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Direct Construction Services, LLC v. City of Detroit

United States District Court, E.D. Michigan, Southern Division

April 29, 2019

CITY OF DETROIT, MAYOR MICHAEL EDWARD DUGGAN, DETROIT LAND BANK AUTHORITY, TAMMY DANIELS, in her official capacity, IRENE TUCKER, in her official capacity, BOYSIE JACKSON, in his official capacity, RON CRAWFORD, in his official capacity, TIMOTHY M. PALAZZOLO, in his official capacity, BRIAN FARKAS, in his official capacity, jointly and severally, Defendants.



         In this civil rights action, filed under 42 U.S.C. §§ 1981 and 1983 and the Michigan Elliot-Larsen Civil Rights Act, Mich. Comp. Laws § 37.2501, et seq. (“the ELCRA”), Plaintiffs allege that they have been discriminated against on the basis of race in the performance of contracts for the demolition of blighted properties in the City of Detroit. Plaintiffs allege that “Defendants” have wrongfully suspended contracts with the Plaintiffs and have discriminated on the basis of race in the implementation of the “Hardest Hit Homeowners Demolition Program, ” including failing to timely pay black contractors in comparison to their white counterparts, improper and disparate discipline of black contractors, and retaliation against black contractors on the basis of race. (ECF No. 1 Complaint ¶ 26.)

         Each of the “entity Defendants, ” the City of Detroit, the Detroit Building Authority (“the DBA”), and the Detroit Land Bank Authority (“the DLBA”), has filed a motion to dismiss the Plaintiffs' Complaint. (ECF Nos. 10, 25, 29.) The motions have been fully briefed and the Court held hearings on February 27, 2019, March 7, 2019, and March 13, 2019. Because Plaintiffs have sued municipal entities and individual Defendants purportedly employed by those entities in their official capacities only, and fail to properly plead that an official policy or custom was the moving force behind any claimed constitutional violation, and because Plaintiffs fail to properly plead that any similarly situated white contractors engaged in similar conduct but were treated differently, the Court GRANTS the motions to dismiss Plaintiffs' federal claims and declines to exercise supplemental jurisdiction over Plaintiffs' state law claims.


         Plaintiff Direct Construction Services, LLC (“DCS”) performs demolition work on properties throughout the City of Detroit and Plaintiff Timothy Drakeford is the managing member of DCS. (Compl. ¶¶ 2, 34.) Plaintiff DCS is a minority owned and operated company located in the City of Detroit and Timothy Drakeford is of African-American descent. (Compl. ¶¶ 30-32.) Plaintiffs allege that the DLBA and the DBA are quasi-municipal corporations pursuant to MCR 2.105. Plaintiffs sue the City of Detroit Mayor Mike Duggan without reference to capacity.[2] (Compl. ¶ 4.) Plaintiffs sue each of the remaining individual Defendants only and expressly in their official capacities: Tammy Daniels is sued in her official capacity, allegedly as the Executive Director of the DLBA; Irene Tucker is sued in her official capacity, allegedly as the Chief Financial Officer of the DLBA; Boysie Jackson is sued in her official capacity, allegedly as the Purchasing Director for the City of Detroit; Ron Crawford is sued in his official capacity, allegedly as the Compliance Officer for the City of Detroit; Brian Farkas is sued in his official capacity, allegedly as the Demolition Special Projects Director for the DBA; and Timothy Palazzolo is sued in his official capacity, allegedly as the Demolition Operations Manager for the City of Detroit. (Compl. ¶¶ 5-12.)

         The Complaint alleges that the federal Home Affordable Modification Program (“HAMP”) created a component entitled the “Hardest Hit Funds, ” for states with exceptionally high mortgage foreclosures, and Michigan was identified as one of those states. The Hardest Hit Funds program initially provided assistance to individual homeowners with mortgage and tax foreclosures but was expanded to permit local municipalities to designate funding for demolition of residential housing that posed a safety and/or health risk, as many homes remained vacant after foreclosure, creating blight and safety concerns in the affected communities. (Compl. ¶¶ 19-20.)

         The City of Detroit was awarded funds from the Hardest Hit Fund and created a Demolition Program for the utilization of those funds, which was ultimately implemented through the DLBA, with the Michigan State Housing Authority (“MSHDA”) acting as the federal fiduciary. The DBA acted as the management agent for the City of Detroit to coordinate and implement the Demolition Program. (Compl. ¶ 21, Ex. 2, Demolition Management Agreement between the City of Detroit and the DBA 1, (“the DMA”) PgID 28.) The DMA was between the City of Detroit, acting through its Department of Housing and Revitalization (“DHR”) and its Buildings, Safety, Engineering and Environmental Department (“BSEED”) on the one hand, and the DBA on the other. (Id.)[3] The DMA states that the City desires to engage the services of the DBA to coordinate and implement the Demolition Program, defined as “the City's plan for the demolition of blighted and dangerous residential and commercial improvements located in the City.” (Id. 2, PgID 29.) The DMA defines the City's duties in part as follows:

A. The City shall engage in a timely fashion such Contractors, as shall be necessary to complete demolition activities approved as part of the Annual Demolition Plan.
B. The City shall require in its contracts with Contractors that all such Contractors comply with the City of Detroit Demolition Policies and Procedures . . . .
C. All costs and expenses of the Contractors shall be paid by the BSEED and DHR as applicable when such costs and expenses become due, and the DBA shall have no obligation to pay such costs.
D. The City shall enter into one or more written contracts for the demolition components of the Project.

