Government Liability for Taking

When Is the Government Required to Compensate?

Ninth Circuit “Taking” – When Does the Government Need to Pay?

McClung v. City of Sumner, 545 F.3d 803 (9th Cir.(Wash.) Sep 25, 2008) (NO. 07-35231)

Governments often make onerous or expensive requirements a condition for a building permit. The United States Constitution protects against a “taking” of perperty without compensation. When do these preconditions constitute a “taking” under the United States Constitution which the government must compensate?

The City of Sumner gave the McClungs the choice of either agreeing to install a 12-inch pipe and pay the usual fees, or install a 24-inch pipe and receive the fee waiver. The McClungs accepted the latter 24-inch pipe option. The McClungs claimed an unconstitutional compulsion by the city resulting in a “taking.”

The Ninth Circuit addressed for the first time whether a legislative, generally applicable development condition that does not require the owner to relinquish rights in the real property, as opposed to an adjudicative land-use exaction, should be addressed under the Penn Central or Nollan/Dolan framework. Other courts addressing this general issue have come to different conclusions.

A plaintiff seeking to challenge a government action as an uncompensated taking of private property may proceed under one of four theories: by alleging (1) a physical invasion of property, (2) that a regulation completely deprives a plaintiff of all economically beneficial use of property, (3) a general regulatory takings challenge pursuant to Penn Central, or (4) a land-use exaction violating the standards set forth in Nollan and Dolan. Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 548, 125 S.Ct. 2074, 161 L.Ed.2d 876 (2005). At issue here is application of the latter two doctrines.

In Penn Central, the New York City Landmarks Preservation Commission refused to approve plans to construct an office building over Grand Central Terminal due to its “landmark” status under the Landmarks Preservation Law. Penn Central, 438 U.S. at 116-17, 98 S.Ct. 2646. Penn Central recognized that “[a] ‘taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.” Id. at 124, 98 S.Ct. 2646 (citation omitted); see also Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 322-23, 122 S.Ct. 1465, 152 L.Ed.2d 517 (2002) (distinguishing cases involving physical possession of property versus regulations that do not cause a categorical taking). Penn Central acknowledged that it was “unable to develop any ‘set formula’ ” for evaluating these types of claims, but identified relevant factors, such as the economic impact of the regulation on the claimant, the extent to which the regulation has interfered with distinct investment-backed expectations, and the character of the governmental action. Penn Central, 438 U.S. at 124, 98 S.Ct. 2646; see also Lingle, 544 U.S. at 538-39, 125 S.Ct. 2074 (discussing Penn Central ).

In comparison to Penn Central, “[b]oth Nollan and Dolan involved Fifth Amendment takings challenges to adjudicative land-use exactions-specifically, government demands that a landowner dedicate an easement allowing public access to her property as a condition of obtaining a development permit.” Lingle, 544 U.S. at 546, 125 S.Ct. 2074. In Nollan, the California Coastal Commission conditioned the grant of Nollan's development/rebuilding permit of his beachside home on Nollan's dedication of an easement on the property to the public. Nollan, 483 U.S. at 828, 107 S.Ct. 3141. In Dolan, the Oregon Land Use Board of Appeals conditioned the grant of Dolan's permit to expand a store and parking lot on Dolan's dedication of a portion of the relevant property as a “greenway” and bicycle/ pedestrian pathway. Dolan, 512 U.S. at 379-80, 114 S.Ct. 2309. The Supreme Court recently described the holdings of these cases as follows:

In each case, the Court began with the premise that, had the government simply appropriated the easement in question, this would have been a per se physical taking. The question was whether the government could, without paying the compensation that would otherwise be required upon effecting such a taking, demand the easement as a condition for granting a development permit the government was entitled to deny. The Court in Nollan answered in the affirmative, provided that the exaction would substantially advance the same government interest that would furnish a valid ground for denial of the permit. [Nollan, 483 U.S. at 834-37, 107 S.Ct. 3141.] The Court further refined this requirement in Dolan, holding that an adjudicative exaction requiring dedication of private property must also be “‘rough[ly] proportiona[l]’ ... both in nature and extent to the impact of the proposed development.” [Dolan, 512 U.S. at 391, 114 S.Ct. 2309.]

In Nollan, the Court stuck down the condition as an unconstitutional taking because there was no logical connection (i.e., no “essential nexus”) between the adverse impacts of the development and the required easement. Nollan, 483 U.S. at 837, 107 S.Ct. 3141. In Dolan, the Court found the exactions unconstitutional because the City failed to show that the conditions were roughly proportional to the negative impacts caused by the development. Dolan, 512 U.S. at 394-95, 114 S.Ct. 2309.

