A damaged Property Owner no longer has to exhaust administrative remedies in State Court if they wish to pursue a takings claim under the Civil Rights Act.
As a result, Property Owners injured by government regulatory takings claim have a decision to make – file suit for inverse condemnation in State Court or file a claim in Federal court by relying on 42 USC section 1983.
Recent case law makes clear that the door to Federal Court jurisdiction is now open. The recent decision in Pakdel v. City & Cty. of San Francisco, California, 141 S. Ct. 2226, 2228 (2021) is the latest in a series of Supreme Court decisions ensuring Federal jurisdiction for Property Owners who have an alleged 5th Amendment claim.
The case arises out of a relatively common land use practice in San Francisco (SF) – condo conversion. The practice arises in SF because there are a large number of older residential buildings in SF that are owned as tenants in common.
These are typically 4-6 plus unit building structures on a single property. Each owner has a fractional (i.e., percentage) ownership interest in the entire property. Each owner then uses a particular unit based on what is hopefully a detailed tenant in common agreement.
With condominium ownership the owner possesses ownership in only a specific part (i.e., unit) of a building as the sole owner. This is because the property has gone through a subdivision (i.e., tract map or parcel map) process to divide the property into units.
The benefit of this ownership structure is now the owner has to deal with less complexities than common ownership in a tenancy in common. And there is also a better opportunity to avoid rent control in SF.
Returning to the recent Supreme Court decision in Pakdel, the Property Owner challenged SF’s requirement that to complete the condominium conversion an owner must grant a lifetime lease to a preexisting tenant.
After securing a final subdivision map, the Property Owner filed a lawsuit in Federal Court. SF then moved to dismiss claiming the Property Owner had not exhausted all administrative remedies. SF sought dismissal alleging the Property Owner should have sought relief from the beginning of the land use process and not after securing a subdivision map, or that an administrative appeal should have been filed. The administrative appeal would lead to a lawsuit in State Court.
Both the trial court and Ninth Circuit agreed.
The U.S. Supreme court however rejected these claims. The Court recognized that the request for relief had been rejected by the local governmental agencies. Where the Property Owners had received a final and conclusive decision by the local agencies, they did not have to continue to seek relief through alternative administrative procedures, but could file suit under the Civil Rights Act.
This decision falls on the heels of Knick v. Township of Scott, et al. 139 S. Ct. 2162 (2019). In Knick the Court overturned the long-standing rule that the Property Owner had to exhaust state law remedies. The Court recognized that this functioned as an improper de facto waiver of a Property Owners rights to file suit in Federal Court. This is because if the property owner lost and filed an appeal, the Federal Court would be bound by a final decision made at the State level.
Ultimately, these cases illustrate that a Property Owner has greater access to the Courts now if they believe the government has reached a conclusive decision that constitutes a taking of their real property rights in violation of the 5th Amendment. This is helpful, because on average Federal Court provides a speedier litigation path, while requiring a unanimous verdict for a Plaintiff where a jury trial is required.
These facts will likely come true in this lawsuit because this is not the end of this case. SF will defend the lawsuit by alleging this Property Owner waived its rights and reached an agreement with SF, because the Property Owner agreed to all the terms for the subdivision, gave the lifetime lease to the tenant, and then only objected after the land use process was completed through the recordation of a final subdivision map.
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