Dukuly v. City of New Hope

             UNITED STATES DISTRICT COURT                            
                DISTRICT OF MINNESOTA                                


Dr. Sheikh Dukuly, Sekou AM Dukuly,    File No. 23-cv-3351 (ECT/ECW)      
Ashton Homes LLC, and Berkeley Heights                                    
Homes, LLC,                                                               

     Plaintiffs,                                                     

v.                                       OPINION AND ORDER                

City of New Hope,                                                         

     Defendant.                                                      
________________________________________________________________________  
Matt Kezhaya, Kezhaya Law PLC, Minneapolis, MN, for Plaintiffs Dr. Sheikh Dukuly, 
Sekou AM Dukuly, Ashton Homes LLC, and Berkeley Heights Homes, LLC.       
Jessica E. Schwie, & Joshua Phillip Devaney, Kennedy & Graven, Chartered, Minneapolis, 
MN, for Defendant City of New Hope.                                       
________________________________________________________________________  
Plaintiffs are two LLCs and their owners that operated two assisted-living facilities 
within the municipal boundaries of the Defendant City of New Hope.  Plaintiffs obtained 
licenses to operate the facilities from the State of Minnesota and rental permits from the 
City.  After neighbors made several 911 calls regarding the facilities, the City Council 
revoked Plaintiffs’ rental permits.  In this case, Plaintiffs allege that the revocation of their 
rental permits resulted in a regulatory taking requiring just compensation under the Takings 
Clauses of the United States and Minnesota Constitutions.                 
Defendants  move  for  judgment  on  the  pleadings  under  Federal  Rule  of  Civil 
Procedure 12(c).  The motion will be granted because Plaintiffs have not plausibly alleged 
a regulatory taking under Penn Central’s1 three-part test.  The Complaint lacks enough 
factual content to plausibly allege a significant diminution in their properties’ value.  
Plaintiffs’  reasonable  investment-backed  expectations  are  undercut  by  the  City’s 

preexisting rental-permit ordinance.  And the character of the taking—enforcement of a 
generally applicable land-use ordinance—weighs against a taking.          
                           I2                                        

Plaintiffs purchase residential properties to operate as assisted living facilities.  
Plaintiffs Dr. Sheikh and Sekou AM Dukuly (the “Dukuly Brothers”) are Minnesota 
residents who jointly own Plaintiffs Ashton Homes LLC and Berkeley Heights Homes 
LLC.  Compl. [ECF No. 5] ¶¶ 4, 7–8.  At some point, Ashton Homes and Berkeley Heights 
Homes purchased residentially zoned parcels within the City’s boundaries.  Id. ¶¶ 6–8.  


1    Penn Cent. Transp. Co. v. New York City, 

 (1978).        
2    The facts considered in deciding the City’s motion are mostly drawn from the 
Complaint and accepted as true.  The six exhibits attached to the Complaint, ECF Nos. 5-
1–5-6, will be considered as part of the Complaint.  See Dunnigan v. Fed. Home Loan 
Mortg. Corp., 

, 734 (D. Minn. 2016).  An earlier state court decision 
will also be considered as a matter of public record.  See Appliance Recycling Ctrs. of Am., 
Inc. v. Protiviti, Inc., No. 18-cv-702 (JRT/HB), 

, at *3 (D. Minn. July 
19, 2018) (“State-court decisions are matters of public record.”).  Land use records, 
attached by link to the City’s Answer, will not be considered.  “[C]ourts in this Circuit and 
the Eighth Circuit appear willing to consider exhibits attached to the answer under certain 
circumstances.”  Transp. Drivers, Inc. v. Coca-Cola Refreshments USA, Inc., No. 16-cv-
1074 (DWF/BRT), 

, at *8 (D. Minn. May 10, 2017).  For example, a 
contract attached to a defendant’s answer was considered where the plaintiff did not dispute 
the agreement’s authenticity.  Sinclair Refin. Co. v. Stevens, 

, 188–89 (8th 
Cir. 1941).  Here, the City relies on the land use records to show that the assisted living 
facilities were operating as a nuisance.  Def.’s Mem. in Supp. [ECF No. 21] at 17.  Plaintiffs 
seem to dispute this characterization.  See Compl. ¶¶ 11–14.  Thus, because the City relies 
on the land use records to establish disputed facts outside of the Complaint, the land use 
records will not be considered.                                           
“Both parcels were improved with residential housing which the Dukuly Brothers used as 
assisted living facilities.”  Id. ¶ 9.  Ashton Homes and Berkeley Heights Homes applied for 
(and received) licenses from the Minnesota Department of Health to operate assisted living 

facilities on the two properties.  See ECF Nos. 5-1, 5-2, 5-3.  The licenses were not 
transferable “as to Licensee or Location.”  See id.  Plaintiffs also were required to obtain 
rental permits from the City.  See ECF No. 5-4.  Ashton Homes and Berkeley Heights 
Homes obtained those permits in March 2021.  ECF No. 5-5 at 2; ECF No. 5-6 at 2.  
Because the properties are located on Wisconsin Avenue and Boone Avenue, Plaintiffs 

refer to Berkeley Heights Homes’ facility as the “Wisconsin facility” and Ashton Homes’ 
facility as the “Boone facility.”  Compl. ¶¶ 6, 15, 20.                   
Residents oppose the facilities.  In June 2021, residents lobbied the City Council “to 
remove the Dukuly Brothers’ politically undesirable residents.”  Compl. ¶ 11.  “The City 
Council encouraged the objecting residents to continue making emergency calls to create 

a record of their complaints about the Dukuly Brothers’ residents.”  Id. ¶ 13.  In June 2022, 
“the City set out to revoke the Dukuly Brothers’ right to operate their assisted living 
facilities through use of Ordinance § 3-31.”  Id. ¶ 14.  Ordinance § 3-31 authorizes the City 
to revoke a rental permit after three instances of disorderly behavior.  ECF No. 5-5 at 9.   
The City revokes the Wisconsin facility’s rental permit.  From June 12 to June 30, 

2022, “the City [of New Hope] issued three citations to residents of the Wisconsin facility.”  
Compl. ¶ 15.  On July 25, the City Council held a public hearing on the Wisconsin facility’s 
rental permit, id. ¶ 16, and on August 8, issued a resolution revoking that rental permit, 
ECF No. 5-5 at 1–4.  The City’s resolution: (1) ordered tenants to vacate the Wisconsin 
facility within forty-five days; (2) prohibited Sekou AM Dukuly from applying for City 
rental permits for at least 1 year; and (3) prohibited Sekou AM Dukuly from having an 
ownership interest in an entity that applied for City rental permits for at least one year.  

ECF No. 5-5 at 3–4.                                                       
The City revokes the Boone facility’s rental permit.  From April 17 to September 19, 
2022, “the City issued three citations to residents of the Boone facility.”  Compl. ¶ 20.  On 
October 24, the City Council held a public hearing on the Boone facility’s rental permit, 
id. ¶ 21, and on November 14, issued a resolution revoking that rental permit, ECF No. 5-6.  

The City’s resolution: (1) ordered tenants to vacate the Boone facility within sixty days; 
(2) prohibited the Dukuly Brothers from applying for City rental permits for at least three 
years; and (3) prohibited the Dukuly Brothers from having an ownership interest in an 
entity that applied for City rental permits for at least three years.  Id. at 3–4.   
The Dukuly Brothers lost money because the rental permits were revoked.  Because 

of the resolutions, “the Dukuly Brothers were completely deprived of the profit streams 
from  operating  their  assisted  living  facilities,”  including  “rent  stream[s]  from  lease 
agreements.”  Compl. ¶¶ 25–26.  The Dukuly Brothers were also “reasonably compelled 
to sell the two parcels of real estate at a loss.”  Id. ¶ 27.  In total, Plaintiffs allege the two 
resolutions cost them $2,000,000.  Id. ¶ 28.                              

Plaintiffs file a lawsuit in state court.  In January 2023, Plaintiffs filed a complaint 
in Minnesota state court against the City and city officials.  ECF No. 9-1 at 5.  There, 
Plaintiffs brought seven counts: “(1) violation of the Minnesota Human Rights Act, (2) 
violation of the Minnesota equal protection guarantees, (3) unlawful interference with 
State-licensed  activities,  (4)  criminal  due  process  violation,  (5)  guilt  by  association, 
(6) unconstitutional taking without just compensation, and (7) tortious interference with a 
contract.”  Id. at 7.  After the defendants moved for judgment on the pleadings, the state 

court dismissed Plaintiffs’ non-takings claims with prejudice, and dismissed Plaintiffs’ 
takings  claim  without  prejudice  because  “they  [were]  required  to  bring  the  [inverse 
condemnation] claim through an action in mandamus.”  Id. at 21–22.        
Plaintiffs file this case.  Plaintiffs filed the operative two-count Complaint on 
November 1, 2023.  Count I is a takings claim under the Fifth Amendment of the United 

States Constitution.  Compl. ¶¶ 29–39.  Count II is a “[p]etition for mandamus for inverse 
condemnation” under Article I, § 13 of the Minnesota Constitution.  Id. ¶¶ 40–48.  Plaintiffs 
request compensation for the regulatory taking of their properties or, alternatively, seek a 
writ of mandamus directing the City to institute eminent domain proceedings.  Id. at 16 
(prayer for relief).                                                      

                           II                                        
A Rule 12(c) motion for judgment on the pleadings is assessed under the same 
standard as a Rule 12(b)(6) motion.  Ashley Cnty. v. Pfizer, Inc., 

 (8th 
Cir. 2009).  Under the familiar Rule 12(b)(6) standard, a court must accept as true all the 
factual allegations in the complaint and draw all reasonable inferences in the plaintiff’s 

favor.  Gorog v. Best Buy Co., 

 (8th Cir. 2014) (citation omitted).  
Although the factual allegations need not be detailed, they must be sufficient to “raise a 
right to relief above the speculative level.”  Bell Atl. Corp. v. Twombly, 

 
(2007) (citation omitted).  The complaint must “state a claim to relief that is plausible on 
its face.”  

.  “A claim has facial plausibility when the plaintiff pleads factual 
content that allows the court to draw the reasonable inference that the defendant is liable 
for the misconduct alleged.”  Aschcroft v. Iqbal, 

 (2009). 

