The Second Circuit has added new support to the Williamson County waiver theory in the case of Sherman v. City of Chester. In a nutshell, the court ruled that when a local government removes a federal takings claim from state court to federal court, it waives the opportunity to raise the state-exhaustion prong of Williamson County as an objection to the federal court proceeding. This Second Circuit ruling follows a ruling by the Fourth Circuit in Sansonatta v. Town of Nags Head, issued in 2013, adopting the same conclusion. The ruling in Sherman apparently means that a local government faced with multiple federal claims filed in state court will need to make an initial choice between litigating all the claims in federal court or litigating all of the claims in state court.
Importantly, the decision does not cast doubt on the general rule that when a litigant initially files a takings claim in federal court, the government defendant can raise Williamson County and insist that the takings claim be litigated in state court.
The Second Circuit also ruled that the plaintiff met the finality prong of Williamson County by demonstrating that it would be “futile” to proceed with further applications because the town used “unfair and repetitive” procedures to raise a host of changing regulatory obstacles over about a decade to bar the plaintiff’s development project.
In a final interesting twist, the court concluded that the plaintiff stated a viable takings claim, at least sufficient to survive a Rule 12 motion to dismiss, on the theory that the shifting regulatory requirements that made it futile for plaintiff to seek to ripen his claim themselves constituted a taking. We’ll be curious to see how this case unfolds on remand.