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"it is difficult
to predict whether, in practice, the broader inquiry of the Penn Central factors will result more judicial
determinations that a taking has occurred."
|
Until quite recently, a cause
of action for regulatory takings, particularly in Minnesota,
was nearly impossible to maintain and the law itself was rift
with uncertainty. In the landmark case of Palazzolo v. Rhode
Island1, the United States Supreme
Court addressed, and to a limited extent clarified, three prior
Supreme Court decisions regarding regulatory takings law and
in doing so made a regulatory takings claim much more attainable
than it had been in years. More specifically, the Court held
that a regulatory takings claim was ripe for review under Williamson
County2, that the claim was not barred
by notice of the regulation prior to acquisition, and that the
claim did not constitute a categorical taking under Lucas,3 but remanded the claim for consideration
of whether it was a taking under Penn Central.4
The Palazzolo case is significant because it is the fourth
time over the past ten years that the Court has attempted to
define a regulatory taking.5
The Takings Clause of the 5th Amendment, applicable to the states
through the 14th Amendment, prohibits the government from taking
private property for public use without just compensation. The
most obvious form of taking occurs when the government encroaches
upon or occupies private property for its own proposed use. Even
the most minute "permanent physical occupation of real property"
requires compensation under the Takings Clause.6
In Pennsylvania Coal Co. v. Mahon, the Court recognized
that a taking may occur even if there is no physical invasion
of the property.7 In Justice Holmes' well-known
formulation, the Court stated, "While property may be regulated
to a certain extent, if a regulation goes too far, it will be
recognized as a taking."8 Hence,
a cause of action for a regulatory taking was born.
The Supreme Court has formulated two tests to analyze whether
a regulation has gone so far as to constitute a regulatory taking.
In 1980, the Court indicated that a zoning regulation effects
a taking if the ordinance does not substantially advance a legitimate
state interest, or if it denies the owner economically viable
use of the property.9 This has also been
referred to as a categorical taking (or a Lucas taking)
under the Court's decision Lucas v. South Carolina Coastal
Council, which requires that the regulation deny the owner
all economically viable use of the property.10
Two years earlier, however, in Penn Central Transp. Co. v.
New York City, the Court eschewed "any 'set formula'
for determining when 'justice and fairness' require that injuries
caused by public action be compensated by the government, rather
than remain disproportionately concentrated on a few persons."11 The Court identified several factors of
significance in an essentially ad hoc factual inquiry
which includes, inter alia, the economic impact of the
regulation on the claim, the extent to which the regulation interferes
with distinct investment-backed expectations, and the character
of the governmental action. These two closely-timed decisions
caused a lack of clarity in regulatory takings jurisprudence,
which was shown in Parranto Bros., Inc. v. City of New Brighton,
in which the Minnesota Court of Appeals expressed uncertainty
as to when either test applied.12
Regardless of which test applies, analysis of a regulatory taking
claim is largely dependent on the particular circumstances of
each individual case. The Palazzolo decision is no different.
Issues and Analysis
In 1959, Shore Gardens, Inc. (SGI) purchased waterfront property
located in Westerly, Rhode Island. Most of the property was salt
marsh that would require considerable fill before structures
could be built on it. In 1962, SGI submitted a proposal to the
Rhode Island Division of Harbors and Rivers to dredge a bordering
pond and to fill the entire property. That application was denied,
as were second and third proposals filed in 1963 and 1966. Subsequently,
regulations were enacted designating the salt marshes as protected
"coastal wetlands." After these regulations were passed,
SGI's corporate charter was revoked and title to the property
passed to Palazzolo.
In 1983, Palazzolo submitted an application to the Rhode Island
Coastal Resources Management Council ("Council") similar
to SGI's 1962 submission. The Council rejected the application.
Palazzolo submitted a new application in 1985 to build a private
beach club. Palazzolo needed a "special exception"
from the Council to fill the salt marsh. The Council concluded
that the beach club proposal did not meet the regulatory standard
for a special exception because there was no "compelling
public purpose." Palazzolo appealed the decision to the
Rhode Island courts and the Council's decision was affirmed.
Subsequently, Palazzolo commenced an inverse condemnation action
asserting that the wetland regulations, as applied to his parcel,
resulted in a taking in violation of the 5th and 14th Amendments.
Palazzolo alleged that the Council's action deprived him of "all
economically beneficial use" of his property resulting in
a total taking. The trial court ruled against Palazzolo and on
appeal the Rhode Island Supreme Court affirmed, holding that
(1) Palazzolo's taking claim was not ripe, (2) Palazzolo had
no right to challenge regulations predating his ownership of
the property, and (3) Palazzolo was not deprived of all economically
beneficial use of the property.
On appeal, the U.S. Supreme Court first considered the state's
defense of ripeness. The central question in resolving the ripeness
issue as set forth by the Court in Williamson County Regional
Planning Comm'n v. Hamilton Bank of Johnson City, is whether
the property owner has obtained a "final decision"
from the government determining the permitted use of the land.
