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Applegate, LP v. City of Frederick

United States District Court, D. Maryland

April 11, 2016

APPLEGATE, LP, et al., Plaintiffs
v.
CITY OF FREDERICK, MARYLAND, Defendant

MEMORANDUM

James K. Bredar United States District Judge

Applegate, LP; Country Hill, LP; College Estates, LP; Fredwood, LLLP; Home Properties Hunters Glen, LLC; and Home Properties Elmwood Terrace, LLC (“Plaintiffs”) brought an action against the City of Frederick, Maryland (“Defendant” or “the City”) in the Circuit Court for Frederick County (Civ. No. 10-C-15-002035). Thereafter, Defendant filed a notice of removal, invoking this Court’s federal-question jurisdiction pursuant to 28 U.S.C. § 1441(a). Now pending before the Court are Plaintiffs’ Motion for Good Cause to Proceed Pursuant to the Local Government Tort Claims Act (“Motion to Proceed”) (ECF No. 19); Plaintiffs’ Motion for Leave to File Second Amended Complaint (“Motion to Amend”) (ECF No. 40); and Defendant’s Motion to Dismiss the Amended Complaint or, in the Alternative, for Summary Judgment (“Motion to Dismiss”) (ECF No. 26).[1] The issues have been briefed, and no hearing is required, see Local Rule 105.6 (D. Md. 2014). For the reasons explained below, Plaintiffs’ Motion to Proceed will be DENIED WITHOUT PREJUDICE; Plaintiffs’ Motion to Amend will be DENIED IN PART and DENIED WITHOUT PREJUDICE IN PART; Defendant’s Motion to Dismiss will be GRANTED IN PART; and the case will be REMANDED to state court.

I. Background[2]

Plaintiffs are business entities that own certain apartment complexes located in Frederick, Maryland. The complexes owned by Applegate, Country Hill, College Estates, and Fredwood are managed by the Maryland Management Company (“MMC”), while the complexes owned by Hunters Glen and Elmwood Terrace are managed by Home Properties, LP. (ECF No. 29 at 1-2.)

The City maintains a municipal water and sewer system. Pursuant to section 25-19 of the city code, billing installments and rates are established “by resolution of the mayor and board of aldermen.” Acting under this authority, the City adopted Resolution No. 02-32 on August 1, 2002, [3] establishing a five-tier progressive billing structure. (ECF No. 2 at 19.)[4] The rates applied in “all cases where water meters [we]re installed.” (Id. at 18.) As a practical matter, this progressive structure meant that large complexes with multiple units served by a single water meter were billed at a higher rate than single-family homes with individual meters.

Plaintiffs allege that “[s]ometime between August 1, 2002[, ] and July 1, 2004, various condominium associations within the City . . . requested relief from the application of the . . . five-tiered progressive rate structure.” (ECF No. 29 ¶ 22.) According to Plaintiffs, these associations lobbied the “Department of Water and Sewer” (“DWS”)[5] to “allow each condominium unit to be considered a separate billing unit within a multi-unit building.” (Id.) The DWS complied with the associations’ demands; rather than securing a formal amendment of Resolution No. 02-32, the DWS allegedly approved the change “privately and secretly . . . in conjunction with the adoption of the Fiscal Year 2005 Budget.” (Id. ¶ 23.) As a result of this change (the “Multi-Residential Discount”), condominiums were billed on a per-unit basis “even though all owners . . . used the same single meter.” (Id.) Plaintiffs speculate that “no public hearings” were held in connection with the adoption of the Multi-Residential Discount. (Id. ¶ 24.) However, it appears from the public record that the discount was discussed at an open workshop hosted by the Mayor and the Board of Aldermen (“the Board”) on May 7, 2003, and that it was implemented at a similarly open session on May 20, 2004. (See ECF Nos. 26-2 & 26-3.)[6]

On August 5, 2013, the president of MMC learned about the Multi-Residential Discount while discussing water pricing with DWS officials. (ECF No. 29 ¶ 29.) Thereafter, on January 29, 2014, Plaintiffs’ counsel delivered a memorandum to the Mayor and the Board that addressed the City’s allegedly “disparate and discriminatory billing practices for water rents between condominiums and apartment buildings.” (Id. ¶ 30.) These City officials seem to have taken Plaintiffs’ concerns to heart: on May 15, 2014, the City adopted Resolution No. 14-11, which provides that water rates for multifamily properties with a single meter are calculated based on the total amount of water flowing through that meter regardless of the number of units served. (ECF No. 2 at 22.)

Plaintiffs acknowledge that Resolution No. 14-11 “effectively eliminated the unfair billing practices between condominiums and apartment buildings.” (ECF No. 29 ¶ 33.) Nevertheless, on July 20, 2015, Plaintiffs filed a six-count action in the Circuit Court for Frederick County, alleging breach of contract (Count I), breach of good faith (Count II), [7] unjust enrichment (Count III), [8] and violations of the Fourteenth Amendment (Count IV) and Article 24 of the Maryland Declaration of Rights (Count V); Plaintiffs also included a request for declaratory judgment (Count VI). (ECF No. 2.)[9] On October 23, 2015, Plaintiffs filed a Motion to Proceed (ECF No. 19); Defendants filed a Motion to Dismiss on November 16, 2015 (ECF No. 26). Then, on January 6, 2016, while those motions remained pending, Plaintiffs moved to amend. (ECF No. 40.) All motions are fully briefed and are ripe for decision.

II. Plaintiffs’ Motion to Amend (ECF No. 40)

A. Standard of Review

Because the Court has not entered a scheduling order in this matter, Plaintiffs’ Motion to Amend is governed by the liberal standard of Rule 15(a)(2) of the Federal Rules of Civil Procedure. Rule 15(a)(2) instructs district courts to “freely give leave” to amend “when justice so requires.” Even so, a court may deny a motion to amend if (1) the movant has acted in bad faith, (2) the new pleading would prejudice the nonmovant, or (3) the new pleading would be futile. Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (citing Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986)). Given the early stage of this litigation and the absence of any indicia of bad faith on the part of Plaintiffs, the Court directs its attention to the third factor identified in Laber: futility. A futile amendment is one that could not withstand a motion to dismiss pursuant to Rule 12(b)(6). Thus, a futile amendment is one that fails to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In evaluating the plausibility of a claim, the Court construes all facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff. Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). Even so, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (alteration in original) (quoting Twombly, 550 U.S. at 555, 557).

B. Analysis

In their Motion to Amend, Plaintiffs propose two new counts for violations of the Fourteenth Amendment’s procedural due process requirements and of section 25-19 of the Code of the City of Frederick. Because the Court declines to exercise supplemental jurisdiction over any of Plaintiffs’ state-law claims, see infra Part III.B, the Court confines its analysis here to Plaintiffs’ constitutional theory.

The Due Process Clause of the Fourteenth Amendment prohibits states and state actors from “depriv[ing] any person of life, liberty, or property, without due process of law.” The Due Process Clause includes both substantive and procedural components. Procedural due process “prevents mistaken or unjust deprivation” of a protected property interest; it requires “fair notice of impending state action and an opportunity to be heard.” Snider Int’l Corp. v. Town of Forest Heights, 739 F.3d 140, 145-46 (4th Cir. 2014), cert. denied, 134 S.Ct. 2667 (2014). Plaintiffs allege that the City deprived them of their “protected property interest in their money” by “overcharging Plaintiffs water rents, without due process of law, ...


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