Part 3. The Defense or use of Estoppel
And Requirement to Exhaust Administrative Remedies
In the second blog post on this subject found HERE, I highlighted the vested rights doctrine and its utilization by Arizona courts when a dispute occurs. The vested rights doctrine is based on the concept of estoppel, which will be discussed in greater detail in this post. You can find part one of my series on Building codes HERE.
In order to avoid the overuse of both the vested rights doctrine and estoppel, the courts often require the claimant to be able to prove that it has fully complied with the all of the potential administrative remedies before allowing their claim(s) to proceed. These procedural requirements must be complied with before the claimant can argue whether these claims and defenses are viable.
The Doctrine of Estoppel
- Estoppel is an equitable doctrine used as a defense in contract disputes. It is a legal term that is unique in its wording, but the definition is relatively easy to explain. Estoppel occurs in circumstances where one party detrimentally relied upon a misrepresentation by the other party to the contract or its representative, which led to damages. In addition, Estoppel also refers to conduct inconsistent with a later adopted position, and which conduct induces somebody to act to their detriment.[1]
- Estoppel, in the context of building codes, often occurs when an owner or developer is provided assurances by a government entity that it then relies upon to its detriment. If estoppel is found, the government entity which provided these assurances is prevented from taking action contradictory to the original assurances given. For example, a property owner, who had been provided approval for its zoning or other variances for expansion of his residence and detrimentally relies on these approvals, which are later revoked, may be able to rely on estoppel to stop revocation of these approvals because the owner relied on a statement by the government to his or her detriment.
However, it should be remembered that a municipality generally cannot be estopped from enforcing its building code.[2] Estoppel is generally not applicable against a state or government entity except in circumstances where the legal system has determined “the government’s wrong conduct threatens to work a serious injustice and if the public interest would be duly damaged by the imposition of estoppel.” A municipality may be estopped only “when its ‘wrongful conduct threatens to work a serious injustice and … the public interest would not be unduly damaged.’”[3] Therefore, courts will often allow municipalities substantial leeway in how its employees conduct business.[4]
In addition, the government will generally not be estopped by “the casual acts, advice or instructions issued by nonsupervisory employees.”[5] Instead, a party asserting estoppel must show that supervisory employees articulated a position, acted contrary to that position, and that a serious injustice would occur if the government is not held to the assertions made. Essentially, estoppel can be invoked successfully only when the government’s actions constitute “affirmative misconduct.”[6]
- In order to find estoppel, Arizona courts will examine the administrative decision by the government entity and determine whether the decision made was arbitrary, capricious, or an abuse of discretion.[7] Often, estoppel has been recognized as the foundation of the vested right doctrine and inferred under most circumstances when it is invoked.[8]
- An example of this analysis is seen in Rivera v. City of Phoenix discussed in a prior post on this subject. In Rivera, the homeowners had also argued that estoppel was triggered because the City revoked the permit even though the homeowners had relied upon the prior approval to their detriment, construction had already begun, the project had been mostly completed, and the homeowners would be damaged by a permit revocation at this time. The Rivera Court rejected the homeowner’s argument emphasizing that there was no proof by the homeowner that there was any arbitrary and capricious conduct by the City.[9] In addition, the homeowners could not invoke estoppel when the basis for the “wrongful conduct” alleged was because of the erroneous plan submitted by them.[10]
Exhaustion of Administrative Remedies
No matter what circumstances may occur and whether or not the owner/developer may have several potential defenses and vested rights, it is important to make certain that all appropriate administrative remedies have been exhausted before proceeding with litigation. An exhaustion of administrative remedies is a well-known principal of law that states that a party must exhaust its administrative remedies before appealing to the legal system. Courts have established their authority to limit the cases for which they take jurisdiction by rules of ripeness, mootness, and standing. Similar is the rule that requires an exhaustion of all available administrative remedies prior to seeking judicial review of an administrative order.[11] Arizona has long recognized this doctrine and a rule of judicial administration.[12] It often becomes apparent in a circumstance where the party must first go through various zoning boards, committees, or even to the city council before it can file a court proceeding.
Exhaustion of Administrative Remedies is often seen when an owner or developer may have significant evidence of vested rights, but fails to submit this issue directly to the appropriate government agencies before litigation is initiated. The doctrine of exhaustion of administrative remedies applies where a claim is recognizable in the first instance by the administrative agency alone; in such cases the judicial interpretation is withheld until the administrative process has run its course.[13] One of the best sources of whether this doctrine may apply to your situation is to investigate if the legislature, city council, or other governing body, through statute, ordinance or regulation, has established an administrative review process and provides criteria as to when a judicial review becomes available.[14] When an administrative entity is empowered to act by the State Legislature or city ordinance, the administrative procedure and hearings should be completed before a judicial review can occur. Failure to follow the appropriate guidelines could lead to the court declining jurisdiction and preventing a review of a decision—even if a valid claim or defense may exist.
