August 1, 2017

By Howard Ellman

The U.S. Supreme Court filed its decision in Murr v. Wiscosin, a Fifth and Fourteenth Amendment “takings case” out of the state of Wisconsin.[1] Justice Kennedy delivered the opinion of the court, with a dissent by Chief Justice Roberts, in which Justice Thomas and Justice Alito joined.

I take the following recitation of the facts from the court’s opinion (Slip.Op. pp. 2-4.)

“The St. Croix River originates in northwest Wisconsin and flows approximately 170 miles until it joins the Mississippi River, forming the boundary between Minnesota and Wisconsin for much of its length. The lower portion of the River slows and widens to create a natural water area known as Lake St. Croix. Tourists and residents of the region have long extolled the picturesque grandeur of the river and surrounding area…

Under the Wild and Scenic Rivers Act, the River was designated by 1972, for federal protection. (Citations). The law required the States of Wisconsin and Minnesota to develop ‘a management and development program’ for the River area. (Citations). In compliance, Wisconsin authorized the State Department of Natural Resources to promulgate rules limiting development in order to ‘guarantee the protection of the wild, scenic and recreational qualities of the River for present and future generations.’ (Citations)

Petitioners are two sisters and two brothers in the Murr family. Petitioners’ parents arranged for them to receive ownership of two Lots the family used for recreation along the Lower St. Croix River in the Town of Troy, Wisconsin. The Lots are adjacent, but the parents purchased them separately, put the title of one in the name of the family business, and later arranged for transfer of the two Lots, on different dates, to Petitioners. The Lots, which are referred to in this litigation as Lots E and F, are described in more detail below.

For the area where Petitioners’ property is located, the Wisconsin rules prevent the use of lots as separate building sites unless they have at least one acre of land suitable for development. (Citations). A grandfather clause relaxes this restriction for substandard lots which were ‘in separate ownership from abutting lands on January 1, 1976, the effective date of the regulation. (Citation). The clause permits the use of qualifying lots as separate building sites. The rules also include a merger provision, however, which provides that adjacent lots under common ownership may not be ‘sold or developed as separate lots’ if they do not meet the size requirement. (Citation). The Wisconsin rules require localities to adopt parallel provisions, (Citation), so the St. Croix County zoning ordinance contains identical restrictions…. (Citation). The Wisconsin rules also authorize the local zoning authority to grant variances from the regulations where enforcement would create ‘unnecessary hardship.’”

The petitioners’ parents acquired two adjoining lots not later than 1963. As the opinion recites, the lots have the same topography. A steep bluff cuts through the middle of each, with level land suitable for development above the bluff and next to the water below it. The line dividing the lots runs from the riverfront to the far end of the property, crossing the bluff top along the way. Lot E has approximately 60 feet of river frontage, and Lot F has approximately 100 feet. Though each lot is approximately 1.25 acres in size, the rugged nature of the topography and the waterline reduce the buildable land suitable for development on the combined lots to slightly less than one acre.

During the course of intra-family transfers, the title to the two lots became unified in one owner, presumably a family trust or partnership. Thus, when the petitioners became interested in moving the cabin on Lot F to a different portion of the lot and selling Lot E to fund the project, the unification of the title invoked the state and local rules barring their separate sale or development.

Responding to that impediment, the petitioners sought variances that the St. Croix County Board of Adjustment denied. In subsequent state court litigation, the Wisconsin Court of Appeals agreed with the Board of Adjustment’s interpretation that the local ordinance “effectively merged” Lots E and F. Thus, the petitioners could only sell or build on the single larger parcel comprising the two “merged” lots.

The petitioners filed suit in state court alleging that the state and county regulations combined to impose a “regulatory taking” by depriving the petitioners of “all or practically all of the use of Lot E because the Lot cannot be sold or developed as a separate lot.” An appraisal introduced as evidence in the trial court proceedings found values of $698,300 for the lots together as regulated; $771,000 as the total for the lots as two distinct buildable properties; and $373,000 for Lot F as a single lot with improvements. “Petitioners’ appraisal included an unrebutted, estimated value of $40,000 for Lot E as an undevelopable lot, based on the counterfactual assumption that it could be sold as a separate property.” Slip.Op. p.5.

This set of facts leads one to question why the Supreme Court granted certiorari in the first instance — or didn’t dismiss the writ as “improvidently granted” when it obtained a full grasp of the operative facts. By what analysis did the Supreme Court conclude that these facts led to an actionable matter or unanswered question under existing Fifth Amendment and Fourteenth Amendment takings jurisprudence?

A quick summary of “settled issues” highlights that question. The facts in this case do not show a taking by physical invasion of the property that the offending regulations caused. See, e.g. Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 U.S. 419. Nor do the regulations imposed on the petitioners deprive them of all economic beneficial use of any property. See, e.g. Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003. Indeed, the petitioners’ own record evidence at the trial demonstrates that the properties in question maintained significant value, albeit less than that for which the petitioners had obviously hoped. So the burden of the offending take was not sufficiently heavy to place it in the category to which the court addressed its attention in Lucas.

