Paragon Properties: The Rule of Finality in Challenging Municipal Land Use Decisions

 

            The relationship between municipalities and land developers is often one of compromise, with each attempting to find some middle-ground in order to move forward on a particular project.  In many instances, however, the municipality and developer are unable to reach such a compromise and the parties find that their positions are irreconcilable.  In such instances the developer may believe that their only next viable option is to seek redress in the court system.  But before doing so, it is important that a developer recognize the limitations on judicial review of land use decisions by a municipality.  Specifically, if a developer does not satisfy the “rule of finality,” the developer may find that they have no right to seek a judicial remedy at all.  The rule of finality helps to ensure that a municipality is given an opportunity to make a final decision on the matter before it.  Without such a final opportunity, judicial review is not available.

In Paragon Props Co v City of Novi, 452 Mich 568; 550 NW2d 772 (1996), the Michigan Supreme Court held that “judicial review in zoning cases is not available until the zoning authority has rendered a final decision.”  Id. at 530. Simply, in order to judicially challenge a municipal regulation, ordinance, or decision pertaining to land use, the governmental body being challenged must be given the opportunity to make a final decision on the matter.  The Paragon court relied on the U.S. Supreme Court decision in Williamson Co Regional Planning Comm v Hamilton Bank of Johnson City, 473 US 172 (1985), and its own prior decision in Electro–Tech, Inc v HF Campbell Co, 433 Mich 57; 445 NW2d 61 (1989).  The rule of finality applies to all “as-applied” challenges, but not facial challenges.  Paragon, 452 Mich at 577 (“Finality is not required for facial challenges because such challenges attack the very existence or enactment of an ordinance.”)

In Paragon, the City of Novi denied a rezoning request and after the denial the plaintiff/developer filed suit against the City. The Michigan Supreme Court concluded that the matter was not ripe for review because the plaintiff had not requested a land use variance before filing suit. “[H]ad Paragon petitioned for a land use variance, Paragon might have been eligible for alternative relief from the provisions of the ordinance.”  Paragon, 452 Mich at 580. The plaintiff, therefore, had not complied with the rule of finality and the matter was not ripe for review.

In reaching its decision, the Paragon court cited extensively the U.S. Supreme Court’s Williamson decision stating: “[T]he finality requirement is concerned with whether the initial decisionmaker has arrived at a definitive position on the issue that inflicts an actual, concrete injury . . . .”  Further, the Paragon court explained the significance of the finality requirement as follows:

The finality requirement aids in the determination whether a taking has occurred by addressing the actual economic effect of a regulation on the property owner’s investment-backed expectations. As noted in Williamson, factors affecting a property owner’s investment-backed expectations “simply cannot be evaluated until the administrative agency has arrived at a final, definitive position regarding how it will apply the regulations at issue to the particular land in question.”

Paragon, 452 Mich at 578-79.

The rule of finality continues to arise in land use cases and the Michigan Supreme Court has been consistent in requiring compliance.  In Hendee v Putnam Township, 486 Mich 556; 786 NW2d 521 (2010), the Michigan Supreme Court further considered the issue of finality.  In Hendee the plaintiff-developer owned land zoned for agricultural use which limited the property to residential use with a 10 acre parcel requirement.

In 2003 the plaintiff filed an application with the township board of trustees for approval of a 95 unit planned unit development (“PUD”) and to rezone the land from agricultural open space (“A-O”) to single-family, rural residential (“R-1-B”).  At some point in time during this application process the plaintiff filed a new application to permit a 498 unit manufactured housing community (“MHC”).  However, the township indicated that it would not process a new application for an MHC while the PUD application was pending and the plaintiff, therefore, withdrew the MHC application.  In late 2003 the township board of trustees denied the plaintiff’s request for the PUD.  The plaintiff then applied to the township zoning board of appeals (“ZBA”) for a use variance to permit a development of 95 one-acre residential lots.  In early 2004 the ZBA denied the variance request also.

