The Ninth Circuit Court of Appeals, which has federal appellate jurisdiction over a major portion of the western U.S., has something of a reputation as the most overturned federal appeals court circuit.  While the truth of that is a mixed bag, an October 13, 2020 order in an important property rights case looks to be a worthy candidate for both a petition for writ of certiorari, a grant of cert by the U.S. Supreme Court, and maybe more.

The order, issued in Pakdel v. City and County of San Francisco, __ F.3d __ (Case No. 17-17504), effectively ignored last year’s Knick v. Township of Scott decision, in which the Supreme Court overturned the “state litigation” requirement, in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985).  That requirement obligated plaintiffs alleging a taking under federal law to first seek and then be denied compensation in state court.  The Supreme Court did not disturb Williamson County’s other requirement, which requires takings plaintiffs to also secure a “final decision” from the relevant decisionmaker.

The case stems from the Pakdel’s takings challenge to San Francisco’s so-called “Expedited Conversion Program,” which allows owners of multi-unit property to convert the property to condominiums, subject to various conditions.  Among those conditions is the requirement that the owners agree to offer any existing tenants lifetime leases within the converted property.  Hoping to move into a tenancy-in-common property they own when they retire, the Pakdel’s twice sought an exemption from the “Lifetime Lease Requirement” or, alternatively, compensation for having to offer the lease.  The City refused both requests and the Pakdel’s sued under 42 U.S.C. section 1983, claiming the City took their property without just compensation in violation of the Fifth Amendment’s Takings Clause.

The district court granted the City’s motion to dismiss on the ground that the Pakdels’ suit was not ripe because they had not sought compensation, as required under Williamson County.  A three-judge panel of the Ninth Circuit voted 2-1 to affirm the district court’s dismissal.  The panel’s opinion held that the Pakdels failed to meet Williamson County’s “final decision” requirement because they “bypassed” previously available administrative procedures that might have avoided the lease.

In dissent, Judge Bea concluded that “the City here has indeed reached . . . a final decision” and noted that, by making the finality of the City’s decision turn on whether Pakdel’s had committed a procedural default during the administrative process, “rather than simply evaluating whether a decision about the application of a regulation is final,” the panel majority’s approach departed from Williamson County and effectively established an exhaustion requirement for § 1983 takings claims, which the law does not allow.

Addressing the Pakdel’s petition for rehearing en banc, nine Ninth Circuit judges dissented from the Court’s 2-1 denial (with Judge Bea again dissenting).  They noted that the Court in Williamson County carefully distinguished the finality requirement from an exhaustion requirement and that:

“the question whether administrative remedies must be exhausted is conceptually distinct . . . from the question whether an administrative action must be final before it is judicially reviewable . . . . Under the facts of this case, the application of Williamson County’s finality requirement is straightforward.  The City has definitively imposed the Lifetime Lease Requirement on Plaintiffs’ property, and there is no further avenue open to them under local law to avoid that.”

The dissenting judges pithily picked apart the panel majority’s decision, and they concluded by writing that:

“[b]y applying procedural-default rules to bar a takings claim concerning an unquestionably final decision, the panel majority’s decision imposes an impermissible exhaustion requirement, not a finality requirement.  The result is to put takings claims back into a second-class status, less than one year after the Supreme Court had squarely put them on the same footing as other constitutional claims.”

The Pakdel dissent is worth a read and, as noted by Robert Thomas, the case is one to watch as the panel majority’s decision “is an exhaustion requirement pure and simple.”  The case tees up a critically important issue that we thought the Supreme Court squarely, and correctly, decided last year, and it arises from a city that has a long track record of trampling property rights.