That leaves us with the a more amorphous and hard to define offenses that have come be known as the Penn Central criteria: Penn Central Transportation Co. v. New York City (1978) 438 U.S. 104. That case appears to be the one where the court first introduced the concept of a “deprivation of reasonable investment backed expectations” as a basis for a Fifth Amendment inverse condemnation claim. Despite the fact that Penn Central was decided almost 40 years ago, and has been often cited, it is difficult to find any case where the “deprivation of reasonable investment back expectations” rubric has formed the basis for an actual monetary judgment sustained in a recorded case at any authoritative level. Cases such as San Remo Hotel v. City and County of San Francisco (2005) 545 U.S. 323 exemplify the quixotic nature of the effort required to attempt to obtain such a judgment based on that theory.

Then Lingle v. Chevron U.S.A. Inc. (2005) 544 U.S. 528 came along to demonstrate the ephemeral nature of the relevant law, where the court began its opinion with a startling admission of doctrinal error in what had been presumably settled for more than two decades:

On occasion, a would-be doctrinal rule or test finds its way into our case law through simple repetition of a phrase — however fortuitously coined. A quarter-century ago, in Agins v. City of Tiburon, 447 U.S. 255 (1980), the court declared that government regulation of private property ‘effects a taking if [such regulation] does not substantially advance legitimate state interests’ 447 U.S. at 260. Through reiteration in a half dozen or so decisions since Agins, this language has been ensconced in our Fifth Amendment’s takings jurisprudence. [Citations]

In the case before us, the lower courts applied Agins “substantially advances” formula to strike down a Hawaii statute that limits the rent the oil companies may charge to dealers who lease service stations owned by the companies. The lower courts held that the rent cap effects an uncompensated taking of private property in violation of the Fifth and Fourteenth Amendments because it does not substantially advance Hawaii’s asserted interest in controlling retail gasoline prices. This case requires us to decide whether the “substantially advances” formula announced in Agins is an appropriate test for determining whether a regulation effects a Fifth Amendment taking. We conclude that it is not. (Emphasis added).

An admission of this sort cannot help but make one wonder how much of the rest of the court’s takings jurisprudence stands uneasily on a foundation subject to repudiation in the next term.

But it does highlight what seems to be true to this commentator: The question of regulatory taking should emphasize the burden on the property owner as the key element of the case. In the absence of that factor, there is no case. The validity of the regulation in the first instance is not relevant to that issue. If the regulation is not valid, the question of taking by those persons who are affected by it never arises. Only when the validity of the regulation has been established does the question then become one of whether the regulation as applied to the circumstances of the particular property owner in question requires that property owner to contribute more than his or her fair share of the burden of a public improvement, a question first articulated as the relevant inquiry in Armstrong v. U.S. (1960) 364 U.S. 400. If that is, or ought to be the law, then the “substantially advances … ” mantra is indeed irrelevant.

For the practitioner, this recitation underscores yet again the difficulty a property owner faces when he or she invokes the protections supposedly provided by the Fifth and Fourteenth Amendments when dealing with regulations that substantially impair the value of property. What is more frustrating, the property owners who encounter those situations caused by excessively burdensome regulation are more acutely aware of that burden than anyone else; and yet they face a formidable task of making that story fit into the tiny cracks of impractical jurisprudence, the cost, time, effort and frustration of the effort to sustain a viable remedial case.

Justice Roberts’ dissent refocuses the inquiry back to the burden on the individual property owner, but he leaves the main question largely unanswered. As a practical matter, how does one plead and prove a case?

“We have said often enough that the answer to this question generally resists per se rules and rigid formulas. There are, however, a few fixed principles: The inquiry must be conducted with respect to specific property [Citation] and if a ‘regulation denies all economically beneficial or productive use of land,’ the interference categorically amounts to a taking (citing Lucas) for the vast array of regulations that lacks such an extreme effect, a flexible approach is more fitting. The factors to consider are wide-ranging and include the economic impact of the regulation, the owners investment backed expectations, and the character of the governmental action. The ultimate question is whether the government’s imposition on a property has forced the owner ‘to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.’

In short, the Penn Central verbal formulation that sounds good but defies definition as a practical matter.[2] Thus, Justice Roberts tantalizes but does not fulfill the promise of a verbal formulation that could possibly be precise enough to be constructive in this context.” He does, however, emphasize the fact that how one defines the property interest allegedly taken should be a key part of the inquiry

And in Murr, the Roberts dissent states that Lucas (where the property owner established that the offending regulation deprived the impacted property of all beneficial use) is the extreme case and not the most common one:

“For the vast array of regulations that lack such an extreme effect, a flexible approach is more fitting. The factors to consider are wide ranging, and include the economic impact of the regulation, the owner’s investment-backed expectations, and the character of the government action. The ultimate question is whether the government’s imposition on a property has forced the owner ‘to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Citing Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104.

Easy to say. But what specifically are the elements of such a cause of action, the specific elements that the property owner and his or her lawyer must establish to make the case?

Unfortunately, Murr provides little or no guidance beyond Justice Robert’s lucid summary, devalued perhaps by the fact that it is stated in a dissent in an otherwise unremarkable case.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Presumably, the Supreme Court will eventually give us the official citation although that seems to be taking much longer these days. See, e.g. Koontz v. St. Johns River Water Management District __ U.S. __, decided June 25, 2013. No official record has yet been published in the U.S. Reports.

[2] As the Beatles observed some 40 years ago: “gotta be good lookin’ cuz it’s so hard to see.”

Source: Law360