                          III                                        
As a preliminary matter, the City argues that Plaintiffs’ takings claims are partially 
barred by collateral estoppel.  Def.’s Mem. in Supp. at 10.  Collateral estoppel, also known 
as issue preclusion, provides that “when an issue of ultimate fact has been determined by 
a valid and final judgment, that issue cannot again be litigated between the same parties in 

another lawsuit.”  Chavez v. Weber, 

 (8th Cir. 2007) (quoting United 
States v. Brekke, 

 (8th Cir. 1996)).  Federal courts look to the substantive 
law of the state in which the judgment was rendered when applying collateral estoppel.  In 
re Scarborough, 

 (8th Cir. 1999).  “Under Minnesota law, collateral 
estoppel is appropriate when the following four elements are met: (1) the issue [is] identical 

to one in a prior adjudication; (2) there was a final judgment on the merits; (3) the estopped 
party was a party or in privity with a party to the prior adjudication; and (4) the estopped 
party was given a full and fair opportunity to be heard on the adjudicated issue.”  Ill. 
Farmers  Ins.  Co.  v.  Reed,  

  (Minn.  2003)  (quotation  omitted).  
Regarding the first element, “[t]he issue on which collateral estoppel is to be applied must 

be the same as that adjudicated in the prior action and it must have been necessary and 
essential to the resulting judgment in that action.”  Hauschildt v. Beckingham, 

 (Minn. 2004) (citing Ellis v. Minneapolis Comm’n on Civ. Rts., 

 (Minn. 1982), and Hauser v. Mealey, 

 (Minn. 1978)).  The City 
raises three collateral-estoppel arguments, but each is ultimately beside the point because 
the issues presented in this case were not decided by the state court.    
First, the City argues that “Plaintiffs are estopped from again claiming that the City 

was motivated by discrimination in revoking its permits.”  Def.’s Mem. in Supp. at 12.  
Start with the first element—identity of the issues.  The state court held that the City’s 
resolutions were not motivated by disability discrimination.  ECF No. 9-1 at 11–12.  But 
Plaintiffs concede that any alleged discriminatory animus is not relevant here.  Pls.’ Mem. 
in Opp’n [ECF No. 26] at 8.  And the City provides no authority suggesting that a 

legislature’s subjective intent is relevant to a regulatory takings claim.  It’s true that one of 
Plaintiffs’ theories is that legislative action “singl[ing] out” individuals or parcels results 
in a taking under the Minnesota Constitution.  

 at 20–24.  But subjective intent does not 
seem relevant to Plaintiffs’ singled-out theory.  Because the City’s alleged discriminatory 
animus is not at issue here, there is no identity of the issues, and Plaintiffs’ claims are not 

collaterally estopped in any respect on this basis.                       
Second,  the  City  argues  that  “Plaintiffs  are  estopped  from  claiming  that  their 
licenses issued by MDH confer a property interest not conditioned on compliance with the 
City’s Rental Permit Ordinance.”  Def.’s Mem. in Supp. at 12.  This argument likewise 
falls short at the first element.  The state court never decided that Plaintiffs’ assisted-living-

facility licenses were conditioned on compliance with Ordinance § 3-31.  Nor did it decide 
if the licenses conveyed a property interest.  Rather, the state court held that the City’s 
ordinance was not preempted by state law.  ECF No. 9-1 at 13–16.  As I understand it, 
Plaintiffs’ argument here is that their state-issued licenses were private property taken (in 
the constitutional sense) by the City’s revocation of Plaintiffs’ rental permits.  Because the 
preemption issues decided by the state court and the property-interest issues raised here are 
different, collateral estoppel does not apply.                            

Third, the City contends that “Plaintiffs’ claims related to ‘proper proceedings’ are 
barred by both collateral estoppel and res judicata.”  Def.’s Mem. in Supp. at 12.  It is not 
clear what issue or claim the City seeks to preclude.  According to the City, Plaintiffs are 
precluded from raising “due process concerns” in this case.  Id.  Although it’s true that the 
state court dismissed Plaintiffs’ criminal-due-process claims, ECF No. 9-1 at 21, Plaintiffs 

do not bring any due-process claims here.  See generally Compl.  Nor does the City identify 
some specific due-process issue decided by the state court that is relevant to a regulatory 
takings  analysis.    Plaintiffs’  inverse-condemnation  claim  seeks  a  writ  of  mandamus 
ordering the City to initiate eminent domain proceedings.  Pls.’ Mem. in Opp’n at 7–8.  But 
the City does not argue that Plaintiffs’ inverse-condemnation claim, dismissed without 

prejudice in state court, is precluded by res judicata or collateral estoppel.  Because the 
City  fails  to  identify  an  issue  or  claim  that  it  seeks  to  preclude,  the  City’s  proper-
proceedings argument is beside the point.3                                






3    After Plaintiffs clarified that this proper-proceedings language refers to eminent 
domain proceedings, the City did not address the argument in its reply brief.  See Def.’s 
Reply Mem. [ECF No. 27] at 2–4.                                           
                          IV                                         
                           A                                         
The Takings Clause of the Fifth Amendment provides that private property shall not 

“be taken for public use, without just compensation.”  The Takings Clause is “made 
applicable to the States through the Fourteenth Amendment.”  Murr v. Wisconsin, 

  (2017).    “The  paradigmatic  taking  requiring  just  compensation  is  a  direct 
government appropriation or physical invasion of private property.”  Lingle v. Chevron 
U.S.A. Inc., 

 (2005).  Prior to Justice Holme’s decision in Pennsylvania 

Coal Co. v. Mahon, 

 (1922), it was generally thought that the Takings Clause 
reached no further than a “direct appropriation.”  Lucas v. S.C. Coastal Council, 

 (1992).  But in Mahon, “the Court recognized that government regulation of 
private property may, in some instances, be so onerous that its effect is tantamount to a 
direct appropriation or ouster—and that such ‘regulatory takings’ may be compensable 

under the Fifth Amendment.”  Lingle, 

.  As Justice Holmes coined, “while 
property may be regulated to a certain extent, if regulation goes too far it will be recognized 
as a taking.”  Mahon, 

.                                    
But when does regulation go too far?  The Court has “generally eschewed” a set 
formula, instead engaging in “essentially ad hoc, factual inquiries.”  Tahoe-Sierra Pres. 

Council, Inc. v. Tahoe Reg’l Plan. Agency, 

 (2002) (quoting Lucas, 

).  Nonetheless, it has offered guidelines “for determining when government 
regulation is so onerous that it constitutes a taking.”  Murr, 

.  The Supreme 
Court has recognized two situations where regulatory action will be considered a per se 
taking under the Fifth Amendment.  Lingle, 

.  “First, where government 
requires an owner to suffer a permanent physical invasion of her property—however 
minor—it must provide just compensation.”  

 (citing Loretto v. Teleprompter Manhattan 

CATV Corp., 

 (1982)).  Second, “where regulation denies all economically 
beneficial or productive use of land.”  Lucas, 

.  “Outside these two 
relatively narrow categories . . . , regulatory takings challenges are governed by the 
standards set forth in Penn Central Transp. Co. v. New York City, 

 (1978).”  
Lingle, 

.4                                                 

                           B                                         
The first step in the regulatory taking analysis is identifying Plaintiffs’ private 
property interests.  After all, identifying a property interest is a prerequisite to determining 
if that interest has been taken.  See Hawkeye Commodity Promotions, Inc. v. Vilsack, 

 (8th Cir. 2007).  Property interests do not arise from the Constitution, 

but  instead  “are  created  and  their  dimensions  are  defined  by  existing  rules  or 
understandings that stem from an independent source such as state law.”  Ruckelshaus v. 
Monsanto Co., 

 (1984) (quoting Webb’s Fabulous Pharmacies, Inc. v. 
Beckwith, 

 (1980)).  For this reason, courts turn to state law when defining 
a plaintiff’s property interests.  See, e.g., Ugorets v. City of Shorewood, No. 21-cv-1446 

(JRT/ECW), 

, at *3 (D. Minn. Jan. 5, 2022).  Plaintiffs identify four 


4    The Court has described a separate test in the context of land-use exactions.  See 
Nollan v. Cal. Coastal Comm’n, 

 (1987); Dolan v. City of Tigard, 

 (1994).  Nollan and Dolan are not applicable here.                    
property interests that have allegedly been taken: “(1) their State-issued license to operate 
the businesses; (2) their profit streams from operating the businesses; (3) their fee-simple 
right to lease the land; and (4) their contract rights to rental income.”  Pls.’ Mem. in Opp’n 

at 9.  Each property interest will be addressed in turn.                  
Plaintiffs contend that their licenses to operate assisted living facilities, issued by 
the Minnesota Department of Health, are private property.  Pls.’ Mem. in Opp’n at 9.  Some 
Minnesota courts have recognized a property interest in licenses for due-process purposes.  
Bird v. Minn. Dep’t of Pub. Safety, 

 (Minn. Ct. App. 1985) (“We find 

that  the  Birds  had  a  property  interest  in  their  auto  dealer’s  license  for  due  process 
purposes.”); Greater Duluth COACT v. City of Duluth, 

, 1456–57 
(D. Minn. 1988) (“COACT does have a property interest in the renewal of its [charitable 
gambling] license.”); CUP Foods, Inc. v. City of Minneapolis, 

, 562–63 
(Minn. Ct. App. 2001) (“Relator correctly points out that he has a property interest in his 

business licenses.”); cf. Movers Warehouse, Inc. v. City of Little Canada, 

 
(8th Cir. 1995) (“While section 815.025(I) may indeed create a property interest in an 
existing [bingo] license, it says nothing about the renewal process.”).  But Minnesota courts 
have repeatedly rejected that non-transferable licenses or permits are private property 
subject to a takings claim.  Hay v. City of Andover, 

 (Minn. Ct. App. 

1989) (“The property interest which [plaintiff] has in the special use permit is merely a 
government  entitlement  or  benefit.”);  Rainbow  Taxi  Corp.  v.  City  of  Minneapolis, 
No. A08-0993, 

, at *2 (Minn. Ct. App. May 26, 2009) (unpublished) 
(“[R]elator presents no authority that supports elevating the property interest in a license 
or permit to ‘private property’ subject to a takings claim.”); Khan v. Minneapolis City 
Council,  No.  A14-0455,  

,  at  *1  (Minn.  Ct.  App.  Dec.  22,  2014) 
(unpublished) (“[A] license is a privilege and cannot be construed as property unless it is 

assignable and transferable.”); Matter of Unity Health Care, No. A16-0682, 

, *6 (Minn. Ct. App. Feb. 27, 2017) (unpublished) (“[I]t is well established that a 
license is a privilege and is not private property, unless it is assignable and transferrable.”).   
Although the Minnesota Supreme Court has never directly held that a license must 
be assignable and transferable to be subject to a takings claim, two cases are instructive.  

In State by Mattson v. Saugen, the Minnesota Supreme Court treated a liquor license as a 
property right requiring payment of compensation if taken in part because the license “was 
assignable and transferable,” 

, 41 (Minn. 1969).  In Zeman v. City of 
Minneapolis,  a  plaintiff  sought  “compensation  for  the  alleged  taking  of  his  [rental 
dwelling] license,” on facts similar to this case, 

 (Minn. 1996).  There, 

the Minnesota Supreme Court described how “[t]he city revoked Zeman’s license by means 
of a regulatory ordinance, but did not physically appropriate Zeman’s land,” and framed 
the issue as whether Minneapolis had taken the underlying property.  

 at 551–52.  
Plaintiffs’ licenses here are not transferable or assignable.  See ECF Nos. 5-1, 5-2, 5-3.  
Given that no Minnesota court has found a non-transferable license to be private property 

requiring compensation if taken, and in Zeman the Minnesota Supreme Court analyzed a 
similar takings claim by examining the at-issue private property as the underlying parcel, 
there is no reason to predict that the Minnesota Supreme Court would hold that Plaintiffs’ 
assisted-living-facility licenses are private property subject to a takings claim.   
Plaintiffs next contend they have a property interest in “their profit streams from 
operating the businesses.”  Pls.’ Mem. in Opp’n at 9.  But the Supreme Court’s takings 
jurisprudence does not allow plaintiffs to segregate allegedly discrete property interests 

such as “profit streams” from the underlying property interest—here, Plaintiffs’ fee simple 
interest.  See Andrus v. Allard, 

, 65–66 (1979) (“At least where an owner 
possesses a full ‘bundle’ of property rights, the destruction of one ‘strand’ of the bundle is 
not a taking, because the aggregate must be viewed in its entirety.”); Murr, 

 
(“declin[ing] to limit the parcel in an artificial manner to the portion of property targeted 

by the challenged regulation.”); Penn Central, 

 (“‘Taking’ jurisprudence 
does not divide a single parcel into discrete segments and attempt to determine whether 
rights in a particular segment have been entirely abrogated.”).  Because Plaintiffs possess 
the parcels in fee simple, Compl. ¶¶ 7–8, the proper takings analysis is the impact of the 
City’s regulatory action on Plaintiffs’ fee simple interest, not its impact on some lesser 

property interest.  See Andrus, 

 (prohibition on commercial transactions in 
preexisting avian artifacts was not a taking despite the loss of future profits).  But cf. 
Woodstone Ltd. P’ship v. City of Saint Paul, 

, 600 (D. Minn. 2023) 
(“As for lost rental income, at the motion-to-dismiss stage, the Eighth Circuit has reasoned 
that such loss is an adverse economic impact.”).                          

