Where the First Amendment and Land Use Meet: Planet Aid v. City of St. Johns

Generally speaking, land use regulations and zoning laws arise from practical and aesthetic concerns and considerations, and are driven by state and local law. However, sometimes a community’s desire to regulate a seemingly minor issue can implicate our most fundamental rights under the Constitution. Last month, we discussed the Supreme Court’s decision in Reed v. Town of Gilbert, which involved an analysis of the First Amendment’s applicability to local sign ordinances. Finding that restricting signage based on the content of the sign was impermissible under the First Amendment, the Supreme Court struck down Gilbert’s ordinance. Commentators have since described this as the “sleeper case” of the Supreme Court’s term, representing a substantial shift in First Amendment jurisprudence. The case has since been used to justify striking down local and state bans on political “robocalls” and panhandling, and could possibly extend to call in to question laws aimed at consumer protection and securities law. Indeed, Reed and the reaches of the First Amendment are currently in the forefront of controversies involving everything from soda labelling, to the rights of topless performers operating in Times Square.

However, the Supreme Court has not been the only Court to recently address the Constitutional implications of land use regulation. In April, prior the Supreme Court’s decision in Reed, the Sixth Circuit Court of Appeals (which includes Kentucky) reviewed an ordinance banning charitable donation bins as a public nuisance. Planet Aid, a nonprofit charity, placed outdoor donation bins on private property around the town of St. Johns, Michigan in an effort to solicit clothing donations. Believing that the bins constituted a nuisance, in that clutter and trash often collected around them, the City of St. Johns removed Planet Aid’s donation bins. Later, the city enacted an ordinance banning these unattended charitable bins. The Sixth Circuit, applying the same strict scrutiny standard subsequently applied in Reed, found that this ban of unattended charitable donation bins appears to be an impermissible content-based regulation of First Amendment-protected speech, and affirmed the District Court’s grant of a preliminary injunction.

Vertical image of the the first page of the US Bill or Rights on the American flagConsider that again for a moment: the Sixth Circuit has held that the mere presence of a standalone, outdoor, unattended donation bin implicates our rights of free speech and expression.

However, this conclusion is not as extreme as it may seem at first glance. The notion of charitable solicitations as speech is not new to First Amendment jurisprudence; as the Sixth Circuit pointed out in favor of upholding the injunction, it has a long history of protected status. In the Court’s view, even unattended donation bins inherently solicit and advocate for charitable causes, and thus are a form of speech. The court likened such bins to a person standing by the side of the road and holding a sign. The ordinance, the Court found, impermissibly attempted to regulate the content of its speech, as the ban applied only to charitable donation bins and not all varieties collection bins. Thus, bins with a charitable purpose were prohibited, where other bins, like recycling bins, would be free from restriction.

With hindsight, we can now see that the decision in Planet Aid tracks the same content-regulation rationale the Supreme Court espoused some two months later in Reed. These decisions should have state and local governments scrambling to review their regulations for potentially serious Constitutional defects. Cases like Reed and Planet Aid will likely have wide-ranging impacts on any variety of land use restrictions. Few laws survive “strict scrutiny” judicial review, and it appears that any regulation of any component of expression that regulates based on content will now be subject to that level of review. As such, even seemingly mundane land use restrictions must now be evaluated as potential infringements on some our most basic rights. The attorneys at McBrayer can assist local governments in reviewing their regulations for compliance with the brave new world of Reed and Planet Aid, working to bring regulations within acceptable Constitutional limits.

Jacob C. WalbournJacob C. Walbourn is an associate in McBrayer’s Lexington office. Mr. Walbourn focuses his area of practice on planning and zoning law handling a wide variety of land use matters for clients in the private sector. His responsibilities include attending Planning Commission and Board of Adjustment hearings and working with developers, business owners, and government agencies on land use applications, zoning ordinance text amendments, comprehensive plan updates and other land use issues. He can be reached at jwalbourn@mmlk.com or (859) 231-8780, ext. 102.