(Id. 2-3, ¶ 4, PgID 29-30.) The DMA then designates certain contractual provisions that must be contained in any contract or subcontract executed by the City or its contractors in connection with the Demolition Program. (Id. 3-4, PgID 30-31.) The DMA also defines specific duties of the DHR, defined under the DMA as one of the acting entities for the City, which include “working in conjunction with the City Purchasing Department [to] qualify and procure the services of demolition contractors, professionals, and other vendors” through an approved procurement process and “monitor[ing] the progress of project implementation and expenditure of funds.” (Id. 5, ¶ 5, PgID 32.) The DMA provides that the parties to the DMA agree that they shall comply with all laws governing fair employment practices and equal employment opportunity in connection with execution of their duties under the DMA. (Id. 7, ¶ 9, PgID 33.)

         As part of the Demolition Program, minority contractors were solicited and encouraged to bid on demolition contract packages “to enhance their businesses and perform viable work for the Detroit Land Bank Authority and improv[e] the quality of life for the citizens of the City of Detroit.” (Compl. ¶¶ 22-23.) When it came to light that there were “issues” with the amount of money being charged for demolition under the DLBA Demolition Program that was funded with Hardest Hit Fund dollars, some contractors including the Plaintiffs were asked to change bidding and cost numbers after the initial invoicing to reflect compliance under the Hardest Hit Homeowners guidelines. Plaintiffs refused to make changes in their numbers post- bidding and invoicing, as was reported in the Detroit News on November 3, 2016. (Compl. ¶¶ 24-25, Ex. 3, Detroit News Article.)

         Plaintiffs, who were licensed and certified residential builders, (Compl. ¶¶ 4-10), bidded on and were awarded three (3) contracts for demolition work by the DLBA, which had “allocated a portion of its Hardest Hit Funds to demolition funds to provide for funding neighborhood improvement projects for demolition of residential properties.” (Compl. ¶ 34, Ex. 11, February 18, 2016 DLBA Demolition of Residential Properties Agreement BID Group 11.12A; April 4, 2016 DLBA Demolition of Residential Properties Agreement BID Group 4.7.16B) (“the Demolition Contracts”). Under the Demolition Contracts, the Plaintiffs were “to provide demolition work necessary to demolish and remove [certain] residential properties.” (Compl. Ex. 11, PgID 82.) Plaintiffs allege that receiving payment under the Demolition Contracts was much more difficult for Plaintiffs to obtain from DLBA than for “larger white companies, such as Adamo and Homrich.” Plaintiffs also allege that minority contractors were forced to do work outside the scope of the Demolition Contracts, such a cleaning trash from previously-cleared properties. (Compl. ¶ 35, PgID 9.) Plaintiffs allege that this “unfair treatment” became very noticeable and “an investigation into the hefty payments to white companies began.” Plaintiffs allege that after the DLBA and DBA learned they had been overpricing, they asked contractors “to adjust their numbers to fit within the designated cost cap.” (Compl. ¶ 36, PgID 9.) Plaintiffs allege that they refused to comply and refused to adjust their numbers.

         Plaintiffs allege that they had been performing under the two contracts they had been awarded for a total of 48 homes when Plaintiffs received an immediate “Stop Work Order” in a letter dated December 19, 2016, from DLBA. (Compl. ¶ 37, PgID 9, Ex. 12, December 19, 2016 Stop Work Order.) Plaintiffs allege that there was no explanation given for the Stop Work Order, but the letter itself, which is attached to the Plaintiffs' Complaint, states that it is being issued due to “an ongoing investigation by the Office of the Inspector General [“OIG”] of the City of Detroit into work performed by Direct Construction Services, LLC.” (Compl. Ex. 12.) Plaintiffs allege that “interestingly, ” Plaintiffs received a new DBA-issued “Policy on Contractor Discipline” dated December 22, 2016, just three days after receiving the Stop Work Order from DLBA. (Compl. ¶37, PgID 9, Ex. 13.) This policy “describes penalties to be imposed by the City of Detroit and the DLBA should a contractor fail to perform any required component of the abatement, demolition, reporting or invoicing process.” (Compl. Ex. 13, PgID 119) (emphasis added). It also gives “the City, the DLBA, and the DBA” the authority to declare a contractor in default under any contract to do work for the City or the DBA or the DLBA. (Id.)

         The OIG Report states that the OIG received a complaint from the DLBA on December 1, 2016, regarding an alleged falsification of sidewalk photographs submitted to DLBA by DCS. (Compl. ¶ 44, Ex. 21, February 1, 2017 OIG Report.) The Report states that the DLBA's Requests for Proposals (“RFP's) detail contractor requirements regarding before and after photographs of sidewalks, drive approaches, neighboring residences and/or structures, surrounding properties to be demolished - contractors are required to protect sidewalks from damage or pay to repair or replace, and thus are required to take before and after photographs of the sidewalk areas. (OIG ...

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