Plaintiffs also contend they have a property right in “their fee-simple right to lease 
the land.”  Pls.’ Mem. in Opp’n at 9.  Fair enough.  An owner of real property in fee simple 
has the right to convey or lease an interest in their property.  See, e.g., KCP Hastings, LLC 
v. Cnty. of Dakota, No. 19HA-CV-11-2713, et al., 

, at *10 (Minn. Tax 
Ct. Dec. 29, 2016).  But a landowner’s right to convey is just one right in the bundle of 
sticks.  As with Plaintiffs’ interest in future profits, the proper takings analysis is the impact 
of the City’s resolutions on Plaintiffs’ fee simple interest.             

Finally, Plaintiffs argue they have a property interest in “their contract rights to 
rental income.”  Pls.’ Mem. in Opp’n at 9.  In the Complaint, Plaintiffs cite Lynch v. United 
States for the proposition that valid contracts are private property, 

 
(1934).  The City counters that Lynch “stands for the proposition that a takings analysis 
applies to contracts the United States enters into, not that all contracts are protected 

property interests subject to Fifth Amendment protection.”  Def.’s Mem. in Supp. at 18 n.4.  
Plaintiffs do not respond or otherwise explain why their contract rights to rental income 
are a distinct property right that should be analyzed separately.  See Pls.’ Mem. in Opp’n 
at 9.  By not responding to the City in their opposition brief, Plaintiffs have waived any 
argument on this issue.  Espey v. Nationstar Mortg., LLC, No. 13-cv-2979 (ADM/JSM), 

, at *11 (D. Minn. June 19, 2014) (collecting cases).5     

5    For clarity’s sake, the City’s characterization of Lynch misses the mark.  “Taking 
claims  rarely  arise  under  government  contracts  because  the  Government  acts  in  its 
commercial or proprietary capacity in entering contracts, rather than in its sovereign 
capacity.”  Hughes Commc’ns Galaxy, Inc. v. United States, 

 (Fed. 
Cir.  2001).    “[W]hen  the  government  itself  breaches  a  contract,  a  party  must  seek 
compensation from the government in contract rather than under a takings claim.”  Piszel 
v. United States, 

 (Fed. Cir. 2016).  So Lynch does not stand for the 
proposition that a takings analysis only applies to contracts entered into by the United 
States.  As for contracts between private parties, the Seventh Circuit explained “[w]e read 
Connolly, in conjunction with the line of authority stating that we should look to states to 
find property rights under the Takings Clause, as effectively overruling, if it had not already 
been overruled, Lynch v. United States. . . . , to the extent that it flatly holds that contracts 
are property that the government may not take without compensation.”  Pro-Eco, Inc. v. 
Bd. of Comm’rs of Jay Cnty., 

, 510 n.2 (7th Cir. 1995).  The Eighth Circuit has 
                           C                                         
Having concluded that the private property at issue is Plaintiffs’ fee simple interest 
in the two properties, turn to the regulatory takings analysis.  Plaintiffs do not contend the 

City’s revocation resulted in a per se taking under Loretto or Lucas.  See Pls.’ Mem. in 
Opp’n at 14.  Therefore, the requisite test is drawn from Penn Central.  Lingle, 

 (“Outside these two relatively narrow categories . . . , regulatory takings challenges 
are governed by the standards set forth in Penn Central.”).  Penn Central directs courts to 
consider: “(1) the economic impact of the regulation on the claimant; (2) the extent to 

which the regulation has interfered with distinct investment-backed expectations; and (3) 
the character of the governmental action.”  Murr, 

.6  Take each factor in 
turn.                                                                     
                           1                                         
The first factor, economic impact, requires comparing the value that has been taken 

from  the  property  with  the  value  that  remains.    Keystone  Bituminous  Coal  Ass’n  v. 
DeBenedictis, 

 (1987).  Where, as here, multiple parcels are regulated, 
the  first  step  is  deciding  if  the  fraction  of  value  remaining  should  be  calculated  by 
examining the parcels together or individually.  As the Supreme Court has described it, this 


endorsed this approach.  See Hawkeye, 

 (evaluating a plaintiff’s “property-
in-contracts argument” by examining Iowa law).  However, again, because Plaintiffs did 
not brief the issue, the argument is waived.                              
6    Permitting systems, like all other government regulations, can result in a regulatory 
taking because they restrict land use when denied or revoked.  See United States v. 
Riverside Bayview Homes, Inc., 

 (1985); Lucas, 

 
(1992).                                                                   
“question[] is determining how to define the unit of property ‘whose value is to furnish the 
denominator of the fraction.’”  

 (quoting Michelman, Property, Utility, and Fairness: 
Comments on the Ethical Foundations of “Just Compensation” Law, 

, 1192 (1967)).  Factors to consider when defining this denominator include, (1) “how 
[the  property]  is  bounded  or  divided,  under  state  and  local  law”;  (2)  “the  physical 
characteristics of the landowner’s property”; and (3) “special attention to the effect of 
burdened land on the value of other holdings.”  Murr, 582 U.S. at 397–98.  “The endeavor 
should determine whether reasonable expectations about property ownership would lead a 

landowner to anticipate that his holdings would be treated as one parcel, or, instead, as 
separate tracts.”  Id. at 397.                                            
The relevant considerations here support treating the two parcels separately.  Based 
on the limited information in the Complaint, the parcels are not contiguous, were owned 
and operated by different entities, had different permits and licenses, and were subject to 

separate revocation proceedings.  See Compl. ¶¶ 6–8, 17, 22.              
The Complaint, however, lacks sufficient factual content to meaningfully analyze 
the two properties’ diminution in value.  Plaintiffs allege “the two resolutions cost the 
Dukuly Brothers $2,000,000,” Compl. ¶ 28, and that “the Dukuly brothers were reasonably 
compelled to sell the two parcels of real estate at a loss,” id. ¶ 27.  According to Plaintiffs’ 

brief, this $2,000,000 “represents the difference between the value of the real estate prior 
to the scrutinized action and the sales price because of it.”  Pls.’ Mem. in Opp’n at 15.  But 
this cannot be inferred from allegations in the Complaint.  Even accepting Plaintiffs’ 
characterization of the $2,000,000, Plaintiffs do not plausibly allege the value of property 
remaining—without this, it is not possible to determine the fraction of value lost.  A 
regulation reducing a property’s value from $10,000,000 to $8,000,000 is a far cry from a 
regulation reducing a property’s value from $2,001,000 to $1,000.  In short, Plaintiffs fail 

to allege sufficient factual content to plausibly show the diminution-in-value factor weighs 
in favor of a regulatory taking.  Cf. Evans Creek, LLC v. City of Reno, No. 21-16620, 

, at *1 (9th Cir. Oct. 26, 2022), cert. denied, 

 (2023) 
(concluding that a plaintiff failed to sufficiently plead the first Penn Central factor because 
the complaint lacked information about the value of the property).  The absence of 

allegations distinguishing the financial impact on the two properties only exacerbates this 
dearth of factual content.  Regardless, if Plaintiffs’ factual allegations were sufficient to 
describe  some  moderate  economic  impact,  the  first  Penn  Central  factor  would  be 
outweighed by the second and third Penn Central factors in this case.  As the Supreme 
Court has explained, “our cases have long established that mere diminution in the value of 

property, however serious, is insufficient to demonstrate a taking.”  Concrete Pipe & 
Prods. of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal., 

 (1993). 
Plaintiffs counter that “it has already been resolved that the revocation of a rental 
permit satisfies this [economic impact] test.”  Pls.’ Mem. in Opp’n at 15 (citing Zeman, 

).  That’s not right.  The economic impact of the revocation of a rental 

permit, like all other regulatory actions, must be examined on a case-by-case basis.  In 
Zeman, the Minnesota Supreme Court found the first Penn Central factor favored the 
plaintiff because “the best use for [plaintiff’s] property is an apartment building, and 
without a rental dwelling license he cannot operate it as such.”  Zeman, 552 N.W.at 553.  
Critically, it credited testimony that the property was close to worthless because of the 
economically depressed nature of the neighborhood.  

 (describing how finding a buyer 
was unlikely).  By contrast, Plaintiffs here sold the property.  Compl. ¶ 27.7  And although 

it can be inferred the properties would be worth more when operated as assisted living 
facilities, it cannot be inferred that the properties and improvements were unsuitable for 
residential purposes.  In other words, the fraction taken in Zeman was close to one hundred 
percent, whereas the fraction of value taken here has not been pleaded (and cannot be 
inferred to be similarly substantial).                                    

