What Creates a Protected Property Interest?
Businesses often rely on assurances from city officials when planning major investments, particularly in heavily regulated industries like cannabis. But not every assurance creates a legally enforceable right. A recent decision from the Sixth Circuit in Naturale & Co. v. Eck illustrates that even when a city clerk appears to approve a project, a business may have no constitutional claim if the ordinance and the official’s authority do not back the assurance up.
What Does It Take to State a Substantive Due Process Claim?
The Due Process Clause of the Fourteenth Amendment prohibits a state from depriving any person of life, liberty, or property without due process of law. To succeed on a substantive due process claim under 42 U.S.C. § 1983, a plaintiff must show two things: (1) a constitutionally protected interest, and (2) that the government deprived it of that interest through arbitrary and capricious action.
The threshold question is whether the plaintiff has a protected property interest at all. The Constitution does not create property interests; they are created and defined by independent sources such as state law. To have a property interest in a particular benefit, a plaintiff must have more than an abstract need, a desire, or unilateral expectation. It must have a legitimate claim of entitlement, grounded in existing rules or understandings.
What Happened in the Case?
In Naturale, a company sought to open a marijuana dispensary in Hamtramck before the City enacted an ordinance restricting new retailers. The city clerk signed the state attestation form and allegedly told the company it would be “grandfathered in” notwithstanding the impending ban. Days later, the City passed the ordinance, and the State of Michigan ultimately declined to issue a license based on the City’s notification that the proposed dispensary did not comply with local law. The Sixth Circuit affirmed summary judgment for the City, holding that the company had no protected property interest because the city clerk lacked authority to bind the City. Under Michigan law, a municipal officer can bind the municipality only if empowered to do so by the city charter, an ordinance, or other law, and the clerk’s duties did not include the power to abrogate, modify, or clarify city ordinances. The court also reaffirmed that a business acquires no vested right to use property for a purpose forbidden by law, even where a municipal officer has issued prior approvals inconsistent with the ordinance.
Lessons for Businesses Dealing with Municipalities:
The takeaways extend well beyond cannabis. Any business making investments in reliance on a municipal official’s representations should verify two things: that the assurance is in writing, and that the official actually has authority under the relevant charter or ordinance to give it. Signatures on state forms, verbal grandfathering promises, and approvals of collateral permits are not substitutes for the underlying legal authority. Before committing capital, confirm that the proposed use complies with every ordinance in effect at the time of application, and treat any pending or contemplated regulatory change as a real risk rather than something an official can dismiss. When the ordinance and the officer’s authority do not align with the assurance, a substantive due process claim will rarely fill the gap.