Normally, a regulatory-takings plaintiff must seek compensation through “procedures the State has provided,” before suing in federal court.  Last week, in a unanimous unpublished opinion, Lilly Investments v. City of Rochester, the Sixth Circuit joined the Second and Fourth Circuits by holding that, by removing the case, a defendant-city waives this exhaustion requirement.  The Court reasoned that, “[w]hen a state or locality removes to federal court, it ‘implicitly agrees’ with the competence of federal courts to decide the plaintiff’s claim.”

The Sixth Circuit noted that Eighth Circuit has taken a different position and “affirmatively declined to waive the exhaustion requirement in removal cases,” but pointed  out that this may be because the Eighth Circuit “is the only circuit that considers [the requirement] jurisdictional,” and called the latter “a conclusion inconsistent with Supreme Court precedent.”

Given its deepening of an existing circuit split, the case has Supreme Court potential.  In the meantime, states and municipalities should carefully consider all the implications when deciding whether to remove similar claims.