In April 2004 the plaintiff filed a complaint against the township alleging that the township should have permitted the 498 unit MHC development.  The plaintiff abandoned the 95 unit PUD.  The township argued, in part, that the plaintiff’s claims failed because the plaintiff had not exhausted its administrative remedies as to the 498 unit MHC development and had not satisfied the rule of finality.  The Michigan Supreme Court held that the township had made a final decision as to the 95 unit PUD, but not the 498 unit MHC development.  With respect to the 95 unit PUD, the Court stated:

After the township denied plaintiffs’ request for a 95–unit PUD, plaintiffs properly sought administrative relief by requesting a use variance from the ZBA to permit the 95–unit PUD. The ZBA denied plaintiffs’ variance request. At that point, plaintiffs had exhausted their administrative review obligations and could have sought judicial relief under the ripeness rule of Paragon Props Co v City of Novi, 452 Mich 568; 550 NW2d 772 (1996), as no other means of administrative appeal or review was available to plaintiffs to permit development of a 95–unit PUD.

Hendee v Putnam Twp, 486 Mich 556, 567; 786 NW2d 521 (2010).

At the same time, however, the Court rejected the plaintiff’s contention that a final decision had been obtained as to the 498 unit MHC development, and concluded that the plaintiff’s decision to withdraw the MHC application rendered the matter “not only not ripe for review,” but also “nonexistent.”  Id.  By withdrawing the MHC application but then relying on the MHC application in its complaint, the plaintiff deprived the municipality of an opportunity to make a decision on the application—the very purpose of the “finality” rule—before filing suit.

The Court also rejected the plaintiff’s contention that the MHC application would have been “futile” and that, therefore, it did not need to fully exhaust its administrative remedies.  For this argument the Court recognized that this principle existed, stating:

As the United States Court of Appeals for the Sixth Circuit explained in Bannum, Inc v City of Louisville, 958 F2d 1354, 1362–1363 (CA6, 1992):

We do not want to encourage litigation that is likely to be solved by further administrative action and we do not want to put barriers to litigation in front of litigants when it is obvious that the process down the administrative road would be a waste of time and money….

… [However,] [f]or the exception to be available to an aggrieved landowner, the landowner must have submitted at least one “meaningful application” for a variance from the challenged zoning regulations. Kinzli v City of Santa Cruz, 818 F2d 1449, 1454–55 (9th Cir1987), cert denied, 484 US 1043 (1988).

Because plaintiffs have not even made at least one unsuccessful meaningful application for a rezoning request to change the zoning from AO to MHC, so as to permit their proposed 498–unit MHC, plaintiffs have not established that the futility doctrine applies.

Hendee, 486 Mich at 532.

Hendee is significant because it clarifies that a municipality must be presented with an opportunity to address the same issue for which the plaintiff seeks judicial review.  In addition, the Hendee court also provides some guidance as to the requirements of any “futility” exception to the rule of finality.

Michigan courts have stated that this rule of finality applies to nearly all manner of “as applied” land use cases, including a claim premised under 42 USC 1983.  See Cummins v Robinson Twp, 283 Mich App 677; 770 NW2d 421 (2009) (“The rule of finality applies to all constitutional ‘as applied’ challenges to land use regulations and ensures that a plaintiff has suffered an ‘actual, concrete injury.’  Contrary to plaintiffs’ argument, the rule of finality applies even when a plaintiff’s constitutional claim is premised under 42 USC 1983.”).

In most instances the rule of finality will require that the putative plaintiff seek a variance from an existing land use ordinance before filing a lawsuit.  Cummins, 283 Mich App at 713 (“Thus, under Williamson and its progeny, because plaintiffs failed to ‘seek alternative relief, in the form of variances,’ their taking claim was not ripe for adjudication.”).  However, in cases where there is no discretion on the part of the municipality to grant a variance, then courts should be willing to consider the “futility” exception to the rule of finality.  C.f. Heritage Sustainable Energy, LLC, v County of Schoolcraft, 2016 WL 6139151 (Mich Ct App Oct 20, 2016) (“Because § 905 provided the Zoning Board of Appeals with discretion to grant plaintiffs’ a variance . . . it would not have been futile for plaintiffs to have sought such a variance. Because the possibility existed that a variance could have been granted but plaintiffs did not apply, their claim did not satisfy the rule of finality and was not ripe for review by the circuit court.”).

Developers and individuals involved in land use development and challenges to adverse municipal decisions pertaining to land use should be aware of and prepared to address the rule of finality arising out of Paragon Properties. A developer who fails to permit the municipality an opportunity to make a final decision on the challenged regulation, as it applies to the developer’s request, risks losing their day in court.

           Matthew W. Heron is an attorney with the law firm of Cummings, McClorey, Davis & Acho, P.L.C. where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, land use, large contractual disputes, and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters.  He can be reached at (734) 261-2400 or mheron@cmda-law.com.  You can also follow him on Twitter at @mwheron75.

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