We don't usually post trial court decisions, but when one comes along that tees up some interesting issues and is likely to get pushed further up the food chain, we're all ears.
That's the case with the Eastern District of North Carolina's order in Zito v. North Carolina Coastal Res. Comm'n, No. 2:19-CV-11-D (Mar. 27, 2020). A North Carolina property owner alleged that the application of the Commission's shoreline setback rules are a taking, and filed a suit in federal court. Yes, this is a federal court deciding a regulatory takings claim (yay, Knick).
The property owners did all of the right things to ripen their claim. They obtained a final agency decision (helpfully labeled the "Final Agency Decision") and were denied a variance. And although the owners filed their federal lawsuit before Knick, by the time the District Court was considering the Commission's motion to dismiss, the Supreme Court had issued its opinion, so there was no need to pursue state procedures for compensation.
So the case was ripe, right? Not really: the District Court dismissed the complaint for lack of jurisdiction because North Carolina courts remain open to consider the owners' takings claim. What alchemy is this?
Relying on Eleventh Amendment immunity, the court concluded that the owners could not pursue a federal takings claim for just compensation in federal court because the state courts of North Carolina could adjudicate the claim. Sounds like Williamson County's "state procedures" requirement, doesn't it?
But before you go ballistic, realize the District Court didn't just make this up. It was bound by the Fourth Circuit's ruling from a few years ago (Hutto v. South Carolina Retirement System, 773 F.3d 536 (4th Cir. 20914)) which held that "'the Eleventh Amendment bars Fifth Amendment taking claims against States in federal court where the State's courts remain open to adjudicate such claims." Slip op. at 9 (quoting Hutto, 773 F.3d at 552).
The District Court rejected the owners' argument that the self-executing nature of the Just Compensation Clause:
This court cannot ignore binding Fourth Circuit precedent, even if the Zitos offer a persuasive rationale for doing so. ... Hutto controls the disposition of this case, and this court must follow it until either the Fourth Circuit sitting en banc or the Supreme Court instructs otherwise.
Slip op. at 9.
Additionally, the District Court held that the big "self-executing" footnote in First English that we like to rely on isn't as controlling as a "tight analogy" that Hutto relied on to support its Williamson-County-by-another-name rationale:
As for footnote nine in First English, footnote nine cannot bear the weight that the Zitos place on it. See First English, 482 U.S. at 316 n.9. First, footnote nine is dicta in that the Court was responding not to a principal argument of the parties, but rather to the United States' amicus brief. See id. Second, footnote nine was not essential to deciding First English. See id. Indeed, First English did not concern the Eleventh Amendment or even mention it. Rather, in First English, the Supreme Court reversed the California First District Court of Appeal and held that a landowner who claimed that his property has been ''taken" in violation of the Fifth and Fourteenth Amendments by a "land-use regulation may [] recover damages for the time before it is finally determined that the regulation constitutes a 'taking' of his property." Id. at 306---07.
Slip op. at 11.
The District Court concluded, "[j]ust as states can invoke sovereign immunity for tax disputes in federal court so long as a state forum remains open, so too states can invoke sovereign immunity for takings claims in federal court so long as a state forum remains open." Slip op. at 10 (emphasis original).
The court determined that a suit against the Commission for just compensation was in fact, a suit against the state treasury and thus subject to the Eleventh Amendment. finally, the court held that the property owners could pursue claims for compensation in North Carolina's courts. Williamson County's state procedures requirement lives!
In addition to the District Court's earlier note that it it up to the Fourth Circuit en banc to resolve whether Hutto's rule is still good, the order also teed up the conflict between Knick and the Eleventh Amendment:
Of course, the Court in Knick did not consider sovereign immunity under the Eleventh Amendment because Knick involved a suit between a private property owner and a locality that was not entitled to sovereign immunity under the Eleventh Amendment. See Knick, 139 S. Ct. at 2167-71; Bay Point Properties, Inc. v. Miss. Transp. Comm'n, 937 F.3d 454, 456-57 (5th Cir.), petition for cert. filed, No. 19-798 (2019); Williams v. Utah Dep't of Corr., 928 F.3d 1209, 1214 (10th Cir. 2019). But in reiterating the self-executing nature of the Just Compensation Clause, the Court in Knick foreshadows the day when the Court will have to address the interplay between the Fifth Amendment's Just Compensation Clause and the Eleventh Amendment. Cf. Knick, 139 S. Ct. at 2171; Lumbard v. City of Ann Arbor, 913 F.3d 585, 591 (6th Cir.) (Kethledge, J., concurring) ("But the Takings Clause does not say that private property shall not 'be taken for public use, without just compensation, and without remedy in state court.' Instead the Clause says that private property shall not 'be taken for public use, without just compensation' period."), cert. denied, 140 S. Ct. 267 (2019). Although Hutto binds this court, the court recognizes the force of the Zitos' arguments, notes the significant constitutional issues that the Zitos raise, and acknowledges that ''the guarantee of a federal forum rings hollow for takings plaintiffs, who are forced to litigate their claims in state court." Knick, 139 S. Ct. at 2167.Slip op. at 19-20.
Finally, we leave you with this thought: instead of suing under section 1983 for damages, how about either raising the claim directly under the Fifth and Fourteenth Amendments, or seeking a 1983 injunction that compels the state to fulfill its obligation to provide compensation? We know that is a sharp distinction, but to us it is one that is consistent with the approach taken in some jurisdictions that the remedy for an inverse condemnation or regulatory taking isn't to sue for compensation, but to seek mandamus to compel the government to institute a condemnation case to pay for what it has taken. At least one federal court recently accepted that approach (see the Ninth Circuit's "no 11th Amendment immunity rationale" for a federal takings claim seeking an injunction to compel a state to return wrongly withheld interest).
Next up: Fourth Circuit.
Order, Zito v. North Carolina Coastal Res. Comm'n, No. 2:19-CV-11-D (E.D.N.C. Mar. 27, 2020)