Indiana Law Review


Administrative Law: When Agencies Don't Play By the
Rules

Jeffrey D. Claflin*

Karon Arnold-Hatleli**
Peter M. Racher***

I. Introduction

Complex societies require a legal system capable of and dedicated
to handling highly specialized legal functions. For this reason, federal

and state legislatures have created a multitude of administrative agencies,

each to regulate specific activities and each vested with a variety of

executive, legislative, and judicial powers. Administrative agencies issue

permits, grant variances, conduct investigations, subpoena records, de-

termine eligibility for special benefits, impose fines, and in innumerable

other ways affect peoples' lives. As a result of the enormous breadth
of their regulatory authority, administrative agencies have tremendous

potential to advance the public good. But when an agency's action is
improperly motivated or unconstitutional, the traditional processes of

administrative appeal and judicial review may not provide an effective
remedy for the party injured by the agency or the agency's employees.

In those instances, a variety of extra-administrative actions may be
available to the aggrieved party. These actions include, for example, the

filing of an action under the Indiana Tort Claims Act,' a section 1983

action, an action for a taking without just compensation, or an action

for mandate.2

During the survey period,^ the Indiana Supreme Court and the

Indiana appellate courts handed down a number of decisions directly
affecting the availability of extra-administrative remedies. In the wake
of the Indiana Supreme Court's 1988 decision in Peavler v. Board of
Commissioners of Monroe County,'^ the majority of these cases concerned

* Associate, Plews & Shadley, Indianapolis. J.D,, Indiana University School of
Law-Indianapolis, 1990.

** Associate, Plews & Shadley, Indianapolis. J.D., Whittier College School of
Law, 1987.

*** Associate, Plews & Shadley, Indianapolis. J.D., Indiana University School of
Law-Bloomington, 1986.

1. IND. Code §§ 34-4-16.5-1 to -21 (1988).
2. This is not an exclusive list of extra-administrative remedies. This list only

covers extra-administrative remedies acted on during the survey period.

3. The survey period is January 1, 1989 through November 30, 1990.
4. 528 N.E.2d 40 (Ind. 1988).



524 INDIANA LAW REVIEW [Vol. 24:523

tort actions filed by an individual against the state, its agencies, or

political subdivisions. But the courts also reconsidered regulatory takings,

inverse condemnation, and actions for mandate. This Article will examine

some of the important decisions in each of these areas.

II. The Traditional Remedy

Under Indiana's Administrative Orders and Procedures Act (AOPA),
Indiana Code section 4-21.5, the legislature has codified a traditional
administrative remedy available to the party adversely affected by an

agency action. The AOPA controls the bulk of administrative practice
in Indiana. However, Indiana Code section 4-21.5-2-4 makes the Act
inapplicable to certain agencies.^ In addition, Indiana Code section 4-

21.5-2-5 exempts certain agency actions from AOPA procedures.^ The
AOPA provides that individuals who are adversely affected by an agency
action may seek review of that action before an administrative law judge
(ALJ). The review is in the form of an adjudicatory hearing.'' At the
hearing's conclusion, the ALJ prepares findings of fact, conclusions of
law, and the recommended order for submission to the ultimate authority

5. Ind. Code § 4-21.5-2-4 (1988 & Supp. 1990): This Article does not apply to
any of tlie following agencies:

(1) The governor.

(2) The state board of accounts.

(3) The state educational institutions (as defined by IC 20-12-0. 5-l(b)).

(4) The department of employment and training service.

(5) The employment insurance service board of the department of employment

and training services.

(6) The workers' compensation board.

(7) The military officers or boards.

(8) The utility regulatory commission.

(9) The department of state revenue (excluding an agency action related to the

licensure of private employment agencies).

(10) The state board of tax commissioners.
These agencies generally have promulgated their own hearing procedures that, although

different from the AOPA in many respects, are nonetheless subject to judicial review and
the extra-administrative remedies discussed in this Article. See, e.g., Ind. Admin. Code
tit. 170, r. 1-1-1 to -22 (1988) (the administrative procedure observed by the Indiana

Utility Regulatory Commission).

6. Ind. Code § 4-21.5-2-5 (1988 & Supp. 1990) Hsts 13 agency actions that are
exempt from AOPA procedure. Subsection (5) is particularly relevant: The act does not
apply to "[a] resolution, directive, or other action of any agency that relates solely to

the internal policy, organization, or procedure of that agency or another agency and is

not a licensing or enforcement action . . . ." Id.

7. Ind. Code §§ 4-21.5-3-25 to -26 (1988) govern the conduct of administrative
hearings.



1991] ADMINISTRATIVE LAW 525

for the agency.^ In Indiana, the ultimate authority can be an individual

or a panel of individuals vested by law or executive order with final

authority.* The ultimate authority will consider the ALJ's recommen-

dation and decide whether it should affirm, modify, or dissolve the

ALJ's **order."'° When the ultimate authority issues a final order, that
order can then be appealed in the circuit or superior courts of Indiana. '•

Indiana courts recognize the general rule that a party must ** exhaust'*

all administrative remedies before pursuing an appeal in court. *^ In

addition, the AOPA provides that failure to exhaust administrative rem-
edies will result in the waiver of the party's right to judicial review. '^

The intent of this general rule is to discourage the courts' interference

in an agency's performance of special functions given to it by the

legislature, to encourage finality in decision making, to maintain an

orderly judicial process, to avoid multiplicity of suits, to afford the

parties and the courts the benefit of an agency's experience and expertise,

and to economize judicial resources. '"* There are, however, well recognized

exceptions to the general rule that administrative remedies must be

exhausted.'^

A party can avoid the doctrine of exhaustion when (1) the admin-
istrative action raises significant constitutional issues; (2) the plaintiff

can demonstrate that administrative review would be futile; (3) the

applicable administrative procedural statute is void; or (4) the plaintiff

would suffer irreparable harm if compelled to exhaust administrative
remedies.'^ In addition, other types of administrative **actions" simply

8. Id. § 4-21.5-3-27.

9. Id. § 4-21.5-1-15. See also Id. § 4-21.5-3-28(b), which provides that '*[t]he

ultimate authority or its designee shall conduct proceedings to issue a final order."

10. Id. § 4-21.5-3-29(b).

11. Id. §§ 4-21.5-5-1 to -16.

12. See, e.g.. East Chicago v. Sinclair Refining Co., 232 Ind. 295, 111 N.E.2d

459 (1953); Marion Trucking Co. v. McDaniel Freight Lines, Inc., 231 Ind. 514, 108

N.E.2d 884 (1952); Evansville City Couch Lines, Inc. v. Rawlings, 229 Ind. 552, 99 N.E.2d

597 (1951).

13. iND. Code § 4-21.5-5-4 (1988).
14. See generally Uniroyal, Inc. v. Marshall, 579 F.2d 1060, 1064 (7th Cir. 1978);

Indiana State Bldg. & Constr. Trades Council v. Warsaw Community School Corp., 493
N.E.2d 800, 805-06 (Ind. Ct. App. 1986).

15. In addition to the exceptions established by common law, Ind. Code § 4-21.5-
5-2(c) (1988) specifically provides that a "person is entitled to judicial review of a non-

final agency action only if the person establishes both . . . [i]mmediate and irreparable

harm . . . [and] [n]o adequate remedy exists at law."

16. See, e.g., Greene v. Meese, 875 F.2d 639 (7th Cir. 1989) (civil rights plaintiff

is normally not required to exhaust administrative remedies); Consolidated Rail Corp. v.

Smith, 664 F. Supp 1228 (N.D. Ind. 1987) (court need not await conclusion of administrative

review of controversy that can only be resolved by determination of the constitutionality



526 INDIANA LAW REVIEW [Vol. 24:523

do not fit into the traditional scheme of administrative review. For

example, when an agency does not act on a matter and the applicable
statute provides no time period during which the agency must act, is

the party deaUng with the agency simply obligated to wait? If not, what

degree of * inactivity*' will trigger administrative review? ^^ Further, the

administrative forum seems particularly unsuited for reviewing the mal-

feasance or misfeasance of agency officials. In these contexts, counsel

may wish to consider an extra-administrative remedy such as the filing
of an action under the Indiana Tort Claims Act (ITCA).'^

III. Tort Claims Against the State

A. Introduction

Traditionally, recovery against the state in tort has been severely

limited by the ancient doctrine of sovereign immunity. ^^ The English

common law held that **the king could do no wrong," and therefore
the sovereign was immune to actions in court .^^ This doctrine of sovereign
immunity was adopted in the United States after the American Revo-

lution, primarily as a means to protect the limited financial resources

of the fledgling repubhc and its independent states .^^ Since that time,

however, the doctrine has eroded. In most jurisdictions, with limited

exceptions,^^ states no longer enjoy the broad immunity originally granted

of a statute or ordinance if the agency lacks the power to adjudicate the constitutional

claim); Jones v. Blinziner, 536 F. Supp. 1181 (N.D. Ind. 1982) (when the administrative

remedy is futile, exhaustion will not be required); Bartholomew County Beverage Co. v.