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Debtors May Want To Take It All Off, But The Supreme Court Says Junior Liens Can’t Be Stripped

It’s not an uncommon sight, especially in light of the burst of the housing bubble in recent years: a debtor in bankruptcy has two mortgages on a property with a fair market value of less than the amount of the senior mortgage. The junior mortgage lien is then wholly underwater, so that creditor would receive nothing from the sale of the property. The question then becomes, can the debtor void those liens in a Chapter 7 bankruptcy proceeding? The Supreme Court, in an increasingly rare show of unanimity, said “No.”

Section 506 of the Bankruptcy Code says, “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.”[1] In Bank of America v. Caulkett,[2] the debtors wished to use this provision to strip away the underwater junior liens on their properties. The argument is that, even though the claims from the banks holding the junior mortgage liens are “allowed,” they are no longer “secured.” The definitions under §506(a)(1) seem to bear this out, stating that an allowed claim “is a secured claim to the extent of the value of such creditor’s interest.”[3] If the lien is not supported by some sort of value in the collateral, the argument goes, then it is not actually secured.

Serious judge about to bang gavel on sounding block in the court room

Predicated on their reading of Dewsnup v. Timm,[4] the Court found otherwise, holding that the junior lien could not be stripped in the proceedings. Dewsnup foreclosed such lien stripping as in the case in Caulkett, suggesting that if an allowed lien is secured with recourse to the underlying collateral, it does not matter if the value of the collateral does not secure the full amount of the lien. Effectively, such a lien does not fall within the scope of §506(d), as it is both “allowed” and, under Dewsnup, “secured.”

Justice Thomas, writing for the majority, did take time to criticize the result in Dewsnup, suggesting that it did not adhere to tenets of standard textual construction in giving what he perceived as two different definitions in related sections of the same code. Thomas hinted strongly that the court may be willing to overrule Dewsnup, but declined to do so.

The result in this case is not surprising in light of Dewsnup¸ which most courts have relatively ignored save for the very specific circumstances at issue in that case. If a debtor in bankruptcy could strip the junior lien and ultimately keep the property, the debtor would then receive the value of any appreciation in the property, free from the junior lien. Caulkett is a clear win for lenders willing to provide junior mortgages, but a much bigger loss for those with second mortgages on underwater properties. Also, this ruling could stall loss mitigation negotiations as junior mortgage lienholders can maintain an effective veto over talks between the senior mortgage lender and the debtor. At the same time, loan modifications from senior mortgage holders can only make the debtor more solvent and better able to pay the junior lien as well. For more information about how the Caulkett decision affects lenders and property owners with second mortgages, or assistance with mortgage liens, contact the attorneys at McBrayer.

BMacGregorBrittany C. MacGregor is an associate attorney practicing in the Lexington office of McBrayer, McGinnis, Leslie & Kirkland, PLLC. She is a graduate of Transylvania University and the University of Kentucky College of Law. Ms. MacGregor’s practice focuses on real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, and lease negotiation and preparation. She may be reached at bmacgregor@mmlk.com or at (859) 231-8780.

[1] 11 U.S.C. §506(d)

[2] Bank of America, N.A. v. Caulkett, No. 13-1421, ___ U.S. ___ (June 1, 2015).

[3] 11 U.S.C. §506(a)(1)

[4] Dewsnup v. Timm, 502 U.S. 410 (1992).

Public Improvement Liens on Government-Owned Projects

While prior blog posts have discussed the basics of mechanics liens as they relate to private construction projects, this post addresses public improvement liens on property owned by the state, a subdivision or agency thereof, or by any city, county, urban-county, or charter county government (hereafter collectively “Government Entity”).[1] As one may imagine, while the principle purpose behind the filing of public improvement liens and private mechanics liens is the same (i.e. to ensure payment for labor, materials and/or supplies furnished on the project), perfection and enforcement of public improvement liens on property owned by a Government Entity differs significantly from the perfection and enforcement of mechanic’s liens against privately owned property.

