Court Opinion

ID: 4031420
Source: CourtListenerOpinion
Date Created: 2016-09-06 15:01:09.031078+00
Date Added: 2024-06-11T14:35:34.076876
License: Public Domain

United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 15-3216
                         ___________________________

              American Family Insurance; Liberty Mutual Insurance

                       lllllllllllllllllllll Plaintiffs - Appellants

                                            v.

                                 City of Minneapolis

                        lllllllllllllllllllll Defendant - Appellee
                                       ____________

                     Appeal from United States District Court
                    for the District of Minnesota - Minneapolis
                                   ____________

                              Submitted: June 15, 2016
                              Filed: September 6, 2016
                                   ____________

Before MURPHY and SHEPHERD, Circuit Judges, and PERRY1, District Judge.
                         ____________

SHEPHERD, Circuit Judge.

      American Family Insurance (“American Family”) and Liberty Mutual Insurance
(“Liberty Mutual”) brought suit against the City of Minneapolis (“the City”) following

      1
        The Honorable Catherine D. Perry, United States District Judge for the Eastern
District of Missouri, sitting by designation.
a water-main break in Minneapolis, Minnesota. The district court2 granted summary
judgment in favor of the City on each asserted claim. American Family and Liberty
Mutual (together, “Appellants”) appeal the district court’s decision on their Equal
Protection Clause claim, federal takings claim, and state takings claim. Having
jurisdiction under 28 U.S.C. § 1291, we affirm.

                                          I.

       A water main in Minneapolis broke on October 20, 2013, and flooded the
basement condominiums and street-level window wells in the nearby Sexton
Condominium building (“Sexton building”), which is owned by the Sexton
Condominium Association, Inc. (“Sexton”). Although the City repaired the break
within twelve hours, the flood caused damage to both uninsured and insured owners
in the Sexton building. Two owners, Juliana Koe and Jane Grenell each owned
apartments in the Sexton building and insured their apartments with Liberty Mutual.
American Family insured Sexton. For damage associated with the water-main break,
Liberty Mutual paid $25,900 to Koe and $20,800 to Grenell. American Family paid
$1.37 million to Sexton for the damage associated with the water-main break.

       Several entities and individuals submitted claims for damages associated with
the water-main break to the City. The City settled thirteen claims made by natural
persons who were tenants of the Sexton building and one claim made by Sexton for
the portion of its damages that was not covered by its insurance. The City paid these
fourteen claims without requiring evidence or admitting that the water-main break
resulted from the City’s negligence. Appellants, along with another insurance
company not a party to the present case, submitted several claims to the City on behalf

      2
        The Honorable Susan Richard Nelson, United States District Judge for the
District of Minnesota.

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of their insureds. The only claims denied by the City were those submitted by the
insurance companies.

       Appellants filed a state court action in April 2014, which the City removed to
federal court in May 2014. The Amended Complaint asserted five causes of action
against the City: negligence, trespass, violation of the Equal Protection Clause, federal
law takings, and state law takings. After the parties stipulated to the dismissal of the
negligence claim, the City filed a motion for summary judgment on each of the
remaining claims. The district court granted the City’s motion for summary judgment
on all remaining claims, dismissing with prejudice the trespass and Equal Protection
claims and dismissing without prejudice the federal and state takings claims.
Specifically, the district court concluded that no evidence existed that the City
displayed the requisite intent for the water main to break as would be required for a
trespass claim, that the City made settlement decisions based on the nature of the loss
– insured versus uninsured – and therefore did not treat similarly situated persons
differently as would be required for an Equal Protection claim, and that the state
takings claim was procedurally defective so the federal takings claim was not ripe for
review. American Family and Liberty Mutual now appeal the district court’s grant of
summary judgment on the Equal Protection and takings claims.

                                           II.

       Appellants first claim the district court erred in granting the City’s motion for
summary judgment on their Equal Protection claim. “We review the district court’s
grant of summary judgment de novo, viewing the record and drawing all reasonable
inferences in the light most favorable to the nonmoving party.” Life Investors Ins. Co.
of Am. v. Corrado, 804 F.3d 908, 912 (8th Cir. 2015) (citing Shrable v. Eaton Corp.,
695 F.3d 768, 770 (8th Cir. 2012)). If no dispute of material fact exists, summary
judgment is appropriate. Id. at 770-71.