Barco Beverage Corp., 524 N.E.2d 353 (Ind. Ct. App. 1988) (doctrine of exhaustion does

not apply when the administrative remedy is impossible or fruitless and of no value under

the circumstances); New Trend Beauty School, Inc. v. Indiana State Bd. of Beauty Culturist
Examiners, 518 N.E.2d 1101 (Ind. Ct. App. 1988). See also Ind. Code § 4-21.5-5-2(c)
(judicial review on nonfinal agency actions).

17. See Ind. Code § 4-21.5-1-4 (1988), which defines agency action as **[a]n agency's
performance of, or failure to perform, any other duty, function, or activity under this

article." Id. (emphasis added). This provision of the AOPA appears to provide an
administrative alternative to the action for mandate. However, as of this writing, the

authors are not aware of any reported instances when this provision has been used to
redress agency inaction.

18. Ind. Code §§ 34-4-16.5-1 to -21 (1988).
19. The doctrine of sovereign immunity also traditionally covered employees of

the state acting within the scope of their employment.

20. See, e.g., Campbell v. State, 254 Ind. 55, 57, 284 N.E.2d 733, 734 (1972).

21. See generally Campbell v. State, 254 Ind. 55, 284 N.E.2d 733 (1972) (discussion

of sovereign immunity).

22. See Kellogg v. City of Gary, 562 N.E.2d 685, 703 (Ind. 1990) (a qualified

immunity is preserved for judges and, to a lesser extent, for nonjudicial pubhc officers

in their discretionary poHcy-making acts).



1991] ADMINISTRATIVE LAW 527

by the common law, but instead rely upon a limited immunity preserved
by statute. Such is the case in Indiana. The legislature has ** preserved''

a limited degree of governmental immunity in the ITCA.^^

In 1972, the Indiana Supreme Court decided in Campbell v. State^*

that there was no longer any basis **for the continuation of the doctrine

of sovereign immunity'' under the common law and that **[t]he proper
forum" for determining whether any immunity should survive is **in

the legislature. "2^ The Campbell decision held that the state in most

cases would no longer enjoy immunity from tort actions unless and until

the state legislature estabhshed such immunity by statute.^^ Two years
later, the legislature passed the ITCA.^^

Central to the present version of the ITCA is a list of seventeen
situations, occurrences, actions, or inactions for which the state, its

agencies, political subdivisions,^^ or employees^^ shall not be liable in

tort.^° Of the seventeen * immunities," most are very specific or limited
in scope. For example, the state shall not be Hable for a loss that results

from the **adoption and enforcement of or failure to adopt or enforce

a law (including rules and regulations),"^^ the
*

'natural condition of

unimproved property, "^^ the
*

'temporary condition of a public thor-

oughfare which results from weather,"" the "initiation of a judicial or

administrative proceeding,"^"* or "misrepresentation if unintentional.""

Although the ITCA is rather specific, at least one Indiana court has
held that the list of immune acts enumerated in the ITCA is not
exclusive. ^^

23. IND. Code § 34-4-16.5-1 to -21 (1988).
24. 259 Ind. 55, 284 N.E.2d 733 (1972).

25. Id. at 62-63, 284 N.E.2d at 737.

26. Id.

27. 1974 Ind. Acts 142.

28. Ind. Code § 34-4-16.5-2 (1988) defines "political subdivision" to include coun-
ties, townships, cities, towns, separate municipal corporations, special taxing districts, state

colleges or universities, city or county hospitals, school corporations, boards, or commissions

of any of the foregoing entities.

29. ITCA as it relates to employees only pertains to employees acting within the
scope of their employment. Id.

30. Id. § 34-4-16.5-3.

31. Id. § 34-4-16.5-3(7).

32. Id. § 34-4-16.5-3(1).

33. Id. § 34-4-16.5-3(3).

34. Id. § 34-4-16.5-3(5).

35. Id. § 34-4-16.5-3(13).

36. Coghill V. Badger, 418 N.E.2d 1201, 1211 (Ind. Ct. App. 1981). However,

arguably, Coghill should be limited to holding only that the notice-of-claim provisions of

the ITCA are applicable to all tort actions regardless of whether the state is actually
immune from liability arising from the specific tort.



528 INDIANA LAW REVIEW [Vol. 24:523

The legislature preserved a general kind of immunity by providing

that the state shall not be Hable if a loss results from **[t]he performance

of a discretionary function. *'^^ By its inclusion of the "discretionary
function" provision in the ITCA, the legislature apparently codified the
traditional analysis that had been used as the basis for granting the

state immunity in Indiana since the early 1900s.

In 1919, the Indiana Appellate Court used a ** discretionary/minis-

terial" analysis to determine whether the state would be liable in tort.

The court in Adams v. Schneider^^ held:

A duty is discretionary when it involves on the part of the
officer to determine whether or not he should perform a certain

act, and, if so, in what particular way, and in the absence of

corrupt motives in the exercise of such discretion he is not liable.

His duties, however, in the performance of the act, after he

has once determined that it shall be done, are ministerial, and

for negligence in such performance, which results in injury, he

may be liable in damages.^^

Except in those rare instances when the actor, the individual employee,
exercised absolutely no judgment in the performance of the act, the

Adams analysis of governmental liability effectively shielded the state
from tort actions for several decades. '^^

In 1988, however, the Indiana Supreme Court finally rejected the

** discretionary/ministerial" analysis in Peavler v. Board of Commis-
sioners of Monroe County^^ Peavler marked a turning point in Indiana
tort claims jurisprudence, and provides the backdrop against which more
recent tort actions against the state must be viewed.

In Peavler, the court decided whether a county could be held liable

for its allegedly negligent failure to erect warning signs on a particular

portion of road.'*^ The county argued that its failure to erect the signs
was protected under the

*

'discretionary act" immunity granted by the

37. IND. Code § 34-4-16.5-3(6) (1988).
38. 71 Ind. App. 249, 124 N.E. 718 (1919).
39. Id. at 255-56, 124 N.E. at 720 (citing Bates v. Horner, 65 Vt. 471, 27 A. 134

(1893)).

40. See generally Rodman v. Wabash, 497 N.E.2d 234 (Ind. Ct. App. 1986); Coghill
V. Badger, 418 N.E.2d 1201 (Ind. Ct. App. 1981). But see Mills v. American Playground

Device Co., 405 N.E.2d 621 (Ind. Ct. App. 1980) (court held that negligent installation

of playground equipment was a ministeral act not entitled to immunity).

41. 528 N.E.2d 40 (Ind. 1988).

42. The court took this case on transfer to resolve a conflict between two divisions

of the court of appeals: Peavler v. Board of Commr's of Monroe County, 492 N.E.2d
1086 (Ind. Ct. App. 1986), and Hout v. Board of Commr's of the County of Steuben,
497 N.E.2d 597 (Ind. Ct. App. 1986).



1991] ADMINISTRATIVE LAW 529

ITCA/^ The Indiana Supreme Court, however, determined that
**[d]iscretionary immunity must be narrowly construed because it is an

exception to the general rule of liability.'"^ The court then replaced the

traditional discretionary/ministerial analysis with a "planning/opera-

tionaF' test as the basis for determining whether an action of the state

is discretionary.
'^^

The planning/operational analysis that the court borrowed from

federal case law^ limits the grant of discretionary act immunity to

**[p]lanning activities [which] include acts or omissions in the exercise

of a legislative, judicial, executive or planning function which involves

formulation of basic policy decisions characterized by official judgment

or discretion in weighing alternatives and choosing public policy.*"*^

Further, the court held:

The discretionary function exception insulates only those signif-
icant policy and political decisions which cannot be assessed by

customary tort standards. In this sense, the word discretionary

does not mean mere judgment or discernment. Rather, it refers
to the exercise of political power which is held accountable only

to the Constitution or the political process. "^^

The court held that immunity will be afforded only upon an affirmative

showing by the governmental entity that the ** challenged decision was

discretionary because it resulted from a policy oriented decision-making

process.*'"*^ In other words, the governmental entity must be able to

show that it engaged in a conscious '^balancing of risks and benefits,"

resulting in the making of a policy decision. ^°

43. Peavler, 528 N.E.2d at 42.

44. Id. at 46 (citing Larson v. Indiana School Dist. No. 314, 289 N.W.2d 112,
121 (Minn. 1979)).

45. Id.

46. See generally Blessing v. United States, 447 F. Supp. 1160 (E.D. Pa. 1978).

47. Peavler, 528 N.E.2d at 45 (citing Marreck v. Cleveland Metroparks Bd. of

Commr's, 9 Ohio St. 3rd 194, 459 N.E.2d 873 (1984)).
48. Id. (citing Miller v. United States, 583 F.2d 857, 866-67 (6th Cir. 1978)).

