Does a composting facility have a constitutional right to continue operating after local officials revoke its zoning permit based on shenanigans leading up to the original zoning approval? No, says a federal appeals court.
Systematic Recycling LLC (Systematic) sought permission from the city of Detroit to establish and operate a ten-acre composting facility in an industrial area. The site was owned by Alliance Leasing & Rental LLC (Alliance) in which James Rosendall had a controlling interest. Working through Rosendall, Systematic leased the property from Alliance and, in April 2006, obtained a conditional zoning permit from the city, allowing it to begin operating.
By its nature, the “conditional” permit had strings attached: 26 do’s and don’ts which, if not fully met, would result in "penalties … which may include the revocation of this grant." Because odors from composting operations had the potential to cause a nuisance to surrounding properties, one of the conditions required Systematic, prior to operating the site, to enter into a host community agreement (HCA), which would enhance the city’s ability to ensure compliance with the bevy of tailored requirements.
After considerable delay, the city council voted in March 2007 to enter into an HCA with Systematic, under which Systematic would pay certain fees to the city and the city would periodically monitor Systematic's activities. Notably, the agreement provided that it would remain effective for only two years, automatically terminating if not renewed at the end of March 2009. To make things perfectly clear, the HCA expressly stated that upon such termination, Systematic "shall have no right to continue to operate the [composting facility]."
Shortly before the HCA came up for renewal, Rosendall pled guilty in federal court to conspiring to bribe various Detroit officials. According to statements in his plea agreement, he bribed several city officials in order to secure approval of the HCA and also "caused Systematic Recycling to pay [a public official] over $20,000, in part, to help [Rosendall] obtain later approval of the [HCA] with the Detroit City Council, which was receiving opposition to the facility from local community groups and activists."
On March 2, 2009—a month after Rosendall's guilty plea—city officials sent Systematic a terse note:
The Host Community Agreement … entered into on March 30, 2007 … expires March 31, 2009. This letter is to notify [Systematic] that the City shall allow the Agreement to expire. In accordance with [the terms of the HCA, Systematic] shall commence closure activities no later than April 1, 2009.
According to the Detroit officials who were involved in the non-renewal decision, there was one overriding reason for permitting the HCA to expire: because it had been "obtained through fraud."
On April 2, 2009, Systematic filed suit against the city in state court, alleging that the revocation of the conditional zoning violated its federal due process and equal protection rights. The trial judge issued a temporary restraining order barring Detroit from taking action to close the composting operations. The city then transferred the case to federal district court where, as before, Systematic renewed its request for an injunction to keep the city from interfering with its use of the property. In February 2010, the district court denied Systematic's motion and quashed the state court’s restraining order, concluding that Systematic would not likely succeed on the merits of its federal claims.
Meantime, the city began taking steps to finalize the revocation of the zoning permit. Shortly after the district court declined to grant an injunction, city officials gave notice to Systematic that it would hold a hearing where Systematic could show cause why the zoning grant should not be revoked due to the termination of the required HCA. After evaluating the parties' respective evidence, the hearing officer concluded that revocation of the permit was proper because the city had a rational basis for not renewing the HCA: it was procured through payment of a bribe. Systematic appealed the hearing officer's decision to the city’s board of zoning appeals, which upheld the non-renewal. Systematic filed an appeal of the board's decision in state circuit court.
As if things were not already complicated, Alliance, which owned the property that housed Systematic's composting operations, went into receivership in 2010 or early 2011. The receiver successfully filed a state-court action to evict Systematic from the property on the basis that Systematic could not produce a valid lease. Systematic’s appeal of the eviction was denied, and the company ceased its operations there.
Given that Systematic no longer had a property interest in the land to which the conditional zoning grant would apply, all the pending lawsuits—state and federal—were dismissed for a simple reason: as the company had lost its right to occupy the property, an injunction ordering the city to reinstate the conditional zoning grant would serve no purpose.
Undaunted, Systematic filed an amended complaint in federal district court for damages stemming from alleged violations of due process, equal protection, and the First Amendment right to petition. The city filed a motion to dismiss or, in the alternative, for summary judgment. The district court granted the motion and entered judgment against Systematic on each of its claims. Systematic appealed.
A three-judge panel of the U.S. Court of Appeals for the Sixth Circuit categorically rejected all of Systematic’s legal arguments, and upheld the lower court ruling. “It was perfectly rational – indeed, sensible—for Detroit to believe that a contract … procured through bribery of several of its officials might not have been approved absent the illicit payments, did not … reflect the city’s best interests, and should not be routinely renewed,” the opinion stated. “[B]ecause the existence of an HCA was a predicate for the continued vitality of the conditional land use grant, Detroit did not act capriciously in revoking the … permit.”
Systematic Recycling, LLC v. City of Detroit, No. 13-1334, 6th Cir., June 10, 2015