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Vision Real Estate Investment Corp. v. Metropolitan Government of Nashville & Davidson County

United States District Court, M.D. Tennessee, Nashville Division

September 30, 2019

VISION REAL ESTATE INVESTMENT CORP., AUTUMN ASSISTED LIVING PARTNERS, INC., and MICHAEL HAMPTON Plaintiffs,
v.
METROPOLITAN GOVERNMENT OF NASHVILLE & DAVIDSON COUNTY, METROPOLITAN DEVELOPMENT AND HOUSING AGENCY, JIM SHULMAN, and DOMINICK LEONARDO, Defendants.

          NEWBERN, MAGISTRATE JUDGE

          MEMORANDUM

          WILLIAM L. CAMPBELL, JR, UNITED STATES DISTRICT JUDGE

         Pending before the Court are Defendant Metropolitan Development and Housing Agency's Motion to Dismiss (Doc. No. 72) and Motion to Dismiss by Defendants Jim Shulman and Dominick Leonardo. (Doc. No. 68). Plaintiffs Vision Real Estate Investment Corporation, Autumn Assisted Living Partners, Inc., and Michael Hampton (collectively “Plaintiffs”) filed responses to each motion (Doc. Nos. 78 and 81), and Defendants Metropolitan Development and Housing Agency (“MDHA”), and Shulman and Leonardo filed replies. (Doc. Nos. 86 and 89). For the reasons stated below, MDHA's Motion to Dismiss is GRANTED, in part, DENIED, in part. The Motion to Dismiss by Defendants Shulman and Leonardo Motion is GRANTED.

         I. FACTUAL ALLEGATIONS [1]

         Plaintiffs Vision Real Estate Investment Corporation (“Vision”) and Autumn Assisted Living Partners, Inc. (“Autumn”), are Tennessee corporations. Michael Hampton is the sole owner of those companies. (Compl., Doc. No. 45, ¶¶ 1-2). Hampton formed the companies in anticipation of purchasing and developing a parcel of land in north Nashville known as the “Bordeaux Hospital Property.” (Id. at ¶ 12).

         Defendant Metropolitan Government of Nashville and Davidson County (“Metro”) is a Tennessee municipal corporation. (Id., ¶ 4). Defendant MDHA is a public body corporate and politic formed under the Housing Authority Law of Tennessee. Tenn. Code Ann §§ 13-20-101 et seq. Defendants Jim Shulman and Leonardo are or were Metro Councilmembers. (Id. ¶ 7).

         A. The Agreements

         Although the Bordeaux Hospital Property was largely undeveloped, it was the site of the Metro-owned JB Knowles Assisted Living Facility (the “Facility”). (Id. at ¶ 13). On January 10, 2014, Plaintiffs Vision and Autumn entered into a series of three separate agreements relating to the Bordeaux Hospital Property.

         Autumn entered into the Agreement to Lease and Purchase (Doc. No. 45-2) (the “Lease Purchase Agreement”) with Metro and the Hospital Authority of the Metropolitan Government of Nashville and Davidson County (the “Hospital Authority”) whereby Metro agreed to “lease and eventually sell” the Assisted Living Facility to Autumn. (Doc. No. 45-2 at 1). The Lease Purchase Agreement provided that Autumn would purchase the Assisted Living Facility from Metro not later than July 1, 2016, for a purchase price of $500, 000. (Id. at 2). Additionally, Autumn agreed to make at least $300, 000 in capitol improvements to the Assisted Living Facility during the first eighteen months of the lease. (Id. at 1).

         On that same day, Autumn entered into a Lease Agreement (Doc. No. 45-1) (the “Lease Agreement”) with Metro whereby Autumn agreed to lease and operate the Facility from July 1, 2014 to July 1, 2016, or until such time, no later than July 1, 2016, as Autumn purchased the property in accordance with the Lease Purchase Agreement. (Id.). The Lease Agreement contains terms and conditions requiring, among other things, that Autumn maintain commercial general liability insurance ($1 million) and property insurance ($750, 000). (Id. at 4). The Lease Agreement provides that, in the event of default, Autumn will have 30 days to cure. (Id. at 7).

