Lilly Investments v. City of Rochester, 674 F. App'x 523

Background

Leonor sought to renovate a historic 1878 house in Rochester, Michigan, as a dental clinic and obtained a parking-fee waiver in exchange for demonstrating “reasonable compliance” with the Secretary of the Interior’s Standards (SOI) for rehabilitation; the City-appointed outside expert would resolve interpretive disputes and Leonor would pay for that expert.
Construction issues (tree removal, excavation damage) led the City to hire preservation expert Ed Francis, whose February 2013 report found partial noncompliance and prompted a May 2013 stop-work order tied to noncompliance with the SOI standard.
Leonor implemented many remedial changes, submitted amended site plans (July and December 2013), and Francis’s September 2013 re-evaluation found the project “reasonably compliant,” but the Commission did not disclose that report or vote to lift the stop-work order.
Instead, the Commission conditioned lifting the stop-work order on Leonor waiving claims against the City and paying $40,000 (and also asked for a tree-fund payment), which Leonor refused; the Commission repeatedly delayed taking an up-or-down vote and created a subcommittee instead.
Leonor sued in Michigan state court alleging a regulatory taking; Rochester removed to federal court. The district court dismissed Leonor’s takings claim as unripe for lack of a final decision. The Sixth Circuit reversed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Ripeness — finality of decision	Leonor: Commission’s conduct (waiver demand, $40,000, failure to vote) created an impasse; further administrative process would be futile.	Rochester: Final decision remained the Commission’s prerogative; Leonor had not obtained a definitive administrative ruling.	Court: Finality prong satisfied under futility/impasse — Commission’s conduct denied a meaningful final decision.
Futility — unfair procedures / moving standards	Leonor: Commission shifted standards and leveraged the stop-work order to extract waivers/payment, making administrative exhaustion pointless.	Rochester: Demands were negotiation starters; Commission willing to vote if applicant complied with submission requirements.	Court: Commission’s demands and failure to act despite a favorable expert report showed unfair procedures and prejudice; futility exception applies.
Exhaustion — state remedies requirement	Leonor: Rochester’s removal from state to federal court waived any requirement that he obtain a state-court judgment first.	Rochester: Williamson County’s exhaustion rule should bar federal suit absent final state-court adjudication.	Court: Joins Second and Fourth Circuits — removal waives the Williamson County exhaustion requirement; defendant cannot force the plaintiff to complete state litigation after removing.
Procedural outcome below	Leonor: District court erred by dismissing for lack of ripeness.	Rochester: District court was correct to dismiss because no final administrative action occurred.	Court: Reversed the district court dismissal and remanded for further proceedings.

Key Cases Cited

Williamson Cty. Reg’l Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172 (establishes finality and state-remedy exhaustion for takings claims)
Palazzolo v. Rhode Island, 533 U.S. 606 (discusses need to know extent of permitted development for takings analysis)
Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (substantive takings principles)
Bannum, Inc. v. City of Louisville, 958 F.2d 1354 (6th Cir.) (impasse/futility exception to finality)
Del Monte Dunes at Monterey, Ltd. v. City of Monterey, 920 F.2d 1496 (9th Cir.) (unfair procedures/futility in land-use context)
Sansotta v. Town of Nags Head, 724 F.3d 533 (4th Cir.) (removal waives Williamson County exhaustion)
Sherman v. Town of Chester, 752 F.3d 554 (2d Cir.) (applies Sansotta reasoning; exhaustion waived on removal)
Lapides v. Bd. of Regents of the Univ. Sys. of Ga., 535 U.S. 613 (waiver principle where a state invokes federal jurisdiction)