Government Liability Update

Williamson Finality Requirement for Federal Regulatory Takings Claims Survives Knick; Untimely Objection to Requirement Waives Objection

In Pakdel v. City and County of San Francisco, published March 17, 2020, a divided panel of the 9th Circuit Court of Appeals affirmed dismissal of a challenge to a rental property conversion program as a regulatory taking.  The defendant city instituted an expedited conversion program for permitting rental property owned by tenants-in-common to be converted to condominiums.  If a unit in the property was rented to a person other than an owner, the program required the owners to offer the tenant a lifetime lease.  The owners of a rental property applied to convert their property, and agreed to offered their tenant a lifetime lease.  They allowed deadlines to request exemptions to program requirements to pass, and expressly waived the right to seek an exemption.  They obtained approval from the city to convert.  The owners then requested that the city exempt them from the lifetime lease requirement, or compensate them for the lease.  When the city refused, the plaintiff owners sued the city under 42 U.S.C. section 1983, alleging a violation of the Takings Clause of the Fifth Amendment.  The district court dismissed the lawsuit under Williamson County Regional Planning Comm. v. Hamilton Bank (1985) 473 U.S. 172, on the ground that the plaintiffs had not first sought compensation under state law.  While the appeal was pending, the Supreme Court decided Knick v. Township of Scott (2019) __U.S.__, 139 S.Ct. 2162, which threw out the requirement that plaintiffs suing for a taking under the Fifth Amendment first seek compensation under state inverse condemnation law.

The majority nevertheless affirmed the dismissal.  The Knick decision left intact Williamson's requirement that a plaintiff suing a municipality for a regulatory taking under the Fifth Amendment obtain a final decision from the defendant municipality, by requesting an exemption to the challenged regulation.  Because the plaintiffs did not timely request an exemption from the lifetime lease requirement, and expressly waived any request for exemptions, they failed to obtain a final decision from the city on the exemption issue.  The finality requirement therefore barred their suit.

A dissenting judge opined that because the city denied the plaintiffs' belated request for an exemption, the city reached a final decision, satisfying the finality requirement.

Notice to Section 8 Housing Tenants of Payment Standard Reduction Violated Due Process and Mandatory Duty

In Nozzi v. Housing Authority of the City of Los Angeles, filed November 30, 2015, the 9th Circuit Court of Appeals reversed summary judgment granted in favor of the defendant housing authority, and ordered summary judgment entered in favor of the plaintiff class of Section 8 program tenants.  The housing authority reduced its payment standard, the maximum subsidy payment that the authority would provide for each apartment in the area.  That would result in an increase of the amount many tenants paid for their rents.  24 C.F.R. section 982.505(c)(3) required the authority to provide information about the change to the beneficiaries at their annual reexaminations following the decision, and advise them that their change will not go into effect until their following examination one year later.  The authority sent the beneficiaries a flyer with their notices of review determination.  The flyer set forth a notice of the lowered payment standard, couched in the language of the regulation.  The flyer did not define the terms within it.  It did not advise tenants that their shares of their rent might rise.  It did not provide contact information for tenants with questions about the notice.  A year later, thirty days before the payment standard was to change, the authority sent the beneficiaries notices of their subsidies and rents for the year under the new payment standard.  A class of tenants sued the housing authority under 42 U.S.C. section 1983 for denial of due process, and under state law for violation of mandatory duty (Government Code section 815.6).  The district court granted the authority summary judgment.

The 9th Circuit held that the housing authority had failed to provide the plaintiffs with sufficient notice of the change to meet due process standards.  The federal regulations created a property interest in the Section 8 beneficiaries in housing benefits that continue in existence for at least one year after the beneficiary is advised that his benefits may be decreased by a change to the payment standard, so that the beneficiary can prepare for the change.  They therefore had the right not to be deprived of that property interest without due process.  The notice required by due process is notice that is reasonably certain to actually inform the party.   The flyer was insufficient to meet the standard.  It failed to provide actual notice to anyone without a sophisticated knowledge of Section 8 payment calculations that the changes may result in the tenants paying more.  The other measures the authority took to inform the tenants were insufficient.  Although there were public hearings, they failed to give individual tenants notice of the changes in their rents.  The orientation training sessions that tenants received only briefly touched on payment standards, and were for many held years before this change.  The notice sent 30 days before did not satisfy the requirement for a year's notice.  In addition, the federal regulation created a mandatory duty that supported a cause of action under section 815.6 for violation of that duty.  Since the housing authority had a full chance to provide evidence, and did not raise any triable issues of fact, the 9th Circuit ordered summary judgment entered for the plaintiff class.