Owners can sue in federal court for inverse condemnation

Ryan Sugden
Associate, Stinson LLP

Landowners who claim the government took their property – whether through regulation, use, occupation or other means – now can bring a claim for just compensation in federal courts, the U.S. Supreme Court recently decided, overturning 30 years of precedent that relegated plaintiffs to bringing inverse condemnation claims only in state court.

The Fifth Amendment to the U.S. Constitution prohibits state and federal governments (including cities and municipalities) from taking private property for public use without paying just compensation. Often, when a government entity wants to use private land for a public use (for instance, for road construction), it exercises it right of eminent domain to take the property and then commences a proceeding to determine the property’s value.

Marc Simpson
Partner, Stinson LLP

In an inverse condemnation claim, the government has taken some action that a landowner contends takes its property but without starting eminent domain proceedings or paying just compensation. For instance, landowners often claim zoning regulations restricting the use of their property go “too far” in limiting how landowners can use their property and result in the government effectively “taking” their property. In these cases, the landowner can file a claim for inverse condemnation against the government entity and seek a judgment for the value of the property taken, plus interest, costs and attorneys’ fees.

In Knick v. Township of Scott, Pennsylvania, the U.S. Supreme Court was called upon to answer the question of where a landowner can bring such a claim for inverse condemnation: state or federal court? Ordinarily, a U.S. citizen alleging that her federal constitutional rights have been violated may bring a claim in federal court. However, since 1985, the U.S. Supreme Court has treated claims for inverse condemnation differently. In Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, 473 U. S. 172 (1985), the Supreme Court ruled that a landowner must first try to receive “just compensation” through state court procedures before he could file a claim for inverse condemnation in federal court. In a later ruling, the Supreme Court held that the state court’s decision on the amount of just compensation for a taking (if any) barred the landowner from bringing the same claim in federal court because federal courts must give “full faith and credit” to state court decisions.

As the Knick court (and many others before it) recognized, this resulted in a Catch-22: landowners first must bring inverse condemnation claims in state court, but as soon as they do, they can not later bring the claim in federal court. The doors to federal courts were closed to inverse condemnation litigants.

Knick changed that. Under Knick, a landowner alleging that state or local government action has taken its property may file a claim for inverse condemnation in federal court in the first instance. While landowners may choose to take advantage of state and local procedures for receiving compensation instead of filing a federal lawsuit, the availability of these procedures cannot prevent a landowner from vindicating its federal constitutional rights in federal courts. The doors to federal courts have swung back open to inverse condemnation litigants.

Why does it matter where an inverse condemnation claim can be filed? Some may contend that so long as a landowner has some venue to receive “just compensation,” nothing is amiss. However, the Knick decision has numerous important consequences for landowners and state and local governments alike:

  • Federal courts often have different procedures for managing lawsuits that some litigants may prefer.
  • Some litigants contend that state courts are more sympathetic to local governments and are less likely to find a local government has taken property because state courts are geographically limited to the county where the local government is located, whereas federal courts include “districts” that encompass many counties (or in some cases like Minnesota, Colorado and Kansas include entire states).
  • While courts decide if a taking has occurred, juries decide the amount of damages. Federal court juries are drawn from a larger geographic region than state courts, which some believe will make the jury more likely to award damages to an inverse condemnation plaintiff.
  • Federal courts may be less familiar than a state court with the concepts of state land-use law and municipal ordinances that are critical to deciding whether a taking has occurred, which could be concerning to either party to an inverse condemnation claim.
  • Lastly, the Knick decision means that a constitutional violation has occurred the moment government action results in a “taking,” meaning that government officials can be deemed to have violated a landowner’s constitutional rights even if they later offer to pay compensation. This may have a nonmonetary impact on government officials that is difficult to measure.

A landowner should consult experienced counsel to weigh these considerations before determining whether (and where) to file a claim for inverse condemnation. A claim for inverse condemnation is complex and technical, and counsel can advise on the likelihood a court will find a taking has occurred, how much compensation the landowner may be entitled to receive and whether the landowner should hire other professional consultants. Counsel also can advise on the strategic implications of Knick. For their part, state and local governments should also consult counsel prior to enacting new land-use regulations, flood plain restrictions and taking other actions that may give rise to a claim for inverse condemnation, or when a landowner has filed a complaint for inverse condemnation. Experienced outside counsel can advise on the likelihood the municipality will be exposed to liability, and what steps it can take to ameliorate future claims or address existing ones.

 

Featured in CREJ’s Oct. 16-Nov. 5, 2019, issue

Edited by the Colorado Real Estate Journal staff.