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Sixth Circuit Reverses Verdict for Property Owner Against City of Frankenmuth

The Sixth Circuit Court of Appeals ruled recently that the City of Frankenmuth did not violate the constitutional rights of a property owner who was trying to sell property to Walmart before the City intentionally wrote an ordinance that excluded large businesses.

In Loesel v. City of Frankenmuth, the plaintiffs had inherited 37 acres of property on the north side of Main Street just outside the limits of the City of Frankenmuth. In 2005, upon learning that Walmart was interested in buying the Loesel property, the Frankenmuth City Manager sought to prevent such a big box store from entering the city. Eventually, the City sought to draft a proper ordinance that would exclude businesses of the size Walmart, which wanted to open a 104,000 square foot Super Center.

Before Walmart closed on its purchase of the property, the City of Frankenmuth passed a 120-day moratorium on the construction of any facility with an area of 70,000 square feet or more. Meanwhile, city officials sought to draft a permanent ordinance that would serve as a bar to the Walmart store, even though city economic officials estimated that the store would create 300-500 jobs and contribute $70,000 to local tax revenues in the first year.

On December 7, 2005, the city adopted an ordinance that limited commercial developments to 65,000 square feet. However, this ordinance only applied to a very small portion of the city, including only the Loesel property and a few other non-affected properties. By this time, Walmart had planned to buy all of the Loesel property for $4 million. However, on March 16, 2006, Walmart, having learned of the new ordinance, terminated the purchase agreement and abandoned the project altogether.

The Loesel family brought several 42 U.S.C. 1983 claims against the City of Frankenmuth. A trial was held on the Loesel claim that the city violated the Equal Protection Clause under the “class of one” theory. The Loesels argued that the ordinance facially violated the equal protection requirement, as the ordinance was not applied to other large businesses, including the Bavarian Mall and Bronner’s Christmas Wonderland. The jury found for the Loesels and awarded them $3.6 million in damages.

On appeal, the Sixth Circuit Court of Appeals reversed the trial court. The court held that the Loesels had shown that they were similarly situated to other properties which were exempted from the ordinance. Still, the Loesels needed to show that the ordinance either lacked a rational basis, or was passed out of animosity toward the Loesels. After noting that the jury might have rightly found the ordinance lacked a rational basis, the court noted that the Loesel plaintiffs had failed to show that the City of Frankenmuth had any animus or ill will against them.

Instead, the Court noted, the ordinance was created in an effort to keep Walmart from the city. In other words, city officials created the ordinance out of animus toward Walmart, not the Loesel family. The Court concluded that, because the jury verdict form did not indicate if the jury had found for the Loesels under the lack of rational basis or ill will theories, Sixth Circuit precedent bound the Court to reverse the jury and remand the matter for a new trial.

The Sixth Circuit added that, had the jury verdict been upheld, the $3.7 million in damages would have been vacated because the Loesels would have held their property free of the unconstitutional zoning ordinance. Therefore, after recovering $3.7 million from the jury, the Loesels would then be able to sell the property for $4 million to Walmart or any other purchaser. This would have led to an improper double recovery.

The experienced constitutional law litigation team at Dalton & Tomich regularly handles complex matters that involve individuals, businesses, and non-profit and religious entities that believe the government has improperly targeted their property throughout Michigan and the country. If you feel that your rights or the rights of your institution have been violated in this regard, please do not hesitate to contact us.

For the full opinion in Loesel v. City of Frankenmuth, click here.

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