UMB Bank, N.A. v. City of Winooski

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART THE CITY OF WINOOSKI'S MOTION TO DISMISS THE FIRST AMENDED COMPLAINT FOR LACK OF SUBJECT MATTER JURISDICTION AND FAILURE TO STATE A CLAIM (DOC. 15)

          Christina Reiss, Judge

         Plaintiff UMB Bank, N.A. brings this action under 42 U.S.C. § 1983 against Defendant City of Winooski (the "City"), alleging that the City violated the Takings Clause of the Fifth Amendment, procedural due process, and substantive due process when it engaged in an unlawful taking of Spinner Place Student Housing's right to park in an adjacent parking garage. Pending before the court is the City's motion to dismiss Plaintiffs claims for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. (Doc. 15.) On May 3, 2018, the court took the pending motion under advisement.

         Plaintiff is represented by Ronald A. Shems, Esq. The City is represented by Catherine Dingle, Esq. and Daniel A. Seff, Esq.

         I. Factual Background.

         The facts are derived from Plaintiffs First Amended Complaint as well as documents attached to the parties' pleadings.^[1] The parties agree that the court may consider these documents without converting the motion into one for summary judgment. See Parada v. Banco Indus. De Venez., C.A., 753 F.3d 62, 67-68 (2d Cir. 2014) (affirming the district court's "discretion" under Rule 12(d) to decide "to convert" a motion to dismiss into a motion for summary judgment).

         Plaintiff, a nationally chartered bank based in Kansas City, Missouri, is the bond trustee for the holders of the Vermont Housing Finance Agency's ("VHFA") Student Housing Facilities Revenue Bonds (the "Bonds"). Issued in 2004, the Bonds financed the development of Spinner Place Student Housing ("Spinner Place"), located at Unit 2 of the West Block Condominium, 25 Winooski Falls Way, Winooski, Vermont, and are secured by a leasehold mortgage on the property. CHF-Winooski, LLC ("CHF-Winooski") is a non-profit corporation that develops and operates student housing. It borrowed the funds raised by the Bonds for the development of Spinner Place which debt is secured by the leasehold mortgage. HallKeen Management, Inc. manages Spinner Place.

         As trustee for the bondholders, Plaintiff "may exercise all rights under the leasehold mortgage and has full rights to protect the value of [Spinner Place as] the collateral for the Bonds[.]" (Doc. 14 at 2, ¶ 5.) Spinner Place is the sole source of funds to make payments of interest and principal on the Bonds. In its capacity as trustee, Plaintiff is a third-party beneficiary of leases governing the development and use of Spinner Place. Accordingly, Plaintiff alleges it "has an active interest" in the "management and operation" of Spinner Place in order "to best preserve and increase the value of the collateral for the Bonds, assure the financial viability of Spinner Place . . ., and best meet [the] financial and other obligations of the borrower of the Bond proceeds." Id.

         The City is a municipal entity formed and operating under the laws of the State of Vermont. At all relevant times, it is alleged to have acted under the color of state law.

         The City owns the real property on which the West Block Condominium, a seven-story building, is located. HKW, LLC ("HKW") developed the West Block Condominium.

         On July 1, 2004, the City entered into a Declaration of Condominium for the West Block Condominium, creating two units. Unit 1, on the ground floor, consists of retail and commercial space, and is held by HKW Retail, LLC ("HKW Retail"). Unit 2 is Spinner Place, which occupies floors two through six and is comprised of eighty-five apartment-style suites with 312 bedrooms for student housing. Unit 2 is sub-leased to CHF-Winooski.

         Adjacent to and physically connected with Spinner Place is a City-owned and operated municipal parking garage (the "parking garage"). Plaintiff alleges that the City is obligated to provide spaces in the parking garage for Spinner Place and that "[u]se of the parking garage is a property interest held by, and a benefit to[, ] CHF-Winooski[] and is pledged to" Plaintiff, the trustee, as collateral for the Bonds. Id. at 3, ¶ 15. Plaintiff claims that, effective January 1, 2017, the City denied Spinner Place's right to park in the parking garage notwithstanding Spinner Place's use of spaces in it from February 8, 2010 to December 31, 2016 with the City's alleged consent.