49. Id. at 47.

50. Id. See also Cromer v. City of Indianapolis, 540 N,E.2d 663 (Ind. Ct. App.

1989). In Cromer, the plaintiff brought a wrongful death action against the City of

Indianapolis, alleging that her husband's death was caused by the City's failure to set a

proper speed limit, failure to redesign the highway on which the accident occurred, and

failure to place appropriate warning signs along the highway. Reversing the trial court's

summary judgment in favor of the City, the court of appeals held — on the issue of
the warning signs — that the city "ha[d] not consciously balanced the risks and benefits
to arrive at a decision not to place warning signs . . . ." /<i. at 666. Cf. Mullen v. City

of Mishawaka, 531 N.E.2d 229 (Ind. Ct. App. 1988).



530 INDIANA LAW REVIEW [Vol. 24:523

The Peavler court offered a list of factors which, under the planning/

operational analysis, would indicate immunity:

1. The nature of the conduct —
a) Whether the conduct has a regulatory objective;

b) Whether the conduct involved the balancing of factors

without reliance on a readily ascertainable rule or stan-

dard;

c) Whether the conduct requires a judgment based on policy

decisions;

d) Whether the decision involved adopting general principles

or only applying them;

e) Whether the conduct involved establishment of plans,

specifications and schedule; and

f) Whether the decision involved assessing priorities, weigh-

ing of budgetary considerations or allocation of re-

sources.

2. The effect on governmental operations —
a) Whether the decision affects the feasibility or practi-

cability of a government program; and

b) Whether liability will affect the effective administration

of the function in question.

3. The capacity of the court to evaluate the propriety of the

government's action — Whether tort standards offer an
insufficient evaluation of the plaintiff's claims. ^^

Justice Pivarnik, in his dissent, stated that *'[t]he affect [sic] of the

holding of the majority [in Peavler] is to virtually wipe out all govern-

mental immunity . . . ."" A review of the cases decided since Peavler,
however, suggests that Justice Pivarnik's prediction was somewhat over-

stated. At best, Indiana's posiPeavler decisions offer a "mixed bag" of

opportunities and pitfalls for the potential plaintiff.

The several Indiana Supreme Court cases that have considered the

ITCA since Peavler^^ have dealt primarily with the notice provisions of

51. Peavler, 528 N.E.2d at 46.

52. Id. at 51.

53. One of these cases, Indiana State Highway Comm'n v. Morris, 528 N.E.2d
468 (1988), was decided prior to the survey period. In Morris, the plaintiff — who had
been seriously injured in an auto accident on a one lane state highway bridge — filed
an action against the state "alleging negligence in construction, maintenance and traffic

engineering of the bridge." Id. at 469-70.

Within the 180 days prescribed by statute, the plaintiff served notice of her complaint

with the Indiana State Highway Commission, but she did not serve notice of her complaint

upon the state's Attorney General. However, an employee at the Highway Commission



1991] ADMINISTRATIVE LAW 531

the Act.^'* One case dealt with section 1983." The Indiana appellate
courts, however, have provided the majority of the decisions directly

addressing the issues raised by PeavlerJ^

B. The Relationship Between Policy-making

and ITCA Discretionary Act Immunity

In 1989, the Court of Appeals for the First District had occasion

to apply the Peavler analysis. In City of Seymour v. Onyx Paving Co. ,"

Onyx met with the Building Commissioner of the city of Seymour to
inquire into zoning classifications concerning a piece of property Onyx
wanted to buy. Onyx intended to build a bituminous asphalt batch plant
on the site. The Building Commissioner consulted the zoning code and

informed Onyx that the plant could be built on the site selected by
Onyx. Relying on the Commissioner's word. Onyx bought the property
and obtained an Improvement Location Permit from the Commissioner.

Onyx acquired other necessary permits and began construction of the
plant.

made a copy of the notice and forwarded it to the Attorney General's office pursuant

to standard operating procedures at the Commission. That copy was received in the

Attorney General's office within the 180-day notice period.

Vacating the court of appeals decision, the Indiana Supreme Court held that the

notice provision of the Tort Claims Act had been substantially complied with even though

the plaintiff had not actually sent notice to the Attorney General. Id. at 470. The court

reasoned that the "language of the statute, literally applied, simply requires that the tort

claim notice be filed with the Attorney General and the state agency. It does not designate

who must file the notice." Id. Consequently, the fact that the Highway Commission
employee sent a copy of the notice to the Attorney General's office within the 180-day

period allowed by statute was sufficient for the court to find that the plaintiff had

substantially complied with the Act's notice requirements. Id. at 470-71.

Another of the five cases determined since Peavler is Boger v. Lake County Commr's,

547 N.E.2d 257 (Ind. 1989) (Indiana Supreme Court remanded a summary judgment in

favor of the government).

54. Ind. Code § 34-4-16.5-7 (1988) concerns the notice requirements for claims
against political subdivisions; Ind. Code § 34-4-16.5-8 (1988) concerns the notice require-
ment to be given by incapacitated plaintiffs; Ind. Code § 34-4-16.5-9 (1988) concerns the
form of statement of the notice requirement; and Ind. Code § 34-4-16.5-11 (1988) deals
with service of the notice.

55. Werblo v. Hamilton Heights School Corp., 537 N.E.2d 499 (Ind. 1989).

56. In addition to those cases discussed in detail below, see Huntley v. City of

Gary, 550 N.E.2d 790 (Ind. Ct. App. 1990) and Borne v. N.W. Allen County School
Corp., 532 N.E.2d 1196 (Ind. Ct. App. 1989). In Huntley, the court held that under the

planning/operational test announced in Peavler, an ambulance driver's exercise of pro-

fessional judgment in driving through an intersection did not rise to the level of a policy-

making decision and was not therefore protected by ITCA immunity. Huntley, 550 N.E.2d
at 792. In Borne, the court held that under the planning/operational test, a teacher's

exercise of professional judgment in allowing students to use a public restroom, unchap-

eroned, did not rise to the level of a policy decision. Borne, 532 N.E.2d at 1200-01.

57. 541 N.E.2d 951 (Ind. Ct. App. 1989).



532 INDIANA LAW REVIEW [Vol. 24:523

During construction, the Commissioner issued a stop work order at

the site pursuant to the mayor's direction. Onyx complied with the order.
The Commissioner, the mayor, and the city attorney requested that Onyx
provide proof of exemption from the State Building Commission, and

requested that Onyx provide a better site plan. Onyx provided the
requested information. The city then requested Onyx to obtain a Special
Exception Permit.^*

At that point. Onyx filed suit in the Jackson Circuit Court and
requested injunctive relief and damages. Concurrently, Onyx filed an
appeal with the Seymour Board of Zoning Appeals which was denied.

Onyx then filed a notice of tort claim with the city which was never
honored or denied. The trial court found in favor of Onyx.^^ It granted

Onyx's request for an injunction, and denied the city's request for

injunctive relief.^

On appeal, the city asserted that its act of issuing the stop work
order was immune from suit by virtue of the protection afforded under
the ITCA. Principally, the city rehed upon Indiana Code section 34-4-

16.5-3(6), which immunizes a governmental entity or employee acting

within the scope of employment if the loss results from the performance

of a discretionary function.^* The court of appeals reversed and remanded

the trial court's decision. ^^

In its discretionary function analysis, the court acknowledged Peavler

and the planning/operational test as a means of determining whether

conduct is entitled to discretionary act immunity.^^ The court of appeals

determined that the appropriate postPeavler analysis required an 'inquiry

into the nature of the governmental act and the decision making process

involved. It is not enough to merely inquire as to whether judgment

was exercised, but rather one must inquire as to whether the judgment

calls for poUcy considerations."^

58. The Special Exception Permit was requested because the city believed that the

asphalt batch plant could manufacture tar or tar products or engage in the process of

oil, processing, refining, and manufacturing.

59. The jury awarded Onyx damages in the amount of $121,600, in addition to
injunctive relief. Onyx, 541 N.E.2d at 953.

60. Id.

61. Seymour also pleaded immunity under three other sections of the ITCA: Ind.

Code § 34-4-16.5-3(7) (1988), concerning the adoption and enforcement of a law; Ind.
Code § 34-4-16.5-3(10) (1988), concerning the issuance, denial, or revocation of a permit;
and Ind. Code § 34-16.5-3(11) (1988), concerning the failure of the government to inspect
property to determine whether the property is in compliance with the law. Id. at 956.

