The Top Ten Real Property Cases of 2019
| Jurisdiction | United States,Federal |
| Author | Star Lightner |
| Publication year | 2020 |
| Citation | Vol. 38 No. 1 |
Star Lightner
Star Lightner is senior counsel with Miller Starr Regalia. She is senior editor of Miller & Starr, California Real Estate 4th, and a contributing author of Chapter 11, Holding Title, Chapter 19, Landowners' Liability, Chapter 31, Construction Law and Contracting, Chapter 32, Mechanics Liens, Chapter 33, Defective Construction, and Chapter 38, Discrimination. She also is the senior editor and principal author of the bi-monthly Miller & Starr, Real Estate Newsalert, published by Thomson-West.*
As always, it can be challenging to select the top ten real estate cases for our annual overview. The past year was no exception. As in the past, several "related cases" as well as "honorable mentions" are included here.
There were several important decisions in the area of eminent domain/inverse condemnation/regulatory takings at the U.S. Supreme Court, California Supreme Court, and Court of Appeal levels. The most significant was a regulatory takings opinion issued by the United States Supreme Court changing the long-established requirement that a claimant be denied compensation in state court before resorting to federal court. Not to be outdone, the California Supreme Court issued an important opinion finding that a property owner's failure to comply with a building code requirement could preclude a resulting inverse condemnation claim.
Significant non-condemnation cases decided by California appellate courts included opinions addressing:
- whether a lender owes a borrower a common law duty of care to negotiate a loan modification;
- use of a Sustainable Communities Environmental Assessment instead of an Environmental Impact Report when a development's environmental impacts can be mitigated;
- the obligations of a landlord to disclose a lease with a competitor of a prospective lessee; and
- an esoteric decision involving the "sold-out junior" rules arising under the California one-action and antideficiency rules.
In addition, California courts also addressed such "bread and butter" topics as what constitutes an essential term of a lease in a holdover tenancy; how "floating" easements become fixed; who is entitled to goodwill damages in an eminent domain proceeding; and the requirement of a "reasonable relationship" between development fees and the need for school facilities. Also included are two "honorable mention" cases addressing the applicability of the Unruh Act to online businesses.
While selecting cases for inclusion is inevitably a subjective affair, the cases addressed below, including several "honorable mentions," met our standard for inclusion: widespread impact on the practice of real property law in California. Thus, we offer the following as the most significant real estate cases of 2019.1
Property owners alleging a taking of their property may sue in federal court without first seeking compensation in state court, thus overruling the Williamson County decision.
Criticized since it was decided in 1985,3 the United States Supreme Court in Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City4 held that before bringing a takings action in federal court, a property owner must first: (1) obtain a "final decision" from the relevant local or state agency implementing the action effectuating the taking; and then (2) exhaust all available state court remedies to obtain compensation for the alleged taking.5 The second of these holdings created what came to be known as the "preclusion trap," because a litigant who is unsuccessful at the state court level is then precluded by the full faith and credit doctrine from challenging the state decision in federal court.6 With a new conservative Supreme Court configuration, Williamson County became "ripe" for revisiting.