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       As subrogating insurance carriers, Appellants argue they assume the rights of
their insureds and are therefore similarly situated to the uninsured claimants whose
claims the City settled and paid. Appellants cite Medica, Inc. v. Atl. Mut. Ins. Co.,
566 N.W.2d 74, 76-77 (Minn. 1997) and contend that because the insurer “stands in
the shoes of the insured and acquires all of the rights the insured may have against a
third party,” the insurance companies have assumed their insured’s right to bring a
claim against responsible third parties. According to Appellants, because both the
insured and uninsured property owners suffered property damage as a result of the
water-main break, they are similarly situated with respect to their causes of action
against the City. Upon that foundation, Appellants argue that because they “stand in
the shoes” of the insured owners – Sexton, Koe, and Grenell – they are similarly
situated to the uninsured tenants in the Sexton building, thus the City should have
settled Appellants’ claims in the same manner it settled the fourteen claims from
uninsured claimants. Finally, Appellants note that both American Family and Liberty
Mutual are “mutual” insurance companies, meaning casualty losses as well as
subrogation recoveries are passed on to policyholders in the form of premium rate
changes, so the policyholders will ultimately pay the cost of the City’s denial of the
insurance companies’ claims.

       The Equal Protection Clause requires state actors to treat similarly situated
persons alike, but state actors do not run afoul of the Equal Protection Clause if they
treat dissimilarly situated persons dissimilarly. Ganley v. Minneapolis Park &
Recreation Bd., 491 F.3d 743, 747 (8th Cir. 2007) (internal quotations and citations
omitted). Appellants must show the City treated them differently than similarly
situated claimants. “[B]ecause the appellants are not members of a suspect class and
their claims do not involve a fundamental right, their federal equal protection claim
is subject to rational basis review.” Id. (citing Koscielski v. City of Minneapolis, 435
F.3d 898, 901 (8th Cir. 2006). Under rational basis review, the classification must
only be rationally related to a legitimate government interest. Gallagher v. City of
Clayton, 699 F.3d 1013, 1019 (8th Cir. 2012) (internal citations omitted); Friends of

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the Lake View Sch. Dist. Incorp. No. 25 v. Beebe, 578 F.3d 753, 762 (8th Cir. 2009)
(internal quotations and citations omitted).

       Here, the City distinguished between two classifications of claimants: (1) those
made by claimants, both natural persons and business entities, where insurance did not
cover the loss; and (2) claims made by insurance companies based on losses suffered
by their insureds. The City paid claims to the first classification of claimants but
denied claims made by the second classification of claimants.

       While Appellants contend that they are similarly situated to the first
classification of claimants, we recognize several significant differences between the
two groups. First, the Appellants are insurance companies in the business of assuming
risks of loss on behalf of their insureds. Both American Family and Liberty Mutual
utilize detailed calculations and analysis to compute risks of each insured individual
or entity, then charge policyholders premium rates to assume those risks. Conversely,
the uninsured owners in the Sexton building are not in the business of assuming the
risk of loss on behalf of them. Second, while American Family and Liberty Mutual
each received premium payments, intended to cover the risk of loss, from their
insureds in the Sexton building, the uninsured claimants received no premium
payments from others. This difference in the nature of the losses between the two
groups greatly distinguishes them. The uninsured tenants suffered personal property
damage and needed temporary housing, while Sexton suffered property damage to the
Sexton building, which is its primary asset and revenue source. The insurance
companies, on the other hand, suffered only the loss of the payments made to their
insureds, for which they had already been compensated through the premium
payments from those same insureds. Finally, the losses suffered by the first
classification of claimants were real and immediate losses to personal property caused
by the flood. The losses suffered by Appellants were monetary sums that they were
legally bound to pay pursuant to insurance contracts with their insureds. Due to these
significant differences between the two classifications of claimants and the losses they

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incurred, we conclude the insurance companies are not similarly situated to the
uninsured property owners for purposes of an Equal Protection Clause claim. Carter
v. Arkansas, 392 F.3d 965, 968-69 (8th Cir. 2004) (rejecting equal protection
challenge because plaintiff public school employees failed to show they were similarly
situated “in all relevant respects” to state employees who received different
treatment); Bogren v. Minnesota, 236 F.3d 399, 408 (8th Cir. 2000) (“State actors
may, however, treat dissimilarly situated people dissimilarly without running afoul of
the protections afforded by the [Equal Protection Clause].”); Klinger v. Dep’t of Corr.,
31 F.3d 727, 733 (8th Cir. 1994) (holding that plaintiffs, who were not similarly
situated to others who received different treatment than the plaintiffs, did not suffer
equal protection violations).