The court held that Seymour was entitled to immunity under each of these other sections

as well as under section 6 providing for discretionary immunity. Id. at 957-58. This Article

discusses only the court's discretionary immunity analysis.

62. Id. at 959.

63. Id. at 956-58.

64. Id. at 957 (emphasis added).



1991] ADMINISTRATIVE LAW 533

Under the court's preliminary analysis, very few government actions

would seem to be protected by tort claims immunity by virtue of their

discretionary nature. Only actions arising to government policy-making

would be protected. Nevertheless, the Onyx court concluded in pur-
portedly applying the planning/operational test of Peavler that the city

was inmiune from damage claims arising from the issuance of its stop
work order.^^ The court held that the city's goal in issuing the stop
work order was to enforce a regulation, and the decision whether to

issue the order was a **judgment based upon policy decisions."^

The [building commissioner's] decision also involved the bal-

ancing of several factors without the opportunity to rely on a

readily ascertainable rule or standard. . . . Moreover, the im-

position of liability would certainly affect the building commis-

sioner's ability to effectively enforce the zoning code. Finally,

the traditional tort standards of reasonableness do not provide

an adequate basis for evaluating the act challenged here.^^

Thus, the court of appeals found the existence of several Peavler ** fac-

tors" that the supreme court stated could, ** under most circumstances,

point to immunity."^*

The court of appeals, however, appears to have treated the presence

of those factors as dispositive in determining whether the stop work

order was the type of policy-making function intended to be protected

from tort claims. The essential step in Peavler's planning/operational

test is finding whether the discretionary act rises to the level of **the

essence of governing, "^^ and whether the act **involves formulations of

basic policy decisions. "^^ In zoning cases such as Onyx^ the only act

that would rise to that policy-making level would be the city's initial

creation of zoning districts. The issuance of the stop-work order was

purely operational. Seymour was attempting to stop the siting of Onyx's

facility, claiming the possible violation of an existing city zoning or-

dinance. Because the city could not demonstrate that it had entered into

a deliberative policy-making process in issuing the stop work order, the

wrongful issuance of the order should not have been protected by the

ITCA's discretionary act immunity. The mere presence of one or even
several of the Peavler factors does not dispense with the need for a

65. Id.

66. Id.

67. Id.

68. Peavler, 528 N.E.2d at 46.

69. Id. at 45.

70. Id.



534 INDIANA LAW REVIEW [Vol. 24:523

court to take the additional step of determining whether the governmental

entity actually engaged in policy-making in the performance of the

objectionable act.^'

C. Immunity Arising from the Enforcement of Law

The Indiana Court of Appeals for the Third District decided Van

Keppel V. County of Jasper,'''^ which interpreted Indiana Code section
34-4-16.5-3(7).''^ Van Keppel owned a farm in Jasper County. Two
drainage ditches controlled by the Jasper County Drainage Board were

located on his property. Prior to 1985, Van Keppel made improvements
to this water control system without approval of the Board. Later, the

Board determined the drainage ditches were not properly functioning,

and the Board ordered Van Keppel to return them to their original
condition. Van Keppel failed to follow the order. The Board hired a
contractor to complete the work.

After the work was completed. Van Keppel filed a complaint in the
Jasper County Circuit Court against the Board and the contractor,

alleging that the contractor, under direction of the Board, negligently

removed and destroyed his property.^'* Van Keppel also alleged an im-
proper taking of his property.^^ The trial court dismissed all governmental

entities from the case based on governmental immunity.^^

71. Onyx raises other questions about the Peavler analysis. For example, in Peavler,
the Indiana Supreme Court arguably listed only three "factors" to be considered when

determining whether ITCA immunity should be permitted: the nature of the conduct, the
effect on governmental operations, and the capacity of the court to evaluate the propriety

of the government's action — "[wjhether tort standards offer an insufficient evaluation
of the plaintiff's claims." Peavler, 528 N.E.2d at 46. Under the first two factors, the

court listed several subfactors linked together with a conjunctive **and." The Onyx court
relied on several, but not all, of the subfactors listed by the court under the first factor.

Should the court have been required to demonstrate the existence of each subfactor because

of the conjunction? Further, what exactly is the relationship between the three main

factors? Will the existence of any one factor be sufficient to find immunity or must a

court find that all three factors are present? The answer to these questions is probably

that the factors were not intended by the Indiana Supreme Court to be talismanic. But

if the courts are permitted to rely on the Peavler factors without making the essential

"policy-making" analysis, such questions will become quite important.

72. 556 N.E.2d 333 (Ind. Ct. App. 1990).
73. A governmental entity or an employee acting within the scope of his employment

is not liable if a loss results from **[t]he adoption and enforcement of or failure to adopt

or enforce a law (including rules and regulations), unless the act of enforcement constitutes

false arrest or false imprisonment . . . ." Ind. Code § 34-4-16.5-3(7) (1988).
74. Van Keppel, 556 N.E.2d at 335.

75. Id.

76. Id.



1991] ADMINISTRATIVE LAW 535

Van Keppel admitted on appeal that the Board was empowered to
order the ditches to be reconstructed.^^ However, he argued that immunity

did not exist because the order and contract were carried out under the

control of the County Surveyor. In essence, Van Keppel argued that
although the Surveyor is immune from the decision to enforce the
Drainage Code, the Surveyor is not immune from the losses resulting
from the implementation of the decision.^*

The court of appeals noted that there is no distinction between

deciding to enforce a law and implementing that decision.^' The court
found the losses occurred during the decision's implementation, and

therefore immunity may have existed.*° However, the Indiana Drainage
Code required the Surveyor, *7o the extent possible, [to] use due care
to avoid damage to crops . . . outside of [the county's] right-of-way.*'^^
Ultimately, the court reversed the trial court's decision because the

appellant had succeeded in raising an issue of fact concerning whether

the Surveyor exercised **due care" in the performance of his duty.*^

Van Keppel is interesting because the court of appeals recognized

that '*due care," or rather the lack of due care, would be sufficient to

remove a governmental act from the shield of immunity provided by

the ITCA." Although Van Keppel may be properly limited to its facts
(that is, the existence of a statute explicitly requiring that due care be

exercised), the case provides a starting point for arguing that equitable

considerations should always be taken into account when discussing the

scope of protection afforded under the ITCA. The appellate courts
recently have considered this argument in other cases involving claims

of governmental bad faith and outrageous conduct.

D. Bad Faith and the ITCA

In Indiana Department of Correction v. Staggy^* the Indiana Court

of Appeals for the Fourth District held that there is no requirement to

show good faith to quaUfy for immunity under the ITCA.*^ The facts
are as follows: Stagg was an attorney who occasionally represented

77. The Board's power exists pursuant to the Indiana Drainage Code, Ind. Code

§ 36-9-27-1 to -113 (1988 & Supp. 1990).
78. Van Keppel, 556 N.E.2d at 336.

79. Id. The court relied on Cain v. Board of Commr's of Cass County, 491 N.E.2d
544, 548 (Ind. Ct. App. 1986).

80. Van Keppel, 556 N.E.2d at 336.

81. Id. (emphasis by the court).

82. Id.

83. Id.

84. 556 N.E.2d 1338 (Ind. Ct. App. 1990).

85. Id. at 1341.



536 INDIANA LAW REVIEW [Vol. 24:523

criminal defendants on a court-appointed basis. In 1986, she was ap-

pointed to represent a prisoner who was incarcerated at the Indiana
State Farm prison. Stagg met with the prisoner in January, February,
and March of 1986 to prepare his defense.^^ The prisoner entered a
guilty plea in April 1986.®''

In June 1986, Stagg received a letter from the prisoner that included

a memorandum that had been placed in his prison file when he was
transferred from the Indiana State Farm to the Indiana Reformatory.
The memorandum stated that the prisoner had employed an attorney
who was romantically involved with the prisoner. Stagg brought a small
claims action against the Department of Correction and its employees.

The trial court found for Stagg, adopted Stagg*s proposed conclusions
of law, and stated that the defendants were not entitled to immunity

because they did not act in good faith in writing the memorandum.®®

The defendants appealed and contended they were immune from
suit under Indiana Code section 34-4-5.6-3. The court of appeals reversed
the trial court and held that **there is no requirement of a showing of

good faith in order to qualify for the immunity" afforded under the

ITCA.*^ The court stated that "although the matter was poorly handled,
we do not find the defendants' conduct rises to the level of * outrageous
conduct,' nor do we find they acted outside the scope of their em-
ployment.'*^ The court seemed to suggest that bad faith could not be
demonstrated if the defendants were acting within the scope or their

employment, absent a finding of outrageous behavior.

