Previous Article

Your authoritative, multi-channel network for natural resources and environmental information since 1989 – by practioners for practitioners.

Line Spacing+- AFont Size+- Print This Article Back To Homepage

U.S. Supreme Court Finds ‘Finality Requirement’ for Regulatory Takings Claim Does Not Require Exhaustion of State Administrative Remedies

U.S. Supreme Court Finds ‘Finality Requirement’ for Regulatory Takings Claim Does Not Require Exhaustion of State Administrative Remedies
Related Articles

By Bridget McDonald

The U.S. Supreme Court has issued a unanimous per curium opinion in Pakdel v. City and County of San Francisco holding that the partial owners of a multi-unit residential building did not have to comply with state administrative procedures before bringing an unconstitutional takings claim in federal court. The Supreme Court reversed the Ninth Circuit’s dismissal of the owners’ claims and rejected the Court of Appeals’ interpretation of the “finality requirement,” finding that the owners adequately established the city’s decision was “final,” and thus obviating the need to exhaust administrative procedures before bringing a regulatory takings claim under 42 U.S.C. § 1983. [Pakdel v. City and County of San Francisco, ___U.S.___, 141 S.Ct. 2226 (June 28, 2021).]

Factual and Procedural Background

Petitioners, a married couple, partially own a multi-unit residential building in San Francisco (City). The couple purchased their interest in the property as a tenancy-in-common. Under that agreement, all building owners had a right to possess and use the entire property. In practice, however, the owners often contracted amongst themselves to divide the premises into individual residences. Similarly, owners agreed to convert tenancy-in-common interests into modern condominium-style arrangements, which allow individual ownership of certain parts of the building. When petitioners purchased their interest in the property, they signed a contract with the other building owners to take all available steps to pursue such a conversion.

Until 2013, the San Francisco department of public works employed a lottery system that accepted only 200 applications per year to pursue conversion of tenancy-in-common interests. In response to the predictable backlog that ensued, the City adopted a new program that allowed property owners to seek conversion, subject to a filing fee and several conditions. One such condition required that nonoccupant owners who rented out their units to offer their tenants a lifetime lease.

Although a renter lived in their unit, petitioners and their co-owners sought conversion, but agreed to offer a lifetime lease to the tenant. The City approved the conversion. Several months later, Petitioners requested that the City either excuse them from executing the lifetime lease or compensate them for the lease. The City refused both requests and informed petitioners that failure to execute the lifetime lease condition would violate the conversion program and could result in an enforcement action.

At the District Court

Petitioners sued the City in U.S. District Court, alleging the lifetime-lease requirement was an unconstitutional regulatory taking under 42 U.S.C. § 1983. The District Court for the Northern District of California rejected petitioners’ claim without reaching the merits. Instead, the District Court relied on the (since-disavowed) rule in Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 194 (1985), which deemed certain regulatory takings actions unripe for federal resolution until the plaintiff seeks compensation through state-provided procedures. Under this ruling, the District Court dismissed petitioners’ claims because they had failed to bring a State inverse condemnation proceeding before initiating the federal action. Petitioners appealed the dismissal to the Ninth Circuit Court of Appeals.

At the Ninth Circuit

During the pendency of the appeal, the U.S. Supreme Court decided Knick v. Township of Scott, Pennsylvania, 139 S.Ct. 2162 (2019). In Knick, the Court repudiated the Williamson County rule that a plaintiff must seek compensation in state court. Instead, the Court held that:

. . .the availability of any particular compensation remedy, such as an inverse condemnation claim under state law, cannot infringe or restrict the property owner’s federal constitutional claim.

The court reasoned that any other approach would conflict with “the general rule that plaintiffs may bring constitutional claims under § 1983 without first bringing any sort of state lawsuit.”

Despite the Supreme Court’s holding in Knick, a divided Ninth Circuit panel affirmed the dismissal of petitioners’ claims. The Court of Appeals reasoned that Knick left untouched the alternative holding in Williamson County, which held that plaintiffs may only challenge “final” government decisions before bringing a regulatory takings claim. Accordingly, the Ninth Circuit found that petitioners’ takings claim remained unripe because petitioners failed to obtain a final decision from the City regarding the application of the Lifetime Lease Requirement to their unit. The panel conceded that the City had twice denied petitioners’ request for an exemption from the lifetime lease requirement, but noted that petitioners had belatedly requested an exemption at the end of the administrative process, instead of timely seeking one through the City’s prescribed administrative procedures. As such, the appellate court reasoned that an agency’s conclusive decision is not per se “final” if the plaintiff did not afford the agency with an opportunity to exercise its “flexibility or discretion” in reaching its decision.