                           2                                         
The second Penn Central factor is investment-backed expectations.  “A reasonable 
investment-backed expectation must be more than a unilateral expectation or an abstract 
need.”  Woodstone, 674 F. Supp. 3d at 601 (quoting Ruckelshaus, 

).  “[T]he 
existing and permitted uses of the property when the land was acquired generally constitute 

the ‘primary expectation’ of the landowner regarding the property.”  Wensmann Realty, 
Inc. v. City of Eagan, 

 (Minn. 2007) (applying Penn Central); see 
also Ark. Game & Fish Comm’n v. United States, 

 (2012) (describing 
investment-backed expectations as “a matter often informed by the law in force in the State 
in which the property is located”).  Regulations most commonly interfere with investment-

backed expectations when they are a substantial, unexpected change to existing land-use 
laws.  See, e.g., Heights Apartments, LLC v. Walz, 

 (8th Cir. 2022) 

7    At oral argument, Plaintiffs’ counsel represented that the two properties were sold 
for $3,500,000.                                                           
(executive order mandating a statewide residential eviction moratorium interfered with 
reasonable  investment-backed  expectations).    But  the  fact  that  regulations  predate  a 
purchase or ownership interest is not dispositive.  Palazzolo v. Rhode Island, 

 (2001) (“[A] claim is not barred by the mere fact that title was acquired after the 
effective date of the state-imposed restriction.”).                       
Plaintiffs’ reasonable investment-backed expectations are limited.  The parcels are 
zoned residential, and that zoning did not change after the parcels were purchased.  True, 
Plaintiffs’ allegation that “[b]oth parcels were improved with residential housing” allows 

the reasonable inference that Plaintiffs invested money to improve the properties.  And this 
type of investment is a prerequisite for the second factor to favor a landowner.  Wensmann, 

  (“[T]he  property  owner  must  actually  have  invested  money  in 
connection with its reasonable expectations regarding the proposed use of the property.”).  
But Ordinance § 3-31 predates Plaintiffs’ purchases of the properties, and nothing in the 

record suggests that the rental-permit ordinance changed in relevant ways after Plaintiffs 
purchased the property.  In other words, the City’s revocation of Plaintiffs’ permits for 
violating a preexisting ordinance should have been within Plaintiffs’ expectations.  Id. at 
638 (“Generally, when an owner buys property with knowledge of restrictions upon the 
development of that property, he assumes the risk of any economic loss.” (quoting Atlas 

Enters. Ltd. P’ship v. United States, 

 (Fed. Cl. 1995))). 
Plaintiffs respond that “[i]t has already been held that depriving a commercial 
landlord of the right to lease the land satisfies this [second factor].”  Pls.’ Mem. in Opp’n 
at 16 (citing Zeman, 552 N.W.2d at 553–54).  Again, the Penn Central factors must be 
examined on a case-by-case basis.  And there are important differences between this case 
and Zeman.  In Zeman, the property owner had “operated [his] property as a rental dwelling 
since acquiring it in 1975.”  Zeman, 

; see also Wensmann, 

 (describing how in Zeman, an owner who had used his property as a rental dwelling 
for  20  years  had  investment-backed  expectations  in  that  continued  use).    Moreover, 
Minneapolis amended the housing code in 1991 to authorize the City of Minneapolis to 
revoke a rental license for repeated instances of disorderly conduct, more than fifteen years 
after the plaintiff in Zeman started using the property as a rental dwelling.  By contrast, 

Plaintiffs only rented their properties for around a year before the City revoked their rental 
permits in 2022.  And Plaintiffs started operating the properties as assisted-living facilities 
after the City enacted its rental-permit ordinance.  Even after accepting the facts in the 
Complaint as true and construing reasonable inferences in Plaintiffs’ favor, the City’s 
revocation of Plaintiffs’ rental permits by enforcement of a preexisting land-use ordinance, 

limiting Plaintiffs’ use of their residentially zoned properties to use as residences, is not 
inconsistent with Plaintiffs’ reasonable investment-backed expectations.  
                           3                                         
The third factor is the character of the taking.  As Penn Central described, “[a] 
‘taking’  may  more  readily  be  found  when  the  interference  with  property  can  be 

characterized as a physical invasion by government, than when interference arises from 
some public program adjusting the benefits and burdens of economic life to promote the 
common good.”  Penn Central, 

 (citation omitted).  Courts also consider 
whether a regulation was enacted to benefit private parties or serve important public 
interests.  Cmty. Hous. Improvement Program v. City of New York, 

 (2d 
Cir.), cert. denied, 

 (2023); see also Zeman, 

 (“A harm-
prevention regulation . . . is a powerful rationale militating against finding a taking.”).8  Put 

another way, “[t]he Fifth Amendment’s guarantee . . . was designed to bar Government 
from forcing some people alone to bear public burdens which, in all fairness and justice, 
should be borne by the public as a whole.”  Armstrong v. United States, 

 
(1960).  Furthermore, a regulation has the character of a taking when the government 
burdens property acting in an enterprise capacity for its own interests.  Cf. 

 (“[T]he 

Government for its own advantage destroyed the value of the liens.”); Penn Central, 

  (describing  how  the  Landmarks  Law  did  not  burden  a  parcel  for  the 
government’s use or arise from “entrepreneurial operations”).             
None of these sub-considerations favor Plaintiffs.  First, the resolutions cannot 
reasonably be characterized as a physical invasion; the City revoked Plaintiffs’ rental 

permits and prohibited them from obtaining new rental permits for a limited period.  This 
regulatory conduct is consistent with municipalities’ ordinary regulation of housing.  Cf. 
Loretto, 

 (“This Court has consistently affirmed that States have broad 
power to regulate housing conditions in general and the landlord-tenant relationship in 


8    The purpose of the ordinance and resolutions, and Zeman’s application of the third 
Penn Central factor in an analogous case, are given limited weight here.  In Lingle, the 
Supreme Court held that whether a government regulation substantially advances its 
objectives is not relevant to a takings analysis.  Lingle, 

.  The Minnesota 
Supreme Court acknowledged this in Wensmann, recognizing “that this type of focus on 
the purpose of the regulation in Zeman and other cases has been called into question by 
Lingle.”  Wensmann, 

 n.13.                               
particular without paying compensation for all economic injuries that such regulation 
entails.”).    Moreover,  the  resolution  enforced  was  one  of  general  application.    That 
permitting systems are applied on a parcel-by-parcel basis does not change this.  Second, 

the  purpose,  to  the  extent  relevant,  was  to  mitigate  the  harm  to  the  surrounding 
communities caused by disorderly conduct at the Wisconsin and Boone facilities.  Third, 
Plaintiffs identify no public burden that was forced upon them—rather, the resolutions 
were designed to prevent Plaintiffs’ use of their property in a manner that burdened the 
public.  Fourth and finally, the City was not regulating Plaintiffs in an enterprise capacity 

or for its own benefit.                                                   
                           *                                         
Taking the Complaint’s factual allegations as true, all three Penn Central factors 
weigh against a taking.  But even setting aside this formulaic application of Penn Central’s 
three factors, this result makes sense here.  After all, “[r]esolution of each [takings] case 

‘ultimately calls as much for the exercise of judgment as for the application of logic.’”  
Armour  &  Co.  v.  Inver  Grove  Heights,  

  (8th  Cir.  1993)  (quoting 
Andrus, 

).  The Supreme Court’s takings jurisprudence does not require the 
government to compensate landowners every time regulation causes moderate economic 
harm  or  impinges  on  investment-backed  expectations—the  Court  has  repeatedly 

recognized that the government has substantial latitude to regulate property without paying 
compensation.  See Lingle, 

 (a regulation goes too far when it is “so onerous 
that its effect is tantamount to a direct appropriation or ouster”); Penn Central, 

 (explaining that takings challenges have “been held to be without merit in a wide 
variety of situations when the challenged governmental actions prohibited a beneficial use 
to which individual parcels had previously been devoted and thus caused substantial 
individualized harm”).  In this case, the City’s resolutions enforcing its preexisting land-

use ordinance seem well within that latitude.  And Plaintiffs offer no analogous case where 
a court required a municipality to pay compensation for the revocation of a rental permit.  
Therefore, Plaintiffs fail to plausibly state a takings claim.            
                           D                                         
The City alternatively raises a nuisance defense, arguing that “Plaintiffs do not have 

a protected property interest in maintaining a nuisance on their property.”  Def.’s Mem. in 
Supp. at 17.  Courts have long recognized that some physical invasions and regulations 
“will not amount to takings because they are consistent with longstanding background 
restrictions on property rights.”  Cedar Point Nursery v. Hassid, 

 (2021).  
The quintessential example is government regulations requiring a landowner to abate a 

nuisance: “the government owes a landowner no compensation for requiring him to abate 
a nuisance on his property, because he never had a right to engage in the nuisance in the 
first place.”  

  But this defense is narrow.  It means that there is no taking when a law or 
decree does “no more than duplicate the results that could have been achieved in the 
courts.”  Lucas, 

.  Therefore, for the nuisance defense to apply, the City 

must point to background principles of Minnesota property law that made Plaintiffs’ use 
of the properties a nuisance, and the City’s abatement of that use (by revoking the permits) 
no more than what could have been achieved through the courts.  Because the City has not 
identified these background nuisance principles, and because the land use records (which 
will not be considered here) are the primary factual basis for the City’s nuisance arguments, 
the nuisance defense is not an alternative ground to dismiss Plaintiffs’ takings claims.9 
                           E                                         

Defendants  move  to  dismiss  Plaintiffs’  takings  claim  under  the  Minnesota 
Constitution based on familiar grounds—failure to state a regulatory takings claim under 
Penn Central.  The Minnesota Constitution provides that “[p]rivate property shall not be 
taken, destroyed or damaged for public use without just compensation therefor, first paid 
or secured.”  Minn. Const. art. I, § 13.  “This language is broader than the language of the 

federal constitution.”  State by Humphrey v. Strom, 

 (Minn. 1992).  
But “those added protections involve Minnesota courts in select circumstances electing not 
to apply Penn Central—as opposed to applying its test differently.”  Woodstone, 674 F. 
Supp. 3d at 602.  Outside of those select circumstances, the Minnesota Supreme Court has 
“relied on cases interpreting the U.S. Constitution’s Takings Clause in interpreting this 

clause in the Minnesota Constitution.”  Wensmann, 734 N.W.2d at 631–32.  For regulatory 
non-categorical takings brought under the Minnesota Constitution, Minnesota courts apply 
Penn Central.  Woodstone, 674 F. Supp. 3d at 602.  Therefore, Plaintiffs fail to state a claim 
under the Minnesota Constitution for the reasons explained in Part IV.C.  
Plaintiffs argue that an exception articulated in Johnson v. City of Minneapolis, 

 (Minn. 2003), applies here.  According to Plaintiffs, “[u]nder Minnesota 

9    That the City’s resolutions were intended to abate a nuisance is not alone enough.  
Although “[t]here is no doubt some leeway in a court’s interpretation of what existing state 
law permits,” a legislature cannot craft “the reasons for its confiscatory regulation.”  Lucas, 

 n.18.                                                    
law, a taking occurs when the action is ‘specifically directed against a particular parcel.’”  
Pls.’  Mem.  in  Opp’n  at  20–21  (quoting  Johnson,  

).    But  this 
interpretation of Johnson goes too far.  In Johnson, the City of Minneapolis told property 

owners it was moving forward with the condemnation of their land for a redevelopment 
project, despite later terminating development plans without notifying the property owners.  
Johnson,  667  N.W.2d  at  111–13.    The  district  court  concluded  that  the  City  of 
Minneapolis’s actions created a “cloud of condemnation” that significantly reduced the fair 
market value of the properties and caused other adverse economic effects.  

 at 113–14.  

The Minnesota Supreme Court held that the property owners were entitled to compensation 
under Minnesota’s Takings Clause because “the cumulative effect of the City’s actions . . 
. constituted an abuse of the City’s condemnation authority.”  

.  Johnson, a case 
that was expressly “limited to the particular facts presented,” 

 does not apply here 
because this case does not involve the abuse of condemnation authority.   