However, Judge Staton, quoting Campbell v. State in his dissent,^^

stated that the ITCA was merely a codification of the common law
doctrine of sovereign immunity.^^ Under the common law, **[t]hree con-
siderations are foremost in a determination as to the applicability of

this qualified privilege. "^^ The third such consideration is "whether the
action was made in good faith (improper motives or a malicious purpose
in exercising the discretion would, at common law, vitiate the immunity

86. Stagg always met with the prisoner at the maximum security unit of the prison.
She complied with all the regulations and submitted to all searches of her person and

briefcase.

87. Stagg, 556 N.E.2d at 1340.

88. Id. at 1341.

89. Id.

90. Id. at 1344.

91. 259 Ind. 55, 284 N.E.2d 733 (1972). See supra notes 19-21 and accompanying
text.

92. Stagg, 556 N.E.2d at 1345 (Staton, J., dissenting).
93. Id. (Staton, J., dissenting) (quoting Note, Sovereign Immunity in Indiana —

Requiem?, 6 Ind. L. Rev. 92, 104 (1972)).



1991] ADMINISTRATIVE LAW 537

privilege).'*^'* The dissent suggested that the issue of bad faith goes
directly to the question of whether the actors were acting within the

scope of their employment.

The dissent in Stagg persuasively argued that a governmental de-
fendant should be required to demonstrate good faith in order to preserve

ITCA immunity.^^ Under the majority's holding in Stagg, if an employee
is technically acting within the scope of his employment, the employee

enjoys ITCA discretionary act immunity absent outrageous conduct.^^
As suggested by the dissent, the existence of bad faith (not '^outrageous
conduct") should necessarily be taken to demonstrate that the govern-

mental employee was acting outside of the scope of his employment.^^

In such cases, immunity should be denied.^® As demonstrated by the
uniqueness of the next case, if a court must find outrageous conduct

to deny ITCA immunity, there will be few instances in which such
immunity is denied.

E. Outrageous Conduct

The most recent case decided by the court of appeals since Peavler
is City of Wakarusa v. Holdeman.^ In Holdeman, a deputy marshall
was involved in a motor vehicle accident with Holdeman. The marshall

was traveling northbound checking license plates of trucks traveling

southbound. He was checking the license plates by looking in his rear-
view mirror and looking over his shoulder. He failed to see that the
traffic ahead of him had stopped, and he hit Holdeman's vehicle. The

marshall admitted that he was not paying attention. The case went before

the court on the defendant's motion for summary judgment. The de-
fendant argued that his conduct did not amount to '^outrageous conduct"

as a matter of law. The trial court held that the question of whether

the conduct was outrageous — and, therefore, unprotected by the ITCA
— was one of fact.'^ Summary judgment was denied and the marshall
appealed; the appellate court affirmed the denial of the summary judg-
ment. '^i

94. Id. (Staton, J., dissenting) (emphasis added).

95. Id. at 1344-46 (Staton, J., dissenting).

96. Id. at 1344.

97. Id. at 1345 (Staton, J., dissenting).

98. In Kellogg v. City of Gary, the Indiana Supreme Court recognized that public

officials must be able to demonstrate the existence of a reasonable good faith belief in

the correctness of their action in order to preserve the qualified immunity to nonjudicial

public officers exercising discretionary, poHcy-making acts. 562 N.E.2d 685, 707 (Ind.

1990) (citing Harlow v. Fitzgerald, 452 U.S. 800, 818 (1982)).
99. 560 N.E.2d 109 (Ind. Ct. App. 1990).

100. Id. at 110.

101. Id. at 111.



538 INDIANA LAW REVIEW [Vol. 24:523

The appellate court determined that the very nature of the activity

could be considered **a disregard for the safety of others. "^^^ The court

noted that the disregard may not have been conscious, but reckless to
the point of outrageousness.^°^ The court relied on Seymour National

Bank v. State, ^^ which stated that acts may be so outrageous that they
are incompatible with the performance of the duty and therefore are

beyond the scope of employment. *^^

The progression of appellate decisions from Van Keppel to Stagg

to Holdeman suggests that immunity under the ITCA may be susceptible
to challenge through the use of a variety of well-reasoned equitable

arguments. Other Indiana Supreme Court x>osiPeavler decisions con-

cerning the ITCA's notice provisions are additional evidence suggesting

a favorable judicial climate in which to challenge the ITCA.

F, ITCA Notice Provisions

In Collier v. Prater, ^^ the Indiana Supreme Court considered for

the first time^°^ the question of substantial compUance with the ITCA's

notice provisions based purely on content. Alleging that two officers

used excessive force in the appellant's arrest, the appellant's attorney

sent a tort claim notice to the Indianapolis Police Department within

the statutory 180-day period. The question for the court concerned the

content of the notice and whether it ** afforded the city an opportunity

to investigate the impending claim. "'°^ The court found that the claim

'* stated an intent to seek damages, noted that the damages were for

injuries received during an arrest, identified the persons involved in that

arrest, and explained that the full extent of . . . [the] damages could

not be ascertained." ^^ However, the appellant's notice did not include

the place or date of the event.

Vacating the court of appeals, the Indiana Supreme Court ruled

that the plaintiff's notice substantially complied with the Tort Claims

Act.*'° The court held that the absence of any reference to the place
or date in the claim was not important; the appellees had the necessary

102. Id. at 110.

103. Id. This is the first Indiana case finding that a governmental employee's act

could be outrageous enough to fall outside of the employee's scope of employment.

104. 428 N.E.2d 203 (Ind. 1981), appeal dismissed, 457 U.S. 1127 (1982).

105. Id. at 204.

106. 544 N.E.2d 497 (Ind. 1989).
107. "The issue of what constitutes substantial compHance where the content of

the notice is being challenged has not been squarely before this Court." Id. at 499.

108. Id. at 500-01.

109. Id. at 500.

110. Id.



1991] ADMINISTRATIVE LAW 539

information to make an adequate investigation.^'' The only information
necessary in a tort claim notice is that which will afford the state **an

opportunity to investigate the impending claim.** ''^ Further, the court

held that ** substantial compliance [with the Act], while not a question

of fact but one of law, is a fact-sensitive determination."''^ Considering

all the facts, the court reasoned that the City of Indianapolis had received

more than enough information in the plaintiff's notice to investigate

and prepare for legal action.'"* The court concluded by stating that

"[j]ust as the notice statute should not become a trap for the unwary,

neither should it become a refuge for the unconscientious.""^

G. Loss, Property Rights, and the ITCA

In its most recent postPeavler decision, the Indiana Supreme Court

held that lost wages and fringe benefits are property rights for purposes

of the ITCA."^ In Hoitz v. Board of Commissioners of Elkhart County

y

the supreme court analyzed the issue of whether an action for retahatory

discharge is based in tort or in contract. It held that the claim was

111. Id.

112. Id. at 500-01.

113. Id. at 499.

114. Id. at 499-500.

115. Id. at 500 (citations omitted).

116. Holtz V. Board of Commr's of Elkhart County, 560 N.E.2d 645 (Ind. 1990).
The Indiana Supreme Court, in holding lost wages and fringe benefits to be property

rights, overruled the Indiana Court of Appeals for the Fourth District. Id. at 648. The

court of appeals held that a claim for retaliatory discharge is not a "loss" under the

ITCA. Holtz V. Board of Commr's of Elkhart County, 548 N.E.2d 1220, 1222 (Ind. Ct.
App. 1990). The court of appeals also held that an employee at will does not have a

property interest in his employment. Holtz, 560 N.E.2d at 646-47.

Holtz filed a complaint for retaliatory discharge alleging the Board of Commissioners

terminated his employment because he took actions to notify the Attorney General and

the Indiana Department of Highways of certain deficiencies in the bridge inspection

procedure used by the county. Id. at 646. Holtz did not file a notice of tort claim with

the Board. The trial court entered summary judgment in favor of the Board. The trial

court concluded that mandatory discharge was a tort rather than a contract claim, and

Holtz' s claim was therefore barred because he did not provide notice as required by the

ITCA. Id. The court of appeals did not discuss whether the claim was one of tort or

contract because it found the claim did not fall within the Tort Claims Act. Id. at 647.

The court of appeals looked to the ITCA definition of loss. The definition is "injury to
or death of a person, or damage to property . . . ." Ind. Code § 34-4-15.5-1(4) (1988).

The court of appeals also relied upon the Indiana Supreme Court's holding in Collier
v. Prater, 544 N.E.2d 497 (Ind. 1989): the Tort Claims Act is in "derogation to common
law rights and should be strictly construed against limitations on a claimant's right to

bring suit." Holtz, 548 N.E.2d at 1222. The court of appeals in Holtz thus held that
the Tort Claims Act does not apply to retaliatory discharge, and therefore the notice

provisions did not apply. Holtz, 560 N.E.2d at 647.



