Distinguishing Between Private-Public and Private-Private Transfers in Judicial and Regulatory Takings

I've been working on a fairly lengthy post-Stop the Beach article on judicial takings.  I will probably post the article on SSRN in a week or so.  In the meantime, I wanted to blog about a distinction that is at the core of my arguments in the article.  As I explain further below the fold, government actions that mandate the transfer of property interests from private property owners to the public ("private-public transfers") should be distinguished from government actions that mandate the transfer of property interests between private persons ("private-private transfers").  I argue that judicial takings, and regulatory takings more broadly, should apply only to private-public transfers, but not to private-private transfers.

I touched on this distinction way back in my first post on the grant of cert in Stop the Beach (see point 5).  Immediately after Stop the Beach was decided, Jerry Anderson asked the following question:

I am curious about Justice Scalia's position that courts may not eliminate "established private property rights." What do such rights consist of? For example, assume that a state court decides to move from a "good faith" approach to adverse possession to an "objective" standard, which will allow some possessors to prevail, even though they knew the land they were occupying was not theirs. This is a standard "evolution" of common law, yet it does, under Justice Scalia's rigid formulation, result in a party losing property that it would not have lost under the old common law test. Is that a "taking"? Can the court NOT change such a common law test without having to compensate property owners?

To me, such a change in adverse possession law involves a private-private transfer, and should not fall within the judicial takings analysis.  In excellent posts taking up Jerry's question, Lior Strahilevitz and Eduardo Penalver both discussed the private-private nature of the change in adverse possession law.

What follows below the fold is a very lengthy treatment of this issue.  The rest of the post is taken from a few sections of my draft article, with the footnotes removed.  I'd very much welcome any comments on the argument.  In particular, I'd be interested in references to similar arguments, if any, that have been made in the existing regulatory takings literature.

Distinguishing Between Private-Public Transfers and Private-Private Transfers

Cases in which the challenged government action transfers private property to the public may be distinguished from cases in which the government action transfers private property from one private person to another.  Here are some examples of the first type of case, which I call a “private-public” transfer:

•    A court redefines a certain area that had been private property to be public property.  Beachfront property has been a focus of recent judicial takings cases and commentary in significant part because it involves an often-contested border between public and private property.  In all jurisdictions, at some point on the beach private property ends and public property begins.  This borderline is set at various places in various jurisdictions, but two likely candidates are the mean high tide line (i.e., the average point that the water reaches at high tide) and the vegetation line (i.e., the point at which vegetation starts to grow).  On many beaches, there is an area of sand between the mean high tide line and the vegetation line, and this part of the beach is commonly used for recreation.  Imagine a jurisdiction had clearly established caselaw that set the mean high tide line as the public-private boundary.  If the state supreme court in that jurisdiction issued an opinion changing the boundary to the vegetation line, then the area of beach between the mean high tide line and the vegetation line, which had been private, would be transferred by the judicial decision to public ownership.  

•    A court grants public access to what had previously been private property.  Imagine that, as in the prior example, a jurisdiction has clear caselaw that establishes the mean high tide line as the private property boundary for beachfront property.  In this scenario, however, the state supreme court departs from prior precedent and holds that the public must be allowed access to the area between the mean high tide line and the vegetation line.  Here, unlike the prior example, the property remains in private hands, but it is subject to a public right of access.  The judicial action can be conceptualized as removing part of the private property owner’s right to exclude, or as transferring an easement for public access from the private property owner to the public.  If the legislature or an executive agency had done the same thing, this action would be a per se taking under the Supreme Court’s regulatory takings caselaw.

•    A court changes property law so that private property transfers to state ownership.  A property owner typically has the right to transfer property at death.  Imagine that a state supreme court changed its existing law, and held that upon a property owner’s death, certain types of property escheated to the state.  This judicial action would lead to the transfer of private property to the state.  If this change in the law was performed by the legislature or an executive agency, it would be an unconstitutional taking under the Supreme Court’s regulatory takings jurisprudence.