The facts of Nollan and Dolan involving adjudicative, individual determinations conditioning permit approval on the grant of property rights to the public-distinguish them from the line of cases upholding general land use regulations. Dolan, 512 U.S. at 384-85, 114 S.Ct. 2309. Unlike the facts of Dolan, cases questioning land use regulations “involve[ ] essentially legislative determinations classifying entire areas of the city” and placing limitations on the use owners may make of their property. Id. at 385, 114 S.Ct. 2309. In comparison to legislative land determinations, the Nollan/Dolan framework applies to adjudicative land-use exactions where the “government demands that a landowner dedicate an easement allowing public access to her property as a condition of obtaining a development permit.”

The court concluded that there was no “taking” by the City of Sumner because the McClungs were not compelled to install a 24-inch pipe, but voluntarily contracted with the City to do so.

US Post Office Not Immune from Tort and Breach of Contract Claim

MB Financial Group, Inc. v. U.S. Postal Service, 545 F.3d 814 (9^th Cir., CA, 2008), September 25, 2008.

The USPS, made a mistake and did not make a post office box available for the full term of the contractual lease. The rental fee was $50 for six months. MB Financial alleged it lost hundreds of thousands of dollars worth of business. MB Financial brought claims for breach of contract and negligence.

The Federal Tort Claims Act, 28 U.S.C. § 1346(b)(1) exempts from legal action, “[a]ny claim arising out of the loss, miscarriage, or negligent transmission of letters or postal matter.” The majority held that closing a post office box prematurely does not involve the “loss . . . of letters or postal matter.”

The dissent correctly pointed out the majority ignored congressional intent to immunize the Postal Service from liability arising out of consequential damages claims for failure to deliver mail:

As a society, we have entered into a social contract with the federal government. We pay taxes and receive certain services in return, some of which would never be provided unless the government steps in to correct what economists term a “market failure.” . . . . At bottom, market failure occurs when there is no incentive for private businesses to provide a service. Historically, the provision of national and international mail services at affordable prices has been among the market failures the government has rectified.

Everyone has reasons to sue the USPS but allowing these actions will destroy the Postal Service. The Ninth Circuit misread the statute in order to provide a remedy unintended by congress. MB Financial suffered the loss of its mail – precisely the type of claim protected by sovereign immunity.

Protecting Free Speech Against Government Retaliation

CarePartners, LLC v. Lashway, 545 F.3d 867, (9th Cir. Wash.), September 25, 2008, (NO. 07-35125)

A state boarding home, CarePartners, brought an action against several employees and representatives of the Washington State Department of Social and Health Services (“DSHS”) and the Washington State Fire Marshal's office (“fire marshal”) in their individual capacities (collectively, the “State employees”) claiming that the State employees engaged in retaliatory enforcement of state boarding home laws and regulations. CarePartners alleged that the State employees retaliated against its facilities, including revocation of one facility's license, in response to constitutionally protected speech and petition activities. An owner of CarePartners, Kilkelly, had given a critical public speech about DSHS and its interpretations of certain regulations, had lobbied for a license from DSHS, and had filed of an administrative appeal of one of DSHS's regulatory decisions. The State employees appeal the district court's denial of their motion for summary judgment on their defense of qualified immunity. Viewing the facts in a light most favorable to CarePartners, and based on circuit precedent, the Ninth Circuit ruled that the State employees were not entitled to qualified immunity.

In Soranno's Gasco Soranno's Gasco, Inc. v. Morgan, 874 F.2d 1310, 1314 (9th Cir.1989), the standard for evaluating whether a regulated entity has established a claim of retaliation based on the exercise of free speech and petition rights was decided: A “plaintiff alleging retaliation for the exercise of constitutionally protected rights must initially show that the protected conduct was a ‘substantial’ or ‘motivating’ factor in the defendant's decision.” If the plaintiff makes this initial showing, the “burden shifts to the defendant to establish that it would have reached the same decision even in the absence of the protected conduct.” To meet this burden, a defendant must show by a preponderance of the evidence that it would have reached the same decision; it is insufficient to show merely that it could have reached the same decision.”

The State employees argued that the Ninth Circuit should impose a requirement on CarePartners to plead and prove an “absence of probable cause” with respect to their enforcement decisions, relying on Hartman v. Moore, 547 U.S. 250, 126 S.Ct. 1695, 164 L.Ed.2d 441 (2006). The court held that Hartman's absence of probable cause element applies to “a particular subcategory of retaliation claims: retaliatory prosecution claims.”