The Gulf Leisure opinion discussed in a previous post also addressed this issue and illustrates possible exceptions to this rule. One of the arguments presented by the Town of Paradise Valley was that the trial court had erred in even deciding the case for the developers because the developers had not exhausted all the administrative remedies at their disposal before filing suit.[15] The Gulf Leisure Court recognized the long-settled Arizona rule of exhaustion of administrative remedies, but it also highlighted that the goal of exhaustion of administrative remedies was only to provide an administrative body a full opportunity to reexamine and restudy the matter.[16] Therefore, an exception to this rule is granted when the administrative review procedure is nonexistent or where it would be futile or useless to invoke the administrative process. The Gulf Leisure Court determined that the facts indicated that there was no established review procedure for final council matters involving the Town of Paradise Valley. What is more important, the Court emphasized is that the exhaustion of administrative remedies did not require re-application to the same council multiple times for alternative forms of relief in order to cover every possible scenario that may involve administrative review. Therefore, the Court rejected the Town’s argument.
Conclusion
- The modern system that governs the rules and procedures through which permits are issued for building and other property improvement projects can be a challenging web of intersecting rules, codes, guidelines, and requirements. Seeing a project through to completion is a challenging and sometimes lengthy process. An owner, developer, contractor, and architect should be mindful of the following considerations to help keep a project on track and avoid potential legal pitfalls.
- Complete all permit requests and other paperwork with truthful and accurate information.
- If a variance from a code or other regulation is necessary, make sure that the variance request is adequately descriptive to ensure that the governmental authorities can reach a proper determination from the information provided to them.
- Avoid situations which would open the door for the government entity to readdress a given variance and possibly revoke a previously approved exception.
- Keep all documentation showing that the owner or developer has established vested rights, and utilize this doctrine as a defense against behavior by a government or administrative agency that may be deemed arbitrary and capricious.
- Examine whether the government entity and its representatives provided assurances that were to the detriment of your client.
- Always remember to claim vested rights early in the administrative process. Do not give the ability to the opposing party to argue that vested rights have been waived.
- Make certain that you exhaust all appropriate administrative remedies before engaging the court system.
- Do not become caught in the minutia of government decision-making by producing duplicate requests to address an issue that has already been adjudicated on the administrative level.
- These guidelines will help to make the process of completing a building or other property improvement project reach completion with fewer setbacks. In addition, it will provide the information and evidence necessary if you must navigate the administrative and legal process in order to achieve the desired outcome for your project.
[1] Thomas and King, Inc., v. City of Phoenix, 208 Ariz. 203, 210, 92 P.3d 429, 436 (Ariz. App. 2004).
[2] National Advertising Co. v. Arizona Department of Transportation, 126 Ariz. 542, 617 P.2d 50 (Ariz. App. 1980).
[3] Valencia Energy Co. v. Arizona Department of Revenue, 191 Ariz. 565, 959 P.2d 1256 (1998).
[4] Id.
[5] Id. The argument that an individual on the telephone or at the front counter provided the information relied upon will not be enough to find estoppel occurred.
[6] Rivera v. City of Phoenix, 186 Ariz. at 604.
[7] See generally, Blake v. City of Phoenix, 157 Ariz. 93, 96, 754 P.2d 1368, 1371 (Ariz. Ct. App. 1988); citing Book Cellar, Inc. v. City of Phoenix, 139 Ariz. 332, 678 P.2d 517 (Ariz. Ct. App. 1983).
[8] Town of Paradise Valley v. Gulf Leisure Corporation, 557 P.2d at 540.
[9] Id.; citing Freightways, Inc. v. Arizona Corp. Commission, 129 Ariz. 245, 248, 630 P.2d 541, 544 (1981); Carlson v. Arizona Department of Economic Security, 184 Ariz. 4, 6, 906 P.2d 61, 63 (Ariz. Ct. App. 1995).
[10] Id.
[11] Minor v. Cochise County, 125 Ariz. 170, 172, 608 P.2d 309, 311 (1980).
[12] Id.
[13] Id. at 173; citing United States v. Western Pacific R.R. Co., 352 U.S. 59, 63-64 (1956).
[14] See Southwest Soil Remediation, Inc. v. City of Tucson, 201 Ariz. 438, 442, 36 P.3d 1208, 1212 (Ariz. Ct. App. 2001); citing Minor, 125 Ariz. at 172, 608 P.2d at 311.
[15] 557 P.2d at 541.
[16] Id. at 542; citing Pima Mining Co. v. Industrial Commission, 11 Ariz. App. 480, 482, 466 P.2d 31, 33 (Ariz. Ct. App. 1970).
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