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Rose Mary Knick owned 90 acres of land, including a small graveyard, in the rural town of Scott Township, Pennsylvania, where "backyard burials" have long been allowed. When Scott Township passed an ordinance that required all cemeteries to be open and accessible to the public during daylight hours and authorized code enforcement officers to enter upon any property to determine the existence and location of any cemetery, Knick filed an action in state court. However, that action was dismissed because Scott Township withdrew the notice of violation and agreed to stay enforcement of the ordinance, so there was no "enforcement action" pending. When Knick filed an action in federal court7 alleging that the ordinance violated the takings clause of the Fifth Amendment, the district court dismissed Knick's claim because she had not first pursued an inverse condemnation action in state court pursuant to Williamson County. The Third Circuit affirmed, despite noting that the ordinance was "extraordinary and constitutionally suspect." The United States Supreme Court granted certiorari "to reconsider the holding of Williamson County that property owners must seek just compensation under state law in state court before bringing a federal takings claim under § 1983."8
The Court began with the unintended consequences of Williamson County. These did not become clear until 20 years later when the Supreme Court held in San Remo Hotel L.P. v. City and County of San Francisco,9 that an adverse decision in state court barred plaintiffs from subsequently proceeding to federal court because a federal court must give preclusive effect to the state court decision denying compensation under the "full faith and credit" statute.10 Referring to this conundrum as the "San Remo preclusion trap," the Knick Court found such a state-litigation requirement "relegate[s] the Takings Clause 'to the status of a poor relation' among the provisions of the Bill of Rights."11 The bulk of the opinion focused on when a "taking" occurs, with the disagreement between the majority and the dissent being whether a taking occurs at the moment of government action or whether the taking does not occur until or unless the government fails to pay just compensation.
The majority cited Jacobs v. United States,12 among other Tucker Act cases,13 as confirming that a takings claim is "self executing," meaning that "[t]he Fifth Amendment right to full compensation arises at the time of the taking, regardless of post-taking remedies that may be available to the property owner."14 This position is in contrast to Williamson County, which the Court interpreted as meaning that "a taking does not give rise to a federal constitutional right to just compensation at that time, but instead gives a right to a state law procedure that will eventually result in just compensation." In rejecting Williamson County, the Court observed that while "[a] later payment of compensation may remedy the constitutional violation that occurred at the time of the taking, [] that does not mean the violation never took place."15
The Court construed Williamson County as creating an improper exhaustion requirement for section 1983 takings claims, and attributed that decision to a mistaken reliance on Ruckelshaus v. Monsanto Co.16 Ruckelshaus, unlike Williamson County, involved a statute that "required the plaintiff to attempt to vindicate its claim to compensation through arbitration before proceeding under the Tucker Act" and "Congress—unlike the States—is free to require plaintiffs to exhaust administrative remedies before bringing constitutional claims."17 Concluding that Williamson County "ignored Jacobs and many subsequent decisions holding that a property owner acquires a Fifth Amendment right to compensation at the time of a taking," and emphasizing the "San Remo preclusion trap" whereby a plaintiff with a state law remedy might never get to federal court, the Court overruled Williamson County, holding "that a government violates the Takings Clause when it takes property without compensation, and that a property owner may bring a Fifth Amendment claim under § 1983 at that time."
In a short concurring opinion, Justice Thomas criticized the United States for arguing that government officials should be able to implement regulatory programs "without fear" that they will later be held to have violated the Fifth Amendment because the government's "implied promise to pay compensation" renders constitutional laws and regulations that may in some instances result in the taking of individual pieces of property. "This 'sue me' approach to the Takings Clause is untenable," according to Justice Thomas, because the Fifth Amendment does not merely provide a damages remedy to a property owner willing to "shoulder the burden of securing compensation" after the government takes property without paying for it. Instead, it makes just compensation a "prerequisite" to the government's authority to take property for public use.
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Writing for the dissent, Justice Kagan explained that the takings clause has "dual elements" that make it different from, and unique among, other constitutional rights. The takings clause is different because it does not prohibit takings; rather, it allows takings of private property provided the government gives just compensation. Accordingly, when the government takes and pays fair value, "it is not violating the Constitution at all." Accusing the majority of "overthrow[ing] the Court's long-settled view of the Takings Clause . . . against a mountain of precedent... ," the dissent opined that a Fifth Amendment violation does not occur until an owner has used the government's procedures and failed to obtain just compensation. Justice Kagan predicted two "damaging consequences" of overruling the state-litigation requirement of Williamson County. First, government regulators will often have no way of knowing whether they are violating the Constitution because there are a "nearly infinite variety of ways" for regulations to "affect property interests" and a government actor usually cannot...
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