Therefore, based on the foregoing, and on all the files, records, and proceedings 
herein, IT IS ORDERED THAT:                                               
1.   Defendant’s  Motion  for  Judgment  on  the  Pleadings  [ECF  No.  19]  is 
GRANTED.                                                                  

2.   The Complaint [ECF No. 5] is DISMISSED with prejudice.          
       LET JUDGMENT BE ENTERED ACCORDINGLY.                          

Date:  June 21, 2024               s/ Eric C. Tostrud                     
                              Eric C. Tostrud                        
                              United States District Court           

             UNITED STATES DISTRICT COURT                            
                DISTRICT OF MINNESOTA                                


Dr. Sheikh Dukuly, Sekou AM Dukuly,    File No. 23-cv-3351 (ECT/ECW)      
Ashton Homes LLC, and Berkeley Heights                                    
Homes, LLC,                                                               

     Plaintiffs,                                                     

v.                                       OPINION AND ORDER                

City of New Hope,                                                         

     Defendant.                                                      
________________________________________________________________________  
Matt Kezhaya, Kezhaya Law PLC, Minneapolis, MN, for Plaintiffs Dr. Sheikh Dukuly, 
Sekou AM Dukuly, Ashton Homes LLC, and Berkeley Heights Homes, LLC.       
Jessica E. Schwie, & Joshua Phillip Devaney, Kennedy & Graven, Chartered, Minneapolis, 
MN, for Defendant City of New Hope.                                       
________________________________________________________________________  
Plaintiffs are two LLCs and their owners that operated two assisted-living facilities 
within the municipal boundaries of the Defendant City of New Hope.  Plaintiffs obtained 
licenses to operate the facilities from the State of Minnesota and rental permits from the 
City.  After neighbors made several 911 calls regarding the facilities, the City Council 
revoked Plaintiffs’ rental permits.  In this case, Plaintiffs allege that the revocation of their 
rental permits resulted in a regulatory taking requiring just compensation under the Takings 
Clauses of the United States and Minnesota Constitutions.                 
Defendants  move  for  judgment  on  the  pleadings  under  Federal  Rule  of  Civil 
Procedure 12(c).  The motion will be granted because Plaintiffs have not plausibly alleged 
a regulatory taking under Penn Central’s1 three-part test.  The Complaint lacks enough 
factual content to plausibly allege a significant diminution in their properties’ value.  
Plaintiffs’  reasonable  investment-backed  expectations  are  undercut  by  the  City’s 

preexisting rental-permit ordinance.  And the character of the taking—enforcement of a 
generally applicable land-use ordinance—weighs against a taking.          
                           I2                                        

Plaintiffs purchase residential properties to operate as assisted living facilities.  
Plaintiffs Dr. Sheikh and Sekou AM Dukuly (the “Dukuly Brothers”) are Minnesota 
residents who jointly own Plaintiffs Ashton Homes LLC and Berkeley Heights Homes 
LLC.  Compl. [ECF No. 5] ¶¶ 4, 7–8.  At some point, Ashton Homes and Berkeley Heights 
Homes purchased residentially zoned parcels within the City’s boundaries.  Id. ¶¶ 6–8.  


1    Penn Cent. Transp. Co. v. New York City, 

 (1978).        
2    The facts considered in deciding the City’s motion are mostly drawn from the 
Complaint and accepted as true.  The six exhibits attached to the Complaint, ECF Nos. 5-
1–5-6, will be considered as part of the Complaint.  See Dunnigan v. Fed. Home Loan 
Mortg. Corp., 

, 734 (D. Minn. 2016).  An earlier state court decision 
will also be considered as a matter of public record.  See Appliance Recycling Ctrs. of Am., 
Inc. v. Protiviti, Inc., No. 18-cv-702 (JRT/HB), 

, at *3 (D. Minn. July 
19, 2018) (“State-court decisions are matters of public record.”).  Land use records, 
attached by link to the City’s Answer, will not be considered.  “[C]ourts in this Circuit and 
the Eighth Circuit appear willing to consider exhibits attached to the answer under certain 
circumstances.”  Transp. Drivers, Inc. v. Coca-Cola Refreshments USA, Inc., No. 16-cv-
1074 (DWF/BRT), 

, at *8 (D. Minn. May 10, 2017).  For example, a 
contract attached to a defendant’s answer was considered where the plaintiff did not dispute 
the agreement’s authenticity.  Sinclair Refin. Co. v. Stevens, 

, 188–89 (8th 
Cir. 1941).  Here, the City relies on the land use records to show that the assisted living 
facilities were operating as a nuisance.  Def.’s Mem. in Supp. [ECF No. 21] at 17.  Plaintiffs 
seem to dispute this characterization.  See Compl. ¶¶ 11–14.  Thus, because the City relies 
on the land use records to establish disputed facts outside of the Complaint, the land use 
records will not be considered.                                           
“Both parcels were improved with residential housing which the Dukuly Brothers used as 
assisted living facilities.”  Id. ¶ 9.  Ashton Homes and Berkeley Heights Homes applied for 
(and received) licenses from the Minnesota Department of Health to operate assisted living 

facilities on the two properties.  See ECF Nos. 5-1, 5-2, 5-3.  The licenses were not 
transferable “as to Licensee or Location.”  See id.  Plaintiffs also were required to obtain 
rental permits from the City.  See ECF No. 5-4.  Ashton Homes and Berkeley Heights 
Homes obtained those permits in March 2021.  ECF No. 5-5 at 2; ECF No. 5-6 at 2.  
Because the properties are located on Wisconsin Avenue and Boone Avenue, Plaintiffs 

refer to Berkeley Heights Homes’ facility as the “Wisconsin facility” and Ashton Homes’ 
facility as the “Boone facility.”  Compl. ¶¶ 6, 15, 20.                   
Residents oppose the facilities.  In June 2021, residents lobbied the City Council “to 
remove the Dukuly Brothers’ politically undesirable residents.”  Compl. ¶ 11.  “The City 
Council encouraged the objecting residents to continue making emergency calls to create 

a record of their complaints about the Dukuly Brothers’ residents.”  Id. ¶ 13.  In June 2022, 
“the City set out to revoke the Dukuly Brothers’ right to operate their assisted living 
facilities through use of Ordinance § 3-31.”  Id. ¶ 14.  Ordinance § 3-31 authorizes the City 
to revoke a rental permit after three instances of disorderly behavior.  ECF No. 5-5 at 9.   
The City revokes the Wisconsin facility’s rental permit.  From June 12 to June 30, 

2022, “the City [of New Hope] issued three citations to residents of the Wisconsin facility.”  
Compl. ¶ 15.  On July 25, the City Council held a public hearing on the Wisconsin facility’s 
rental permit, id. ¶ 16, and on August 8, issued a resolution revoking that rental permit, 
ECF No. 5-5 at 1–4.  The City’s resolution: (1) ordered tenants to vacate the Wisconsin 
facility within forty-five days; (2) prohibited Sekou AM Dukuly from applying for City 
rental permits for at least 1 year; and (3) prohibited Sekou AM Dukuly from having an 
ownership interest in an entity that applied for City rental permits for at least one year.  

ECF No. 5-5 at 3–4.                                                       
The City revokes the Boone facility’s rental permit.  From April 17 to September 19, 
2022, “the City issued three citations to residents of the Boone facility.”  Compl. ¶ 20.  On 
October 24, the City Council held a public hearing on the Boone facility’s rental permit, 
id. ¶ 21, and on November 14, issued a resolution revoking that rental permit, ECF No. 5-6.  

The City’s resolution: (1) ordered tenants to vacate the Boone facility within sixty days; 
(2) prohibited the Dukuly Brothers from applying for City rental permits for at least three 
years; and (3) prohibited the Dukuly Brothers from having an ownership interest in an 
entity that applied for City rental permits for at least three years.  Id. at 3–4.   
The Dukuly Brothers lost money because the rental permits were revoked.  Because 

of the resolutions, “the Dukuly Brothers were completely deprived of the profit streams 
from  operating  their  assisted  living  facilities,”  including  “rent  stream[s]  from  lease 
agreements.”  Compl. ¶¶ 25–26.  The Dukuly Brothers were also “reasonably compelled 
to sell the two parcels of real estate at a loss.”  Id. ¶ 27.  In total, Plaintiffs allege the two 
resolutions cost them $2,000,000.  Id. ¶ 28.                              

Plaintiffs file a lawsuit in state court.  In January 2023, Plaintiffs filed a complaint 
in Minnesota state court against the City and city officials.  ECF No. 9-1 at 5.  There, 
Plaintiffs brought seven counts: “(1) violation of the Minnesota Human Rights Act, (2) 
violation of the Minnesota equal protection guarantees, (3) unlawful interference with 
State-licensed  activities,  (4)  criminal  due  process  violation,  (5)  guilt  by  association, 
(6) unconstitutional taking without just compensation, and (7) tortious interference with a 
contract.”  Id. at 7.  After the defendants moved for judgment on the pleadings, the state 

court dismissed Plaintiffs’ non-takings claims with prejudice, and dismissed Plaintiffs’ 
takings  claim  without  prejudice  because  “they  [were]  required  to  bring  the  [inverse 
condemnation] claim through an action in mandamus.”  Id. at 21–22.        
Plaintiffs file this case.  Plaintiffs filed the operative two-count Complaint on 
November 1, 2023.  Count I is a takings claim under the Fifth Amendment of the United 

States Constitution.  Compl. ¶¶ 29–39.  Count II is a “[p]etition for mandamus for inverse 
condemnation” under Article I, § 13 of the Minnesota Constitution.  Id. ¶¶ 40–48.  Plaintiffs 
request compensation for the regulatory taking of their properties or, alternatively, seek a 
writ of mandamus directing the City to institute eminent domain proceedings.  Id. at 16 
(prayer for relief).                                                      

                           II                                        
A Rule 12(c) motion for judgment on the pleadings is assessed under the same 
standard as a Rule 12(b)(6) motion.  Ashley Cnty. v. Pfizer, Inc., 

 (8th 
Cir. 2009).  Under the familiar Rule 12(b)(6) standard, a court must accept as true all the 
factual allegations in the complaint and draw all reasonable inferences in the plaintiff’s 

favor.  Gorog v. Best Buy Co., 

 (8th Cir. 2014) (citation omitted).  
Although the factual allegations need not be detailed, they must be sufficient to “raise a 
right to relief above the speculative level.”  Bell Atl. Corp. v. Twombly, 

 
(2007) (citation omitted).  The complaint must “state a claim to relief that is plausible on 
its face.”  

.  “A claim has facial plausibility when the plaintiff pleads factual 
content that allows the court to draw the reasonable inference that the defendant is liable 
for the misconduct alleged.”  Aschcroft v. Iqbal, 

 (2009). 

