Regulatory Takings – Pursuing a Remedy

Overview

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 governments.  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.” 

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 (regulatory) takings, the issue is murkier.  At what point does government regulation of private property amount to a compensable taking?  In a previous post I addressed U.S. Supreme Court guidance on how to determine the property that the landowner claims has been taken. 

If the taking is by a state or local government, must the landowner “exhaust” state court remedies before seeking compensation for a regulatory taking?  If so, it could result in a landowner having no real access to the federal court system on a constitutional taking claim.  It’s an issue that the U.S. Supreme Court addressed late in its last term this past June.  It’s also the topic of today’s post – pursuing a “takings” remedy in federal court for a state/local-level regulatory taking

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).

State/Local Takings – Seeking a Remedy

For a landowner that has sustained a state/local regulatory (or physical) taking, can compensation be sought initially in federal court or must legal procedures be first pursued in state court with federal courts only available if compensation is denied at the state level?  The U.S. Supreme Court answered this question in 1985.  In Williamson Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), the Court held that if a state provides an adequate procedure for seeking just compensation, there is no Fifth Amendment violation until the landowner has used the state procedure and has been denied just compensation.  However, 28 U.S.C. §1738, would then be applied with the resulting effect that the failure to receive compensation at the state level generally meant that there was no recourse in the federal courts because of the preclusive effect of the landowner having already litigated the same issue(s) in the state courts.  See, e.g., San Remo Hotel L.P., v. City and County of San Francisco, 545 U.S. 323 (2005).  This “catch-22” was what the Court examined earlier this year.

The 2019 Case

In Knick v. Township of Scott, 139 S. Ct. 2162 (2019), the plaintiff owned a 90-acre farm in Pennsylvania on which she grazed horse and other animals.  The farm includes a small graveyard where ancestors of the plaintiff’s neighbors were buried.  Such “backyard burials” are permissible in Pennsylvania.  In late 2012, the defendant passed an ordinance requiring that “[a]ll cemeteries…be kept open and accessible to the general public during daylight hours.”  The ordinance defined a “cemetery” as “[a] place or area of ground, whether contained on private or public property which has been set apart for or otherwise utilized as a burial place for deceased human beings.”  In 2013, the defendant notified the plaintiff of her violation of the ordinance.  The plaintiff sued in state court for declaratory and injunctive relief on the basis that the ordinance amounted to a taking of her property, but she did not seek compensation via an inverse condemnation action.

While the case was pending, the defendant agreed to not enforce the ordinance.  As a result, the trial court refused to rule on the plaintiff’s action.  Without any ongoing enforcement of the ordinance, the plaintiff couldn’t show irreparable harm.  Without irreparable harm, the court noted, the plaintiff couldn’t establish what was necessary for the equitable relief she was seeking.  Frustrated at the result in state court, the plaintiff filed a takings claim in federal court.  However, the federal trial court dismissed the case because she hadn’t sought compensation at the state level.  Knick v. Scott Township, No. 3:14-CV-2223st (M.D. Pa. Oct. 29, 2015).  The appellate court affirmed, citing the Williamson case.  Knick v. Township of Scott, 862 F.3d 310 (3d Cir. 2017). 

In a 5-4 decision, Chief Justice Roberts (joined by Justices Alito, Gorsuch, Kavanaugh and Thomas), writing for the majority, reversed.  He pointed out that there is a distinction between the substance of a right and the remedy for the violation of that right.  It’s the takings clause of the Fifth Amendment that establishes that the government can only take (either physically or via regulation) private property by paying for it. The government’s infringement on private property is what triggers possible compensation.  The Constitutional violation has occurred and a state court decision that makes the landowner financially whole simply remedies that violation.  It doesn’t redefine the property right.  Thus, the majority opinion reasoned, laws confer legal rights and when those rights are violated there must be legal recourse.  See, e.g., Marbury v. Madison, 5 U.S. 137 (1803).  As the majority noted, “a government violates the Takings Clause when it takes property without compensation, and…a property owner may bring a Fifth Amendment claim [in federal court]… at that time.”

Conclusion

The Court’s decision is a significant win for farmer’s, ranchers, and other rural landowners that are impacted by state and local regulations impacting land use.  A Fifth Amendment right to compensation accrues at the time the taking occurs.  It’s also useful to note that the decision would not have come out as favorably without the presence of Justices Gorsuch and Kavanaugh on the Court.  That’s a point that agricultural interests also note.