Date: 07-27-2023

Case Style:

Zvitaliy Strizheus v. The City of Sioux Falls, South Dakota

Case Number: 4:23-CV-04028

Judge: Roberto A. Lange

Court: United States District Court for the District of South Dakota (Minnehaha County)

Plaintiff's Attorney: Jeana Goosmann, Patrick Borchers

Defendant's Attorney: Claire E. Wilka and William C. Garry

Description: Sioux Falls, South Dakota civil rights lawyers represented Plaintiff who sued Defendants taking of property without just compensation.


Plaintiffs Vitaliy and Nataliya Strizheus (collectively “Plaintiffs”) seek a preliminary injunction to prevent Defendant the City of Sioux Falls (“the City”) from enforcing a final state court judgment permitting the razing of Plaintiffs' partially constructed mansion because of past violations of the City's code. Razing of the home would be an incredibly wasteful, unfortunate, and somewhat irrational undertaking. However, under the facts and applicable law, Plaintiffs have failed to make a sufficient showing to justify a federal district court entering a preliminary injunction that effectively would overturn state court decisions on matters of state law. Nothing in this decision prevents Plaintiffs from pursuing federal constitutional claims for a Fifth and Fourteenth Amendment taking without just cause or an Eighth and Fourteenth Amendment claim for excessive fine or from seeking relief in state court, if the City proceeds to demolish the structure.

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I. PROCEDURAL AND FACTUAL HISTORY

The City had given notice that it would raze Plaintiffs' partially constructed mansion beginning on February 27, 2023. Plaintiffs filed this suit on February 17, 2023, ten days before the start of the City's planned demolition, Doc. 1, and then sought a motion for preliminary injunction on February 19, 2023, Doc. 3. This Court set and held an evidentiary hearing on the motion for preliminary injunction on February 24, 2023, the Friday before the date the City gave for demolition to begin. At the close of the hearing, the City agreed at this Court's request to wait for a 28-day period both because of the volume of snow on the ground and to allow additional time for the parties to brief and this Court to rule on the preliminary injunction motion. This Court then entered an order directing that the City take no action to raze Plaintiffs' home for 28 days (until March 27, 2023) and reserving decision on the preliminary injunction motion until then to allow the parties to explore settlement and to submit any further brief on issues framed by the hearing. Doc. 23.

Plaintiffs filed an Amended Complaint on March 3, Doc. 30, dropping both certain city officials as named defendants and their claims under 42 U.S.C. § 1983 for violation of the equal protection clause and civil conspiracy for alleged discrimination against them as Ukrainians.[1] The City filed a post-hearing supplemental brief and affidavit, Docs. 31-32, and Plaintiffs filed a

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supplemental brief, Doc. 33.[2] Though it would be far more rational for the parties to resolve this dispute through perhaps auction or other prompt sale of the house to someone who would quickly finish it, the parties have not settled the dispute.

This Court draws the facts from the testimony and exhibits from the February 24 hearing, the materials of record not being contested, and the decision of the Supreme Court of South Dakota in the underlying litigation.[3] Plaintiffs Vitaliy and Nataliya Strizheus married in 2004 and have seven children. Both emigrated from Ukraine to Sioux Falls, Vitaliy arriving when he was 12 and Nataliya arriving when she was 14. Nataliya is a stay-at-home mother, while Vitaliy has been involved with online marketing of others' products and established The Four Percent Group LLC apparently to sell instructions on how to profit from online marketing.

In 2013, Plaintiffs bought lots at 6800 South Westfield in southern Sioux Falls, intending to build a 10,000 square foot, custom-made dream mansion on the lots. Plaintiffs were denied the construction loan they sought and instead decided to self-finance construction. The City issued a building permit on August 12, 2013, to Plaintiffs' initial general contractor, Creative Building Corporation, to start residential construction. In 2015, a client who represented 90% of Vitaliy's business income went bankrupt, and the following year Vitaliy's father was diagnosed with cancer. Progress on the partially constructed mansion stalled in 2015 due to the inability of Plaintiffs to

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finance further construction. Apparently, only the shell of the home was completed or partially completed at that point.