KRS 376.210 et seq. addresses the filing and perfection of public improvement liens as they relate to property owned by a Government Entity. As you will note below, the time frames for filing and perfecting public improvement liens on property owned by a Government Entity are shorter than for private mechanic’s liens. However, the most significant difference is that, where the property is owned by a Government Entity, the lien claimant has a lien on the funds due the general contractor from the owner of the property improved rather than a lien on the property itself (as with a private mechanic’s lien).[2] The public improvement lien shall be for the full amount owed for labor, materials and/or supplies furnished on the public project and shall be superior to all other liens created thereafter.[3]

The statement of public improvement lien must be filed by the lien claimant within sixty (60) days after the last day of the month in which any labor, materials and/or supplies were furnished or by the date of substantial completion, whichever is later.[4] The lien statement must include the amount due, the date on which labor, materials and/or supplies were last furnished, and the name of the public improvement upon which the public improvement lien is claimed.[5] The lien statement must be filed in the county clerk’s office of the county in which the seat of government of the owner of the property is located.[6]

Prague ,Czech Republic - June 14, 2011:Yellow Cut truck on the highway construction in front of Ruzyne Airport.The Cat brand is the cornerstone Caterpillar representing products and services made by Caterpillar. ** Note: Visible grain at 100%, best at

Once the lien statement has been filed, in order to properly perfect the lien on the funds, the lien claimant must deliver an attested copy of the lien statement to the public authority which contracted for improvement of the subject Government Entity-owned property and must file with that public authority a signed copy of a letter addressed to the contractor owing the lien claimant monies, along with a post office receipt, showing that an attested copy of the lien statement has been sent by the lien claimant to the contractor via certified mail.[7] At that point, the lien claimant shall have a lien on the funds due the contractor which is superior to any subsequently perfected liens.[8]

The public authority is then required to endorse on the attested copy of the lien statement the date if its receipt and shall deduct and withhold the amount claimed from any amount due the contractor or which may become due the contractor.[9] Unless the contractor, within thirty (30) days after delivery of the attested copy of the lien statement, files a written protest with the public authority disputing the correctness of the amount or its liability for payment to the lien claimant, the public authority will pay the lien claimant the amount withheld.[10] If the contractor does file a written protest with the public authority within the 30 day time period, the public authority is required to promptly provide the lien claimant with written notice of such protest and shall continue to hold the withheld amount until directed by the contractor to make payment to the lien claimant or until it is directed to do so by a court of competent jurisdiction.[11] The lien claimant must then file suit for enforcement of its lien and have summons served on the public authority within thirty (30) days after written notice of the protest is mailed to the lien claimant or the lien shall be automatically released and the withheld funds paid to the contractor.[12] All lawsuits for the enforcement of a public improvement lien must be filed in the Circuit Court of the county in which the property on which the labor, materials and/or supplies are provided (except where the property is owned by a public university).[13]

The time frames for filing and perfecting a public improvement lien as opposed to a private mechanic’s lien are much shorter and the requirements for perfecting such a lien are very specific. A public improvement lien is an effective tool to ensure payment for labor and/or materials supplied by the lien claimant on a public project owned by a Government Entity. However, as is clear, such a tool must be used with precision and efficiency.

For more information about public improvement liens or liens in general, contact the attorneys of McBrayer.

BYatesBrendan Yates joined the Lexington office of the firm as an associate in 2002. Brendan is a member of the firm’s Litigation Department, where he focuses his practice on construction and real estate litigation, workers’ compensation defense litigation, insurance defense and commercial litigation. He has successfully defended his clients in state and federal courts, the Kentucky Court of Appeals, the Kentucky Supreme Court, and in administrative agency proceedings in Kentucky. He can be reached at byates@mmlk.com or (859) 231-8780, ext. 208.