         On January 10, 2014, Metro and Vision entered into a contract (“First Contract”) for Vision to purchase and develop approximately 74.8 acres of the Bordeaux Hospital Property. (Id. at ¶ 14). Metro agreed to sell the property to Vision to help offset the operating losses related to operation of the Facility[2]. The sales agreement in the First Contract was consideration for Autumn entering into the Lease Purchase Agreement. (Doc. No. 45, ¶ 15). Execution of the First Contract was contingent on the Tennessee Legislature passing certain legislation. (Id., ¶ 18). When the Tennessee Legislature did not pass the required legislation, Vision and Metro renegotiated and entered into a second Purchase and Sale Agreement on June 26, 2015 (the “Second Contract”). (Id., ¶¶ 18, 22; Doc. No. 45-3).

         In August 2014, between the execution of the First Contract and the Second Contract, the Metro Council passed an ordinance reallocating $10 million of Federal Community Development Block Grant Disaster Recovery funds (the “federal funds”) to “the community of Bordeaux.” (Compl., ¶¶ 27, 31, 81, 82). Plaintiff alleges MDHA advocated for the reallocation of the federal funds. (Id., ¶¶ 27, 31, 81). The “community of Bordeaux” included a portion of the real property that was the subject of the First Contract. (Id., ¶ 31). According to the Complaint, the federal funds were required to be used to construct new housing in a flood impacted area, and the Bordeaux Hospital Property was the only property in Nashville that qualified. (Id., ¶¶ 31, 81). If the federal money was not spent at the Bordeaux Hospital Property, Nashville's Housing Agency would be required to return the $10 million federal grant. (Id., ¶ 82).

         The Second Contract was for the sale of two smaller tracts of land at the Bordeaux Hospital Property - Tract 1 (29 acres) for $300, 000; and Tract 2 (16.5 acres) for $300, 000. (Doc. No. 45-3). Pursuant to the terms of the Second Contract, Vision paid $25, 000 in non-refundable earnest money to Metro, and Metro incurred an obligation “to support Vision's application to rezone the subject Property to allow construction of project specified in the Bordeaux Hills Redevelopment District.” (Id. at 3). The Second Contract provided that as conditions precedent to the sale of Tract 1: (1) Autumn must complete the capital improvements to the Facility as required by the Lease Purchase Agreement; and (2) Autumn must have completed the purchase of the Facility and be operating the Facility as “an assisted living facility fully licensed by the State of Tennessee.” (Id. at 4). The sale of Tract Two was conditioned upon the completion of the sale of Tract One and the construction of at least 32 affordable, senior housing units on Tract One. (Id.).

         B. Rezoning

         In April 2014, Vision applied to the Metro Planning Department for rezoning of the First Tract.[3] (Doc. No. 45, ¶ 28). The following year, in April 2015, Vision requested signatory approval for a rezoning application from the Metro Department of Law. (Id., ¶ 32). Metro's Director of Law stated that Vision was to work with MDHA, which had been charged with ensuring “the Bordeaux property was developed in accordance with the approved development plan.” (Id.). Plaintiffs allege they made “numerous requests for signatory approval to submit the needed zoning change” over a 16-month period. (Id.) Plaintiffs allege a policy of “Councilmanic courtesy” a result of which is that rezoning of property cannot occur unless the application is supported by the Metro Councilmember in whose district the property sits and that Councilmanic courtesy caused their rezoning application not to be heard. (Id., ¶¶ 29, 30).

         The Complaint does not specify the sequence of events, by which the zoning application was signed by Metro, but states that the Metro Councilperson for the First District (the district in which the Bordeaux Hospital Property is located) “supported a zone change request for the Bordeaux property as submitted by MDHA” and submitted a zone change bill (BL2015-1209) on June 2, 2015. (Id., ¶ 33). The zoning bill passed two readings of the Metro Council, but was withdrawn at the request of MDHA at the July 21, 2015 Metro Council public hearing, prior to the third and final reading. (Id.).