The partially completed home was vandalized multiple times by local juveniles according to the Plaintiffs. On one occasion in or around 2016, a swastika[4] was painted on a concrete wall of the partially completed home, Exh. 5, although there is no evidence that the City in any way endorsed that abomination. Neighbors complained to the City about the stalled construction and condition of the lot. A city attorney testified at the preliminary injunction hearing that he accompanied a city inspector to the site and found it unsecured with pigeons living inside; the city attorney considered the home to be a nuisance.

On August 31, 2016, the City found the house to be an unsafe structure as defined by Section 108.1.1 of the International Property Maintenance Code (IPMC) and unfit for human occupancy as defined by Section 108.1.3 of the IPMC.[5] City of Sioux Falls v. Strizheus, 984 N.W.2d 119,121 (S.D. 2022). The City had adopted the IPMC through Sioux Falls City Ordinance (SFCO) 150.095, subject to certain amendments, additions and deletions as set forth in SFCO 150.096. Id. at 121-22. That code provision states:

The code official shall order the owner or owner's authorized agent of any premises upon which is located any structure, which in the code official's or owner's authorized agent judgment after review is so deteriorated or dilapidated or has become so out of repair as to be dangerous, unsafe, insanitary, or otherwise unfit for human habitation or occupancy, and such that it is unreasonable to repair the

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structure, to demolish and remove such structure; or if such structure is capable of being made safe by repairs, to repair and make safe and sanitary, or to board up and hold for future repair or to demolish and remove at the owner's option; or where there has been a cessation of normal construction of any structure for a period of more than 18 months, the code official shall order the owner or owner's authorized agent to demolish and remove such structure.

Id.; SFCO § 150.096.

The City on September 2, 2016, issued a notice of demolition ordering the Plaintiffs to begin demolition of the home within 20 days of receipt of the notice. City of Sioux Falls, 984 N.W.2d at 121; Doc. 32-1. Plaintiffs appealed the order for demolition to the Property Maintenance Board of Appeals, which granted them an extension until December 1, 2016, to complete the exterior of the home. City of Sioux Falls, 984 N.W.2d at 122. Plaintiffs failed to complete the home exterior by that date. Id.

On September 22, 2017, the City issued an amended notice and order for demolition to the Plaintiffs, finding the structure to remain in violation of the City's ordinance, and requiring completion of demolition by November 11, 2017. Id.; Doc. 32-2. Plaintiffs neither appealed this order nor demolished the partially completed house. City of Sioux Falls, 984 N.W.2d at 122. The City then filed a complaint in state court in December of 2018, seeking enforcement of its ordinance and the order for demolition thereunder. Id. The City alleged that it had issued at least seven building permits since the initial permit in 2013 and that each had been suspended or cancelled due to a lack of progress or inspection. Id. Plaintiffs took out additional permits but did not initially hire an attorney, and the City sought default judgment. Id. Plaintiffs then hired an attorney, contested default judgment, and represented that they expected to complete the exterior of the home by October 1, 2019. Id. The case then languished.

More than two years later, the City filed a motion for summary judgment and statement of undisputed materials facts, with several affidavits including nearly identical affidavits from three

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neighbors, the chief building official's affidavit, and an affidavit from Plaintiffs contractor Troy Stallings of Creative Building Corporation. Id. at 122-23. The City's submissions established that Plaintiffs had not made any significant progress since 2015 toward completion of the home and indeed the general contractor no longer had an agreement in place with Plaintiffs, had canceled the insurance, and had done no work since 2015. Id.

Plaintiffs at this point in the state litigation were proceeding again without an attorney, did not file a response to the statement of undisputed material facts, and countered with unsworn statements about intending to complete the home and having arrangements to do so. Id. at 123. Plaintiffs made none of the claims raised in their Complaint, Amended Complaint, or proposed Second Amended Complaint-that the demolition would be a takings clause violation under the Fifth and Fourteenth Amendments and an Excessive Fine under the Eighth and Fourteenth Amendments, that the City and its officials were acting with ethnic animus and engaged in a civil conspiracy to deprive Plaintiffs of their constitutional rights, that the ordinance was unconstitutional, or that the City is estopped to enforce demolition orders by having granted permits during the pendency of the state case. The state judge granted summary judgment, concluding that the City had shown that normal construction had ceased for over eighteen months. Id.