The court decided that the Soranno’s Gasco case had a similar fact pattern. The plaintiffs in Soranno's Gasco were sellers and distributors of petroleum products that operated under certain bulk plant permits. Soranno, as owner of Sorrano's Gasco (“Gasco”), publicly challenged certain new regulations promulgated by the county and the air pollution district, speaking out at County Board of Supervisors meetings and initiating litigation to challenge the regulations. Subsequently, the air pollution district demanded certain documentation from Soranno, which Sorrano refused to provide on the grounds that the demand was an improper attempt at discovery related to a civil penalty action the county had filed against Gasco. The air pollution district then exercised its statutory authority and suspended Gasco's bulk plant permits, and a pollution control officer circulated a letter to Gasco's clients informing them of Gasco's permit suspension and of possible adverse impact on their own businesses.

Sorrano and Gasco brought an action under 42 U.S.C. § 1983 against the county, the air pollution district, and several officials on the grounds that the defendants suspended Gasco's petroleum bulk plant permits and discouraged its customers from doing business with Gasco in retaliation for Soranno's exercise of constitutionally protected speech and petition rights. We vacated the grant of summary judgment and held that: (1) the plaintiffs had protected rights in commenting on the conduct of government officials and in petitioning the government for redress of grievances, and (2) Soranno's protected expression was a substantial factor in the decision to suspend Gasco's permits. The Ninth Circuit based its finding that Sorrano's protected expression was a substantial factor in the air pollution district's decision on the timing of the district's suspension action and a phone call in which the pollution control officer intimated to Sorrano that he would “somehow get even” with Soranno for generating embarrassing publicity about the challenged regulations.

The court found four indications that the State employees had retaliated in the Care Partners case. First, the timing of the State employees' investigation of CarePartners and the summary suspension and revocation of its license were suspiciously close in time to the administrative hearing on the Meridian facility and Kilkelly's lobbying efforts regarding the Lakewood facility. Second, the existence of a retaliatory intent is supported by Dale's declaration indicating that DSHS officials were “quickly losing patience” with Kilkelly, and that the Assistant Attorney General told Dale that Kilkelly was “known to the department.” Third, the record, based on limited discovery, contains e-mails that suggest DSHS was planning to take action against Alderwood and Wenatchee before it conducted its follow-up inspections. Finally, the record indicates that DSHS may have been deliberately refusing to communicate with Kilkelly despite his expressed willingness to install a sprinkler system. In the context of an interlocutory appeal on qualified immunity, these facts indicate that CarePartners has demonstrated that Kilkelly's protected expression may well have been a substantial factor in the State employees' aggressive enforcement decisions.

The State employees attempted to insert two criteria applicable to the evaluation of a public employee's speech-based retaliation claims should apply generally to First Amendment retaliation claims by regulated entities: first, that the speech at issue address a matter of public concern; and, second, that even if that speech addresses a matter of public concern it survive what is known as the Pickering balancing test. They relied primarily on Tennessee Secondary School Athletic Association v. Brentwood Academy, --- U.S. ----, 127 S.Ct. 2489, 168 L.Ed.2d 166 (2007), which they argued held that the public concern requirement and Pickering balancing test apply generally to the regulated entity context. In Brentwood Academy, the Court held that a state-sponsored high school athletic league could impose conditions on its member schools' coaches' speech-aimed at “hard-sell recruiting” of middle school children to high school teams-that were necessary to managing an efficient and effective league.

The CarePartners court held that private citizens First Amendment freedom of speech rights were not limited by the limited protection provided to “employment at will” government employees. The government, acting as an employer, the government has some authority to impose conditions upon those who seek jobs, including conditions that limit the exercise of otherwise available constitutional rights. Second, “[w]hen someone who is paid a salary so that she will contribute to an agency's effective operation begins to do or say things that detract from the agency's effective operation, the government employer must have some power to restrain her.”

The CarePartners court agreed with the district court that the relevant law was clearly established at the time of the alleged violation. In Soranno's Gasco, the Ninth Circuit held that it is unlawful for the government to deliberately retaliate against a citizen for exercising his right to comment on (and publicly criticize) government officials' actions and his right to access the courts and administrative appeals process for redress of grievances.

The Ninth Circuit has upheld the right to freely criticize government without fear of retaliation.

Must file tort claim notice to sue employee of government entity

Schilling v. Imm, --- P.3d ----, 2009 WL 1058075(Wash.App. Div. 1 Apr 13, 2009) (NO. 61921-7-I)

An employee of a school district who drives an employer provided vehicle, performs work at multiple employer sites, and is driving to one site from a mandated break at an employer sanctioned location is acting within the scope of employment. RCW 4.96.020 requires that a tort claim notice be filed with the employer. Failure to comply with Washington's claim filing statute precludes initiating suit against that employee.