•    A court destroys existing use rights in private property.  Imagine that in our hypothetical jurisdiction, the pre-existing caselaw clearly permitted a property owner to build on a particular type of property.  The state supreme court then issues an opinion changing the law, and as a result the property owner is no longer permitted to build on the property.  Whether or not this change would constitute a taking if enacted by the legislature or an executive agency would depend on the specific facts of the case and the idiosyncrasies of regulatory takings law.  In at least some circumstances, such a legislatively- or executively-enacted change would be a taking.  Regardless of whether the change is unconstitutional, it involves a private-to-public transfer because the use rights that before the judicial action were in private hands no longer exist as private property.  These use rights were not transferred to another private person; rather, use rights were destroyed as private property rights.  The destruction of private property rights in this sense is the equivalent of transferring them to the public.  The government could change the law to re-create these use rights, and thereby transfer them back to the private property owner. 

The second type of case, which I call a “private-private” transfer, involves a government action that transfers property from one private person to another.  Here are some examples:

•    A state supreme court changes its rules on interpreting ambiguous conveyances; as a result, person A is held to own a parcel of property, whereas person B would have owned the parcel under the prior law.

•    A state supreme court changes its law of future interests; as a result, person A now holds the future interest to a certain parcel of property, where under the former rule, person B now holds the future interest to that parcel of property.

•    A state supreme court changes its law on creation of easements; as a result, an easement that would have been valid under the prior law no longer exists.  The easement is effectively transferred from the person who would have been the easement holder (person A) to the person who owns the property that would have been subject to the easement (person B).

•    The obverse of the previous scenario:  a state supreme court changes its law on creation of an easement; as a result, an easement that would not have been valid is now valid.  The easement is effectively transferred from the person whose property would have been free of the burden of the easement to the person who now owns the benefit of the easement.

•    A state supreme court changes its rules on contracts (e.g., the statute of frauds or the parol evidence rule); as a result, person A loses a dispute over ownership of a parcel of property to person B; person A would have won under the old rule.

•    A state supreme court changes its interpretation of its recording act; as a result, person A’s interest in a parcel of property is invalid, where it would have been valid under the prior law.

•    A state supreme court changes its rules on adverse possession; as a result, person B owns the property whereas under the prior rule, person A would have owned the property.

Various distinctions might be made between these scenarios; some, for example, involve changes in substantive property law, while others involve changes in other areas of law that affect property ownership.  For now, however, I will focus on the private-private nature of the transfer that is common to all of the scenarios.

The Just Compensation Clause Should Apply to Private-Public Transfers, but not to Private-Private Transfers

My argument that the Just Compensation Clause should apply to private-public transfers, but not to private-private transfers, has three parts.  First, private-private transfers do not “destroy” or “take” property in the same sense as private-public transfers.  Second, there is scant support in the Court’s regulatory takings jurisprudence for applying the Just Compensation Clause to private-private transfers.  Third, there is no support in Justice Scalia’s Stop the Beach plurality for including private-private transfers within a judicial takings doctrine.

(1) Private-Private Transfers Neither “Destroy” Nor “Take” Property in the Same Sense As Private-Public Transfers

Recall the examples of private-public and private-private transfers discussed above.  Some of these scenarios involve what fairly could be termed the destruction of a private property right.  The example involving a change in future interest law, for example, might involve the invalidity of an interest that would otherwise have been valid.  It is not a stretch to call this change a destruction of the future interest in question.  So, too, with the example of the easement that otherwise would have been valid under the prior law; the change in law can fairly be termed a destruction of the easement.

These two examples, however, do not involve the destruction of a property right in the sense that it was used to describe the examples involving private-public transfers.  In the private-public transfers, the private property right was destroyed as an interest in private property; those rights are no longer held by any private person, and are public, not private, property.  In the private-private examples involving the future interest and the easement, in contrast, the interests are best conceptualized as being transferred to another private person, rather than as being destroyed outright as private property interests.

This distinction can be illustrated by comparing the easement-destruction example and the beachfront land example involving judicial redefinition of the public-private boundary line.  If the easement is destroyed, the property interests represented by the easement effectively transfer from the person who would have been the holder of the benefit of the easement (person A) to the holder of the property that would have been burdened by the easement (person B).  Person B could later grant those interests to person A or another person.  That is, person B could re-create the destroyed easement.  In the beachfront land example, in contrast, no private property owner could re-create the destroyed property interests.  In the first beachfront example, the state supreme court moved the boundary between public and private property from the mean high tide line to the vegetation line.  This action destroyed the private property between the mean high tide line and the vegetation line.  The private property interests at issue no longer exist – no private person could re-create them under any circumstance.  Rather, these interests have become public property.  The public, of course, could act through a government entity to re-create the destroyed private property interests, for example by legislatively granting the land at issue to a private person.  The private-public transfer involved in this example, however, truly destroys private property in that the property interest is no longer private, while the private-private transfer at issue in the easement example preserves the interests as private property, albeit in a different private owner.

