Inverse Condemnation Claims after Knick The Promise and Peril of Litigating in Federal Court, 0520 COBJ, Vol. 49, No. 5 Pg. 36

• Author: BY JENNIFER LAKE
• Position: Vol. 49, 5 [Page 36]

49 Colo.Law. 36

Inverse Condemnation Claims after Knick The Promise and Peril of Litigating in Federal Court

Vol. 49, No. 5 [Page 36]

Colorado Lawyer

May, 2020

FEATURE REAL ESTATE LAW

BY JENNIFER LAKE

This article explores inverse condemnation claims after Knick v. Township of Scott, Pennsylvania. It highlights considerations for determining the appropriate forum in which to bring an inverse condemnation claim

Inverse condemnation claims provide a means of obtaining just compensation for those whose property has been taken by a governmental entity without a proper exercise of the power of eminent domain. Takings claims are unique in that they potentially arise under both the U.S. and Colorado Constitutions.^[1] Yet until 2019, a property owner whose property was taken without just compensation faced a procedural conundrum created by a pair of U.S. Supreme Court decisions. Previously, a private property owner was first required to pursue an inverse condemnation claim in state court before seeking relief in federal court. However, a state court’s ruling on the claim had preclusive effect in any subsequent federal suit. Thus, as a practical matter, property owners could not vindicate their claims in federal court.

The issue was resolved in mid-2019 when the Supreme Court held in Knick v. Township of Scott, Pennsylvania that a property owner may pursue an inverse condemnation claim in federal court regardless of whether the claim has first been litigated in state court.^[2] The newfound possibility of litigating these claims in federal court raises a host of questions for practitioners concerning how federal judges will handle these cases and the extent to which state or federal law will govern the proceedings. This article explores the practical ramifications of Knick and highlights considerations for practitioners in determining the appropriate forum in which to bring an inverse condemnation claim.

Claims Pre-Knick

The requirement that a landowner first pursue an inverse condemnation claim in state court originated in Williamson County Planning v. Hamilton Bank, a 1985 regulatory takings case in which the U.S. Supreme Court held that the landowner’s claim was not ripe in part because the landowner had not first availed itself of the procedures for obtaining compensation provided by the state.^[3] The Court found that the Fifth Amendment only requires that “‘a reasonable, certain and adequate provision for obtaining compensation’ exist at the time of the taking.”^[4] Accordingly, the Court held that if a state provides a procedure for seeking just compensation, such as an inverse condemnation claim, there is no violation of the federal constitution’s Takings Clause until the landowner has used the procedure and been denied just compensation.^[5]

Following Williamson County, property owners dutifully began to first pursue their inverse condemnation claims in state court. But if they were dissatisfied with the outcome in state court and attempted to later pursue their claim in federal court, the result was dismissal of their cases due to issue and claim preclusion.^[6] This occurred where litigants attempted to reserve their federal takings claims during the state court proceedings,^[7] and even where state courts denied compensation based on erroneous applications of the law.^[8] Despite holding that the claims were precluded, some federal courts expressed doubts that the Court intended Williamson County to foreclose the right to relief in federal court, calling it a “draconian result.”^[9]

Nevertheless, 20 years later the Court held in San Remo Hotel, L.P. v. City and County of San Francisco that 28 U.S.C. § 1738, which provides that judicial proceedings shall have the same full faith and credit in every U.S. court, did indeed preclude a property owner from re-litigating a regulatory takings claim in federal court after a state court had resolved the claim.^[10] The Court noted that there was no right to a federal forum.^[11] Thus, the combined result of Williamson County and San Remo was that property owners could only pursue inverse condemnation claims, including claims brought under the Fifth Amendment, in state court. The Court would later describe this in Knick as “[t]he San Remo preclusion trap.”^[12]

Knick Alters the Landscape

In Knick, the U.S. Supreme Court reconsidered the practical result of Williamson County and San Remo. After a state court dismissed her claims for declaratory and injunctive relief, Knick sued the Township of Scott in federal district court, alleging that a local ordinance effected a taking of her property in violation of the Fifth Amendment.^[13] The district court dismissed her suit because she had not first pursued an inverse condemnation claim in state court.^[14] In considering Knick’s case, the Court explicitly overruled Williamson County, concluding that “the state-litigation requirement imposes an unjustifiable burden on takings plaintiffs,” and holding that a property owner has an actionable claim under the Fifth Amendment at the very moment that a government takes property without compensation.^[15] The Court held that a property owner may bring an inverse condemnation claim under 42 U.S.C. § 1983 in federal court without necessarily pursuing the claim first in state court.^[16]

The dissent cautioned against two potentially harmful consequences of the majority’s ruling. First, it noted that well-meaning government officials will inevitably be deemed lawbreakers because there typically is no way to determine in advance the full extent of a regulatory program’s effects on landowners. Because the majority held that a constitutional violation occurs at the very moment of a taking, there will often be no way to avoid a violation, particularly in the context of regulatory takings.^[17]

Second, the dissent cautioned that the decision will funnel a large amount of “quintessentially local cases involving complex state-law issues” into federal court.^[18] It noted that takings claims often require complicated inquiries into state law property rights and land use issues with which federal judges are unfamiliar. The dissent further argued that it is not proper for federal courts to become the arbiters of local and state land use issues.^[19]

Nevertheless, the groundbreaking result of Knick is that property owners are now able to bring inverse condemnation claims against local governments in both state and federal court.

Post-Knick Constructions

In the wake of Knick, federal courts have opened the doors to takings claims that would have previously been barred under Williamson County,^[20] with two important caveats. First, at least one federal district court has held that Knick applies only to inverse condemnation claims; the decision does not permit landowners to remove direct condemnation actions to federal court.^[21] Second, the Fifth and Tenth Circuits have held that Knick did not have any effect on the immunity of states and state officials to suit in federal court under the Eleventh Amendment, and thus takings claims may not be brought against state governments, including state agencies, in federal court.^[22] However, inverse condemnation claims against counties and other municipal corporations may proceed in federal court.^[23]

Deciding Whether to Litigate in State or Federal Court

Historically, some practitioners have preferred to litigate land use issues in federal court for several reasons. First, federal judges are theoretically more immune to local politics, and therefore potential local bias, than state judges, who typically are either elected officials or, as in Colorado, subject to retention by popular vote.^[24] Second, some practitioners believe they will be in a better negotiating position if local officials are confronted with the reality of litigating a Fifth Amendment claim before a federal judge.^[25] Finally, there are the more generalized and well-known advantages of litigating in federal court: less-crowded dockets and speedier resolution of cases

However, there are several important differences between state and federal takings law. Litigating these claims in federal court will raise complex choice-of-law issues that many federal district court judges have not had much occasion to address, because property owners were not previously permitted to litigate these claims in federal court absent the existence of diversity jurisdiction.

Procedural Considerations Pursuant to the principles set forth in Erie Railroad Co. v. Tompkins, all procedural issues in an inverse condemnation suit brought in federal district court are governed by the Federal Rules of Civil Procedure, while substantive legal issues concerning claims brought under the Colorado Constitution are governed by state law.^[26] Although traditional condemnation cases brought in federal court are governed by the special procedures set forth in Fed.R.Civ.P. 71.1, the Ninth Circuit, for example, has opined that Rule 71.1 does not apply to inverse condemnation claims.^[27] Thus, the general Federal Rules of Civil Procedure apply. Because the Colorado Rules of Civil Procedure are largely modeled after their...