                          III                                        
As a preliminary matter, the City argues that Plaintiffs’ takings claims are partially 
barred by collateral estoppel.  Def.’s Mem. in Supp. at 10.  Collateral estoppel, also known 
as issue preclusion, provides that “when an issue of ultimate fact has been determined by 
a valid and final judgment, that issue cannot again be litigated between the same parties in 

another lawsuit.”  Chavez v. Weber, 

 (8th Cir. 2007) (quoting United 
States v. Brekke, 

 (8th Cir. 1996)).  Federal courts look to the substantive 
law of the state in which the judgment was rendered when applying collateral estoppel.  In 
re Scarborough, 

 (8th Cir. 1999).  “Under Minnesota law, collateral 
estoppel is appropriate when the following four elements are met: (1) the issue [is] identical 

to one in a prior adjudication; (2) there was a final judgment on the merits; (3) the estopped 
party was a party or in privity with a party to the prior adjudication; and (4) the estopped 
party was given a full and fair opportunity to be heard on the adjudicated issue.”  Ill. 
Farmers  Ins.  Co.  v.  Reed,  

  (Minn.  2003)  (quotation  omitted).  
Regarding the first element, “[t]he issue on which collateral estoppel is to be applied must 

be the same as that adjudicated in the prior action and it must have been necessary and 
essential to the resulting judgment in that action.”  Hauschildt v. Beckingham, 

 (Minn. 2004) (citing Ellis v. Minneapolis Comm’n on Civ. Rts., 

 (Minn. 1982), and Hauser v. Mealey, 

 (Minn. 1978)).  The City 
raises three collateral-estoppel arguments, but each is ultimately beside the point because 
the issues presented in this case were not decided by the state court.    
First, the City argues that “Plaintiffs are estopped from again claiming that the City 

was motivated by discrimination in revoking its permits.”  Def.’s Mem. in Supp. at 12.  
Start with the first element—identity of the issues.  The state court held that the City’s 
resolutions were not motivated by disability discrimination.  ECF No. 9-1 at 11–12.  But 
Plaintiffs concede that any alleged discriminatory animus is not relevant here.  Pls.’ Mem. 
in Opp’n [ECF No. 26] at 8.  And the City provides no authority suggesting that a 

legislature’s subjective intent is relevant to a regulatory takings claim.  It’s true that one of 
Plaintiffs’ theories is that legislative action “singl[ing] out” individuals or parcels results 
in a taking under the Minnesota Constitution.  

 at 20–24.  But subjective intent does not 
seem relevant to Plaintiffs’ singled-out theory.  Because the City’s alleged discriminatory 
animus is not at issue here, there is no identity of the issues, and Plaintiffs’ claims are not 

collaterally estopped in any respect on this basis.                       
Second,  the  City  argues  that  “Plaintiffs  are  estopped  from  claiming  that  their 
licenses issued by MDH confer a property interest not conditioned on compliance with the 
City’s Rental Permit Ordinance.”  Def.’s Mem. in Supp. at 12.  This argument likewise 
falls short at the first element.  The state court never decided that Plaintiffs’ assisted-living-

facility licenses were conditioned on compliance with Ordinance § 3-31.  Nor did it decide 
if the licenses conveyed a property interest.  Rather, the state court held that the City’s 
ordinance was not preempted by state law.  ECF No. 9-1 at 13–16.  As I understand it, 
Plaintiffs’ argument here is that their state-issued licenses were private property taken (in 
the constitutional sense) by the City’s revocation of Plaintiffs’ rental permits.  Because the 
preemption issues decided by the state court and the property-interest issues raised here are 
different, collateral estoppel does not apply.                            

Third, the City contends that “Plaintiffs’ claims related to ‘proper proceedings’ are 
barred by both collateral estoppel and res judicata.”  Def.’s Mem. in Supp. at 12.  It is not 
clear what issue or claim the City seeks to preclude.  According to the City, Plaintiffs are 
precluded from raising “due process concerns” in this case.  Id.  Although it’s true that the 
state court dismissed Plaintiffs’ criminal-due-process claims, ECF No. 9-1 at 21, Plaintiffs 

do not bring any due-process claims here.  See generally Compl.  Nor does the City identify 
some specific due-process issue decided by the state court that is relevant to a regulatory 
takings  analysis.    Plaintiffs’  inverse-condemnation  claim  seeks  a  writ  of  mandamus 
ordering the City to initiate eminent domain proceedings.  Pls.’ Mem. in Opp’n at 7–8.  But 
the City does not argue that Plaintiffs’ inverse-condemnation claim, dismissed without 

prejudice in state court, is precluded by res judicata or collateral estoppel.  Because the 
City  fails  to  identify  an  issue  or  claim  that  it  seeks  to  preclude,  the  City’s  proper-
proceedings argument is beside the point.3                                






3    After Plaintiffs clarified that this proper-proceedings language refers to eminent 
domain proceedings, the City did not address the argument in its reply brief.  See Def.’s 
Reply Mem. [ECF No. 27] at 2–4.                                           
                          IV                                         
                           A                                         
The Takings Clause of the Fifth Amendment provides that private property shall not 

“be taken for public use, without just compensation.”  The Takings Clause is “made 
applicable to the States through the Fourteenth Amendment.”  Murr v. Wisconsin, 

  (2017).    “The  paradigmatic  taking  requiring  just  compensation  is  a  direct 
government appropriation or physical invasion of private property.”  Lingle v. Chevron 
U.S.A. Inc., 

 (2005).  Prior to Justice Holme’s decision in Pennsylvania 

Coal Co. v. Mahon, 

 (1922), it was generally thought that the Takings Clause 
reached no further than a “direct appropriation.”  Lucas v. S.C. Coastal Council, 

 (1992).  But in Mahon, “the Court recognized that government regulation of 
private property may, in some instances, be so onerous that its effect is tantamount to a 
direct appropriation or ouster—and that such ‘regulatory takings’ may be compensable 

under the Fifth Amendment.”  Lingle, 

.  As Justice Holmes coined, “while 
property may be regulated to a certain extent, if regulation goes too far it will be recognized 
as a taking.”  Mahon, 

.                                    
But when does regulation go too far?  The Court has “generally eschewed” a set 
formula, instead engaging in “essentially ad hoc, factual inquiries.”  Tahoe-Sierra Pres. 

Council, Inc. v. Tahoe Reg’l Plan. Agency, 

 (2002) (quoting Lucas, 

).  Nonetheless, it has offered guidelines “for determining when government 
regulation is so onerous that it constitutes a taking.”  Murr, 

.  The Supreme 
Court has recognized two situations where regulatory action will be considered a per se 
taking under the Fifth Amendment.  Lingle, 

.  “First, where government 
requires an owner to suffer a permanent physical invasion of her property—however 
minor—it must provide just compensation.”  

 (citing Loretto v. Teleprompter Manhattan 

CATV Corp., 

 (1982)).  Second, “where regulation denies all economically 
beneficial or productive use of land.”  Lucas, 

.  “Outside these two 
relatively narrow categories . . . , regulatory takings challenges are governed by the 
standards set forth in Penn Central Transp. Co. v. New York City, 

 (1978).”  
Lingle, 

.4                                                 

                           B                                         
The first step in the regulatory taking analysis is identifying Plaintiffs’ private 
property interests.  After all, identifying a property interest is a prerequisite to determining 
if that interest has been taken.  See Hawkeye Commodity Promotions, Inc. v. Vilsack, 

 (8th Cir. 2007).  Property interests do not arise from the Constitution, 

but  instead  “are  created  and  their  dimensions  are  defined  by  existing  rules  or 
understandings that stem from an independent source such as state law.”  Ruckelshaus v. 
Monsanto Co., 

 (1984) (quoting Webb’s Fabulous Pharmacies, Inc. v. 
Beckwith, 

 (1980)).  For this reason, courts turn to state law when defining 
a plaintiff’s property interests.  See, e.g., Ugorets v. City of Shorewood, No. 21-cv-1446 

(JRT/ECW), 

, at *3 (D. Minn. Jan. 5, 2022).  Plaintiffs identify four 


4    The Court has described a separate test in the context of land-use exactions.  See 
Nollan v. Cal. Coastal Comm’n, 

 (1987); Dolan v. City of Tigard, 

 (1994).  Nollan and Dolan are not applicable here.                    
property interests that have allegedly been taken: “(1) their State-issued license to operate 
the businesses; (2) their profit streams from operating the businesses; (3) their fee-simple 
right to lease the land; and (4) their contract rights to rental income.”  Pls.’ Mem. in Opp’n 

at 9.  Each property interest will be addressed in turn.                  
Plaintiffs contend that their licenses to operate assisted living facilities, issued by 
the Minnesota Department of Health, are private property.  Pls.’ Mem. in Opp’n at 9.  Some 
Minnesota courts have recognized a property interest in licenses for due-process purposes.  
Bird v. Minn. Dep’t of Pub. Safety, 

 (Minn. Ct. App. 1985) (“We find 

that  the  Birds  had  a  property  interest  in  their  auto  dealer’s  license  for  due  process 
purposes.”); Greater Duluth COACT v. City of Duluth, 

, 1456–57 
(D. Minn. 1988) (“COACT does have a property interest in the renewal of its [charitable 
gambling] license.”); CUP Foods, Inc. v. City of Minneapolis, 

, 562–63 
(Minn. Ct. App. 2001) (“Relator correctly points out that he has a property interest in his 

business licenses.”); cf. Movers Warehouse, Inc. v. City of Little Canada, 

 
(8th Cir. 1995) (“While section 815.025(I) may indeed create a property interest in an 
existing [bingo] license, it says nothing about the renewal process.”).  But Minnesota courts 
have repeatedly rejected that non-transferable licenses or permits are private property 
subject to a takings claim.  Hay v. City of Andover, 

 (Minn. Ct. App. 

1989) (“The property interest which [plaintiff] has in the special use permit is merely a 
government  entitlement  or  benefit.”);  Rainbow  Taxi  Corp.  v.  City  of  Minneapolis, 
No. A08-0993, 

, at *2 (Minn. Ct. App. May 26, 2009) (unpublished) 
(“[R]elator presents no authority that supports elevating the property interest in a license 
or permit to ‘private property’ subject to a takings claim.”); Khan v. Minneapolis City 
Council,  No.  A14-0455,  

,  at  *1  (Minn.  Ct.  App.  Dec.  22,  2014) 
(unpublished) (“[A] license is a privilege and cannot be construed as property unless it is 

assignable and transferable.”); Matter of Unity Health Care, No. A16-0682, 

, *6 (Minn. Ct. App. Feb. 27, 2017) (unpublished) (“[I]t is well established that a 
license is a privilege and is not private property, unless it is assignable and transferrable.”).   
Although the Minnesota Supreme Court has never directly held that a license must 
be assignable and transferable to be subject to a takings claim, two cases are instructive.  

In State by Mattson v. Saugen, the Minnesota Supreme Court treated a liquor license as a 
property right requiring payment of compensation if taken in part because the license “was 
assignable and transferable,” 

, 41 (Minn. 1969).  In Zeman v. City of 
Minneapolis,  a  plaintiff  sought  “compensation  for  the  alleged  taking  of  his  [rental 
dwelling] license,” on facts similar to this case, 

 (Minn. 1996).  There, 

the Minnesota Supreme Court described how “[t]he city revoked Zeman’s license by means 
of a regulatory ordinance, but did not physically appropriate Zeman’s land,” and framed 
the issue as whether Minneapolis had taken the underlying property.  

 at 551–52.  
Plaintiffs’ licenses here are not transferable or assignable.  See ECF Nos. 5-1, 5-2, 5-3.  
Given that no Minnesota court has found a non-transferable license to be private property 

requiring compensation if taken, and in Zeman the Minnesota Supreme Court analyzed a 
similar takings claim by examining the at-issue private property as the underlying parcel, 
there is no reason to predict that the Minnesota Supreme Court would hold that Plaintiffs’ 
assisted-living-facility licenses are private property subject to a takings claim.   
Plaintiffs next contend they have a property interest in “their profit streams from 
operating the businesses.”  Pls.’ Mem. in Opp’n at 9.  But the Supreme Court’s takings 
jurisprudence does not allow plaintiffs to segregate allegedly discrete property interests 

such as “profit streams” from the underlying property interest—here, Plaintiffs’ fee simple 
interest.  See Andrus v. Allard, 

, 65–66 (1979) (“At least where an owner 
possesses a full ‘bundle’ of property rights, the destruction of one ‘strand’ of the bundle is 
not a taking, because the aggregate must be viewed in its entirety.”); Murr, 

 
(“declin[ing] to limit the parcel in an artificial manner to the portion of property targeted 

by the challenged regulation.”); Penn Central, 

 (“‘Taking’ jurisprudence 
does not divide a single parcel into discrete segments and attempt to determine whether 
rights in a particular segment have been entirely abrogated.”).  Because Plaintiffs possess 
the parcels in fee simple, Compl. ¶¶ 7–8, the proper takings analysis is the impact of the 
City’s regulatory action on Plaintiffs’ fee simple interest, not its impact on some lesser 

property interest.  See Andrus, 

 (prohibition on commercial transactions in 
preexisting avian artifacts was not a taking despite the loss of future profits).  But cf. 
Woodstone Ltd. P’ship v. City of Saint Paul, 

, 600 (D. Minn. 2023) 
(“As for lost rental income, at the motion-to-dismiss stage, the Eighth Circuit has reasoned 
that such loss is an adverse economic impact.”).                          