Similarly, a private-public transfer “takes” property in a way that a private-private transfer does not.  It is natural to read the word “taken” in the Just Compensation Clause as applying to those circumstances where the government action transfers the property interest from a private person to the government.  The development of the Court’s regulatory takings jurisprudence shows a consistent recognition that the government can take property in this sense without an exercise of eminent domain.  The foregoing discussion of the beach front property scenario demonstrates that property can be taken through judicial action just as it can be taken by regulation – the effect on the property owner in the version of the scenario involving an underlying legislative action is the same as it is in the version where the judiciary acts on its own.

In a private-private transfer, in contrast, the government action does not take property in the same way.  To be sure, it does not do violence to the word “take” to say that the examples of the private-private transfers discussed above take property from one person and transfer it to another.  There is good reason, however, to focus on both ends of the transaction in interpreting the Just Compensation Clause.  The historical evidence suggests that the Just Compensation Clause was inspired by private-public transfers, and the Supreme Court’s recent regulatory takings jurisprudence has increasingly focused on the equivalence of the contested regulatory act to an exercise of eminent domain.  By its nature, eminent domain involves a private-public transfer.  It is true that at least under the Supreme Court’s caselaw that the government is able to transfer private property taken by eminent domain to another private party.  Even here, however, the transfer would be private-public-private, rather than simply private-private.  That is, even when eminent domain is used to transfer property from one private person to another, there is an intervening period of government ownership.

Even if private-private transfers do not “take” property from an owner in the sense used here, they do “deprive” the owner of property.  At the beginning of the transfer, the private person owned certain property.  At the end of the transfer, they did not.  Following the text of the Fifth Amendment, this distinction between “take” and “deprive” suggests that there is a textual basis to apply the Just Compensation Clause to private-public transfers, but not to private-private transfers.  The relevant portion of the Fifth Amendment reads:  “No person shall . . . be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”  The Due Process Clause of the Fourteenth Amendment echoes the language of that in the Fifth Amendment:  “nor shall any State deprive any person of life, liberty, or property, without due process of law.”  Focusing on both the front and back ends of the transfer provides a natural demarcation of which types of transfers are subject to the Just Compensation Clause and the Due Process Clause.  Both private-public and private-private transfers imposed by a government actor “deprive” owners of private property, and are subject to the requirements of the Due Process Clause.  Only private-public transfers, in contrast, “take” property, and are subject to the requirements of the Just Compensation Clause.

(2) There is Little Support in the Court’s Contemporary Regulatory Takings Jurisprudence for the Application of the Just Compensation Clause to Private-Private Transfers

The Supreme Court’s regulatory takings caselaw has largely involved challenges to government actions that result in private-public transfers.  The regulatory takings case that most resembles the prototypical judicial takings scenario of a change in substantive property law is Hodel v. Irving, which involved a legislative alteration of an owner’s power to transfer certain types of property at death.  The legislation at issue, however, changed the law so that the at the owner’s death, the property at issue would escheat to the state, rather than transfer to another private person.  The legislative change thus created a private-public transfer, rather than a private-private transfer.  Similarly, Webb’s Fabulous Pharmacies v. Beckwith, which features prominently in discussions of judicial takings, involved a court holding that certain private funds had become “public money.”

The land use regulation cases that are at the core of the Court’s contemporary regulatory takings jurisprudence also involve private-public transfers.  As discussed above, land-use restrictions transfer the use rights at issue from the affected private property owners to the public.  In Lucas v. South Carolina Coastal Council, for example, South Carolina’s Beachfront Management Act prohibited David Lucas (or any other owner of the subject property) from building on two parcels of beachfront property that he owned.  The use rights that Lucas had previously held were therefore transferred to the public.  Similarly, in Penn Central Transportation Co. v. City of New York, the owners of Grand Central Terminal claimed that New York’s landmarks preservation law prevented them from building in the air space above the terminal.  The Supreme Court rejected this takings claim, but the property owner’s theory was that the government had transferred its claimed use rights from the owner to the public.

