United States District Court, E.D. Pennsylvania
STENGEL, C. J.
2009, the Pennsylvania General Assembly passed the
Neighborhood Improvement Zone Act (“NIZ Act”),
which subsidizes development projects in downtown Allentown.
Because of the subsidies, new developments are able to offer
cheaper rent to their tenants than preexisting, unsubsidized
buildings. The plaintiff owns an office building in Allentown
that is ineligible for NIZ subsidies. The plaintiff projects
that its building will be unable to keep or acquire tenants
and therefore expects to default on its mortgage and face
foreclosure. The plaintiff challenges the NIZ Act and its
implementation under the Pennsylvania Constitution and the
Equal Protection Clause, the Takings Clause, and the
Contracts Clause of the United States Constitution through 28
U.S.C. § 1983 and the Declaratory Judgment Act, 28
U.S.C. §§ 2201-2202.
to dismiss for failure to state a claim have been filed by
the City of Allentown and Mayor Pawlowski, as well as by
Pennsylvania Revenue Secretary Eileen McNulty. Defendant
ANIZDA filed a motion for judgment on the
pleadings.) For the following reasons, I will grant
the motions and dismiss the claims with leave to amend to the
extent the plaintiff can state a claim consistent with this
heart of the plaintiff's complaint is that the defendants
did not interpret the NIZ Act's provision of funds for
“improvement and development” to apply to
preexisting buildings and their tenants, thereby denying the
plaintiff access to the NIZ funds to which its competitors
November 2006, the plaintiff acquired PPL Plaza (“The
Plaza”) for $92 million. (Compl. ¶¶ 27-31.)
The plaintiff paid over $13 million in cash at closing and
financed the remainder with two loans, one for $75 million
and one for $7 million. Id. ¶ 33. The
plaintiff's loans were to be repaid in monthly
installments, with a final balloon payment of all amounts
outstanding on December 1, 2016. Id. ¶
The plaintiff has spent $334, 000 on improvements to the
property. Id. ¶ 37.
the filing of the complaint, the Plaza's sole tenant
(besides one small retail tenant on the ground floor) was a
company called Talen Energy Corp. Id. ¶
Talen's lease, which was created in 2003, sets its rent
at $27.20 per square foot. Id. ¶ 40, 42. The
lease expires on April 30, 2018. Id. ¶ 40.
effort to stimulate the economy in Pennsylvania's cities,
the Pennsylvania General Assembly passed the NIZ Act on
October 9, 2009. Id. ¶ 52. The Act allowed
the city to create a municipal authority that would designate
a “Neighborhood Improvement Zone”
(“NIZ”) of no more than 130 acres in which the
city would enable the construction of a sports facility and
other developments. 72 Pa. Cons. Stat. §§
8902-B-8904-B. (Compl. ¶ 53.)
City of Allentown designated a NIZ of 128 acres in downtown
Allentown along the western side of the Lehigh River on
August 28, 2011, and this designation took effect on
September 6, 2012. Id. ¶ 56. The zone, which
contains the Plaza, “is the only zone designated or
eligible for designation under the Act.” Id.
permits state taxes paid by businesses operating in the NIZ
to go into a fund, which can then pay debt service on bonds
or loans issued to finance development, improvement, and
construction in the NIZ. 72 Pa. Cons. Stat. §§
8903-B-8907-B; §§ 8904-B(b)-(d), 8902-B.
Id. ¶ 60. The Pennsylvania Department of
Revenue (“DOR”) certifies the amount of state and
local taxes paid by businesses in the NIZ, which are put into
the fund and administered by a municipal authority, the
Allentown Neighborhood Improvement Zone Development Authority
(“ANIZDA”). 72 Pa. Cons. Stat. § 8904-B(d).
(Compl. ¶¶ 11, 76.) According to the Act, the money
in the fund can be used to finance “the construction of
all or part of a facility or facility complex” or
“the improvement and development of all or any part of
the neighborhood improvement zone.” 72 Pa. Cons. Stat.
promulgated guidelines regarding the use of the NIZ funds.
(Compl. ¶ 80; Reese Mot. to Dismiss Ex. 1 (ANIZDA
Guidelines for Obtaining Financing for Projects in the City
of Allentown's NIZ (“the Guidelines”), as
amended Mar. 4, 2015) (Doc. No. 15-2).) The Guidelines
are “intended for informational purposes only”
and “shall not be construed to limit in any way the
discretion of the Authority.” (Guidelines ¶ 1.3.)
