STATE FIN. BANK NAT. ASSO. v. CITY OF S. MILWAUKEE, (E.D.Wis. 2002)

C. N. CLEVERT, United States District Judge.

This matter came before the court for a hearing on three pending motions. The motions heard were (1) defendant City of South Milwaukee's motion to dismiss for lack of jurisdiction State Financial's claims under the Fair Housing Act, 42 U.S.C. § 3601-3619, the Americans with Disabilities Act, 42 U.S.C. § 12101-12213, and under the Fourteenth Amendment to the Constitution, pursuant to 42 U.S.C. § 1983; (2) defendant City of South Milwaukee's motion for a protective order; and (3) plaintiff State Financial Bank's motion to compel. For the reasons stated on the record as well as the reasons stated below, the court will deny the motion to dismiss, deny the motion for a protective order, and grant the motion to compel.

The history of the previous state court litigation in this case is summarized in Lake Bluff Hous. v. City of S. Milwaukee, 246 Wis.2d 785, 632 N.W.2d 485 (Wis.App. 2001), and stated, in brief, below.

In December, 1992, Lake Bluff partners (Lake Bluff) purchased property on Marina Road in South Milwaukee (property). At that time, the property was zoned C-2, thereby allowing the property to be used for multi-family dwellings. However, before issuing any building permits, South Milwaukee rezoned the property to R-A, so as to allow only single family residences to be built on the property.

Lake Bluff filed suit against the City in state court, claiming that it had vested rights in the prior zoning classification because it had purchased the property and submitted building requests to the City while the property was zoned C-2, and that the rezoning would preclude Lake Bluff from building two proposed apartment buildings on the property. Lake Bluff sought the issuance of a writ of mandamus ordering the City to issue a construction permit for the proposed apartments. On April 24, 1994, the state trial court found on behalf of Lake Bluff and issued a writ of mandamus ordering the City's building inspector to issue the necessary building permits. On October 4, 1994, the Wisconsin Court of Appeals upheld the issuance of the writ of mandamus. The City then appealed the case to the Wisconsin State Supreme Court.

While on appeal, Lake Bluff built the proposed apartment buildings, allegedly to take advantage of a tax credit in the amount of approximately $200,000 that would expire if the buildings were not finished by the end of December, 1994. Construction was completed in December 1994, and on December 6, 1994, State Financial converted a construction loan on the property to a mortgage secured by the property in question.

On November 20, 1995, the Wisconsin Supreme Court reversed the decision of the court of appeals, and remanded the case with instructions to quash the writ. The Supreme Court held that because the plaintiff had not submitted an application that conformed to the existing zoning and building codes, Lake Bluff's rights in the property had not vested. By the time this decision was issued, occupancy permits had been issued for the project (although not in time to meet the deadline for tax credits).

Upon remand, Lake Bluff filed a second action seeking declaratory and injunctive relief. The Circuit Court, after quashing the writ as ordered, proceeded to grant summary judgment for Lake Bluff, declaring that the City was estopped from revoking the building and occupancy permits for the project and enjoining the City from "issuing any orders directing Lake Bluff to remove" the non-conforming buildings. The Court of Appeals reversed that holding, rejected the conclusion that the City was estopped from enforcing Wis. Stat. § 62.23(8) (the section authorizing removal of non-conforming buildings), and observed that Lake Bluff's decision to proceed with construction had been "an attempt to circumvent with a fait accompli South Milwaukee's zoning decisions." The Court of Appeals remanded the case with instruction to the trial court to engage in an equitable analysis under Forest County v. Goode, 219 Wis.2d 655, 681-85, 579 N.W.2d 715 (1998) to determine whether the equities of the case required denial of an abatement order.

On remand, after considering the totality of the circumstances, that trial court found that the dispute was not one of "those rare case" where the abatement order should not issue, and authorized the order to raze the buildings on the site, effective May 30, 2000. Lake Bluff filed a third appeal, which on June 12, 2001, was denied by the Court of Appeals.

The City asked this court to dismiss this case brought by State Financial Bank (State Financial), for lack of jurisdiction. The City alleges that State Financial is essentially asking this court to set aside the judgment of the state courts regarding the writ of mandamus and the raze order, and that this court is without jurisdiction to do so under the Rooker-Feldman doctrine.

The Rooker-Feldman doctrine, named after Rooker v. Fidelity Trust Co., 263 U.S. 413, 68 L.Ed. 362, 44 S.Ct. 149 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1982), "stands for the principle that decisions of state courts may not be challenged in litigation under § 1983; instead the aggrieved party must pursue all remedies through the state system and then seek certiorari under 28 U.S.C. § 1257." Durgins v. City of E. St. Louis, 272 F.3d 841, 844-45 (7th Cir. 2001). "When Rooker-Feldman applies, there is no federal jurisdiction and a dismissal is not on the merits. Normally the Rooker-Feldman doctrine applies when the injury is inflicted by the state court's decision, while if all the state court has done is fail to rectify an injury caused by some other actor then claim preclusion is the appropriate doctrine." Id. The Court of Appeals for the Seventh Circuit has held that "constitutional claims that are `inextricably intertwined' with state court judgments negate federal district court jurisdiction because they would call for review of the state court's decision." Garry v. Geils, 82 F.3d 1362, 1368 (7th Cir. 1996).

The City alleges that any decision of this court would necessarily have the effect of setting aside the judgment of the state court which upheld the raze order, that State Financial's motion is "inextricably intertwined" with the state court decision, and as such, this court may not hear State Financial's claims for violations of the Fair Housing Act, the ADA, and State Financial's Fourteenth Amendment rights to due process and equal protection. In turn, State Financial argues that the Rooker-Feldman doctrine only applies to a previous party to the state court action, and that since State Financial was not a party to that action, they are not precluded from bringing their action in this court.

Although State Financial is not necessarily correct in its categorical assertion that Rooker-Feldman can never apply to a party that was not a part of the state court action, see T. W. by Enk v. Brophy, 124 F.3d 893, 898 (7th Cir. 1997); Hoover v. Wagner, 47 F.3d 845, 849 (7th Cir. 1995), State Financial is correct in arguing that is does not apply in this case. "Rooker-Feldman consistently has not applied when (1) a federal plaintiff was not a party in the state proceeding, and (2) its rights were not affected by the state proceeding." Nationscredit Home Equity Servs. Corp. v. City of Chicago, 135 F. Supp.2d 905, 914 (N.D.Ill. 2001). State Financial's claims for procedural due process and equal protection, as well as those under the FHA and ADA were not argued in the state court, and State Financial could bring claims for damages even if the state court raze order was rescinded. Rooker-Feldman does not, therefore, preclude the exercise of jurisdiction by this court, and the City's motion to dismiss will therefore be denied.

The City had brought a motion for a protective order, asking this court to bar any discovery until the resolution of the motion to dismiss. At oral argument the City effectively withdrew its motion for a protective order. As such, the motion shall be denied as moot.

State Financial brought a motion to compel production of the discovery subject to the City's motion for a protective order. In light of the denial of the motions to dismiss and for a protective order, the court shall grant the motion to compel, with the time for production of the requested documents set forth by the parties on the record. The court finds that sanctions are not warranted at this time.

IT IS ORDERED that defendant City of South Milwaukee's motion to dismiss (Doc. #18) is DENIED.

IT IS FURTHER ORDERED that defendant City of South Milwaukee's motion for a protective order (Doc. #23) is DENIED.

IT IS FURTHER ORDERED that plaintiff State Financial's motion to compel (Doc. #28) is GRANTED.