Turning takings law into hash

TAKINGS TALK

The concept of regulatory takings, i.e., takings of property that are effected by stringent regulations rather than physical occupation, has been in a state of confusion for most of its life. It began with what appeared to be largely an offhand comment, i.e., that if regulation goes “too far” it will be recognized as a taking. The Supreme Court said that in 1922, in Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, and then essentially ignored this field of law for 50 years. By the time the court re-entered the field, no justice remained who had sat on the Pennsylvania Coal decision. So the court felt its way cautiously.

The law developed slowly in the 1970s and 1980s, with the rule eventually developing that there is no “set formula” to determine when a taking occurs but the facts and circumstances must be examined in light of a series of factors. Those factors were said to the (1) the economic impact of the regulation on the property owner, (2) the effect of the regulation on the property owner’s distinct investment-backed expectations, and (3) the character of the governmental action. Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978). The law developed haltingly in the following years, although courts often struggled to apply those three analytical factors to the facts of specific cases. Indeed, it turned out that there was so much play in the joints of the Penn Central factors that contested cases evaluated on their auspices, almost always ended up with judgments in favor of the government.

One of the largest issues was to determine the “relevant parcel” being evaluated. In other words, courts said that they could not determine whether a taking had occurred unless they first understood clearly what parcel of property was being examined. This was particularly true when the property owner claimed that the taking involved less than his or her complete ownership. The Supreme Court played along. Harking back to first year property classes, judges at all levels — and particularly those on the Supreme Court — regularly retreated to the standard “bundle of sticks” analysis. Indeed, it is hard to find a U.S. Supreme Court takings decision that does not fall back on this analogy.

Then along came Murr v. Wisconsin, 2017 DJDAR 6029 (June 23, 2017), a case that was wholly focused on the relevant parcel issue. In brief, Mr. and Mrs. Murr purchased a lot on Lake St. Croix, taking title in the name of their company. Later, they bought a neighboring lot for investment, taking title in their own names. A vacation cabin was built on one lot, while the other remained vacant. The county taxed them as separate lots. The family vacationed on the lots for many years. Eventually, the owners decided to transfer the property to their children, who wanted to sell the vacant lot and use the proceeds to further improve the existing home. They ran into what might be called a little legal problem. In the intervening years, the state and county had passed laws designed to consolidate lot ownerships. Thus, although all was well while title to the two lots was technically in different names, when title became consolidated in the children, the county refused to allow sale of one lot because, under its law, consolidating ownership had essentially consolidated the lots into one. The property owners sued, claiming that the merger of the lots had taken the undeveloped one without compensation.

The Wisconsin courts ruled for the government. The U.S. Supreme Court was presented with a range of choices and chose to leave the field muddy. The lawyers for both the state and the property owners (perhaps because they had litigated a number of cases like this before) sought a bright-line rule that would allow a concrete decision to be made. Interestingly, they both sought what was essentially the same rule, but insisted on drawing the bright line in different places. The line they sought was to make the determination depend on settled state law. But then they parted company. The property owners said that each property, as a matter of state law, is described by metes and bounds in a deed, and that such a description ought to be determinative of the larger parcel. The state insisted that there is more to state law than lines on a deed, and that other fundamentals of state law should control. In this case, the state focused on a law that considered neighboring properties to be “merged” into a single unit when they come into common ownership. The government side spent significant briefing time demonstrating that such merger statutes and ordinances appear in many jurisdictions. As is apparent, each side would win if its rule were adopted. The court’s majority almost seemed offended that the parties would present it with bright line rules under which the proponent would win.

The court refused to adopt a bright-line rule. Instead, the court relied on what it called a “central dynamic of the Court’s regulatory takings jurisprudence, [i.e.,] its flexibility.” But flexibility had gotten us to where we were before the Murrs came to court: a system in which there is no clear definition of what it takes for a court to find a taking — or even to define the property that is involved in litigation. Thus, the court concocted another three-factor test to determine the nature of the denominator. (I once heard it said that the law has so many three-factor tests because neither lawyers nor judges can hold more than three concepts in their minds at once. But I probably digress.) So, back to the relevant parcel. Three factors: (1) How does state law define the land and what are the reasonable expectations for its use? (2) What are the physical characteristics of the land and the surrounding environment? (3) What is the value of the property under the challenged regulations? The majority was concerned with the third question because “the market value of the combined properties may well increase.”

The opinion inconsistently deems its new test “objective” while, at the same time noting that it will judge the “reasonableness” of the regulation. A court can either judge the objective character of a party’s actions or it can judge its reasonableness. It cannot do both. That is the first place the new test injected confusion. But the court really went off the rails when it imported economic analysis into the relevant parcel issue. The majority went off on a tangent that it thought it derived from direct condemnation valuation law, and then concluded that the way to determine the larger parcel is to determine the impact on the value of the property in question. That puts the question backward. The first order of business should be to decide whether a taking has occurred. Only then should the court be concerned with the value of the damage inflicted. The questions are separate. Worse, by importing valuation into the definition of the unit of property, the new formula compels the owner to value the property twice, once to determine the larger parcel and then later to determine compensation. The court has gotten tangled up this way before. At the oral argument in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Reg. Plan. Agency, 535 U.S. 302 (2002), Justice Stevens became fixated on whether a short temporary taking would be worth any money, rather than whether a complete taking of use (even for a short time) could be a taking, with the valuation issue left for later. In any event, the court did no better here by confusing liability and valuation issues.

So instead of clarity, the court gave us more vague issues that will engender years of litigation. More than that, the litigation will generally be slanted against the property owner by placing focus on the reasonableness of the governmental action rather than the impact on the owner that the Fifth Amendment was designed to protect. All in all, a disappointing result.