The Palazzolo Court noted that a regulatory takings claim
is not ripe until the government has reached a final decision
regarding the application of the regulations to the property
so that it can be determined whether a regulation has deprived
a landowner of "all economically beneficial use" of
the property, or has defeated the reasonable investment-backed
expectations of the landowner to the extent that a taking has
occurred. The state supreme court had concluded that doubt remained
as to the extent of development the Council would allow on Palazzolo's
parcel, if yet another, different plan had been submitted. The
U.S. Supreme Court disagreed, reasoning that the unequivocal
nature of the wetland regulations and the Council's application
of the regulations to the subject property on multiple occasions
made it clear that no wetlands could be filled. Although Palazzolo
could seek a special exception if he could establish a "compelling
public purpose," it was also clear that the Council would
not have accepted an application for a beach club that occupied
a smaller surface area.
The state supreme court held Palazzolo's claim unripe for the
further reason that he had not sought to develop the dry, upland
portion of the property. The U.S. Supreme Court rejected this
argument because both Palazzolo and the state stipulated that
the value of the upland parcel was $200,000. Consequently, there
was no genuine question as to the extent of permitted development
on Palazzolo's property either on the wetlands or the upland
portion.
Finally, the state supreme court found that the claim was unripe
because of Palazzolo's failure to apply for permission to develop
the 74-lot subdivision, implying that Palazzolo was required
to establish that he would have been permitted to develop by
the other applicable governing bodies. The U.S. Supreme Court
again disagreed because submission of this proposal to other
agencies would not have clarified the question at issue in the
case, namely, the extent of development prohibited by the wetland
regulations. The Court observed that Williamson County,
the only ripeness law relied on by the state supreme court, did
not impose further obligations on Palazzolo where the Council's
denial of his applications made it clear that they would not
allow any substantial structures or improvements on the property.
As a second, alternative basis, the state supreme court denied
Palazzolo's taking claim because it concluded that his post-regulation
acquisition of title was fatal to the claim for deprivation of
all economic value under Lucas, and interference with
reasonable investment-backed expectations under Penn Central.
The U.S. Supreme Court reversed, holding that notice of the state-imposed
regulation is not a bar to recovery for a taking. Because the
Takings Clause prohibits the government from adopting unreasonable
or onerous land use restrictions without providing compensation,
the state cannot be allowed to put an expiration date on a Takings
claim by terminating the claim as soon as title is transferred.
The state's notice argument does not take into account the effect
on owners at the time of the enactment, who would be prejudiced
because their particular claim has not ripened. The state's rule
would strip the ability of the landowner to transfer their interest
in the property that was possessed prior to the regulation.
In its analysis, the Supreme Court distinguished between condemnation
by physical invasion and regulatory takings. In a condemnation
by physical invasion, the fact and extent of the taking are clearly
known at the time the property is physically appropriated. Accordingly,
the general rule is that any award goes to the owner at the time
of the taking and the right to compensate is not passed to a
subsequent purchaser. In contrast, a regulatory taking does not
mature until ripeness requirements, i.e., a final decision
applying the regulation, have been satisfied. It would be unfair
to bar regulatory takings claims because of the post-enactment
transfer of ownership where the steps necessary to make the claim
ripe were not taken or could not have been taken by a previous
owner.
In connection with this aspect of the case, the government relied
heavily on Lucas, where the Supreme Court observed that
a categorical taking is confined by limitations which "inure
in the title itself" because the landowner is constrained
by those "restrictions that background principles of the
state's law of property and nuisance already place upon land
ownership." From this, the government argued that Lucas
stands for the proposition that any new regulation, once enacted,
becomes a background principle of property law which cannot be
challenged by those who acquire title after the enactment. Although
the U.S. Supreme Court did not define when a legislative enactment
can become a background principle of state law, it concluded
that a regulation that would otherwise be unconstitutional absent
compensation is not transformed into a background principle of
state law simply because title in the property is transferred
to another.
In perhaps a hollow victory for the government, the U.S. Supreme
Court affirmed the decision of the state supreme court rejecting
Palazzolo's Lucas claim. Palazzolo argued that the state
may not evade the duty to compensate on the premise that the
landowner is left with a token interest. The U.S. Supreme Court
disagreed, concluding that a regulation permitting a landowner
to build a substantial residence on an 18-acre parcel does not
leave the property "economically idle."13
Palazzolo attempted to revive this part of the claim by arguing
that the upland parcel is distinct from the wetlands parcel so
that he should be permitted to assert a deprivation of the wetland
parcel alone. This contention involved examining the question
of what is the proper denominator in the takings fraction, i.e.,
is it measured against the parcel as a whole14,
or something less.15 Unfortunately, the
Court declined to review this rather important issue because
it was not presented in the petition for certiorari.
In a significant victory for the property owner, the Supreme
Court remanded the case for consideration of the Penn Central
factors on the basis that those factors had not been considered.
The scope of the remand was the subject of much debate between
Justices O'Connor and Scalia. Justice O'Connor concluded that
since a regulatory takings analysis is essentially an ad hoc
factual inquiry, the court on remand must consider an array of
relevant factors under Penn Central in which the timing
of the regulations enactment is not immaterial and investment-backed
expectations are not given exclusive significance. On the other
hand, Justice Scalia contended that notice of a restriction at
the time the purchaser takes title should have no bearing on
the determination of whether the restriction constitutes a taking
under the Penn Central analysis. |
Christopher Dietzen is a shareholder in the law firm of
Larkin, Hoffman, Daly & Lindgren, Ltd. A certified civil
trial specialist, he concentrates his practice in the area of
complex real estate litigation with an emphasis in property tax,
condemnation, environmental and land use matters. |
