UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

THE NORFOLK FEDERATION OF

BUSINESS DISTRICTS,

Plaintiff-Appellant,

v.

CITY OF NORFOLK, a municipal

corporation; NORFOLK

REDEVELOPMENT AND HOUSING

AUTHORITY,

Defendants-Appellees,

No. 96-1746

U.S. DEPARTMENT OF HOUSING &

URBAN DEVELOPMENT, in its official

capacity as agency of the

Government of the United States;

HENRY G. CISNEROS, in his official

capacity as the Secretary of the

Department of Housing and Urban

Development,

Defendants.

Appeal from the United States District Court

for the Eastern District of Virginia, at Norfolk.

Henry C. Morgan, Jr., District Judge.

(CA-96-308-2)

Argued: September 25, 1996

Decided: November 20, 1996

Before MURNAGHAN and HAMILTON, Circuit Judges, and

MERHIGE, Senior United States District Judge

for the Eastern District of Virginia, sitting by designation.

_________________________________________________________________
Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Andrew Michael Sacks, SACKS & SACKS, Norfolk,

Virginia, for Appellant. William Gray Broaddus, MCGUIRE,

WOODS, BATTLE & BOOTHE, L.L.P., Richmond, Virginia; Francis Nelson Crenshaw, CRENSHAW, WARE & MARTIN, P.L.C.,

Norfolk, Virginia, for Appellees. ON BRIEF: Stanley E. Sacks,

SACKS & SACKS, Norfolk, Virginia, for Appellant. Philip R. Trapani, City Attorney, Bernard A. Pishko, Senior Deputy City Attorney,

CITY OF NORFOLK, Norfolk, Virginia; E. Duncan Getchell, Jr.,

Bradford A. King, MCGUIRE, WOODS, BATTLE & BOOTHE,

L.L.P., Richmond, Virginia, for Appellee City of Norfolk; James L.

Chapman, IV, David H. Sump, CRENSHAW, WARE & MARTIN,

P.L.C., Norfolk, Virginia, for Appellee Housing Authority.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

The district court dismissed plaintiff's Counts I, II, III, V, VI, VII,

VIII, and IX with prejudice and dismissed Count IV without prejudice. The court only considered the motion to dismiss as it related to

the defendants served with process; the City of Norfolk and the Norfolk Redevelopment and Housing Authority (NRHA). NFBD agreed

to dismiss HUD and Secretary Cisneros after the district court's judgment.

We review de novo the dismissal of the federal claims properly

before the Court pursuant to Rule 12(b)(6), Brooks v. City of Winston

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Salem, 85 F.3d 178, 181 (4th Cir. 1996), and conclude that the trial

judge was correct in his rulings and affirm.

Appellant's contention that the lower court erred in not converting

the Appellees' 12(b)(6) motion to a motion for summary judgment

under Rule 56 Fed.R.Civ.P is not well taken.

The record reflects that the complaint was accompanied by a number of documents which made reference to Norfolk redevelopment

plan, an admittedly public document. The lower court's consideration

of that document was appropriate and did not warrant converting the

Rule 12(b)(6) motion to one for summary judgment. Anheuser-Busch,

Inc. v. Schmoke, 63 F.3d 1305, 1312 (4th Cir. 1995), cert. granted

and judgment vacated on other grounds, 116 S.Ct. 1821 (1996). In

short, a court may consider matters of public record, items appearing

in the record of the case, as well as exhibits attached to the complaint.

See generally Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure § 1357 (1990), cited with approval in Anheuser,

63 F.3d at 1312.

Plaintiff is the Norfolk Federation of Business Districts (NFBD),

an organization that purports to represent and act for eight member

businesses or merchant associations, affiliated businesses and individuals in a number of geographical areas within Norfolk, including such

businesses and individuals with business interest in an area designated

as Norfolk MacArthur Center Project ("the Center") which is the area

giving rise to this controversy. It claims to be acting "as and for itself

as well as on behalf of the legal interests and rights of its constituent

member merchant or business associations and their affiliated member businesses and individuals."

On May 31, 1994 the City and NRHA entered into a cooperation

agreement which was adopted by the City of Norfolk Council by ordinance. NFBD alleges that this agreement provides that the City will

guarantee all financial obligations of NRHA pertaining to the MacArthur Center Project, provide NRHA with all funds required for the

Center, and meet all NRHA obligations and payments regarding the

Center. In the agreement the City authorized the issuance of up to

$50,000,000.00 in parking revenue bonds for garage construction and

up to $13,537,050.00 in general obligation bonds for Center infra-

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structure improvement. NRHA sought $32,815.00 from a private

bank loan.