         A. The City's Act 250 Permit for its Downtown Development Project.

         On April 26, 2000, the City and other unidentified entities applied for an Act 250 master plan permit for the proposed Winooski Downtown Development Project (the "Project").^[2] The Project involves the development of approximately 20.4 acres of land located east of Main Street, south of East Allen Street, and north of the Winooski River in the City's downtown. The Project's Act 250 application purportedly calls for: approximately 250, 000 square feet of offices; 92, 000 square feet of retail or restaurant space; 800 units of housing; 3, 100 parking spaces, including the parking garage; and other uses and amenities to be built in phases. The parking analysis provided in support of the Act 250 application indicates that the Project will require 4, 300 parking spaces, but because the Project is "mixed use, parking spaces can be shared by the different uses needing parking at differing times of the day or night, [such that] the need for parking was set at 3, 100 spaces." Id. at 4, ¶ 21.

         On July 6, 2001, Act 250 Permit # 4C1065 (Revised) was issued, granting the City's application for a master plan permit and allowing commencement of construction of Phase I of the Project. On February 19, 2002, the City and other applicants filed an application to amend the master plan and begin construction of Phase II of the Project. Phase II called for a mixed-use commercial block, which later became known as the West Block, with approximately 108, 000 square feet of offices for Vermont Student Assistance Corporation ("VSAC") and commercial or retail space supported by an approximately 1, 100 space parking garage. The parking garage was intended to be "the core of this commercial mixed-use block." Id. at 5, ¶ 24. According to Plaintiff, "[t]he City and other applicants represented to the District [Environmental] Commission that the mixed-use block, including the Spinner Place[, ] . . . would be served by the parking garage." Id. at 5, ¶ 26. "Plans for the Spinner Place . . . submitted by the City and its co-applicants to the District [Environmental] Commission show 22 doors and walkways, providing multiple direct connections from each floor of the Spinner Place ... to all but the underground level of the parking garage." (Doc. 14 at 5, ¶ 27.)

         On September 25, 2002, Act 250 Permit # 4C1065-1 for Phase II issued, allowing the City and others to begin construction of Phase II. The District Environmental Commission found that:

The Mixed Use building[, known as the West Block, ] surrounds the parking garage on three sides: East Canal on the south, Barlow on the east and New Street on the west. The building will have retail/commercial uses on the street front and 100 units of housing above.

The building is served by the parking garage built into the grade of the hill.

Id. at 5, ¶ 28 (emphasis supplied). Spinner Place is in the West Block.

         The Commission further noted that "[t]he presently existing development within the Project site is at its maximum development potential because only surface parking is utilized[]" and that "[t]he only way to generate additional uses is to create multi-level parking." Id. at 6, ¶ 29 (internal quotation marks omitted). Plaintiff alleges that the Act 250 permit recognized that the need for parking was commensurate with the scope of development and granted permission for the development because additional parking would be provided by means of the parking garage.

         Plaintiff further claims that the West Block was required to be completed in accordance with the District Environmental Commission's findings, including Condition 7 of Permit # 4C1065-1, which provides that "[n]o changes shall be made to the design or use of [the] Project (Master Plan, Phase I, and Phase II) without the written approval of the District Coordinator or the Commission, whichever is appropriate under the Environmental Board Rules." Id. at 6, ¶ 31 (internal quotation marks omitted).

         Permit # 4C 1065-1 was not appealed and is thus final. No. permit amendment regarding the West Block, its residential units, including Spinner Place, or the parking garage was sought or obtained. According to Plaintiff, because the Permit has an indefinite term, it remains in effect.