The early regulatory takings case of Pennsylvania Coal Co. v. Mahon at least in part involved a private-private transfer.  Pennsylvania’s Kohler Act prohibited the mining of coal beneath inhabited structures unless the owner of the coal also owned the structure.  In circumstances where the owner of the coal was different from the owner of the structure, the Kohler Act therefore transferred the right to mine the coal at issue from the coal company (private) to the owner of the structure (also private).  There are good reasons, however, to see Mahon as a substantive due process case, rather than a regulatory takings case in the mold of contemporary cases like Penn Central and Lucas.  The Supreme Court recently recognized in Lingle v. Chevron that the substantive due process inquiry in early cases differs in important respects from the contemporary regulatory takings inquiry.  If Mahon is understood as a substantive due process case, then it does not lend support for applying the Just Compensation Clause to private-private transfers.  As noted above, a private-private transfer constitutes a “deprivation” within the meaning of the Due Process Clause, and both procedural and substantive due process concepts apply to private-private transfers.

Contemporary physical invasion cases such as Nollan and Kaiser Aetna involved a transfer of the right to exclude from private property owners to the public.  Indeed, each case involved private property being subject to access by the public.  Similarly, PruneYard Shopping Center v. Robins involved access to a mall by members of the public, and United States v. Causby involved overflights by military airplanes.

One contemporary physical invasion case did involve a type of private-private transfer:  Loretto v. Teleprompter Manhattan CATV Corp.  Loretto involved a challenge to a New York law that required private property owners to allow cable companies to install wiring and equipment on their property, and prohibited the owners from demanding compensation from the cable companies in return.  Unlike the other physical invasion cases discussed above, the right to exclude in Loretto was transferred not from a private property owner to the public generally, but was instead transferred from private property owners to cable companies, which are private corporations.  Put another way, all of the physical invasion cases involve what effectively is the transfer of an easement from a private property owner to another party.  In most physical invasion cases, this easement is transferred to the public.  In Loretto, it was transferred to a private corporation.

Loretto thus presents a challenge to my assertion that the Supreme Court’s contemporary regulatory takings jurisprudence has typically involved private-public transfers.  There are a number of responses to this challenge.  First, the cable companies at issue in Loretto were public utilities, not ordinary private corporations.  The distinction between private and public entities is a permeable one, and utilities, like common carriers, enjoy something of a quasi-public status.  For example, utilities are often delegated the power of eminent domain.  In this context, it is notable that the equipment involved in Loretto was part of the larger cable network used to serve the public as a whole.  The transfer in Loretto therefore has elements of a private-public transfer.  Similarly, in Causby, the airplane overflight case, the outcome likely would not have changed if the overflights were by commercial airliners rather than military planes.  Although commercial airlines are private entities, as common carriers they serve the public at large, and an invasion of private property by a common carrier can fairly be seen as an invasion by the public.  Second, it can be argued that Loretto is simply wrong on its facts, even if its rule that regulations that require physical invasions by the public are per se takings is sound.  Third, and related to the second point, it can be argued that the Court in Loretto applied the wrong law to its facts, and was therefore led into an incorrect holding.  I admit that it is a stretch to reconceptualize Loretto as a substantive due process case, because its analysis is stated expressly in terms of regulatory takings concepts and cases.  But if Loretto is understood as involving a private-private transfer, then under the approach that I advocate here, it should be evaluated under due process concepts, not takings concepts.  Even under the relatively robust substantive due process inquiry advocated by Justice Kennedy, the law at issue in Loretto would likely have been deemed constitutional, because the trivial impact on private property owners was imposed by a law for the easily justifiable purpose of allowing the cable companies to provide cable service to the public.

This brings us to the line of recent regulatory takings cases that most clearly involve private-private transfers.  Most of the cases in this line involved regulatory takings and due process challenges to the retroactive imposition of monetary liability, typically in the pension context.  So long as the newly-imposed monetary liability is owed to another private person, rather than the government, this type of case involves a private-private transfer.  Two earlier cases in this line, Connolly v. Pension Benefit Guarantee Corp., and Concrete Pipe & Products of Cal., Inc. v. Construction Laborers Pension Trust for Southern Cal., Inc.,  rejected takings claims to this type of retroactive imposition of liability, and therefore do not provide strong support for the application of the Just Compensation Clause to private-private transfers.