         Before the July 21, 2015 meeting, Vision learned that BL2015-1209 would be withdrawn and formally requested MDHA reinstate the bill with a change in the parcel of land from 192 acres to 11.5 acres. (Id. at ¶ 34). MDHA responded to the request to reinstate the zoning application: “[W]e're moving with the redevelopment district at Bordeaux as planned. I can't speak to the zoning issues you site [sic]. At MDHA, we're focused on informing on the wisdom of the development district for now.” (Id.). The property that was the subject of the Second Contract was never rezoned. (Id., ¶ 30).

         C. The Funding Applications

         Concurrent with Vision's efforts to rezone the property, Autumn and Hampton were attempting to secure financing to permit them to purchase the Assisted Living Facility pursuant to the Lease Purchase Agreement. (Id., ¶ 36). As part of their efforts, Autumn (through a to-be-formed affiliate) submitted an application for Tax Increment Financing (“TIF”) to MDHA on February 23, 2016. (Id., ¶¶ 38, 69). On February 16, 2016, before the application was complete, MDHA executive Joe Cain told the appraiser who had been hired by Autumn that Autumn would not qualify for TIF. (Id.). MDHA advised Autumn that review of the completed application would take four to six weeks, but MDHA rejected the application on February 26, 2016, three days after it was complete.[4] (Id.). MDHA told Autumn that the “existing currently operated assisted living facility is not considered a redevelopment eligible for tax increment financing dollars as anticipated in the Bordeaux redevelopment plan.” (Id., ¶ 96). Autumn requested a hearing before the MDHA Board, but MDHA did not respond to the request. (Id., ¶ 69).

         Plaintiffs allege MDHA treated Autumn's TIF application differently than those of non-minority owned businesses, and allege Autumn is the only African American owned company to apply for TIF in the last five-years. (Id., ¶ 67).

         Autumn then sought to finance the purchase of the Facility and the First Tract through tax-exempt bonds. (Id., ¶ 54). After a series of meetings, the Metro Nashville Industrial Development Board (“IDB”) approved Plaintiffs' application for the issuance of tax-exempt revenue bonds on or about December 14, 2016. (Id., ¶ 56, 59). The final step for issuance of the tax-exempt bonds was approval of the Nashville mayor. (Id., ¶ 59). The mayor never responded to Autumn's request to approve the bond. (Id., ¶ 61).

         Plaintiffs allege Defendant Shulman, then a member of the Metro Council, interfered with the bond approval process in an attempt to “intentionally block approval of the financing.” (Id., ¶ 56). Plaintiffs allege Shulman attended IDB meetings, “made representations to the [IDB], ” had ex parte communications with the IDB chairperson Ginger Houser (who was also a Metro councilperson), and exerted pressure on state surveyors to be “especially critical” in inspections of the Facility. (Id., ¶¶ 56-58, 105).

         D. Contract Modification

         In July 2016, Metro informed Hampton and Vision that Autumn was in breach of the Lease Purchase Agreement as it had not made $300, 000 in capital improvements to the facility (it had made only $211, 782 in capital improvements). (Comp., Doc. No. 45, ¶ 39). Metro said if Vision agreed to sell MDHA six acres of the land covered by the Second Contract, it would forgive the requirements for an audit and $300, 000 in capital improvements; and it would extend the closing date to allow MDHA time to complete its environmental review. (Id.). MDHA also promised Vision it would “promptly advance a zoning change on the front 11.25 acres” of the Bordeaux Hospital Property, to allow two 100-unit apartment buildings and a strip center as provided in the development plan. (Id. at ¶ 40).

         On or about August 10, 2016, Vision told MDHA it would sell the six acres for $250, 000. (Id.). MDHA informed Vision that because it planned to use federal money for the purchase, it could not enter into a formal land purchase contract until completion of an environmental review. (Id.). MDHA estimated the environmental review would take 90 to 120 days. (Id.). MDHA drafted a letter of intent, which Vision signed on or about August 11, 2016. (Id.). The letter of intent stated the environmental review would be complete by October 31, 2016. (Id.).