The Center is to house a number of stores including a Nordstrom

department store which the City and NRHA describe as the main

focus of the Center. The defendants plan to fund construction of the

store almost entirely by public monies. Plaintiff argues that the defendants selectively favor Nordstrom, a private competitor of many of

plaintiff NFBD's constituents, with a locally unprecedented infusion

of public monies for the private benefit of Nordstrom, by agreeing to

build the Nordstrom store to Nordstrom's customized specifications

with such public money.

Thus NFBD concludes that the defendants are publicly subsidizing

private businesses with largely public taxpayer funds. It argues that

the defendants' actions constitute an arbitrary and capricious selective

favoring of these competitors to plaintiff with an improper use of public funds, thus violating both its Equal Protection and Substantive Due

Process rights.

Plaintiff contends that defendants' actions violate its constitutional

economic rights under the Fourteenth Amendment to the United

States Constitution. As the district court correctly pointed out, however, only laws affecting fundamental rights are within the purview

of the Fourteenth Amendment's strict scrutiny analysis. National

Paint & Coatings Ass'n. v. City of Chicago, 45 F.3d 1124 (7th Cir

1995), cert. denied, 115 S.Ct. 2579 (1995). Since "[c]orporations do

not have fundamental rights; they do not have liberty interests, period." Id. at 1129. After concluding that the plaintiff's fundamental

rights had not been violated, the district court correctly analyzed its

claims under the rational basis test. Under the rational basis test the

question is not whether the legislation or the official action is "in

every respect logically consistent with its aims to be constitutional,"

rather it "is enough that there is an evil at hand for correction, and that

it might be thought that the particular legislative measure was a rational way to correct it." Williamson v. Lee Optical of Oklahoma, Inc.,

348 U.S. 483, 487-88 (1955).

In Count I the plaintiff alleges that the defendants violated its rights

under the Fourteenth Amendment's Due Process and Equal Protection

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Clauses arising from defendants' "unfair and discriminatorily selective favoring of private business competitors of Plaintiff's constituents through heavy public subsidies to entice those competitors to

participate in Norfolk's MacArthur Center Project."

In Counts II and III, plaintiff alleges that the defendants violated

its due process rights in its state-created property rights. Plaintiff

alleges that the defendants unlawfully utilized and planned to continue to utilize publicly raised tax money to benefit private parties and

unlawfully took and planned to continue to take private property in

the form of money raised in the exercise of its taxing authority for private purposes.

In Count IV, plaintiff claims that under § 108 of the Loan Guarantee Application made by the defendants to HUD the defendants fail

to meet statutory and regulatory criteria to justify such a guarantee.

It further claims that the federal government through HUD wrongfully approved the application to the prejudice of plaintiff's constitutional rights.

Count V charges the defendants with violating the federal statutory

rights of plaintiff which arise out of their improper use of the § 108

Loan Guarantee statutes and regulations.

The remaining Counts VI-IX fall under the Court's supplemental

and pendant jurisdiction. Plaintiff asserts in these Counts that the laws

of the Commonwealth of Virginia and its Constitution prohibit defendants' actions in connection with the proposed financing of the Center.

The district court properly applied rational basis scrutiny to the

constitutional complaints contained in Counts I, II and III, and found

that defendants' actions pass rational scrutiny and plaintiff does not

have a due process or an equal protection violation claim. We agree

with the trial court's holding that any allegations of economic harm

under the Fourteenth Amendment must be reviewed under the rational

basis test. The movant must negate "every conceivable basis which

might support" the economic plan, rule or tax in question. Madden v.

Kentucky, 309 U.S. 83, 88 (1940). Reviewing the defendants' redevelopment plan, the district court determined that the defendants had a

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rational basis for their actions, mainly to reduce urban blight, and that

any economic harm incurred by the plaintiff was justified.

The district court dismissed Count IV without prejudice, because

the plaintiff had failed to perfect service of process on the appropriate

defendants.

The district court dismissed Count V for failure to state a claim.

Plaintiff alleged that defendants' violation of§ 108 of the Housing

Community Development Act of 1974, 42 U.S.C. § 5301 et seq.,

comprises a violation of its civil rights under 42 U.S.C. § 1983. The

court dismissed the action because it properly held that § 108 of

HCDA did not create any enforceable rights in the general public or

individual citizens. Furthermore, the court found that any improperly

granted loans would impose liability on the federal government, not

the municipal defendants.