According to the plaintiff, the Authority interpreted the
Act's language providing funds for “the improvement
and development of all or any part of the [NIZ]” to
apply to construction of a facility or complex, renovations,
or capital improvements to the existing building, but not to
upkeep of preexisting buildings. (Compl. ¶¶ 86,
108). Although the Guidelines do not explicitly state that a
project must involve one of these three categories to be
eligible, they generally refer to projects as though they are
construction projects. (See, e.g., Guidelines #5
(describing preferences given to certain “certified
subcontractors in the construction of the Project”); #8
(“Applicant should provide a timeline of major
milestones and construction activities.”); #13
(“The Authority shall have the right to review
construction inspection reports being prepared for the
Applicant's financial institution . . . .”).) The
plaintiff alleges that ANIZDA also restricted NIZ funds to
“new businesses starting up or moving into the
NIZ.” (Compl. ¶ 82).
plaintiff was not planning construction, renovations, or
capital improvements, it was ineligible for those subsidies.
Id. ¶ 108. And its tenant, Talen, was already
operating within the NIZ and therefore was not eligible for
NIZ funds given to new businesses moving into the NIZ.
Id. ¶ 84. As a result, “the NIZ affords
benefits to every new building inside its boundaries except
for PPL Plaza.” Id. ¶ 60 (emphasis
plaintiff met with city and state officials, ANIZDA
officials, and developers, but was unable to obtain a
modification of the Guidelines or other accommodations to
give it access to NIZ funds. Id. ¶¶
Act has spurred development in the NIZ. Since 2009, two
office and residential complexes have begun construction: the
City Center Lehigh Valley, which consists of four office
buildings with 650, 000 square feet of rentable office space,
a full-service hotel, 170 luxury apartments, and 100, 000
square feet of upscale retail and restaurant space
(id. ¶ 64), and the Waterfront Development,
which includes six office buildings, 124 residences, and
restaurant and retail space. Id. ¶ 65. The
developers of these complexes anticipate receiving NIZ
subsidies of more than $40 million. Id. ¶¶
67, 69. Because of these subsidies, they are able to charge
tenants prices significantly below pre-NIZ market rates.
Id. ¶¶ 68, 70-71.
value of PPL Plaza has plummeted since the designation of the
Under the lease, the plaintiff charges Talen $27.20 per
square foot. Id. ¶ 42. In January 2015, after
the NIZ Act and Guidelines were promulgated, Talen's
parent company asked to renegotiate its lease at a base rent
of $8.00 per square foot. Id. ¶ 90. It also
offered to purchase PPL Plaza for $41 million-a loss to the
plaintiff of over $51 million. Id. ¶ 90. In
October 2015, Talen explained that, although it would be
“ideal” for Talen to stay in the Plaza, it had
received lower rent offers from the new, NIZ-financed
buildings, and it was “close on a final lease solution
for a new building” in the Waterfront Development.
Id. ¶ 94. It is therefore “evident that
Talen will vacate the Plaza when the Lease expires in April
2018.” Id. ¶ 97. The plaintiff explains
that the loss of Talen, and the plaintiff's likely
inability to find a replacement tenant willing to pay a high
enough rate of rent, will likely result in the
plaintiff's default on its loans and a foreclosure sale
of the Plaza. Id. ¶ 101.
August 21, 2017, the plaintiff filed a supplemental
memorandum explaining that the owner of its debt had
initiated a foreclosure action against it in the Pennsylvania
Court of Common Pleas for Lehigh County. (Pl.'s Supp.
Mem. in Opp. to Defs.' Mot. to Dismiss ¶ 2 (Document
plaintiff contends that, in addition to incentivizing Talen
to leave the Plaza by making cheaper rent rates available in
the new buildings, ANIZDA made a special deal for Talen with
two resolutions. (Compl. ¶¶ 109-113.) The first
addressed the fact that Talen's relocation would have
cost Talen money for which it was ineligible for NIZ
subsidies, as the Guidelines deemed ineligible “any
project proposing to relocate tenants, occupants, or business
existing in the NIZ to another location within the
NIZ.” Id. ¶ 84. Thus, Talen would have to
bear the cost of moving to the Waterfront Development. The
plaintiff alleges that, to prevent Talen from bearing this
cost, ANIZDA passed Resolution #73, which directed tax
revenues to be returned to businesses that relocate from
another place within the NIZ to the Waterfront Development.
(Id. ¶¶ 117, 118; ANIZDA's Mot. for
Leave to File a Mot. for J. on the Pleadings in Excess of the
Ct.'s P. Limit, Ex. D (Resolution 2015-73) (Documents
ANIZDA gave Talen a special tax break. Resolution #74 allows
Talen to “recoup all state and local taxes above the
amount paid by its predecessor, PPL, in 2014.” (Compl.