       Even if Appellants could demonstrate that they are similarly situated to the
uninsured claimants, they must also show the City’s differential treatment between the
classes of claimants is not rationally related to a legitimate government interest. See
True v. Nebraska, 612 F.3d 676, 683-84 (8th Cir. 2010). The City claims it has a
legitimate interest in protecting the health, safety, and welfare of persons within its
jurisdiction. Because the welfare of its citizens was threatened by the flooding of the
Sexton building, the City contends that it agreed to pay the claims for the uninsured
losses in order to compensate the injured persons quickly and minimize the time that
the uninsured claimants were without housing and suffering uncompensated damage.
On the other hand, the City argues that the losses suffered by the insurance companies
– monetary damages only – were not related to the health, safety, and welfare of its
citizens. Appellants argue the City settled and paid the claims of the uninsured
claimants based on litigation risks and potential sympathy by a jury toward the
uninsured claimants as opposed to an insurance company. Sympathy, according to
Appellants, cannot serve as the rational basis for a distinction made by a state actor
because it is subjective and does not serve the City’s role of protecting its citizens.

                                          -6-
       We are satisfied that the reasons proffered by the City, including protecting the
welfare of its citizens by minimizing the time claimants were without housing and
suffering uncompensated damages, as well as minimizing its own costs and litigation
risks, demonstrate that its settlement decisions were rationally related to legitimate,
government interests. See Stevenson v. Blytheville Sch. Dist. #5, 800 F.3d 955, 972-
73 (8th Cir. 2015) (rejecting an equal protection claim where the defendant, a school
district, had “at least a rational basis” for its differential treatment of dissimilarly
situated students); Kansas City Taxi Cab Drivers Ass’n, LLC v. City of Kansas City,
Mo., 742 F.3d 807, 810-11 (8th Cir. 2013) (denying an equal protection claim where
the plaintiffs failed to meet “the burden of negating every conceivable basis which
might support the classification at issue”) (internal quotations omitted); Weems v.
Little Rock Police Dep’t, 453 F.3d 1010, 1015 (8th Cir. 2006) (recognizing a
legitimate government interest in protecting the health, safety, and welfare of its
citizens). Accordingly, we conclude the district court did not err in granting summary
judgment in favor of the City on Appellants’ Equal Protection Clause claim.

                                          III.

        We now turn to Appellants’ claims regarding both state and federal law takings.
We apply the same de novo review to the district court’s decision to grant summary
judgment on the takings claims as we applied to the Equal Protection Clause claim.
See Life Investors Ins. Co. of Am., 804 F.3d at 912 (internal citation omitted). Private
property may not be taken without just compensation under either federal law or the
applicable state law. U.S. Const. amend. V; Minn. Const. art. I § 13. Under both
Supreme Court and Eighth Circuit precedent, a property owner’s federal takings
claim is not ripe until the property owner has exhausted any available state procedure
for seeking just compensation and been denied. Williamson Cnty. Reg’l Planning
Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 195 (1985) (holding that
“if a State provides an adequate procedure for seeking just compensation, the property
owner cannot claim a violation of the Just Compensation Clause [of the United States

                                          -7-
Constitution] until it has used the procedure and been denied just compensation”);
Dahlen v. Shelter House, 598 F.3d 1007, 1010 (8th Cir. 2010) (holding that a federal
claim is not ripe where the property owner failed to seek just compensation through
any available state procedure); Snaza v. City of Saint Paul, 548 F.3d 1178, 1181-82
(8th Cir. 2008) (same).

       In Minnesota, a property owner has a cause of action for inverse condemnation
when the government has taken property without formally invoking its eminent-
domain powers. Nolan & Nolan v. City of Eagan, 673 N.W.2d 487, 492 (Minn. Ct.
App. 2003) (internal citation omitted). Under Minnesota law, a property owner must
bring an action for inverse condemnation in state court through a mandamus action.
Id. The parties agree that Appellants did not bring such an inverse condemnation
claim through an action for mandamus in Minnesota state court. Appellants allege
that pursuit of a state court mandamus action would have been futile in this case, so
they should be permitted to bring takings claims in this federal action. Appellants
reason that because they used the City’s formal claims process to submit their claims
and the City subsequently denied their claims, a mandamus action in state court would
be futile. However, a Minnesota state court hearing such a mandamus action has the
ability not only to determine whether a taking occurred under the state constitution,
but also to determine the monetary value of the harm inflicted by the taking. City of
Minneapolis v. Meldahl, 607 N.W.2d 168, 172 (Minn. Ct. App. 2000). Such a remedy
can hardly be considered futile.

