Gennadiy Nekrilov v. City of Jersey City, 45 F.4th 662

Background

Jersey City passed Ordinance 15.137 (2015) that legalized short-term rentals (STRs) with limits (e.g., accessory use, no license required unless >5 units, must not materially disrupt residential character).
Plaintiffs (investors/operators of STRs) purchased properties and entered long-term leases to run STR businesses after 15.137 and invested substantial sums to renovate and furnish units.
Jersey City enacted Ordinance 19-077 (2019), significantly restricting STRs: owner-occupied limits (60 nights/year), ban on tenant subleasing for STRs (leaving only owners eligible), and transitional carve-outs for preexisting bookings through Jan 1, 2021.
Plaintiffs sued under 42 U.S.C. § 1983 asserting Takings Clause, Contract Clause, and substantive and procedural due process claims; they sought injunctive relief. The District Court dismissed the complaint with prejudice and denied the injunction as moot.
The Third Circuit affirmed: it rejected a cognizable forward-looking property right to run an STR business, found no per se taking, held Penn Central factors weigh against a partial taking, dismissed the Contract Clause claim, and rejected the substantive due process claim.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Regulatory Takings — property interest	Plaintiffs say they had a forward-looking property right to run STR businesses (investment-backed expectation) plus rights in purchased properties, preexisting leases, and STR contracts.	City says no standalone property right to "do business," and the ordinances left other economically beneficial uses (long-term rent, occupy, sell); Penn Central factors fail.	Court: No free-standing right to pursue a business under Takings Clause; cognizable interests are property, leases, and contracts, but no total taking and Penn Central factors (economic impact, investment-backed expectations, character of gov't action) weigh against a taking.
Contract Clause	Plaintiffs contend Ordinance 19-077 substantially impaired existing STR contracts and long-term leases relied on for STR subleasing.	City: Ordinance serves legitimate public purposes; statutes regulating land use are permissible and deserve legislative deference; short-term contracts were not cancelled by the ordinance.	Court: Short-term contracts claim fails (none were cancelled solely due to the ordinance); plaintiffs do not plausibly show substantial impairment of leases and, even if they did, the ordinance is reasonably and legitimately drawn to protect housing and public welfare.
Substantive Due Process	Plaintiffs argue ordinance was arbitrary/capricious and motivated by mayoral bad faith against STR platforms (Airbnb).	City: This is a legislative zoning change advancing legitimate interests (protect long-term housing, neighborhood character, public safety) and is subject to rational-basis review.	Court: Zoning action is legislative and survives rational-basis review; subjective motives of legislators are irrelevant; substantive due process claim fails.
Preliminary Injunction/TRO	Plaintiffs sought emergency relief to enjoin enforcement pending litigation.	City opposed; District Court dismissed underlying claims.	Court: Because complaint was dismissed on merits, injunction denial was moot; affirm dismissal and denial.

Key Cases Cited

Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992) (per se takings when a regulation eliminates all economically beneficial use)
Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978) (multi-factor test for regulatory takings)
Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (2005) (clarifies takings inquiry and rejects adjusting takings test into due-process type inquiry)
Andrus v. Allard, 444 U.S. 51 (1979) (loss of future profits alone is weak basis for a takings claim)
Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) (government assurances can create reasonable expectations relevant to takings analysis)
Kaiser Aetna v. United States, 444 U.S. 164 (1979) (governmental assurances and permits can create property expectations that may require compensation)
Cedar Point Nursery v. Hassid, 141 S. Ct. 2063 (2021) (physical invasions are per se takings)
Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987) (exactions and dedications that amount to property transfer require just compensation or nexus/rough proportionality)
Yee v. City of Escondido, 503 U.S. 519 (1992) (States have broad power to regulate housing conditions)
Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922) (regulation going "too far" can be a taking)