In a dissenting opinion, Judge Bea explained that the “finality” requirement for regulatory takings claims only considers whether the initial decisionmaker “arrived at a definitive position on the issue.” Accordingly, requiring plaintiffs to additionally “follow the decisionmaker’s administrative procedures [would] risk establishing an exhaustion requirement for § 1983 takings claims”—“something the law does not allow.” After the Ninth Circuit denied rehearing the matter en banc, Judge Collins separately dissented along similar lines, arguing that:

. . .the panel’s unprecedented decision sharply departed from settled law and directly contravened Knick [by] imposing an impermissible exhaustion requirement.

The Supreme Court’s Decision

The Supreme Court granted certiorari and considered whether the Ninth Circuit properly required Petitioners to not only show that the City had firmly rejected their request for a property-law exemption, but also show that they complied with the City’s administrative procedures for seeking relief.

In a unanimous per curium opinion, the Supreme Court agreed with the rationale of Judge Bea and Judge Collins’ dissenting opinions, and held that the panel’s view of “finality” was incorrect. The Court explained that the finality requirement is “relatively modest” because a plaintiff need only show that there is “no question” as to how the challenged regulation will apply to the particular parcel at issue. Under the facts at bar, the Court held that there was no question about the City’s position as to how the Lifetime Lease Requirement applied to petitioners’ property unit: petitioners must execute the lifetime lease or face an enforcement action. This definitive position unquestionably inflicted an actual and concrete injury on Petitioners by requiring them to “choose between surrendering possession of their property or facing the wrath of the government.”

The Supreme Court further explained that, contrary to the Ninth Circuit’s holding, nothing more than “de facto” finality is necessary to satisfy the prerequisite before bringing a regulatory takings claim. The “finality” rule protects the government from being prematurely sued over a hypothetical harm, and provides the court with an understanding of “how far the regulation goes.”

However, once the government commits to a particular position, these potential ambiguities evaporate, thereby rendering the dispute ripe for adjudication. Under this lens, the Supreme Court held that the Ninth Circuit’s additional requirement—that a plaintiff must also comply with the administrative processes in obtaining the government’s final decision—runs afoul of the ordinary operation of civil-rights suits. Here, Petitioners brought their takings claim under 42 U.S.C. § 1983, which “guarantees a federal forum of claims of unconstitutional treatment at the hands of state officials.” As the Court previously reiterated in Knick, this guarantee includes the “settled rule” that “exhaustion of state remedies is not a prerequisite to an action under § 1983.”

Yet, by demanding that petitioners seek an exemption through prescribed state procedures, the Supreme Court found that the Ninth Circuit plainly and improperly imposed an additional exhaustion hurdle upon petitioners. The Court reasoned that, while the exhaustion doctrine may apply in instances where a plaintiff’s failure to pursue administrative remedies leaves other avenues for governmental decisionmaking open, it is not a prerequisite in instances where the government has reached a conclusive position. Thus, for the limited purpose of establishing that a takings claim is ripe, “ordinary finality” is sufficient.

Finally, the Supreme Court noted that Congress always has the option of imposing strict administrative exhaustion requirements on certain claims brought under 42 U.S.C. § 1983. Here, however, Congress has not done so for takings plaintiffs. Therefore, the Court held that the Ninth Circuit “had no basis to relegate Petitioners’ claim to the status of a poor relation among the provisions of the Bill of Rights.”

Conclusion and Implications

The Supreme Court’s opinion in Pakdel marks one of three recently-decided takings cases and adds another nuance to the Court’s evolving takings jurisprudence. The relatively short, per curium opinion clarifies the prerequisites a plaintiff must satisfy before bringing a regulatory takings claim under 42 U.S.C. § 1983. As iterated in the U.S. Supreme Court’s Knick opinion: if a plaintiff can clearly establish that the government has reached a final, conclusive position on how the challenged regulation applies to their land, the plaintiff need not pursue and exhaust all administrative procedures before filing suit in federal court. However, if the government’s final position is unclear or other avenues for administrative decisionmaking remain open, the plaintiff’s takings claim may be unripe for federal judicial review. The Supreme Court’s opinion is available at: https://www.supremecourt.gov/opinions/20pdf/20-1212_3204.pdf