        Appellants further contend that they can pursue a state takings claim directly
under the Minnesota Constitution because private property was damaged by the
water-main break. In support, Appellants cite only Wegner v. Milwaukee Mut. Ins.
Co., 479 N.W.2d 38 (Minn. 1991) for the proposition that the Minnesota Supreme
Court has permitted a takings action to proceed without requiring the property owner
to file a mandamus action. We first note that Appellants fail to call to our attention,
and we are independently unable to find, any later case citing Wegner for this

                                         -8-
proposition. The Wegner court neither discussed the procedure by which the takings
claims were asserted therein, nor addressed the issue of mandamus. We also
recognize that Wegner specifically notes that a “significant restriction on recovery
under [Article I, section 13 of the Minnesota Constitution] is the requirement that the
taking or damaging must be for a public use.” 479 N.W.2d at 40. Unlike the damage
in Wegner, here the damage caused by the water-main break was clearly not for a
public use. See Wegner, 479 N.W.2d at 40-41 (recognizing that police officers
damaged the appellant’s house during the course of apprehending a suspected felon
and concluding that such a purpose was a public use). Thus, we conclude that
Appellants’ reliance on Wegner is misplaced, and a state takings claim, under these
facts, may not be pursued directly under the Minnesota Constitution in federal court.
Because Appellants failed to pursue the available mandamus action in state court, both
the state and federal takings claims are not ripe for review by the federal district court.

                                           IV.

     For the foregoing reasons, we affirm the district court’s grant of summary
judgment in favor of the City.

MURPHY, Circuit Judge, concurring.

       I respectfully disagree with the majority's conclusion that appellants' state
takings claim was not "ripe for review" by the federal district court due to their failure
to first pursue it through a mandamus action in state court. I do not see why
Minnesota's mandamus requirement for inverse condemnation claims would preclude
such claims from proceeding in the federal courts when there is a basis for federal
jurisdiction. See, e.g., SK Finance SA v. La Plata Cty., Bd. of Cty. Comm'rs, 126
F.3d 1272, 1276 (10th Cir. 1997) (rejecting argument that state inverse condemnation
claim must be brought through Colorado's "special judicial procedure for

                                           -9-
condemnation claims" where federal diversity jurisdiction existed); see also White v.
Cty. of Newberry, S.C., 985 F.2d 168, 172 (4th Cir. 1993) (exercising supplemental
jurisdiction over state takings claim brought in conjunction with federal CERCLA
claim).

       Other circuit courts have recognized that federal courts may exercise
jurisdiction over state law inverse condemnation claims even when a related federal
takings claim is unripe. See SK Finance, 126 F.3d at 1276; Vulcan Materials Co. v.
City of Tehuacana, 238 F.3d 382, 385–86 (5th Cir. 2001) (diversity jurisdiction). I
see no reason to adopt a different rule in this case; the Minnesota cases on which the
majority relies address state court procedural requirements and have no bearing on
the issue of federal jurisdiction. See Nolan & Nolan v. City of Eagan, 673 N.W.2d
487 (Minn. Ct. App. 2003); City of Minneapolis v. Meldahl, 607 N.W.2d 168 (Minn.
Ct. App. 2000). Accordingly, while I agree with the majority that appellants' federal
takings claim is not ripe for review, I do not agree that this conclusion extends to their
related state claim.

       I nonetheless concur in the judgment because appellants have not advanced any
arguments showing federal jurisdiction over their inverse condemnation claim.
Contrary to appellants' assertions, the district court need not have exercised
supplemental jurisdiction over their state takings claim since the related federal claims
were properly dismissed. See, e.g., Hervey v. Cty. of Koochiching, 527 F.3d 711,
726–27 (8th Cir. 2008) (when federal claims correctly dismissed, pendent state claims
should be dismissed without prejudice). Further, while appellants' complaint alleges
that the parties are diverse, they argue on appeal only that the district court should
have exercised supplemental jurisdiction over their state takings claim (they did not
raise diversity jurisdiction as in SK Finance and Vulcan Materials). I would therefore
not reverse the district court on this basis. See, e.g., U.S. ex rel. Ramseyer v. Century
Healthcare Corp., 90 F.3d 1514, 1518 n.2 (10th Cir. 1996) ("Our duty to consider
unargued obstacles to subject matter jurisdiction does not affect our discretion to

                                          -10-
decline to consider waived arguments that might have supported such jurisdiction.")
(emphasis in original). I therefore concur in the court's judgment affirming the district
court's grant of summary judgment to the City.
                        ______________________________

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