Tuesday, June 27, 2017
The power to “take” private property for public use (or for a public purpose) without the owner's consent is an inherent power of the federal and state government. However, the United States Constitution limits the government's eminent domain power by requiring federal and state governments to pay for what is “taken.” The Fifth Amendment states in part “...nor shall private property be taken for public use without just compensation.” The clause has two prohibitions: (1) all takings must be for public use, and (2) even takings that are for public use must be accompanied by compensation.
Whether a taking has occurred is not an issue when the government physically takes the property, with the only issue being whether the taking is compensable and the amount of compensation due to the landowner. However, for non-physical takings, the issue is murkier. At what point does government regulation of private property amount to a compensable taking? The Supreme Court has addressed this issue on numerous occasions, and most recently dealt with a key issue that is the starting point in these matters – how to define the actual property that the landowner claims that the government has taken. This definitional issue is important to landowners because the way a tract is defined can either restrict the government’s regulation of the tract or expand it.
Regulatory (Non-Physical) Takings
A non-physical taking may involve the governmental condemnation of air space rights, water rights, subjacent or lateral support rights, or the regulation of property use through environmental restrictions. How is the existence of a regulatory taking determined? There are several approaches that the Supreme Court has utilized.
Multi-factor balancing test. In a key case decided in 1978, the U.S. Supreme Court set forth a multi-factored balancing test for determining when governmental regulation of private property effects a taking requiring compensation. In Penn Central Transportation Co. et al. v. New York City, 438 U.S. 104 (1978), the Court held that a landowner cannot establish a “taking” simply by being denied the ability to exploit a property interest believed to be available for development. Instead, the Court ruled that in deciding whether particular governmental action effects a taking, the character, nature and extent of the interference with property rights as a whole are the proper focus rather than discrete segments of the owner’s property rights. In 2005, the Court confirmed the multi-factor test and noted that the touchstone for deciding when a regulation is a taking is whether the restriction on property usage is functionally equivalent to a physical taking of the property. Lingle, et al. v. Chevron U.S.A., Inc., 544 U.S. 528 (2005).
Total regulatory taking. In Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), the landowner purchased two residential lots with an intent to build single-family homes. Two years later, the state legislature passed a law prohibiting the erection of any permanent habitable structures on the Lucas property. The law's purpose was to prevent beachfront erosion and to protect the property as a storm barrier, a plant and wildlife habitat, a tourist attraction, and a “natural health environment” which aided the physical and mental well-being of South Carolina's citizens. The law effectively rendered the Lucas property valueless. Lucas sued the Coastal Council claiming that, although the act may be a valid exercise of the state's police power, it deprived him of the use of his property and thus, resulted in a taking without just compensation. The Coastal Council argued that the state had the authority to prevent harmful uses of land without having to compensate the owner for the restriction.
The Supreme Court ruled for Lucas and opined that the state's interest in the regulation was irrelevant since the trial court determined that Lucas was deprived of any economically viable alternative use of his land. The Lucas case has two important implications for environmental regulation of agricultural activities. First, the Lucas court focused solely on the economic viability of the land and made no recognition of potential noneconomic objectives of land ownership. However, in the agricultural sector land ownership is typically associated with many noneconomic objectives and serves important sociological and psychological functions. Under the Lucas approach, these noneconomic objectives are not recognized. Second, under the Lucas rationale, environmental regulations do not invoke automatic compensation unless the regulations deprive the property owner of all beneficial use.
Under the Lucas approach, an important legal issue is whether compensation is required when the landowner has economic use remaining on other portions of the property that are not subject to regulation.
Unconstitutional conditions. In Nollan v. California Coastal Commission,483 U.S. 825 (1987), the plaintiff owned a small, dilapidated beach house and wanted to tear it down and replace it with a larger home. However, the defendant was concerned about preserving the public's viewing access over the plaintiff's land from the public highway to the waterfront. Rather than preventing the construction outright, the defendant conditioned the plaintiff's right to build on the land upon the plaintiff giving the defendant a permanent, lateral beachfront easement over the plaintiff's land for the benefit of the public. Thus, the issue was whether the state could force the plaintiffs to choose between their construction permit and their lateral easement. The Court, held that this particular bargain was impermissible because the condition imposed (surrender of the easement) lacked a “nexus” with, or was unrelated to the legitimate interest used by the state to justify its actions - preserving the view. The Court later ruled similarly in Dolan v. Tigard, 512 U.S. 374 (1994). These cases hold that the government may not require a person to give up the constitutional right to receive just compensation when property is taken for a public use in exchange for a discretionary benefit that has little or no relationship to the property. The rule of the cases does not apply to situations involving impact fees and other permit conditions that do not involve physical invasions, but it would apply to monetary exactions where none of the plaintiff’s property is actually taken. See, e.g., Koontz v. St. Johns River Water Management District, 133 S. Ct. 2586 (2013).
