Think Before You Remove: Waiver of Exhaustion Argument in Regulatory Takings

The Sixth Circuit issued an opinion late last week that should give a municipality pause before it removes a regulatory takings case to federal court. Siding with the Second and Fourth Circuits, the Court held that by removing a regulatory takings case to federal court, the municipality waived its right to argue that the plaintiff failed to exhaust administrative remedies before bringing suit.

This decision has important implications for municipalities, particularly those who have become accustomed to removing at the first sight of a federal claim in a complaint. Municipalities must now pause to consider not only whether the exhaustion defense is available, but whether the pros of asserting the defense outweigh the benefits of a federal judge presiding.

Notably, the Eighth Circuit has decided this issue the other way, creating a split among the circuits. We will watch and see whether the Supreme Court takes interest.  You can read the full opinion, Lilly Investments v. City of Rochester, here.