Plaintiffs hired counsel and appealed, arguing that the City failed to meet its burden of showing an absence of “normal construction . . . for a period of more than 18 months” under the language of the ordinance. See SFCO § 150.096. On December 28, 2022, the Supreme Court of South Dakota affirmed the grant of summary judgment, noting that Plaintiffs had failed to submit any reliable information that would point to a genuine issue of material fact on violation of the ordinance. See generally Strizheus, 984 N.W.2d 119. The City thereafter gave Plaintiffs notice

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of an intention to demolish the home beginning on February 27, 2023. Doc. 3 ¶ 1. This lawsuit and request for preliminary injunction then followed.

The condition of the partially constructed home changed considerably during the pendency of the appeal to the Supreme Court. Plaintiffs had obtained multiple permits from the City for further construction of the home before entry of summary judgment. Plaintiffs hired Ben Harvey Custom Homes, Inc. (“Harvey Custom Homes”) as a new general contractor on December 1,2021, and Harvey Custom Homes obtained five permits during December of 2021. Exh. 6. Plaintiffs paid Harvey Custom Homes over two million dollars to put on a new roof, complete the exterior except for some finish work on the deck, do framing, mechanical work, HVAC, plumbing, fireplaces, interior sheetrock work, and driveway and landscaping work. The City conducted a series of inspections of the work during the pendency of the appeal and issued two additional permits for sprinkler system and sidewalk work while the case was on appeal. Doc. 4; Exh. 6. Those inspections included approval of the mechanical survey in December 2021 and mechanical rough-in around May 25, 2022; plumbing survey in January 2022 and plumbing rough-in around March 2022; mechanical fireplace in September 2022; and lawn sprinkler in November 2022. Exh. 6. The work of Harvey Custom Homes has passed City inspections to this point. Harvey Custom Homes was aware of the summary judgment order to raze the home but was instructed by Vitaliy to continue with the work. Recent pictures of the home show the exterior to be nearly completed with finish work on a deck remaining and the interior to be sheet rocked but with all finish work remaining. Exhs. 2-3, 10.

Plaintiffs had a realtor view the home in early 2023 to opine as to the fair market value of the home in its current state of construction. The realtor believes that the present market value of

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the home is $2.75 million. Doc. 5. Vitaliy testified that the lots on which the home sits have a value of as much as $800,000.

Plaintiffs believe that they have been discriminated against as immigrants of Ukrainian ancestry and make such a claim as a part of Counts II and III of the initial Complaint and again in the proposed Second Amended Complaint in this case. Plaintiffs testified to this belief but offered no credible evidence that the City has discriminated against them. Plaintiffs at the evidentiary hearing sought to introduce evidence about campaign donations to the City's current mayor by some neighborhood homeowners and some of that information is in the record, but whether certain neighbors had better political connections with the City than did Plaintiffs is not evidence of the City discriminating against them due to their Ukrainian ancestry.

Plaintiffs' main argument of ethnic discrimination relates to the City's refusal to accept certain settlement offers from the Plaintiffs, most prominently one made after the Supreme Court affirmed summary judgment allowing razing of the home whereby Plaintiffs proposed to sell the home to Alexsey Gladush, a fellow Ukrainian who owns Califan Painting. With this being Plaintiffs' best evidence of discrimination against them as Ukrainians, the history of settlement discussion becomes relevant to put this evidence in context. Plaintiffs hired an attorney after entry of summary judgment to pursue an appeal to the Supreme Court of South Dakota. In February 2022, while the case was on appeal, Plaintiffs' attorney proposed to the City a settlement agreement to allow Plaintiffs to complete the home by certain deadlines. Doc. 19-1; Exh. 12. The City responded on March 1, 2022, that it had discussed the matter internally and it was “not in a position to allow Mr. Strizheus time to complete construction on the home given the multiple opportunities we have already afforded him and his continued failure to follow through.” Doc. 19-2 at 1; Exh. 13. However, the City stated that it “would be willing to hold off demolition of

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the structure in the event Mr. Strizheus wants to sell the property.” Doc. 19-2 at 1; Exh. 13. Later during the pendency of the appeal, the City and counsel for Plaintiffs appeared to have an agreement in principle that Plaintiffs would list and sell the home through a realtor and the City presumably would then forego enforcement of the demolition order against a subsequent purchaser, but Plaintiffs declined to settle on those terms.

