or employing it as an instrument of oppression.”) (quoting DeShaney v. Winnebago County Dept. of Social Servs., 489 U.S. 189, 196 , 109 S.Ct. 998, 1003 , 103 L.Ed.2d 249 (1989)); Wolff v. McDonnell, 418 U.S. 539, 558 , 94 S.Ct. 2963, 2976 , 41 L.Ed.2d 935 (1974) (“The touchstone of due process is protection of the individual against arbitrary action of government.”).
This Court recently reviewed “the many meanings of substantive due process,” which it defined as “[t]he doctrine that governmental deprivations of life, liberty or property are subject to limitations regardless of the adequacy of the procedures employed.” Pearson v. City of Grand Blanc, 961 F.2d 1211, 1216 (6th Cir.1992) (quoting Developments in the Law — The Constitution and the Family, 93 Harv.L.Rev. 1156, 1166 (1980), and citing Zinermon, 494 U.S. at 125 , 110 S.Ct. at 983 ; Stratford v. State-House, Inc., 542 F.Supp. 1008, 1014 (E.D.Ky.1982), aff'd, 722 F.2d 742 (6th Cir.1983)). In the course of distinguishing various contexts in .which the term ‘substantive due process’ is used, the court explained that what “is commonly referred to as a ‘substantive due process right’ ” is “[t]he right not to be subject to ‘arbitrary or capricious’ action by a state either by legislative or administrative action.” Id. at 1216-17 (citing Curto v. City of Harper Woods, 954 F.2d 1237, 1243 (6th Cir.1992); Lakewood, Ohio Congregation of Jehovah’s Witnesses, Inc. v. City of Lakewood, 699 F.2d 303, 308 (6th Cir.), cert. denied, 464 U.S. 815 , 104 S.Ct. 72 , 78 L.Ed.2d 85 (1983); Stratford, 542 F.Supp. at 1014 ). See also Harris v. City of Akron, 20 F.3d 1396, 1405 (6th. Cir.) (“This court has recognized two types of substantive due process violations: (1) official acts that are unreasonable and arbitrary and ‘may not take place no matter what procedural protections accompany them,’ and (2) official conduct that ‘shocks the conscience.’ ”) (quoting Wilson v. Beebe, 770 F.2d 578, 586 (6th Cir.1985) (en banc)), cert. denied, — U.S.-, 115 S.Ct. 512 , 130 L.Ed.2d 419 (1994).
According to Curto, 954 F.2d at 1243 , under this category of substantive due process analysis, “an ordinance or regulation is invalid if it fails to advance a legitimate governmental interest or if it is an unreasonable means of advancing a legitimáte governmental interest.” In Curto , the plaintiff, a gas station owner, claimed that a local ordinance violated his substantive due process rights by limiting the number of vehicles that were allowed to wait for service at his station. Id. at 1240 .
*1116 Pearson, Curto, Lakewood, and Harris are all consistent with the Supreme Court’s substantive due process jurisprudence. Oddly, the Sixth Circuit also has a line of recent cases in which it holds that substantive due process protects only fundamental rights, and affords no protection to state action that arbitrarily or capriciously deprives persons of their economic interests or contractual rights. See Charles v. Baesler, 910 F.2d 1349, 1352-56 (6th Cir.1990) (holding that plaintiff state employee’s contractual right to promotion was not protected by constitutional guarantee of substantive due process because right was not fundamental); Sutton v. Cleveland Bd. of Educ., 958 F.2d 1339 , 1350-51 (6th Cir.1992) (holding that plaintiff state employee’s contract right to be discharged only for cause was not protected by due process clause because it did not rise to level of fundamental right); Holthaus v. Board of Educ., Cincinnati Pub. Schs., 986 F.2d 1044, 1046-47 (6th Cir.1993) (same).
Although Charles, Sutton, and Holthaus probably reached the correct result in the end, they did so by applying an incomplete substantive due process doctrine. These cases failed to acknowledge that a court is obliged to apply rational basis scrutiny whenever state conduct that is alleged to be arbitrary or capricious burdens property or liberty interests. To do otherwise is to ignore the “touchstone of due process.” Wolff, 418 U.S. at 558 , 94 S.Ct. at 2976 . For example, in Reno v. Flores, which was decided after the Sixth Circuit’s decision in Holthaus , the Court first rejected the notion that fundamental rights had been implicated in the issue before the Court, and then it held that the challenged regulation “must still meet the (unexacting) standard of rationally advancing some legitimate governmental purpose.” — U.S.-,-, 113 S.Ct. 1439, 1449 , 123 L.Ed.2d 1 (1993) (emphasis added). Thus, according to the Supreme Court, once a court determines that no fundamental rights are implicated, the inquiry is not over, but rather a court is required to consider whether the challenged conduct passes rational basis scrutiny. In short, Charles and its progeny are not only based upon a misreading of binding Supreme Court precedent, but they are also inconsistent with it.
Relying on Charles and its progeny, both the majority and the district court failed to even consider the substantive due process right to be free of arbitrary or capricious government behavior within the context of rational basis scrutiny. It is this category of substantive due process that is most clearly implicated in the Plaintiffs’ complaint. The Plaintiffs clearly pleaded that PMHA’s alleged conduct, which included self-dealing, arbitrariness, and capriciousness, was not rationally related to any legitimate governmental interest. Therefore, the pleadings should have survived PMHA’s motion to dismiss. See, e.g., Wilkerson v. Johnson, 699 F.2d 325, 328-29 (6th Cir.1983) (holding that plaintiffs’ due process rights were violated when state licensing officials misapplied state licensing law in order to keep plaintiffs from competing in business against one official).