¶ 19; see also ANIZDA's Mot. for Leave to
File a Mot. for J. on the Pleadings in Excess of the
Ct.'s P. Limit, Ex. E (Resolution 2015-74) (Doc. No.
37-9).) The plaintiff argues that these resolutions
“reveal how the Act has been arbitrarily and
irrationally manipulated to provide benefits to favored
entities, while at the same time denying the same benefits to
Plaintiff.” Id. ¶ 123.
plaintiff brought claims for violation of its rights under
the United States Constitution pursuant to 18 U.S.C. §
1983 and the Declaratory Judgment Act and its rights under
the Pennsylvania Constitution against ANIZDA, the City of
Allentown, Mayor of Allentown Ed Pawlowski, Pennsylvania
Governor Thomas Wolf, Pennsylvania Secretary of Revenue
Eileen McNulty, Pennsylvania Treasurer Timothy Reese, and
Pennsylvania Auditor General Eugene DePasquale. I approved
the parties' stipulations to dismiss the claims against
Defendants Treasurer Reese (Document #31), Auditor General
DePasquale (Document #33), and Governor Wolf (Document #47).
filed an answer (Document #36) and then a motion for judgment
on the pleadings (Document #46). Defendant City of Allentown
and Ed Pawlowski filed a motion to dismiss (Documents #38
& 39). Defendant Secretary McNulty filed a motion to
dismiss. (Document #44.) The plaintiff responded in opposition
to these motions, and the defendants replied. The plaintiff
filed a sur-reply in opposition to ANIZDA's reply.
Lastly, the plaintiff filed a supplemental memorandum in
support of its opposition to the defendants' motions,
updating the court on recent changes to its financial
situation. (Document #64).
STANDARD OF REVIEW
Rule of Civil Procedure 12(b)(6) permits a court to dismiss
all or part of an action for “failure to state a claim
upon which relief can be granted.” Typically, “a
complaint attacked by a Rule 12(b)(6) motion to dismiss does
not need detailed factual allegations, ” though
plaintiff's obligation to state the grounds of
entitlement to relief “requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). “Factual
allegations must be enough to raise a right to relief above
the speculative level . . . on the assumption that all of the
allegations in the complaint are true (even if doubtful in
fact).” Id. (citations omitted). A
well-pleaded complaint may not be dismissed simply because
“it strikes a savvy judge that actual proof of those
facts is improbable, and that a recovery is very remote and
unlikely.” Id. at 556. However, a complaint
must provide “enough fact[s] to raise a reasonable
expectation that discovery will reveal evidence of” the
necessary element. Id. at 556. In reviewing a
complaint on a motion to dismiss, “the factual and
legal elements of a claim should be separated, ” and
while all well-pleaded facts should be accepted as true, the
court “may disregard any legal conclusions.”
Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d
Cir. 2009); see also Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009).
plaintiff's allegations show that a paradoxical
consequence of the NIZ Act's implementation is that new
buildings are being built while the plaintiff's existing
building is the subject of a foreclosure action. But,
paradoxical as this may be, it does not state a claim for
violation of the plaintiff's constitutional rights.
argues that the plaintiff does not have standing to bring its
claims because it has not alleged an injury-in-fact,
causation, or redressability. I agree.
standing to bring a federal action under Article III of the
United States Constitution, the plaintiff must show that it
meets three requirements:
First, the plaintiff must have suffered an
‘injury-in-fact'-an invasion of a legally protected
interest which is (a) concrete and particularized, . . . and
(b) actual or imminent, not conjectural or hypothetical.
Second, there must be a causal connection between the injury
and the conduct complained of-the injury has to be fairly
traceable to the challenged action of the defendant, and not
the result of the independent action of some third party not
before the court. Third, it must be likely, as opposed to
merely speculative, that the injury will be redressed by a
Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61
(1992) (internal quotation marks, alterations, and citations
allegations in the plaintiff's complaint are insufficient
to show standing. The plaintiff does not show how the NIZ Act
and its implementation caused the plaintiff's inability
to pay its debt. According to the complaint, the plaintiff
entered into its lease with Talen before the NIZ Act was
passed, and that lease extends until April 2018 at a fixed
rate of rent. (Compl. ¶¶ 40-45.) The
plaintiff's repayment of its loans was due December 2016.
Id. ¶ 33. Thus, it is not apparent from the
complaint why a decrease ...