Plaintiffs also contend they have a property right in “their fee-simple right to lease 
the land.”  Pls.’ Mem. in Opp’n at 9.  Fair enough.  An owner of real property in fee simple 
has the right to convey or lease an interest in their property.  See, e.g., KCP Hastings, LLC 
v. Cnty. of Dakota, No. 19HA-CV-11-2713, et al., 

, at *10 (Minn. Tax 
Ct. Dec. 29, 2016).  But a landowner’s right to convey is just one right in the bundle of 
sticks.  As with Plaintiffs’ interest in future profits, the proper takings analysis is the impact 
of the City’s resolutions on Plaintiffs’ fee simple interest.             

Finally, Plaintiffs argue they have a property interest in “their contract rights to 
rental income.”  Pls.’ Mem. in Opp’n at 9.  In the Complaint, Plaintiffs cite Lynch v. United 
States for the proposition that valid contracts are private property, 

 
(1934).  The City counters that Lynch “stands for the proposition that a takings analysis 
applies to contracts the United States enters into, not that all contracts are protected 

property interests subject to Fifth Amendment protection.”  Def.’s Mem. in Supp. at 18 n.4.  
Plaintiffs do not respond or otherwise explain why their contract rights to rental income 
are a distinct property right that should be analyzed separately.  See Pls.’ Mem. in Opp’n 
at 9.  By not responding to the City in their opposition brief, Plaintiffs have waived any 
argument on this issue.  Espey v. Nationstar Mortg., LLC, No. 13-cv-2979 (ADM/JSM), 

, at *11 (D. Minn. June 19, 2014) (collecting cases).5     

5    For clarity’s sake, the City’s characterization of Lynch misses the mark.  “Taking 
claims  rarely  arise  under  government  contracts  because  the  Government  acts  in  its 
commercial or proprietary capacity in entering contracts, rather than in its sovereign 
capacity.”  Hughes Commc’ns Galaxy, Inc. v. United States, 

 (Fed. 
Cir.  2001).    “[W]hen  the  government  itself  breaches  a  contract,  a  party  must  seek 
compensation from the government in contract rather than under a takings claim.”  Piszel 
v. United States, 

 (Fed. Cir. 2016).  So Lynch does not stand for the 
proposition that a takings analysis only applies to contracts entered into by the United 
States.  As for contracts between private parties, the Seventh Circuit explained “[w]e read 
Connolly, in conjunction with the line of authority stating that we should look to states to 
find property rights under the Takings Clause, as effectively overruling, if it had not already 
been overruled, Lynch v. United States. . . . , to the extent that it flatly holds that contracts 
are property that the government may not take without compensation.”  Pro-Eco, Inc. v. 
Bd. of Comm’rs of Jay Cnty., 

, 510 n.2 (7th Cir. 1995).  The Eighth Circuit has 
                           C                                         
Having concluded that the private property at issue is Plaintiffs’ fee simple interest 
in the two properties, turn to the regulatory takings analysis.  Plaintiffs do not contend the 

City’s revocation resulted in a per se taking under Loretto or Lucas.  See Pls.’ Mem. in 
Opp’n at 14.  Therefore, the requisite test is drawn from Penn Central.  Lingle, 

 (“Outside these two relatively narrow categories . . . , regulatory takings challenges 
are governed by the standards set forth in Penn Central.”).  Penn Central directs courts to 
consider: “(1) the economic impact of the regulation on the claimant; (2) the extent to 

which the regulation has interfered with distinct investment-backed expectations; and (3) 
the character of the governmental action.”  Murr, 

.6  Take each factor in 
turn.                                                                     
                           1                                         
The first factor, economic impact, requires comparing the value that has been taken 

from  the  property  with  the  value  that  remains.    Keystone  Bituminous  Coal  Ass’n  v. 
DeBenedictis, 

 (1987).  Where, as here, multiple parcels are regulated, 
the  first  step  is  deciding  if  the  fraction  of  value  remaining  should  be  calculated  by 
examining the parcels together or individually.  As the Supreme Court has described it, this 


endorsed this approach.  See Hawkeye, 

 (evaluating a plaintiff’s “property-
in-contracts argument” by examining Iowa law).  However, again, because Plaintiffs did 
not brief the issue, the argument is waived.                              
6    Permitting systems, like all other government regulations, can result in a regulatory 
taking because they restrict land use when denied or revoked.  See United States v. 
Riverside Bayview Homes, Inc., 

 (1985); Lucas, 

 
(1992).                                                                   
“question[] is determining how to define the unit of property ‘whose value is to furnish the 
denominator of the fraction.’”  

 (quoting Michelman, Property, Utility, and Fairness: 
Comments on the Ethical Foundations of “Just Compensation” Law, 

, 1192 (1967)).  Factors to consider when defining this denominator include, (1) “how 
[the  property]  is  bounded  or  divided,  under  state  and  local  law”;  (2)  “the  physical 
characteristics of the landowner’s property”; and (3) “special attention to the effect of 
burdened land on the value of other holdings.”  Murr, 582 U.S. at 397–98.  “The endeavor 
should determine whether reasonable expectations about property ownership would lead a 

landowner to anticipate that his holdings would be treated as one parcel, or, instead, as 
separate tracts.”  Id. at 397.                                            
The relevant considerations here support treating the two parcels separately.  Based 
on the limited information in the Complaint, the parcels are not contiguous, were owned 
and operated by different entities, had different permits and licenses, and were subject to 

separate revocation proceedings.  See Compl. ¶¶ 6–8, 17, 22.              
The Complaint, however, lacks sufficient factual content to meaningfully analyze 
the two properties’ diminution in value.  Plaintiffs allege “the two resolutions cost the 
Dukuly Brothers $2,000,000,” Compl. ¶ 28, and that “the Dukuly brothers were reasonably 
compelled to sell the two parcels of real estate at a loss,” id. ¶ 27.  According to Plaintiffs’ 

brief, this $2,000,000 “represents the difference between the value of the real estate prior 
to the scrutinized action and the sales price because of it.”  Pls.’ Mem. in Opp’n at 15.  But 
this cannot be inferred from allegations in the Complaint.  Even accepting Plaintiffs’ 
characterization of the $2,000,000, Plaintiffs do not plausibly allege the value of property 
remaining—without this, it is not possible to determine the fraction of value lost.  A 
regulation reducing a property’s value from $10,000,000 to $8,000,000 is a far cry from a 
regulation reducing a property’s value from $2,001,000 to $1,000.  In short, Plaintiffs fail 

to allege sufficient factual content to plausibly show the diminution-in-value factor weighs 
in favor of a regulatory taking.  Cf. Evans Creek, LLC v. City of Reno, No. 21-16620, 

, at *1 (9th Cir. Oct. 26, 2022), cert. denied, 

 (2023) 
(concluding that a plaintiff failed to sufficiently plead the first Penn Central factor because 
the complaint lacked information about the value of the property).  The absence of 

allegations distinguishing the financial impact on the two properties only exacerbates this 
dearth of factual content.  Regardless, if Plaintiffs’ factual allegations were sufficient to 
describe  some  moderate  economic  impact,  the  first  Penn  Central  factor  would  be 
outweighed by the second and third Penn Central factors in this case.  As the Supreme 
Court has explained, “our cases have long established that mere diminution in the value of 

property, however serious, is insufficient to demonstrate a taking.”  Concrete Pipe & 
Prods. of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal., 

 (1993). 
Plaintiffs counter that “it has already been resolved that the revocation of a rental 
permit satisfies this [economic impact] test.”  Pls.’ Mem. in Opp’n at 15 (citing Zeman, 

).  That’s not right.  The economic impact of the revocation of a rental 

permit, like all other regulatory actions, must be examined on a case-by-case basis.  In 
Zeman, the Minnesota Supreme Court found the first Penn Central factor favored the 
plaintiff because “the best use for [plaintiff’s] property is an apartment building, and 
without a rental dwelling license he cannot operate it as such.”  Zeman, 552 N.W.at 553.  
Critically, it credited testimony that the property was close to worthless because of the 
economically depressed nature of the neighborhood.  

 (describing how finding a buyer 
was unlikely).  By contrast, Plaintiffs here sold the property.  Compl. ¶ 27.7  And although 

it can be inferred the properties would be worth more when operated as assisted living 
facilities, it cannot be inferred that the properties and improvements were unsuitable for 
residential purposes.  In other words, the fraction taken in Zeman was close to one hundred 
percent, whereas the fraction of value taken here has not been pleaded (and cannot be 
inferred to be similarly substantial).                                    