540 INDIANA LAW REVIEW [Vol. 24:523

tortious in nature because the act of discharge is intended to cause an
*

'intentional invasion.
"'^^ The court concluded that the plaintiff's claim

was subject to the ITCA because it could not interpret the ITCA as
''applying only to some torts. "'^^ Further, the court held that the damages

sought by the plaintiff were property rights cognizable as "loss" under

the ITCA.''^ The court held that the legislature intended all torts com-

mitted against either persons or property to be included in the defini-

tion, ^^o

Justice Dickson and Justice DeBruler dissented, and stated that the

majority failed to strictly construe the ITCA as it acknowledged it
should. '^^ The Holtz dissent rehed on the court's decision in Collier

which held that the ITCA was to be strictly construed "against limitations
on a claimant's right to bring suit."'^^ In addition, the dissent found

the ordinary meaning of the term "loss" to apply to nothing more than
harm to a person or property. It found that to define "loss" to apply
to a property right is contrary to the plain meaning of the term "loss"

and contrary to the holdings in Collier and Morris. ^'^^

IV. Section 1983 and the ITCA

Administrative agency employees are not immune from their own
personal or political predilections, or from those of their superiors. When
agency action is materially influenced by ill will, prejudice, or politics,

what can an aggrieved party do? Recent Indiana appellate decisions

suggest that one remedy may be to sue under 42 U.S.C. § 1983'^"* for

117. Holtz, 560 N.E.2d at 646.

118. Id. at 647.

119. Id.

120. Id. at 645-46.

121. Id. at 648 (Dickson, J., dissenting) (citing Collier v. Prater, 544 N.E.2d 497,

498 (Ind. 1989)).

122. Id. (Dickson, J., dissenting) (quoting Collier, 544 N.E.2d at 498). See also

Indiana State Highway Commr's v. Morris, 528 N.E.2d 468, 473 (Ind. 1988) (ITCA "must
be strictly construed and narrowly applied.").

123. Holtz, 560 N.E.2d at 648 (Dickson, J., dissenting). It should be noted that

the majority's definition of property, though relatively inclusive, does not preclude use

of the argument advanced by the court of appeals — that individuals can suffer losses
other than to their property or as personal injury, and therefore fall outside the scope

of the ITCA. Perhaps one of the clearest examples of such a loss would be when, as in
the case of an environmental permit, a statute and a regulation clearly indicate that such

a permit is not property and conveys no property rights. In such instances, when the loss
of a permit or the failure to obtain a permit is caused by a tortious act of the state or

one of the state's employees, it seems clear that the court of appeals holding in Holtz

may yet have some vitahty despite the Indiana Supreme Court's decision.
124. 42 U.S.C. § 1983 (1988) states as follows:



1991] ADMINISTRATIVE LAW 541

deprivation of the party's constitutionally guaranteed due process rights.

Since 1982, the United States Supreme Court has held that plaintiffs

need not exhaust state court remedies prior to bringing a section 1983

action in federal court. ^^^ In 1988, the Court extended this exception to

the exhaustion doctrine by holding that plaintiffs need not exhaust state

administrative remedies prior to filing a suit in state court. *^*^ In Felder

V. Casey, the Court reasoned that

there is simply no reason to suppose that Congress meant *to

provide . . . [§ 1983 plaintiffs] immediate access to the federal

courts notwithstanding any provision of state law to the contrary,

... yet contemplated that those who sought to vindicate their
federal rights in state courts could be required to seek redress

in the first instance from the very state officials whose hostility

to those rights precipitated their injury.
'^'^

The Felder Court also held that section 1983 actions brought in

state court are exempt from the notice of claim provisions usually found

in a state's tort claims act.'^^ In Wisconsin,^29 ^j^g state's tort claims act

provided that

no action may be brought or maintained against any state gov-
ernmental subdivision, agency, or officer unless the claimant

either provides written notice of the claim within 120 days of

the alleged injury, or demonstrates that the relevant subdivision,

agency, or officer had actual notice of the claim and was not

prejudiced by the lack of written notice. '^^

The Court held that Wisconsin's notice-of-claim statutes undermined

the ** uniquely federal remedy" provided by section 1983 by (1) condi-

Every person who, under color of any statute, ordinance, regulation, custom,

or usage, of any State or Territory or the District of Columbia, subjects,

or causes to be subjected, any citizen of the United States or other person

within the jurisdiction thereof to the deprivation of any rights, privileges,

or immunities secured by the Constitution and laws, shall be liable to the

party injured in an action at law, suit in equity, or other proper proceeding

for redress. For the purposes of this section, any Act of Congress applicable

exclusively to the District of Columbia shall be considered to be a statute

of the District of Columbia.

125. Patsy v. Board of Regents of Fla., 457 U.S. 496 (1982).

126. Felder v. Casey, 487 U.S. 131 (1988).

127. Id. at 147 (citations omitted).

128. Id. at 151-53.

129. Wisconsin is the state in which Felder originated.

130. Felder, 487 U.S. at 136 (citing Wis. Stat. § 893.80(l)(a) (1983 & Supp. 1987)).
Indiana has a similar statute. However, in Indiana, claims must be filed within 180 days

and there is no provision for showing that lack of written notice was not prejudicial.

IND. Code § 34-4-16.5-6 to -7 (1988).



542 INDIANA LAW REVIEW [Vol. 24:523

tioning plaintiffs' recovery under section 1983 upon compliance with a

state statute of which the sole purpose (to minimize government liability)

is **manifestly inconsistent" with the purpose of the federal statute, by

(2) discriminating against a federal right, and by (3) operating **in part,

as an exhaustion requirement. ''•^^ All of these factors contributed to the

Court's holding:

[T]he enforcement of such statutes in § 1983 actions brought

in state court will frequently and predictably produce different

outcomes in federal civil rights litigation based solely on whether

that litigation takes place in state or federal courts. States may
not apply such outcome-determinative law when entertaining
substantive federal rights in their courts. ^^^

The court added that **a state law that immunizes government conduct

otherwise subject to suit under § 1983 is preempted, even where the

federal civil rights litigation takes place in state court, because the

application of the state immunity law would thwart the congressional

remedy."*"

The immunity that Felder held to be preempted by section 1983 was

granted by state law under a tort claims act. Those cases in no way
diminished a state's immunity to section 1983 suits brought in federal

courts under the eleventh amendment to the United States Constitution. •^'^

Eleventh amendment immunity can only be lost by a clear waiver of
the immunity by the state. '^^ In Indiana, the legislature has preserved

eleventh amendment immunity by statute '^^ and, consequently, a section
1983 action against the state or agencies of the state will not lie in

federal court.'"

131. Felder, 487 U.S. at 141-42 (citation omitted).

132. Id. at 141 (emphasis added). See also Kellogg v. City of Gary, 562 N.E.2d

685, 690 (Ind. 1990), wherein the Indiana Supreme Court quotes this same passage from

Felder.

133. Felder, 487 U.S. at 139 (citing Martinez v. California, 444 U.S. 277, 284

(1980).

134. "The Judicial power of the United States shall not be construed to extend to
any suit in law or equity, commenced or prosecuted against one of the United States by
Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const.

amend. XI.

135. Hendrix v. Indiana State Pub. Defender Sys., 581 F. Supp. 31, 32 (N.D. Ind.

1984).

136. Ind. Code § 34-4-16.7-3 (1988) provides that "[njothing contained in this
chapter shall be construed as a waiver of the eleventh amendment to the Constitution of
the United States, as consent by the state of Indiana or its employees to be sued in any

federal court, or as consent to be sued in any state court beyond the boundaries of the

state of Indiana."

137. Hendrix, 581 F. Supp. at 32.



1991] ADMINISTRATIVE LAW 543

However, after Felder, a section 1983 claimant who chooses to bring
an action in a state court clearly should not be required to exhaust

administrative remedies prior to such filing, nor should the action be

precluded either on substantive or procedural grounds by a state's tort

claims act.