The most recent case in this line, Eastern Enterprises v. Apfel, did hold that a retroactive imposition of liability for health benefits was unconstitutional.  The justices’ positions in Apfel, however, were highly fractured, and no position commanded a majority.  Justice O’Connor’s plurality opinion applied a regulatory takings analysis to find the imposition of liability unconstitutional.  There are four reasons why Justice O’Connor’s plurality does not provide strong support for applying the Just Compensation Clause to private-private transfers.  First, it is only a plurality opinion.  Second, and relatedly, Justice Kennedy dissented from the plurality’s regulatory takings analysis.  Justice Kennedy’s opinion did express some concern that the government could avoid takings liability by mandating private-private transfers.  As I will argue further below, however, Justice Kennedy’s positions in Stop the Beach and other cases strongly suggest that he would address these concerns through the application of substantive due process doctrines, not regulatory takings doctrines.  Third, as the fragmented opinions in Apfel suggest, the underlying question in these cases of whether the imposition of monetary liability can fairly be understood as a taking remains controversial and unresolved.  Fourth, Apfel was decided before Lingle v. Chevron.  In Lingle, the Court recognized that its regulatory takings jurisprudence had been inadvertently infected with substantive due process concepts.  As a result, the Court held that the “substantially advances” test, which had appeared to be well established in the Court’s regulatory takings jurisprudence, should be rejected as an artifact of now-outdated substantive due process doctrine.  A close look at the Apfel plurality reveals that it is based on vested rights and non-retroactivity concepts that historically have been grounded in substantive due process, not takings.  As the Court later recognized in Lingle, it is wrong to incorporate substantive due process concepts into the regulatory takings analysis.

Finally, one case in this line, United States v. Security Industrial Bank, applied a regulatory takings analysis to a private-private transfer in a way that is hard to discount.  Unlike Apfel, Connolly, and Concrete Pipe, Security Industrial Bank did not involve the retroactive imposition of monetary liability.  Rather, it involved the retroactive application of a lien avoidance statute.  The retroactive termination of a lien under the statute would have amounted to a private-private transfer of the lien interest from the lien holder to the owner of the property subject to the lien.  To avoid constitutional retroactivity problems, the Court interpreted the statute to apply only prospectively.  Although the Court noted that the case fit awkwardly into the regulatory takings framework, it rested its retroactivity concerns on regulatory takings cases.  Most importantly to present issue, the Court specifically rejected the government’s argument that takings concepts should not apply because the case involved a private-private transfer rather than a private-public transfer.  In a prior case, Armstrong v. United States, the Court had held that the destruction of a lien on government property through the operation of sovereign immunity constituted a compensable taking of the lien.  In Security Industrial Bank, the government attempted to “distinguish Armstrong on the ground that it was a classical ‘taking’ in the sense that the government acquired for itself the property in question, while in the instant case the government has simply imposed a general economic regulation which in effect transfers the property interest from a private creditor to a private debtor.”  The Court’s rejected this argument in one sentence:  “While the classic taking is of the sort that the government describes, our cases show that takings analysis is not necessarily limited to outright acquisitions by the government for itself.”  In support of this proposition, the Court cited Loretto, PruneYard, and Mahon.  As discussed above, Loretto does provide limited support for the application of the Just Compensation Clause to private-private transfers, although PruneYard and Mahon do not.  The Court’s position in Security Industrial Bank therefore had minimal precedential support, but the case itself now provides the clearest example of the Court applying a regulatory takings analysis to a private-private transfer.

Although its discussion is relatively explicit, Security Industrial Bank provides thin support for the application of the Just Compensation Clause to private-private transfers.  The Court’s cursory discussion of the subject was not well supported by precedent.  Further, the Court used the regulatory takings analysis as a justification for construing the statute narrowly, rather than as a justification for invalidating the entire statute.  The Court could have used due process based non-retroactivity concepts to reach the same point.  Finally, as with the other cases in the Apfel line, the overall thrust of the Court’s opinion in Security Industrial Bank is inconsistent with Lingle’s recognition of the importance of separating the takings and substantive due process analyses.  Post-Lingle, constitutional concerns about the retroactive imposition of private-private transfers that historically have been rooted in substantive due process should not be seen as a part of the regulatory takings analysis.  Understanding that this type of retroactivity claim is the province of substantive due process will further the significant clarification that Lingle has brought to regulatory takings doctrine.