                           2                                         
The second Penn Central factor is investment-backed expectations.  “A reasonable 
investment-backed expectation must be more than a unilateral expectation or an abstract 
need.”  Woodstone, 674 F. Supp. 3d at 601 (quoting Ruckelshaus, 

).  “[T]he 
existing and permitted uses of the property when the land was acquired generally constitute 

the ‘primary expectation’ of the landowner regarding the property.”  Wensmann Realty, 
Inc. v. City of Eagan, 

 (Minn. 2007) (applying Penn Central); see 
also Ark. Game & Fish Comm’n v. United States, 

 (2012) (describing 
investment-backed expectations as “a matter often informed by the law in force in the State 
in which the property is located”).  Regulations most commonly interfere with investment-

backed expectations when they are a substantial, unexpected change to existing land-use 
laws.  See, e.g., Heights Apartments, LLC v. Walz, 

 (8th Cir. 2022) 

7    At oral argument, Plaintiffs’ counsel represented that the two properties were sold 
for $3,500,000.                                                           
(executive order mandating a statewide residential eviction moratorium interfered with 
reasonable  investment-backed  expectations).    But  the  fact  that  regulations  predate  a 
purchase or ownership interest is not dispositive.  Palazzolo v. Rhode Island, 

 (2001) (“[A] claim is not barred by the mere fact that title was acquired after the 
effective date of the state-imposed restriction.”).                       
Plaintiffs’ reasonable investment-backed expectations are limited.  The parcels are 
zoned residential, and that zoning did not change after the parcels were purchased.  True, 
Plaintiffs’ allegation that “[b]oth parcels were improved with residential housing” allows 

the reasonable inference that Plaintiffs invested money to improve the properties.  And this 
type of investment is a prerequisite for the second factor to favor a landowner.  Wensmann, 

  (“[T]he  property  owner  must  actually  have  invested  money  in 
connection with its reasonable expectations regarding the proposed use of the property.”).  
But Ordinance § 3-31 predates Plaintiffs’ purchases of the properties, and nothing in the 

record suggests that the rental-permit ordinance changed in relevant ways after Plaintiffs 
purchased the property.  In other words, the City’s revocation of Plaintiffs’ permits for 
violating a preexisting ordinance should have been within Plaintiffs’ expectations.  Id. at 
638 (“Generally, when an owner buys property with knowledge of restrictions upon the 
development of that property, he assumes the risk of any economic loss.” (quoting Atlas 

Enters. Ltd. P’ship v. United States, 

 (Fed. Cl. 1995))). 
Plaintiffs respond that “[i]t has already been held that depriving a commercial 
landlord of the right to lease the land satisfies this [second factor].”  Pls.’ Mem. in Opp’n 
at 16 (citing Zeman, 552 N.W.2d at 553–54).  Again, the Penn Central factors must be 
examined on a case-by-case basis.  And there are important differences between this case 
and Zeman.  In Zeman, the property owner had “operated [his] property as a rental dwelling 
since acquiring it in 1975.”  Zeman, 

; see also Wensmann, 

 (describing how in Zeman, an owner who had used his property as a rental dwelling 
for  20  years  had  investment-backed  expectations  in  that  continued  use).    Moreover, 
Minneapolis amended the housing code in 1991 to authorize the City of Minneapolis to 
revoke a rental license for repeated instances of disorderly conduct, more than fifteen years 
after the plaintiff in Zeman started using the property as a rental dwelling.  By contrast, 

Plaintiffs only rented their properties for around a year before the City revoked their rental 
permits in 2022.  And Plaintiffs started operating the properties as assisted-living facilities 
after the City enacted its rental-permit ordinance.  Even after accepting the facts in the 
Complaint as true and construing reasonable inferences in Plaintiffs’ favor, the City’s 
revocation of Plaintiffs’ rental permits by enforcement of a preexisting land-use ordinance, 

limiting Plaintiffs’ use of their residentially zoned properties to use as residences, is not 
inconsistent with Plaintiffs’ reasonable investment-backed expectations.  
                           3                                         
The third factor is the character of the taking.  As Penn Central described, “[a] 
‘taking’  may  more  readily  be  found  when  the  interference  with  property  can  be 

characterized as a physical invasion by government, than when interference arises from 
some public program adjusting the benefits and burdens of economic life to promote the 
common good.”  Penn Central, 

 (citation omitted).  Courts also consider 
whether a regulation was enacted to benefit private parties or serve important public 
interests.  Cmty. Hous. Improvement Program v. City of New York, 

 (2d 
Cir.), cert. denied, 

 (2023); see also Zeman, 

 (“A harm-
prevention regulation . . . is a powerful rationale militating against finding a taking.”).8  Put 

another way, “[t]he Fifth Amendment’s guarantee . . . was designed to bar Government 
from forcing some people alone to bear public burdens which, in all fairness and justice, 
should be borne by the public as a whole.”  Armstrong v. United States, 

 
(1960).  Furthermore, a regulation has the character of a taking when the government 
burdens property acting in an enterprise capacity for its own interests.  Cf. 

 (“[T]he 

Government for its own advantage destroyed the value of the liens.”); Penn Central, 

  (describing  how  the  Landmarks  Law  did  not  burden  a  parcel  for  the 
government’s use or arise from “entrepreneurial operations”).             
None of these sub-considerations favor Plaintiffs.  First, the resolutions cannot 
reasonably be characterized as a physical invasion; the City revoked Plaintiffs’ rental 

permits and prohibited them from obtaining new rental permits for a limited period.  This 
regulatory conduct is consistent with municipalities’ ordinary regulation of housing.  Cf. 
Loretto, 

 (“This Court has consistently affirmed that States have broad 
power to regulate housing conditions in general and the landlord-tenant relationship in 


8    The purpose of the ordinance and resolutions, and Zeman’s application of the third 
Penn Central factor in an analogous case, are given limited weight here.  In Lingle, the 
Supreme Court held that whether a government regulation substantially advances its 
objectives is not relevant to a takings analysis.  Lingle, 

.  The Minnesota 
Supreme Court acknowledged this in Wensmann, recognizing “that this type of focus on 
the purpose of the regulation in Zeman and other cases has been called into question by 
Lingle.”  Wensmann, 

 n.13.                               
particular without paying compensation for all economic injuries that such regulation 
entails.”).    Moreover,  the  resolution  enforced  was  one  of  general  application.    That 
permitting systems are applied on a parcel-by-parcel basis does not change this.  Second, 

the  purpose,  to  the  extent  relevant,  was  to  mitigate  the  harm  to  the  surrounding 
communities caused by disorderly conduct at the Wisconsin and Boone facilities.  Third, 
Plaintiffs identify no public burden that was forced upon them—rather, the resolutions 
were designed to prevent Plaintiffs’ use of their property in a manner that burdened the 
public.  Fourth and finally, the City was not regulating Plaintiffs in an enterprise capacity 

or for its own benefit.                                                   
                           *                                         
Taking the Complaint’s factual allegations as true, all three Penn Central factors 
weigh against a taking.  But even setting aside this formulaic application of Penn Central’s 
three factors, this result makes sense here.  After all, “[r]esolution of each [takings] case 

‘ultimately calls as much for the exercise of judgment as for the application of logic.’”  
Armour  &  Co.  v.  Inver  Grove  Heights,  

  (8th  Cir.  1993)  (quoting 
Andrus, 

).  The Supreme Court’s takings jurisprudence does not require the 
government to compensate landowners every time regulation causes moderate economic 
harm  or  impinges  on  investment-backed  expectations—the  Court  has  repeatedly 

recognized that the government has substantial latitude to regulate property without paying 
compensation.  See Lingle, 

 (a regulation goes too far when it is “so onerous 
that its effect is tantamount to a direct appropriation or ouster”); Penn Central, 

 (explaining that takings challenges have “been held to be without merit in a wide 
variety of situations when the challenged governmental actions prohibited a beneficial use 
to which individual parcels had previously been devoted and thus caused substantial 
individualized harm”).  In this case, the City’s resolutions enforcing its preexisting land-

use ordinance seem well within that latitude.  And Plaintiffs offer no analogous case where 
a court required a municipality to pay compensation for the revocation of a rental permit.  
Therefore, Plaintiffs fail to plausibly state a takings claim.            
                           D                                         
The City alternatively raises a nuisance defense, arguing that “Plaintiffs do not have 

a protected property interest in maintaining a nuisance on their property.”  Def.’s Mem. in 
Supp. at 17.  Courts have long recognized that some physical invasions and regulations 
“will not amount to takings because they are consistent with longstanding background 
restrictions on property rights.”  Cedar Point Nursery v. Hassid, 

 (2021).  
The quintessential example is government regulations requiring a landowner to abate a 

nuisance: “the government owes a landowner no compensation for requiring him to abate 
a nuisance on his property, because he never had a right to engage in the nuisance in the 
first place.”  

  But this defense is narrow.  It means that there is no taking when a law or 
decree does “no more than duplicate the results that could have been achieved in the 
courts.”  Lucas, 

.  Therefore, for the nuisance defense to apply, the City 

must point to background principles of Minnesota property law that made Plaintiffs’ use 
of the properties a nuisance, and the City’s abatement of that use (by revoking the permits) 
no more than what could have been achieved through the courts.  Because the City has not 
identified these background nuisance principles, and because the land use records (which 
will not be considered here) are the primary factual basis for the City’s nuisance arguments, 
the nuisance defense is not an alternative ground to dismiss Plaintiffs’ takings claims.9 
                           E                                         

Defendants  move  to  dismiss  Plaintiffs’  takings  claim  under  the  Minnesota 
Constitution based on familiar grounds—failure to state a regulatory takings claim under 
Penn Central.  The Minnesota Constitution provides that “[p]rivate property shall not be 
taken, destroyed or damaged for public use without just compensation therefor, first paid 
or secured.”  Minn. Const. art. I, § 13.  “This language is broader than the language of the 

federal constitution.”  State by Humphrey v. Strom, 

 (Minn. 1992).  
But “those added protections involve Minnesota courts in select circumstances electing not 
to apply Penn Central—as opposed to applying its test differently.”  Woodstone, 674 F. 
Supp. 3d at 602.  Outside of those select circumstances, the Minnesota Supreme Court has 
“relied on cases interpreting the U.S. Constitution’s Takings Clause in interpreting this 

clause in the Minnesota Constitution.”  Wensmann, 734 N.W.2d at 631–32.  For regulatory 
non-categorical takings brought under the Minnesota Constitution, Minnesota courts apply 
Penn Central.  Woodstone, 674 F. Supp. 3d at 602.  Therefore, Plaintiffs fail to state a claim 
under the Minnesota Constitution for the reasons explained in Part IV.C.  
Plaintiffs argue that an exception articulated in Johnson v. City of Minneapolis, 

 (Minn. 2003), applies here.  According to Plaintiffs, “[u]nder Minnesota 

9    That the City’s resolutions were intended to abate a nuisance is not alone enough.  
Although “[t]here is no doubt some leeway in a court’s interpretation of what existing state 
law permits,” a legislature cannot craft “the reasons for its confiscatory regulation.”  Lucas, 

 n.18.                                                    
law, a taking occurs when the action is ‘specifically directed against a particular parcel.’”  
Pls.’  Mem.  in  Opp’n  at  20–21  (quoting  Johnson,  

).    But  this 
interpretation of Johnson goes too far.  In Johnson, the City of Minneapolis told property 

owners it was moving forward with the condemnation of their land for a redevelopment 
project, despite later terminating development plans without notifying the property owners.  
Johnson,  667  N.W.2d  at  111–13.    The  district  court  concluded  that  the  City  of 
Minneapolis’s actions created a “cloud of condemnation” that significantly reduced the fair 
market value of the properties and caused other adverse economic effects.  

 at 113–14.  

The Minnesota Supreme Court held that the property owners were entitled to compensation 
under Minnesota’s Takings Clause because “the cumulative effect of the City’s actions . . 
. constituted an abuse of the City’s condemnation authority.”  

.  Johnson, a case 
that was expressly “limited to the particular facts presented,” 

 does not apply here 
because this case does not involve the abuse of condemnation authority.   

Therefore, based on the foregoing, and on all the files, records, and proceedings 
herein, IT IS ORDERED THAT:                                               
1.   Defendant’s  Motion  for  Judgment  on  the  Pleadings  [ECF  No.  19]  is 
GRANTED.                                                                  

2.   The Complaint [ECF No. 5] is DISMISSED with prejudice.          
       LET JUDGMENT BE ENTERED ACCORDINGLY.                          

Date:  June 21, 2024               s/ Eric C. Tostrud                     
                              Eric C. Tostrud                        
                              United States District Court