The court then considered the state law claims contained in Counts

VI, VII, and VIII. The court found that the Virginia Code created

Redevelopment and Housing Authorities which were expressly

charged with improving urban and blighted areas. Va. Code § 36-4.

Moreover, the court found that the code permits the actions taken by

the defendants in furtherance of their redevelopment plan. City of

Charlottesville v. DeHaan, 323 S.E.2d 131 (Va. 1984). Thus, the

court held that the Virginia Code permits the very actions that the

plaintiff alleged were impermissible and dismissed the Counts.

In Count VI, the plaintiff claimed that the defendants violated the

"credit clause" of the Virginia Constitution, Art. X, § 10, which

assures that the credit of the government of Virginia will not be

granted in favor of any person or corporation. Plaintiff claimed that

defendants violated the clause by pledging their credit to the benefit

of private businesses. The district court found that since NRHA has

authority to act under title 36 of the Virginia Code, it followed that

the plaintiff's only substantive claims lay under the Virginia Constitution. The court properly determined that the extension of credit for the

purpose of redevelopment or another public purpose did not implicate

the credit clause. The court looked to the Virginia Supreme Court's

decision in City of Charlottesville which had similar facts. 323 S.E.2d

at 131. The Supreme Court stated that "[m]erely because the [s]tate

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incurs an indebtedness or expends its funds for its benefit and others

may incidentally profit thereby does not bring the transaction within

the letter or the spirit of the `credit clause' prohibition." Id. at 134. In

the present case, the district court found that the defendants clearly

had a public purpose with their redevelopment plan and thus they

were removed "from the ambit of the credit clause, as stated by the

General Assembly in title 36." 96cv308 page 31.

In Count VII plaintiff contends that the internal improvements

clause of the Virginia Constitution prohibits the defendants' actions.

That clause essentially prohibits the Commonwealth from becoming

interested in any work of internal improvement, save public roads or

parks. Va. Const. Art. X, § 10. The district court correctly rejected

this claim for a variety of reasons. First, it found that the internal

improvements clause specifically applies to the Commonwealth itself,

not to other units of government; thus neither the City nor the NRHA

is implicated under the clause. The court also held that the existence

of a "governmental functions" exception to the internal improvement

clause eliminated any residual doubt as to whether the defendants had

violated the clause. See Fairfax Co. Industrial Development Authority

v. Coyner, 150 S.E.2d 87 (Va. 1966). The exception encompasses

those improvements that are necessary to the performance of government functions. Since the Center is an essential component to the

Redevelopment Plan and the defendants are expressly authorized to

pursue this plan, their actions fall under the governmental functions

exception.

In Count VIII, plaintiff alleges that certain of the defendants'

actions violate the "laws of the Commonwealth of Virginia" by using

individuals' tax money for private purposes. The district court correctly dismissed this Count as well because plaintiff failed to specify

any law violated or any actions that constituted a violation. Even if

the Court interpreted this as a takings argument, it fails. In redevelopment cases where a loss of customers occurs to businesses, a taking

in the constitutional sense has not occurred even if land value is

decreased. See e.g., Woodland Market Realty Co. v. City of

Cleveland, 426 F.2d 955, 958 (6th Cir. 1970).

Lastly, in Count IX plaintiff claims that the NRHA's actions violate the Dillon Rule. Virginia's Dillon Rule "provides that municipal

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corporations possess and can exercise only those powers expressly

granted by the General Assembly, those necessarily or fairly implied

therefrom, and those that are essential and indispensable." City of

Richmond v. Confrere Club of Richmond, Virginia, Inc., 387 S.E.2d

471, 473 (Va. 1990). Plaintiff challenges the defendants' authority to

undertake a landlord function in connection with a commercial retail

establishment. The district court found that the Virginia Code clearly

grants the NRHA explicit power to act as a landlord in connection

with a commercial retail establishment such as the Center. The district

court held that § 36-49 of the Virginia Code grants Housing and

Redevelopment Authorities the specific powers to"make land . . .

acquired available to private enterprises or public agencies (including

sale, leasing, or retention by the authority itself) in accordance with

the redevelopment plan." Va. Code § 36-49. It then properly dismissed Count IX.

Concluding that the trial court thoroughly and correctly analyzed

each of the asserted claims, we affirm.

AFFIRMED

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