The Indiana Supreme Court followed Felder in Werblo v. Hamilton

Heights School CorpJ^^ In that decision, the Indiana Supreme Court

addressed the issue of whether a section 1983 action is subject to the

ITCA notice provision. The plaintiff, a school teacher who was dismissed
for insubordination, filed a three-count complaint in the trial court, the

first count alleging that the school corporation had violated her civil

rights under 42 U.S.C. § 1983. The trial court dismissed the section

1983 claim because the plaintiff had failed to comply with the 180-day

notice provision of the ITCA. The court of appeals upheld the trial
court's determination regarding the section 1983 claim. '^^

The court of appeals decision was handed down prior to the United
States Supreme Court decision in Felder. The Indiana Supreme Court

consequently overruled the court of appeals, and held that a section

1983 action is not subject to the ITCA notice requirement. '"^ Although
Werblo marked the Indiana Supreme Court's first opportunity to follow

Felder, the Indiana court of appeals first recognized Felder in a 1988

decision, George v. Hatcher. ^'^^

Thus, in Indiana, section 1983 claims are no longer subject to the

notice provisions of the ITCA. Additionally, the Indiana Supreme Court
has held that Felder is applicable to more than just the notice provisions

in the ITCA.'^^ j^ Kellogg v. City of Gary, the court of appeals found

that the **failure of the citizens to wait until their claim had been denied

in whole or part before bringing suit against the city violated section

12 of the Indiana Tort Claims Act, Indiana Code section 34-4-16.5-12,

and was fatal to their claim. "'"^^ The Indiana Supreme Court reversed,
holding that the lower court's decision '^contravenes that of the United

States Supreme Court in Felder v. Casey. ''^"^ The Kellogg decision

suggests that section 1983 preempts all of those portions of the ITCA
contrary to the remedial purposes of the federal civil rights statute.

138. 537 N.E.2d 499 (Ind. 1989).

139. Id. at 500.

140. Id. at 501.

141. 527 N.E.2d 199 (Ind. Ct. App. 1988).

142. See Kellogg v. City of Gary, 562 N.E.2d 685 (Ind. 1990).

143. Id. at 688. Ind. Code § 34-4-16.5-12 (1988) provides that "[a] person may
not initiate a suit against a governmental entity unless his claim has been denied in whole

or in part."

144. Kellogg, 562 N.E.2d at 688.



544 INDIANA LAW REVIEW [Vol. 24:523

In addition to their impact on the ITCA, Werblo and Felder may
have significantly altered the relationship between the exhaustion doctrine

and section 1983. ^'PreFelder'* Indiana cases uniformly held that when

a plaintiff had a remedy under the state's Administrative Adjudication

Act (AAA),**^ **the provisions of the AAA supersede the provisions of
§ 1983 in actions brought in state court. "^'** Those cases probably have

been overruled by Felder to the extent that they require the exhaustion

of AOPA procedures prior to filing a section 1983 action in a state
court.

V. Compensation for the Regulatory
Taking of Private Property

A. Introduction

The power of eminent domain is one of the government's most

potent tools to promote the safety, health, morals, and general welfare

of the public at large. However, when the government chooses to exercise
this power, it must compensate individual owners for the ^^taking."''*^

The fifth amendment's prohibition against takings has been applied to

the states through the fourteenth amendment. •** Additionally, article 1,
section 21 to the Indiana Constitution provides that **[n]o person's

property shall be taken by law, without just compensation . . . ."''*^

Thus, the government clearly has the right to take private property for

the public good, but it must reimburse the private property owner with

appropriate compensation.

When the government physically occupies private property, there can
be little question that a compensable taking has occurred. ^^° Questions

do arise, however, when governmental action simply restricts the use of
certain property to the detriment of the property owner without com-

pensation. The United States Supreme Court has long recognized that
when an agency restricts the use of private property, a taking can occur

145. The AAA is an earlier version of the AOPA.
146. May v. Blinzinger, 460 N.E.2ci 546, 550 (Ind. Ct. App. 1984) (emphasis added).

See also State v. Taylor, 419 N.E.2d 819, 824 (Ind. Ct. App. 1981); Thompson v. Medical
Licensing Bd. of Ind., 180 Ind. App. 333, 347-48, 398 N.E.2d 679, 680 (1979), cert,

denied, 449 U.S. 937 (1980).

147. The fifth amendment of the United States Constitution reads in pertinent part:
"nor shall private property be taken for public use, without just compensation." U.S.

Const, amend. V.

148. See, e.g., Fallbrook Irrigation Dist. v. Bradley, 164 U.S. 112, 158 (1896).

149. Ind. Const, art. I, § 21.

150. See, eg., Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419
(1982).



1991] ADMINISTRATIVE LAW 545

if the restriction is not reasonably necessary to effect a substantial

government purpose.'^' When the taking occurs, the government must
provide compensation. '^^

Actions for inverse condemnation are particularly appropriate in

permit situations when an agency either refuses or fails to issue an
appropriate permit notwithstanding that all permit requirements have

been satisfied. The Indiana Supreme Court addressed the issue of such

regulatory takings in Department of Natural Resources v. Indiana Coal

Council, Inc,^^^ In that case, the Department of Natural Resources

(DNR) prohibited a landowner — the Huntington Machinery & Equip-
ment Rental, Inc. (HUMER) — from strip mining the 6.57 acre tract
of its land that contained the archaeologically significant "Beehunter's

Site.*'*^"* DNR designated the tract unsuitable for surface coal mining
pursuant to its authority under Indiana Code section 13-4.1-14-2.'^^ As
part of its final order, however, DNR included a **mitigation plan"
that would allow the designation of an **area unsuitable" to be removed

from the final order. '^^ In holding that DNR's action did not amount
to a regulatory taking, the Indiana Supreme Court relied upon the two-
prong test provided by the United States Supreme Court in Nollan v.

California Coastal Commission. ^^^

151. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 127 (1978).
152. See Pennsylvania Coal v. Mahon, 260 U.S. 393, 413 (1922). Recently, the

United States Supreme Court reconsidered the "takings" question in Nollan v. California

Coastal Comm'n, 483 U.S. 825 (1987). The Court held that when a regulation provides
that "individuals are given a permanent and continuous right to pass to and from, so

that the real property may continuously be traversed even though no particular individual
is permitted to station himself permanently," a permanent physical occupation has occurred

and just compensation must be provided. Id. at 832.

153. 542 N.E.2d 1000 (Ind. 1989), cert, denied, 1104 S. Ct. 1130 (1990).

154. Both HUMER and the Indiana Coal Council challenged the DNR decision in
the Dubois Circuit Court. The circuit court ruled that the statute relied upon by DNR
was unconstitutional. Id. at 1001-02. The Indiana Supreme Court took the case on transfer

to decide the constitutionality of the state statute.

155. The court determined that the tract was unsuitable because such mining would

"affect fragile and historic lands in which the operation could result in significant damage

to important historic, cultural, scientific, and aesthetic values and natural systems." Coal

Council, 542 N.E.2d at 1002 (quoting Ind. Code § 13-4.1-14-4 (1987)).
156. The court pointed out that the mitigation plan called for site testing and data

recovery conducted by a DNR-approved archaeological contractor. Coal Council, 542
N.E.2d at 1002. The plan did not require HUMER to carry out the plan, to expend any
money, or to convey any property or property right to the state. The court noted that

the designation did not prevent HUMER from mining so long as the coal lying underneath
the 6.57 acre Beehunter Site was extracted by means other than strip mining. Id. For

these reasons, the court held that DNR's order designating the Beehunter Site as an area
unsuitable for surface coal mining and providing the mitigation plan did not amount to
a taking of property. Id.

157. 483 U.S. 825, 1834 (1987).



546 INDIANA LAW REVIEW [Vol. 24:523

The United States Supreme Court held that a land use regulation

is not a taking if it ''substantially advances a legitimate state interest

and does not deprive an owner of economically viable use of his

property. '*^^* In Nollan, the Court chose the '* substantial advancement"

standard but made clear that a standard had not finally been settled
on for all situations. ^^^ Although the Indiana Supreme Court chose to

follow the Nollan two-prong test, it did not follow the substantial

advancement standard. Instead, the Indiana Supreme Court held in Coal

Council that a ^^substantial relationship'' is the necessary nexus between

state action and state interest. ^^ As applied, however, the court found
this to be the same standard used in Nollan. ^^^

Because removal of the archaeological information from the site

prior to mining did not require actual conveyance of the property, this

condition was not subject to the same heightened scrutiny as a land use

restriction, and consequently it did not amount to a taking. '^^ The court

held that DNR's action was merely a regulation — rather than a taking
— because the intrusion was minimal from an economic standpoint. ^^^
Even so, the Indiana court made clear that the conditions requiring the
removal of the restrictions were in accord with Nollan. ^^

Considering the second prong of the taking test — deprivation of
use in an economically viable manner'^^ — Coal Council also established
guidelines for determining what is considered an economically viable use.

Specifically, the court considered why HUMER originally bought the
property and how the regulation affected the value of the property.'^
The court also inquired as to whether the designation of the Beehunter's

Site as an area unsuitable for surface coal mining interfered with the

present use of the property.'^'' HUMER did not expect to mine coal
when it purchased the property. Because the property owner in Coal
Council had originally purchased the property for farming purposes, the

court held that the designation did not interfere with HUMER's **distinct
investment-backed expectation."'^^ The court was not persuaded that
HUMER's loss of less than two percent of its coal reserves at the site

158. Coal Council, 542 N.E.2d at 1002 (emphasis added) (citing Nollan, 483 U.S.

at 834).

