On June 21st the U.S. Supreme Court issued its decision in Knick v. Scott Township, which materially expanded the ability of private property owners to go to federal court to defend their property rights. The Court overturned a 34-year old decision that required property owners to litigate “takings” claims in state court before they were allowed to sue in federal court. The Knick decision broadly expands projections of private property rights by allowing property owners to bring a takings claim directly in federal court.
The key to Knick is identifying the point in time when a property owner can sue over an alleged taking—(1) as soon as government action causes an alleged “taking” of property; or (2) later, only when it refuses to pay just compensation. Long ago, the Supreme Court established that the government does not have to pay just compensation simultaneously with the acquisition of property by eminent domain. Rather, the government has always been allowed to take possession by eminent domain if the government had fair and adequate procedures to establish just compensation. Like every other state, Arizona has a familiar process for eminent domain cases that is routinely used by ADOT and other agencies.
The difficulty arises with respect to so-called “regulatory takings.” These are alleged takings that do not involve a direct physical appropriation. In such contexts, the government enforces land use regulations that (at least according to the owner) require the government to pay because they are the equivalent of a physical taking. But unlike standard comdenation cases, where the only issue is valuation, regulatory takings cases also raise the preliminary question of whether a taking has even occurred.
In a 1985 decision called Williamson County, the Supreme Court held that a takings claims could not be pursued in federal court—in legal parlance the claim was not “ripe”— until the owner had sought compensation in state court. The idea was that the Constitution does not prohibit takings; rather, it prohibits takings without just compensation. This forced private property owners onto a path that was slow, expensive, and not conducive to the protection of private property rights.
What was not appreciated in 1985 was how the result of state court litigation would affect the ability to pursue subsequent takings claims in federal court. If property owners must seek compensation in state courts, state courts will necessarily decide whether a taking occurred in the first place. A decision in favor of the government—that no taking has occurred— is binding in any future litigation in federal court. In 2005 the Supreme Court admitted the existence of this “Catch 22,” in which a property owner was required to first sue in state court, but was unable to sue in federal court.
Knick has changed these rules by holding that a property owner does not need to file suit in state court before seeking relief. When a property owner believes that a taking has occurred—through direct appropriation or excessive regulation—the owner can seek compensation in federal court. In essence, the right to sue accrues not upon the denial of just compensation, but as soon as the property is “taken.” This has several important ramifications.
First, it eliminates several of the defenses that local governments have enjoyed under Arizona law. Arizona courts held that a takings claim is subject to a one-year statute of limitations, as well as the requirement to submit a “notice of claim” within 180 days. Property owners have thus been forced forced to file a speedy notice of claim and deal with political ramifications, before there is time to work out alternatives. Under Supreme Court precedent, notice-of-claim laws cannot be applied to a civil rights claim. Property owners will now have two years in which to file a federal lawsuit for just compensation.
Second, the ability to bring a claim in federal court may have tactical significance, particularly in counties where judges are elected. Litigating against local government often has political implications that can be avoided if a case is taken to federal court. Relatedly, taking the case to federal court has the effect of forcing a local municipality to litigate in a less familiar forum.
Third, Knick may open the door to the litigation of “normal” eminent domain cases in federal court, though it raises difficult procedural issues. If a local government files a complaint in eminent domain, it is probably not removable to federal court. Moreover, a claim might be subject to various abstention arguments. A property owner who prefers a federal forum would be well advised to file suit in federal court as soon as the local jurisdiction authorizes a condemnation.
Finally, Knick may facilitate re-examination of whether the Nollan/Dolan principles of “nexus” and “proportionality” apply to impact fees levied on development. In the mid-1990s, the Arizona Supreme Court held that impact fees were not subject to these requirements because they were enacted as legislation. The justification for that rule has eroded over the years, but it was just reaffirmed last year by the Arizona Court of Appeals. Knick will increase the ability for a federal court to take a fresh look at the applicability of the Nollan and Dolan impact fees.
Knick is a decision about process and remedies. It does not change the substance of what is and is not a taking. A property owner who is merely disappointed by a local decision has no stronger takings claim that it had prior to the Knick decision. However, the ability to secure a federal form necessarily changes the respective leverage enjoyed by each side and should serve to be a valuable tool for the protection of property rights.
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