The 'whole parcel' takings conundrum

TAKINGS TALK

Takings law is not for the faint of heart. It is contrived of rules that have been described variously as "arcane," "mystical" and "confused." And that is how people who know and understand the rules describe them. Much of the problem undoubtedly arises from the fact that the rules have been developed only during the last four decades by judicial officers (and their research attorneys) who had little background in the subject before opining on it.

The confusion began with the U.S. Supreme Court's first modern takings decision, Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978). The court was there presented with the question of the constitutional validity of New York's landmarks preservation law (invoked to protect the continued existence of Grand Central Terminal). The emotional overlay was intense. Grand Central had been declared a landmark after New York City had lost its virtual twin, in-town railroad terminal, Penn Station, and the historical preservation folks were not about to lose another. Oral argument at the Supreme Court was accompanied by pickets outside the doors. But not just any old band of pickets. These were led by President John F. Kennedy's widow, Jackie - just to demonstrate both the importance and the profile of the issue.

With little guidance from its own caselaw, the Supreme Court declined to establish any "rule" for determining when a regulation became so harsh as to "take" private property and require compensation. Its earlier foray into the genre (half a century earlier) suggested only that when regulation "goes too far" it will be "recognized" as a taking. Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922). Instead, Penn Central (which the court continues to this day to refer to as its "polestar" when deciding takings cases) announced a "mode of analysis" to be followed. In examining the facts underlying potential takings cases, courts were instructed to examine the economic impact of the regulation, the effect of the regulation on distinct (since changed to reasonable) investment-backed expectations, and the character of the governmental action. Some "polestar."

The lower courts, and the Supreme Court itself, have shown how difficult that "polestar" is to apply. One of the reasons for the difficulty is the seemingly simple comment the court made about determining the impact of the regulation on the "parcel as a whole." It may be difficult to believe, but that little phrase has created its own little sub-culture of litigation.

That innocent phrase will get its own airing at oral argument on March 20, 2017, in a case titled Murr v. Wisconsin, 15-214. The facts in Murr are relatively simple. Mr. and Mrs. Murr bought a waterfront lot in Wisconsin for the family's recreational use. On advice of counsel, they put title in the name of their small company. Several years later, when the Murr family had enjoyed using the small home on their lot as a vacation getaway, the lot next door came on the market. They bought it. Title to that lot (which was - and remained - undeveloped) was held by Mr. and Mrs. Murr in their own names.

Both lots were zoned for residential use. Each received its own tax bill. The second lot was held by the family as an investment. In the fullness of time, the Murrs decided to sell the vacant lot and use the proceeds to improve the home on the original lot. That is when the trouble hit the fan, so to speak. Over time, Mr. and Mrs. Murr had transferred title to both lots to their children. When they sought to market their vacant lot, they were told that legislative legerdemain had transformed their two lots into one. A local ordinance proclaimed that adjacent lots held by the same owners would be treated as joined into one. And, because of the size of these lots, only one house could be built on the entirety.

And so to court. The Murr family had no luck in the Wisconsin courts. But something convinced the U.S. Supreme Court that perhaps it was time to examine this aspect of Penn Central anew. Certiorari was granted; a flock of amici curiae filed briefs; and the matter will be argued before the next edition of this column is posted.

Returning to Penn Central for a little more background on the phrase, you should know that the owners of Grand Central Terminal had no intention of destroying the historic station. They, after all, still had a railroad to run. What they wanted to do was to cantilever a 53-story office tower above the station, making use of what they viewed as their air rights. In employing its newly created mode of takings analysis for the first time, the Supreme Court refused to divide the property into "segments" (i.e., examining the air above the land separately from the lower extremities) and said that it had to look at the "parcel as a whole." Viewing the property from the tracks through the clouds, the Supreme Court concluded that the owners were still making both a "profit" and a "reasonable return" on their investment and thus the "whole parcel" suffered no taking.

So, how does that translate to the Murrs in Wisconsin? It shouldn't, really. What the lower courts did here was the opposite of what the Supreme Court did in Penn Central. Where the Supreme Court refused to "segment" the property and award compensation for the taking of an isolated segment, the Wisconsin courts have aggregated the property in question together with a neighboring property for the serendipitous reason that the same people now own both parcels. Were title held in separate hands, each parcel would be separately evaluated. (One is tempted to discuss an equal protection issue, but none was pled in the case.)

Spokespersons for property owners and land developers have filed briefs supporting the Murrs, urging the Supreme Court to adopt a flexible rule that allows each case to be examined on its own, rather than seeking some uniform rule to apply. That, after all, is the lesson of Penn Central. At the same time, planners and government agencies have piled on, noting that those who design community plans like the ability to compel the joinder of small lots, claiming that it is better for the environment or general development patterns, or the like.

However, the one rule that has remained constant in takings law is that each parcel of land is unique and each case is decided "on its own facts." Penn Central, 438 U.S. at 124. What may have seemed fair and just for a parcel in the middle of Manhattan, may have no place on a lake in Wisconsin. And the Murrs deserve individualized treatment, just as any other citizen. The Penn Central formula may not be the best that the Supreme Court has ever devised. In fact, most experts agree that it is probably far from it. However, welding to it a rule of automatic aggregation of neighboring property interests - for the sole reason that they happen to be owned by the same person - is no way to bring sense to this problematic field.

Reverting to the issue at hand, the "parcel as a whole" that is involved in a case like Murr is the single vacant lot that was separately subdivided and has been separately treated by the government for decades. Its owners regularly received a separate tax bill. The Fifth Amendment, like the rest of the Bill of Rights, was designed to protect individuals against the government, not the other way round. Penn Central should be clarified to enforce that protection.