This article is intended as a summary of state and federal law and does not constitute legal advice.

[1] The information contained herein is intended as a general overview of the basic requirements for filing and perfecting a public improvement lien. It is not exhaustive and does not contain a detailed procedure for the filing and perfection of such liens.

[2] KRS 376.010(1).

[3] KRS 376.210.

[4] KRS 376.230(1).

[5] Id.

[6] KRS 376.230(2).

[7] KRS 376.240.

[8] KRS 376.240.

[9] KRS 376.250(1).

[10] KRS 376.250(2).

[11] KRS 376.250(3).

[12] KRS 376.250(4).

[13] KRS 376.250(5).

Disparate Impact Claims Fair Game under the Fair Housing Act

The United States Supreme Court, in a five-to-four decision in June, brought housing discrimination law ever-so-slightly more in line with Title VII of the Civil Rights Act of 1964 (“Title VII”) by holding that claims of disparate impact are cognizable under the Fair Housing Act (“FHA”). The court took great pains, however, to limit the impact of the holding as well as putting a substantial onus on a plaintiff to prove causal connections between challenged policies and alleged disparities.

“Disparate treatment” has been the standard under the FHA until the June holding and requires the plaintiff to show that the defendant had a discriminatory intent.   “Disparate impact” describes a scenario where a challenged practice has a disproportionate and adverse effect on minorities. It is a much lower standard for a plaintiff to prove, as direct evidence of discriminatory intent is difficult to come by, and it has been a cornerstone of Title VII case law for decades. In the case Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., the Supreme Court adopted the disparate impact standard but blunted its effect.

Large rental suburban apartment building detail on perfect spring day

In Inclusive Communities, the Texas Department of Housing and Community Affairs (“Department”) distributed federal tax credits to developers as part of a program to encourage the construction of low-income housing. The Inclusive Communities Project, a nonprofit that assists low-income families with affordable housing, sued the Department, showing that 92.29% of the units allocated the tax credits were in census tracts with less than 50% Caucasian residents. The approval rate of these credits was also far higher in areas with very low white populations, decreasing dramatically in areas with 90% to 100% Caucasian residents. Both the trial and appellate courts held in favor of Inclusive Communities, recognizing the disparate impact claim under the FHA.

The Supreme Court upheld the disparate impact claim in Inclusive Communities, but it set limits to how courts can approach the matter to protect against potential abuses under the FHA. The court held that racial imbalance without more is not enough to prove a claim of disparate impact. The plaintiff also has a significant burden to establish a truly robust connection between the challenged practice and the disparate impact alleged. Defendants can justify their policies so long as they are not “artificial, arbitrary, and unnecessary barriers.” Plaintiffs must then show that there is an available alternative that will serve the defendant’s legitimate needs and has less disparate impact. The court finally held that any remedial orders under a disparate impact theory must focus on “the elimination of the offending practice” using “race-neutral means.”

Ostensibly, the Inclusive Communities case is a win for the disparate impact theory in FHA cases, but the Supreme Court really does split the difference in trying to limit the availability of the remedy. The court set strictures to reign in the application of disparate impact claims, giving defendants more breathing room under the FHA for implementation of “valid governmental policies.” Still, housing authorities and governmental entities should cautiously review plans with an eye toward disparate impact claims under the FHA.

For more information about the Fair Housing Act or the holding in Inclusive Communities, contact the attorneys at McBrayer.

Preston WorleyPreston Clark Worley is an associate with McBrayer, McGinnis, Leslie & Kirkland, PLLC. Mr. Worley concentrates his practice in employment law, land development, telecommunications, real estate and affordable housing. He is located in the firm’s Lexington office and can be reached at pworley@mmlk.com or at (859) 231-8780.

This article is intended as a summary of  state and federal law and does not constitute legal advice.