159. Nollan, 483 U.S. at 834, 841-42.

160. Coal Council, 542 N.E.2d at 1005.

161. Id.

162. Id. at 1006.

163. Id.

164. Id.

165. Id. at 1004.

166. Id.

167. Id.

168. Id.



1991] ADMINISTRATIVE LAW 547

would have a significant impact on the value of the total property. The

court reaffirmed that a property owner is not entitled to the best, highest

use of his property. '^^

HUMERUS final argument, that the director's order for mitigation
was arbitrary, capricious, and an abuse of discretion, did not persuade

the court. ''^ In finding against HUMER, the supreme court adopted the
court of appeals' rule that *'an administrative act is arbitrary and ca-

pricious only where it is willful and unreasonable, without consideration

and in disregard of the facts or circumstances in the case, or without

some basis which would lead a reasonable and honest person to the

same conclusion. ''^^'

Coal Council does not expand the concept of regulatory takings in

Indiana significantly beyond the guidelines established by the United

States Supreme Court. However, Coal Council does succeed in clearly

establishing that there must be a substantial relationship between the

state's action and the state's interest in order to avoid a regulatory

taking. •''2 QqqI Council provides the framework through which future

Indiana claimants will have to proceed in order to recover under the

theory of regulatory taking.

VI. Actions for Mandate

Actions for mandate'^^ are extraordinary civil remedies that are

equitable in nature.'^"* The purpose of such actions is to empower courts
to compel the performance of a legal duty that an inferior court has

not performed. An action for mandate will only lie when the lower
court or agency has failed to act in the face of a clear legal duty.*^^

By statute, an action for mandate may be prosecuted against an
inferior tribunal, corporation, public or corporate officer, or person. '^^

The scope of mandate actions has been interpreted to encompass actions

against administrative agencies. '^^ A court has jurisdiction to order an

169. Id.

170. Id. at 1007.

171. Id. (citing Metropolitan School Dist. of Martinsville v. Mason, 451 N.E.2d

349 (Ind. Ct. App. 1983)).
172. Id. at 1005-07.

173. Ind. Code § 34-1-58-1 (1988 & Supp. 1990). An action for mandate was
formerly known as a writ of mandate.

174. See generally Cleary v. Board of School Commr's of City of Indianapolis, 438
N.E.2d 12 (Ind. Ct. App. 1982).

175. See, e.g., Marcrum v. Marion County Superior Court, 403 N.E.2d 806 (Ind.
1980).

176. Ind. Code § 34-1-58-2 (1988).
177. See generally Indiana Bd. of Fin. v. Marion County Superior Court, 396 N.E.2d

340 (Ind. 1979).



548 INDIANA LAW REVIEW [Vol. 24:523

administrative agency to perform a statutory duty that is clear and

imperative. *^^ However, the jurisdiction is not all-encompassing. The court

may not properly order an agency to accomplish a discretionary act in
a particular manner. *^^

In Lake Station v. Moore Real Estate, Inc.,^^^ the Indiana Supreme
Court broadened its jurisdiction over actions in mandate in the admin-

istrative agency arena. The court held that resort to the court is ap-

propriate when the agency refuses to act, thereby denying the injured
party an appealable decision. ^^'

In Lake Station, Moore Real Estate brought an action for mandate
and damages against the city building commission alleging the commission

failed to decide whether to grant a building permit. Moore had applied
for the permit on March 12, 1985. The building commission discussed
the application two days later and determined it needed more information.

The next month, the application was again discussed, but the commission

tabled the decision until receiving approval and legal advice from the

city attorney. '^^ Finally, after no further action, Moore mailed the city
a notice of tort claim on October 12, 1985, and one week later filed

a complaint for mandate and damages. •^^

The Indiana Supreme Court held that when an agency refuses to
act, resort to the courts is appropriate.*^"* In so holding, the court discussed

the doctrine of exhaustion of administrative remedies. In Indiana, when
an administrative remedy is provided it generally must be exhausted

178. See generally State v. Board of Trustees of Spring Valley School Corp., 430

N.E.2d 791 (Ind. Ct. App. 1982).

179. See generally State v. Stateler, 424 N.E.2d 150 (Ind. Ct. App. 1981).

180. 558 N.E.2d 824 (Ind. 1990).

181. Id. at 828.

182. Moore's attorney attempted to contact the city attorney by letters and phone

calls. Moore's attorney even met with the city's counsel. Finally, in early October 1985,

Moore's attorney spoke with the city attorney who informed Moore's attorney that Moore
did not comply. The commission did not take any action on the application.

183. Lake Station v. Moore Real Estate, Inc., 537 N.E.2d 61 (Ind. Ct. App. 1989),
resolved an interlocutory appeal brought by Lake Station when its motion to dismiss the
claim, because Moore untimely filed the tort claim notice, was denied. The court of
appeals reversed the trial court and held Moore filed its tort claim notice more than 180
days after the omission causing the alleged loss. Id. at 62-63. The notice requirement

applied only to the damages portion of the complaint filed against Lake Station. In Lake

Station v. Moore Real Estate, Inc., 558 N.E.2d 824 (Ind. 1990), the Indiana Supreme
Court held that there was a continuing wrong because the building commission failed to

ever deny, grant, or otherwise act on the application. Id. at 827. The supreme court
overruled the court of appeals and held the tort claims notice was timely filed. Id. at

828.

184. Lake Station, 558 N.E.2d at 828.



1991] ADMINISTRATIVE LAW 549

before judicial review may be sought.'*^ The court explained that the
doctrine of exhaustion of administrative remedies **places responsibility

for administrative decisions with administrative bodies, where they be-

long. "'^^ The court then noted that the commission ignored its respon-

sibility by not ruling or taking any action that could be appealed to

the Building Department Review Board. '^"^ Therefore, the supreme court

held that resort to the courts is appropriate when a governmental entity
will not act.'^^

The Lake Station decision and the prior decisions of the Indiana

Supreme Court clearly show that if an agency does not take the action

it has a statutory duty to take, or if an agency unreasonably delays

such actions or refuses to issue any appealable order, a court through

an action for mandate can compel the agency to act in accordance with

its legal duty.'^^ Lake Station takes a significant step toward forcing

administrative agencies to make the determinations or rulings that are
in their power. After Lake Station, those who are confined by admin-
istrative inaction will have an alternative when an agency puts them on
indefinite hold.

VII. Conclusion

Administrative agencies affect virtually all aspects of daily life. Ad-

ministrative law was developed to provide cost-effective remedies to

peoples' problems. The administrative bureaucracy, however, does not
provide an effective solution when administrative agencies act — or fail
to act — for improper purposes. In those cases, aggrieved persons have

185. See supra notes 11-14 and accompanying text for a general discussion of

exhausion of remedies. See generally East Chicago v. Sinclair Refining Co., 232 Ind. 295,

111 N.E.2d 459 (1953). The Municipal code of the City of Lake Station provides: "Any
person adversely affected by any such ruhng, action or determination by the Building

Commissioner may appeal to the Building Department Review Board." Lake Station,
Ind. Code § 1355.03 (1981).

186. Lake Station, 558 N.E.2d at 828.

187. Id. at 827-28.

188. Id. at 828. The road for the Moore decision was paved in 1958 when Town
of Homecroft v. Macbeth, 238 Ind. 57, 148 N.E.2d 563 (1958), was decided. In that

case, the town board of zoning appeals argued that courts did not have authority to order

the granting of a variance. The court rejected the argument and reasoned that "it is for
the courts to protect ultimately the owner's rights and decide the judicial question pre-

sented." Id. at 64, 148 N.E.2d at 567. The principle of Macbeth was affirmed in Knutson
V. Seberger, 239 Ind. 656, 157 N.E.2d 469, reh'g denied, 160 N.E.2d 200 (1959). In

Knutson, the supreme court affirmed a trial court's order that directed a town board to

approve a proposed plat. The court in Knutson stated that "it cannot be said that the
court abused its discretion in ordering the appellants to perform the duty imposed upon
them by statute." Id. at 664, 157 N.E.2d at 473.

189. See supra note 188.



550 INDIANA LAW REVIEW [Vol. 24:523

a largely untapped arsenal of litigative weapons, including tort claims,

actions for inverse condemnation, and actions for mandate. The cases
from and immediately prior to this survey period suggest that the Indiana

Supreme Court may be willing to open the door a bit further to those
parties seeking extra-administrative remedies. Yet some appellate decisions

from the same period demonstrate a reluctance to follow the higher

court's lead. Even so, would-be litigants will find that all of these cases,

when taken together, provide fertile (though uneven) ground for pursuing
extra-administrative remedies to administrative actions or inactions.