Security Industrial Bank and Loretto therefore should be seen as the outliers in the Supreme Court’s regulatory takings jurisprudence.  The Court’s regulatory takings cases – including the iconic cases such as Penn Central and Lucas – overwhelmingly have involved private-public transfers.  The Court’s caselaw therefore provides very little support for applying a regulatory takings analysis to private-public transfers, whether mandated by the legislature, executive, or judiciary.

(3) There is no Support in Justice Scalia’s Plurality Opinion for the Application of the Just Compensation Clause to Private-Private Transfers

Justice Scalia’s plurality opinion in Stop the Beach had a very strong focus on private-public transfers.  The opinion, for example, noted that Webb’s Fabulous Pharmacies closely resembled the claimed taking in Stop the Beach, and repeatedly emphasized the private-public transfer that was involved in that case.  The opinion does contain two passages that, taken in isolation, might be taken as support for the application of the Just Compensation Clause to private-private transfers.  On closer inspection, however, neither passage in fact provides this support.

In the first of these passages, Justice Scalia wrote:  “Moreover, though the classic taking is a transfer of property to the State or to another private party by eminent domain, the Takings Clause applies to other state actions that achieve the same thing.”  Taken alone, the words “to another private party” might be interpreted as providing some support for applying the regulatory takings inquiry to private-private transfers.  This sentence is the beginning of a paragraph that highlights the trend in the Court’s regulatory takings jurisprudence of equating certain regulatory acts to exercises of eminent domain, and it is true that under Kelo and similar cases the government may use eminent domain to transfer property from one private person to another.  As discussed above, however, these exercises of eminent domain are private-public-private, not private-private.  The paragraph closes with a sentence that emphasizes the private-public transfer that was involved in Webb’s, and in context of the overall private-public thrust of the plurality opinion, the words “to another private party” should be taken simply as an accurate statement of the Court’s post-Kelo eminent domain jurisprudence.  Further, both Justices Scalia and Thomas dissented in Kelo, and it is fair to presume that Chief Justice Roberts and Justice Alito would likewise be hostile to Kelo-type uses of eminent domain.  There would be a certain level of dissonance involved with maintaining a position that Kelo is wrong and maintaining that the regulatory takings inquiry should apply to private-private transfers because of Kelo.  This passage from the Stop the Beach plurality opinion therefore should not be read as support for applying principles grounded in the Just Compensation Clause to private-private transfers.

In the second passage, Justice Scalia wrote:  “If a legislature or a court declares that what was once an established right of private property no longer exists, it has taken that property, no less than if the State had physically appropriated it or destroyed its value by regulation.”  Some of the private-private transfer scenarios discussed above might involve the “declar[ation] that what was one an established right of private property no longer exists.”  For example, the scenarios involving changes to the law of future interests and the law of easements in one sense each declared that a private property interest no longer existed.  As discussed above, however, these scenarios do not involve the elimination of interests as interests in private property; rather, they are better seen as involving the transfer of property interests from one private person to another.  Any suggestion that this passage provides support for applying the Just Compensation Clause to private-private transfers can be refuted simply by placing the passage into its context in Justice Scalia’s plurality opinion:

In sum, the Takings Clause bars the State from taking private property without paying for it, no matter which branch is the instrument of the taking.  To be sure, the manner of state action may matter:  Condemnation by eminent domain, for example, is always a taking, while a legislative, executive, or judicial restriction of property use may or may not be, depending on its nature and extent.  But the particular state actor is irrelevant.  If a legislature or a court declares that what was once an established right of private property no longer exists, it has taken that property, no less than if the State had physically appropriated it or destroyed its value by regulation.  “[A] state, by ipse dixit, may not transform private property into public property without compensation.”

Every other sentence in this paragraph is focused solely on government actions that result in transfers of private property to the public.  In context, the passage at issue, like the remainder of Justice Scalia’s plurality opinion, should be read as being concerned with private-public transfers, not private-private transfers.

Ben Barros

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