         On October 20, 2016, Vision requested an update on the environmental review, and MDHA said the surveyor for the review should be on site the next week. (Id., ¶ 43). On November 1, 2016, Vision informed MDHA that it was ready to close on the property.[5] (Id. at ¶ 44). MDHA responded that it would be approximately three weeks before MDHA would hear back from the surveyor. (Id.). On December 22, 2016, MDHA informed Vision that the Metro Council was considering legislation (Bill BL2016-540) that would affect the sale and that MDHA would take no further action until the outcome of the legislation was resolved. (Id., ¶ 45).

         E. The Contract Terminations

         On or about December 20, 2016, Defendants Shulman and Leonardo submitted emergency legislation, Bill BL2016-540 (the “Bill”), [6] to rescind the Lease Purchase Agreement on grounds that Autumn was not properly operating the Facility and had allowed insurance to lapse, and to repeal the 2015 ordinance approving the Second Contract.[7] (Id., ¶ 46, 102). The Bill directed the Metro Clerk to give notice of the legislation to Autumn, but notice was not given to Autumn or Vision. (Id., ¶ 49). Plaintiffs learned of the pending legislation on January 2, 2017, the day before the public meeting, but did not obtain a copy of the Bill until after the meeting on January 5, 2017. (Id., ¶¶ 49-50, 110).

         On January 3, 2017, Councilman Leonardo told Plaintiffs he would defer a vote on BL2016-540 for two weeks to allow Autumn time to close and that the Council meeting would “go smoother” if the Autumn representative was not at the meeting. (Id., ¶ 48, 109). Plaintiffs did not attend the January 3, 2017 Council meeting.[8] (Id., ¶ 48, 50).

         On January 6, 2017, Autumn's attorney gave notice to Metro of its desire to close on January 10, 2017 and delivered certified funds to Metro in the required amount of $500, 000. (Id. at ¶ 51, 111). The closing documents had been prepared and approved by both parties. (Id., ¶¶ 55, 111). A few hours later, Metro sent Vision a letter terminating the Lease Purchase Agreement. The letter explained:

As you know, § 4.01 of the agreement conditions Metro's obligation to consummate the agreement upon the successful purchase of [the Facility] by Autumn []. While Metro appreciates the hard work that has been put into [the Facility], … Autumn has not complied with its contractual responsibilities, including completing the purchase of [the Facility] by July 1, 2016. Further a number of additional concerns about [the Facility's] current operating conditions have come to light, including maintenance of required insurance coverages and regulatory deficiencies identified by the State of Tennessee. Metro has continued to work with Autumn to ensure quality care to the residents of the facility. However, Metro is no longer under any obligation to sell the facility to Autumn. Accordingly, this condition was not fulfilled within the anticipated time and cannot be met.

         (Doc. No. 45-4).

         The final and third reading of the Bill was on January 17, 2017, two weeks after Leonadro allegedly told Plaintiffs he would delay the bill for two weeks. Plaintiffs attended this Council meeting, but were not permitted to speak because it was not a public meeting. (Compl., Doc. No. 45, ¶ 110). The Bill passed, and on January 20, 2017, the mayor signed the Bill rescinding the Lease Purchase Agreement. (Doc. No. 45 at ¶ 53).

         While the Bill was pending before the Metro Council, Metro proposed to Autumn that another management company take over management of the Facility. (Id.). Metro's selected management company, Anthem, assumed operations of the Facility on February 1, 2017. Anthem operated under Autumn's lease and state license. (Id.).

         After Metro terminated its contracts with Plaintiffs, it transferred a portion of the Bordeaux Hospital Property that was the subject of the Second Contract to MDHA. MDHA successfully rezoned the property. (Id., ¶ 70, 72). MDHA has a 40 unit, $9.5 million project, to be paid for with the federal funds, planned on 5.5 acres of the Bordeaux Hospital Property that “closely approximate the same property” Vision planned to use. (Id.).

         F. Allegations of Discrimination

         Plaintiffs allege they were discriminated against on the basis of race during the TIF application process. Plaintiffs state that Autumn was the only minority-owned business to apply for TIF funds in the past five years, and it was rejected. (Id., ΒΆ 67). Plaintiffs allege systematic discrimination by Metro and MDHA with regard to the allocation of tax increment financing and allege discrimination against the historically black communities of North Nashville and Bordeaux has caused ...


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