         B. The City's Agreements Regarding the Parking Garage and Spinner Place.

         1. The First Amended and Restated Development and Disposition Agreement.

         On or about May 24, 2004, the City and HKW entered into the First Amended and Restated Development and Disposition Agreement ("DDA") in which the City agreed that HKW would develop the residential and commercial elements of the Project, including "West Block Housing[.]" Id. at 6, ¶ 34 (internal quotation marks omitted). Plaintiff alleges that the DDA recognizes that the parking garage is required municipal infrastructure necessary to serve all downtown uses, including residential uses, and provides that the City "shall develop, own, and be responsible for operating the parking garage." (Doc. 14 at 7, ¶ 35.)^[3] The DDA purportedly further states that the City will lease 230 spaces in the parking garage to HKW in accordance with a "Parking Agreement." Id. at 7, ¶ 36.

         The Parking Agreement, which is attached to the DDA, allocates parking spaces for HKW to serve Spinner Place and specifies that a portion of the 230 spaces in the parking garage "shall be assigned to the operator of the student housing on floors 2-6 of [Spinner Place]." Id. at 7, ¶ 37 (internal quotation marks omitted and alteration in original) (emphasis supplied). The Parking Agreement was amended and extended at least three times. The First Amended Parking Agreement is dated December 22, 2005 and allegedly provides Spinner Place and the Unit 1 retail and commercial space with 146 parking spaces in the parking garage. The amendments to the Parking Agreement also acknowledge that "if is an obligation of the City under the DDA to grant HKW the right to use the Parking Garage upon certain terms and conditions." Id. at 7, ¶ 38 (internal quotation marks omitted) (emphasis supplied). The amendments further state that "the City's permanent zoning bylaws require[] that the projects be constructed or developed in the downtown core district [and] provide parking according to the terms of such permanent zoning bylaws[.]" Id. at 7, ¶ 39.

         Pursuant to the City's zoning bylaws in effect when the permitting was issued for Spinner Place, "the developer and owner of a project [must] provide 0.6 parking spaces per bedroom for the Spinner Place ..., or 187 parking spaces (312 units X 0.6 = 187.2)." Id. at 7, ¶ 40. According to Plaintiff, parking and marketing studies, including studies submitted as part of the Act 250 permitting process, are consistent with the City's zoning bylaws and conclude that Spinner Place requires at least 187 parking spaces.

         On or about February 7, 2005, the City amended its zoning bylaws. In relevant part, those amendments state:

All parking spaces for use in the Downtown Core District shall be located within the Downtown Core District, and shall either be located on the land where the use is occurring or the parking spaces shall be in a municipally owned or controlled parking facility, in which event, the applicant shall provide a written contract with the municipality which guarantees the continuous use of the required parking spaces for the particular use(s)... for the reasonable expected duration of the use(s).

(Doc. 14 at 8, ¶ 42.)

         2. The City's Declaration of Covenants, Easements, Conditions and Restrictions for the Winooski Downtown Redevelopment Project.

         On May 25, 2004, the City executed a Declaration of Covenants, Easements, Conditions and Restrictions for the Winooski Downtown Redevelopment Project (the "Declaration"). The Declaration provides that the property described therein, which includes the parking garage, "shall inure to the benefit of each and every owner of all or any portion of the Lots depicted on the Lot Plan and Project Plans[, ]" including Spinner Place. (Doc. 10-1 at 2, § 1.1.)^[4] The Declaration further states that the City is responsible "for the construction of all Public Infrastructure Improvements for the Project[, ]" including "the public garage on Lot 4," id. at 6, § 3.1, and for the "maintenance and repair" of the parking garage. Id. at 8, § 4.1.

         3. The Ground Lease.

         On July 1, 2004 the City, as Landlord, entered into the "Ground Lease" with the tenant, the University of Vermont and State Agricultural College ("UVM"), in which the City leased land for the development of Spinner Place.^[5] Section 1(a) of the Ground Lease provides that:

Tenant acknowledges and agrees that the Premises does not include any appurtenant rights to park vehicles in the municipal parking facility to be constructed on Lot 4; Tenant represents to [the City] that it intends to seek any such parking rights from HKW, and it agrees not to seek any such rights from Landlord as an ...