Defining The Property At Issue
An important first question in non-physical takings cases is the definition of the boundaries of the subject property. How the property is defined will often determine whether a taking has occurred. For instance, if the government designates a portion of a farm field as a wetland that can no longer be farmed without civil and criminal penalties applying, is the property interest at issue that is subject to a takings analysis the wetland or the entire field? If it is defined as the wetland, then the regulatory designation would result in a severe burden on the landowner with a high likelihood that a compensable taking has occurred. If it is the entire field, then the overall burden on the landowner is much less.
On June 23, the Court decided Murr v. Wisconsin, No. 15-214, 2017 U.S. LEXIS 4046 (U.S. Sup. Ct. Jun. 23, 2017). In Murr, siblings owned two adjacent parcels of waterfront property. A zoning regulation that became effective in 1976, long before the siblings came into ownership of the tracts, designated the tracts as “substandard” – neither tract could be developed individually. But, a grandfather clause in the zoning law said that the tracts could be separately developed if they were owned by different owners and not owned (under a merger clause) in common by a group of owners (such as the siblings). The merger provision also prevented the siblings from selling one of the tracts without selling the other tract. That was the problem. They wanted to sell one of the tracts, and sued for a regulatory taking. The state trial court granted summary judgment to the state on the basis that the siblings still had options available for the use and enjoyment of their property and had not been deprived of all economic value of their property. Indeed, they could either develop or sell the two lots together. The court looked at the subject property as one single lot rather than two separate lots. The case was affirmed on appeal with the appellate court noting that the siblings bought the second tract a year after the first tract and being charged with the knowledge of the merger clause in the zoning law. The state (WI) Supreme Court denied review.
The U.S. Supreme Court affirmed in a 5-3 opinion authored by Justice Kennedy. The Court reasoned that the definition of the subject property, just like the takings analysis itself, is determined by a multi-factor analysis. That multi-factor test, according to Justice Kennedy, involves state law (including lot lines), reasonable expectations about ownership of the subject property, the land’s physical characteristics and the prospective value of the land with attention paid to the effect of the burdened land on the value of other holdings. As applied in Murr, the Court determined that the two tracts should be treated as a single tract for purposes of the takings analysis. That was primarily because state law treated the parcels as one as a result of the merger provision, the two tracts were contiguous, and the fact that they were oddly shaped with rough terrain and bordered a river made land-use regulations foreseeable.
The Court determined that a taking had not occurred. The dissent was critical of the new test for determining what constitutes the subject property in a takings case, arguing that the test was “stacked” in the government’s favor.
The definition of property for purposes of takings analysis is the key starting point in non-physical takings cases. In addition, for rural landowners, “property” may also include more than just the surface estate. See, e.g., The Edwards Aquifer Authority, et al. v. Day, et al., 369 S.W.3d 814 (Tex. Sup. Ct. 2012). How do the “Kennedy Conditions” apply in situations where the surface estate is regulated, but the sub-surface estate is not (or vice versa)? In one case, the plaintiffs owned oil and gas rights in west central Michigan. In 1987, the director of the State Department of Natural Resources prohibited exploration for or development of oil and gas on the bulk of the plaintiff's property. The state appellate court focused solely on the landowner's use of the mineral interests involved to hold that the plaintiff's property had been taken. Even though a non-mineral interest land use possibility remained, the court held that the landowners were denied all economically viable use of the mineral interest. The court found it immaterial that all but one of the plaintiffs had extensive landholdings outside of the protected area. Miller Brothers v. Michigan Department of Natural Resources, 203 Mich. App. 674, 513 N.W.2d 217 (1994)
The new test of Murr will make regulatory takings cases more complex and legal outcomes more unpredictable. The “Kennedy Conditions” could work in favor of a landowner, but are more likely to do just the opposite. It was also Justice Kennedy’s concurring opinion in Rapanos, et ux., et al. v. United States Army Corps of Engineers, 126 S. Ct. 2208 (2006) that has created tremendous confusion for the lower courts and injected a high degree of uncertainty into the law with respect to the federal government’s jurisdiction over isolated wetlands under the Clean Water Act.
Kennedy’s opinion in Murr again appears to be judicial micro-management, making meaningful the comment of Justice Thomas in the dissent about the need to take a “fresh look” at takings cases and whether the Court’s current analytical approach squares with the Constitution’s “original public meaning.”