IY. Equal Protection
The Supreme Court has recently summarized its longstanding doctrine regarding equal protection claims that do not implicate suspect classifications or fundamental rights:
[A] classification neither involving fundamental rights nor proceeding along suspect lines is accorded a strong presumption of validity. Such a classification cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose. Further, a legislature that creates these categories need not actually articulate at any time the purpose or rationale supporting its classification. Instead, a classification must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification.
A State, moreover, has no obligation to produce evidence to sustain the rationality of a statutory classification.... [T]he burden is on the one attacking the legislative arrangement to negative every conceivable basis upon which might support it, whether or not the basis has a foundation in the record.
*1117 Heller v. Doe by Doe, — U.S.-,- -, 113 S.Ct. 2637, 2642-43 , 125 L.Ed.2d 257 (1993) (citations and internal quotation marks omitted).
In the present case, the Plaintiffs freely conceded that their equal protection claim was not based upon an alleged fundamental right or suspect class. Rather, the Plaintiffs simply alleged that PMHA arbitrarily and capriciously classified the Plaintiffs differently than it did other applicants for HUD funds.
Just as the majority and the district court failed to recognize that they must apply rational basis scrutiny to the Plaintiffs’ substantive due process claim, so did they fail to recognize that they must apply rational basis scrutiny to the Plaintiffs’ equal protection claim. The district court held that “[t]o state a claim under the Equal Protection Clause, a § 1983 plaintiff must allege that a state actor intentionally discriminated against the plaintiff because of membership in a protected class.” J.A. at 164 (quoting Henry v. Metropolitan Sewer Dist., 922 F.2d 332 , 341 (6th Cir.1990). The court ignored the fact that in Henry, once the court determined that the plaintiff was not a member of a protected class, it held that “[therefore, we simply must consider whether the [state conduct that was at issue] ‘is rationally related to a legitimate governmental interest.’ ” 922 F.2d at 341 (quoting Hoke Co. v. Tennessee Valley Auth., 854 F.2d 820, 828 (6th Cir.1988); see also Silver v. Franklin Township Bd. of Zoning Appeals, 966 F.2d 1031, 1036 (6th Cir.1992) (“The basis of any equal protection claim is that the state has treated similarly-situated individuals differently. Because Silver does not claim an infringement of a fundamental right or discrimination against a suspect class, we would review the Board’s actions using a rational basis test.”).
Moreover, both the majority and the district court also cite to Booher v. United States Postal Serv., 843 F.2d 943, 944 (6th Cir.1988), which held that suspect classification “is an essential element of an equal protection claim.” I believe this holding is inconsistent with both precedent and subsequent binding authority and ought .not to be followed.
The fact that the Plaintiffs’ burden is heavy does not justify the court’s dismissal at this early stage in the litigation, before the Plaintiffs even had a chance to try to meet their burden.
Y. Denial of Leave to File Amended Complaint
The district court denied the Plaintiffs leave to file an amended complaint for three reasons. First, the court held that the proposed amendment added allegations of facts occurring prior to October 21,1990, which, in the court’s view, were barred by the statute of limitations. J.A. at 165. Second, the court held that the motion to file an amended complaint was untimely because the Plaintiffs could have filed the amended complaint as the original complaint, and because the Plaintiffs had no reason for filing an amended complaint except as “an untimely attempt to address by way of amendment the deficiencies argued in defendants’ motion to dismiss.” Id. Third, the court held, the proposed amended complaint would not cure the insufficiencies in Plaintiffs Fourteenth Amendment claims. The majority affirms the lower court’s decision “[b]ecause the infirmities in the original complaint were not cured by the allegations in the amended complaint.” Maj. Op. at 1105.
In light of my statute of limitations discussion above, I find that the first reason is invalid. Second, I think that the lower court abused its discretion in finding untimeliness. The amended complaint was filed within ninety days of the original complaint, prior to any significant discovery taking place. The Defendants were not prejudiced. Contrary to the district court’s holding, untimeliness is not tested by whether a plaintiff could have filed the amended complaint at the time of the original complaint: “Delay that is not intended to harass the defendant is not in itself a permissible reason to refuse leave to amend.... [T]here must be at least some showing of prejudice to the opponent if the motion is to be denied.” Janikowski v. Bendix Corp., 823 F.2d 945, 951 (6th Cir.1987) (citation and quotation omitted). Nor is un *1118 timeliness a matter of whether the amended complaint repairs perceived deficiencies in the original; otherwise all amended complaints would be untimely, for one would never seek to amend that which one perceives to be without deficiency.
Finally, as previously discussed, I am convinced that the Plaintiffs’ amended complaint sufficiently stated their Fourteenth Amendment claims to survive PMHA’s motion to dismiss. Therefore, all three of the district court’s reasons for denying the Plaintiffs’ motion for leave to amend were invalid. In the spirit of Federal Rule of Civil Procedure 15(a)’s instruction that leave to amend should be freely granted, I believe that the district court abused its discretion and should have been directed by this court to accept the amended complaint on remand.
I,therefore, respectfully DISSENT.
. In Daniels v. Williams, 474 U.S. 327 , 106 S.Ct. 662 , 88 L.Ed.2d 662 (1986), the Supreme Court overruled Parratt in part, to the extent that Par-ratt held that mere acts of negligence causing unintended deprivations could constitute due process violations. The rest of Parratt remains good law.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9488100. Public record. Not legal advice.