After the Supreme Court affirmed the grant of summary judgment, Plaintiffs again inquired about possible settlement, prompting an attorney for the City to contact a lawyer who was affiliated with the neighbors about how the neighbors felt about the home. The City attorney acknowledged that “the home is a solid structure that is not far from completion” and had passed its interior utility rough-in inspections. Doc. 19-3. The neighborhood lawyer summarized his understanding of the options to be: “1) allow the Strizheus' to complete the home, 2) require the home be demolished (in which case Strizheus has said he'll just rebuild), or [3)] attempt to push them to sell the home to a third party who can then complete the same.” Id. The neighborhood attorney suspected that the neighbors' group would likely have a range of opinions on the subject. Doc. 19-3; Exh. 14.

Thereafter, Plaintiffs' attorney sent an executed Real Estate Purchase Agreement between Plaintiffs and Gladush, which was expressly contingent on the City foregoing the demolition order. Doc. 19-5; Exh. 7. Gladush testified that he had negotiated with Vitaliy for a purchase price of $1.2 million, down from the request Vitaliy had made for $1.8 million, and that he had no side deal to transfer the property back to Plaintiffs.[6] Gladush had plans to complete construction of the home, but not to live there; he had not sought out financing for the purchase or for the cost of completing construction. The City rejected the proposal on January 20, 2023, indicating an

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intention to move forward with the demolition. Doc. 19-6; Exh. 16. Neither Gladush nor the Plaintiffs talked with the City as to why the offer was rejected.

The City had no duty or obligation to settle with Plaintiffs, and particularly after the Supreme Court decision, could proceed with demolition, at least without any obstacle in state or local law. Even though some resolution short of demolition would be entirely rational here, the City is not compelled to resolve the case and can drive a hard bargain if it wishes to settle. In short, there is nothing in the record to indicate that this settlement history reflects bias by the City against Plaintiffs as Ukrainians. Indeed, the only other instance of demolition of a mansion in the City, in an entirely unrelated case involving very different facts, was one owned by a non-minority couple. McDowell v. Sapienza, 906 N.W.2d 339 (S.D. 2018); see also Sapienza v. Liberty Mut. Fire Ins. Co., 389 F.Supp.3d 648 (D.S.D. 2019).

On February 17,2023, the City-not being exempt from its own permitting requirements- received a permit to allow razing of the home. The City estimates that the cost to raze the home will be $85,000. The land will remain with the Plaintiffs after the City razes the structure.

At the evidentiary hearing, Plaintiffs presented evidence that demolition of their partially completed home deeply saddens them and may have a traumatizing effect on their children. See Exh. 4. A record from Getty Abstract appeared to show that Plaintiffs have incurred $3,764,191.92 in construction costs, in addition to the expense of buying the lots, one of which Plaintiff sold to a neighbor and then reacquired at a premium upon learning that geothermal heating lines ran from the home beneath that lot. Plaintiffs blame the Mayor for their chilly reception at city council meetings where they have tried to address this situation.

The City during cross-examination exposed that Plaintiffs bought a 3,700 square foot 5-bedroom home elsewhere in Sioux Falls in 2021 and that Plaintiffs owe some $600,000 to

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$700,000 in past-due federal income taxes. The City's questioning also left a lack of clarity about Plaintiffs' financial resources, although these matters are collateral to the issues now before this Court.


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Outcome: This Court must follow precedent and does not have the authority to impose on the parties a more rational result than razing of the home followed by likely more litigation. For the reasons explained at length above, it is

ORDERED that Plaintiffs' motion for preliminary injunction, Doc. 3, is denied.

Plaintiff's Experts:

Defendant's Experts:

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