Amicus Curiae Brief — Palazzolo v. Rhode Island

Supreme ComtUs.

FILER,

nl ve V 2E Levo |

NOV 24 S800

No. 99-2047 : |

CLERK __

In The Ss

, Supreme Court of the United States

+

ANTHONY PALAZZOLO,

Petitioner,

RHODE ISLAND ex rel. PAUL J. TAVARES,

General Treasurer, and

COASTAL RESOURCES MANAGEMENT COUNCIL,

Respondents.

S

On Writ Of Certiorari

To The Supreme Court Of Rhode Island

S

BRIEF OF THE INSTITUTE FOR JUSTICE AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

¢

RicHARD A. Epstein INSTITUTE FOR JUSTICE

1111 East 60th Street *WiLLIAM H. MELLoR

Chicago, IL 60637 Cunt Bouick

(773) 702-9494 Scott G. BuLLock

Suite 200

1717 Pennsylvania Ave., NW

Washington, DC 20006

(202) 955-1300

"Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

Page

Ce GID FT UUII OUND 6 ove secccecessecceenccnes ii

INTEREST OF THE AMICUS CURIAE............. 1

DER MEwE COP CEU CARE... cc ccccccccsccccens 1

SUMMARY OF ARGUMENT. ........0csccccccccess 3

i ccCrce eee heereeeebeeed pNeRS SEEN +468 6

I. THE TAKINGS CLAIM OF A SUCCESSOR IN

TITLE IS ALWAYS JUDGED BY THE SAME

STANDARDS THAT ARE AIPLIED TO HIS

PREG GPE BONE sc veccccccceccccecces 6

A. All Relevant Principles of Property Law

Treat the Transferee of Property in Privity

ei Sevcecstbccasesaeces 6

B. The Decision of the Rhode Island Court Below

is Fundamentally Inconsistent with this

Court’s Decisions in Nollan and Lucas....... )

C. Federal and State Courts Should No Longer

Be Allowed to Depart from the Teachings of

a Silke ake 4d 00060500 00. 15

Il. PALAZZOLO’S CLAIM IS RIPE FOR HEARING

ON THE CURRENT RECORD................. 20

Il. THE SUPREME COURT OF RHODE ISLAND

HAS EVISCERATED THE CONSTITUTIONAL

REQUIREMENT OF JUST COMPENSATION

FOR REGULATORY TAKINGS THAT DEPRIVE

LANDOWNERS OF ALL BENEFICIAL ECO-

ES EEE 650565660 66RcGRs od srecncerveneccs 24

2 EE ee re ee 30

il

TABLE OF AUTHORITIES

Page

Cases

Abbott Laboratories v. Gardner, 387 U.S. 136 (1967).... 23

Armstrong v. United States, 364 U.S. 40 (1960)........ 13

Carson Harbor Village Ltd. v. City of Carson, 37 F.3d

468 (Sth Cir. 1994). .......20+0000008 0 ee 16

City of Lakewood v. Plain Dealer Publishing Co., 486

U.S. 750 (1968) ..... 0000000055005 ee eee 20

City of Monterey v. Del Monte Dunes at Monterey,

Lid., 526 U.S. 667 (1999) .....+sse0sseeeneeeeee 1, 21

First English Evangelical Lutheran Church v. County

of Los Angeles, 482 U.S. 304 (1982) .............. 4, 21

Florida Rock Indus. Inc. v. United States, 18 F.3d

1560 (Fed. Cig. 1996).......++50006065 00 eee 26

Freedman v. Maryland, 380 U.S. 51 (1965) ............ 20

Grant v. South Carolina Coastal Council, 461 S.E.2d

368 (S.C. 1995) .....nveececeseene eee eenennnn 11

Greenbriar, Ltd. v. City of Alabaster, 881 F.2d 1570

(Lith Cie. 1909)........:0+00080008 5 mee nn 23

Hawatian Housing Authority v. Midkiff, 467 U.S. 229

(19GS) .. cc rcccecesnenseeses se eee enn 14

Keystone Bituminous Coal Assn. v. DeBenedictis, 480

U.S. 470 (1967) ......000500055500 see 26, 29

Kim v. City of New York, 681 N.E.2d 312 (N.Y. 1997) .... 17

Levald, Inc. v. City of Palm Desert, 998 F.2d 680 (9th

Cir. 1993) ......0s0000000805 65 0 nn mnnnen 16

Loretto v. Teleprompter Manhattan CATV Corp., 458

U.S. 419 (1962) .... 226000500405 ee eee 18

—

ee

TABLE OF AUTHORITIES — Continued

Page

Loveladies Harbor Inc. v. United States, 28 F.3d 1171

eee ec Ees wees esereseccecccceces 26

Lovell v. City of Griffin, 303 U.S. 444 (1938).......... 20

Lucas v. South Carolina Coastal Council, 505 U.S.

DCU EGESSS SCS 0edeeesoseccccccccccccee passim

Mayhew v. Town of Sunnyvale, 964 S.W.2d 922 (Tex.

1998), cert. denied, 526 U.S. 1144 (1999)............ 23

Monongahela Navigation Co. v. United States, 148

eeu see ccecsccessceccccccceces 25

Nollan v. California Coastal Comm'n, 483 U.S. 825

DUPER GNSGKORedccccceccsecs 3, 9, 11, 12, 15, 17

Olson v. United States, 292 U.S. 246 (1934)............ 4

Palm Beach Isles Association v. United States, 208

Le 11, 26, 29

Penn Central Transportation Co. v. City of New York,

PEED owasccocaccccocccces 14, 15, 26, 29

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922) .... 13

Preseault v. United States, 100 F.3d 1525 (Fed. Cir.

EES POPP CTTTETTTT ELITE 11, 15, 18, 19

Suitum v. Tahoe Regional Planning Agency, 520 U.S.

CTC CEC ERR ees esseerecccesccccoccccce 23

United States v. General Motors, 323 U.S. 373 (1945) ..... 4

Williamson County Reg’! Planning Comm'n v. Ham-

ilton Bank, 473 U.S. 172 (1985) ....... rrrrTe 4, 20, 23

IV

TABLE OF AUTHORITIES —- Continued

Page

Coprs AND STATUTES

Rail Revitalization and Regulatory Retorm Act of

1976, Pub. L. No. 94-210, 90 Stat. 31 (1976)....... 19

Miscett ANFOUS PUBLICATIONS

American Law of Property (J. Casner ed., 1952) ........ 7

Henry W. Ballantine, Title by Adverse Possession, 32

Orr ore err e 7

Ralph E. Boyer, et al., The Law of Property: An

Introductory Survey (4th ed., 1991)...............4.. 6

Richard A. Epstein, Nuisance Law: Corrective Justice

and Its Utilitarian Restraints, 8 J. Legal Stud. 49

See Oa hobuudesi decuneseowessebeusnesereederuaatel 13

Richard A. Epstein, Takings: Private Property and

the Power of Eminent Domain (1985) ............... 27

A. M. Honoré, Ownership in Oxford Essays on Juris-

grammer CASS. GUaes GE, FOGG «ns ccccccsccccscces: )

Jan G. Laitos, Law of Property Rights Protection:

Limitations on Governmental Powers (1998)....... 26, 28

Patrick J. Rohan, Real Property: Practice and Pro-

Se Ge o's 4 54606 60 6ebbskeneees tenes 7

1

INTEREST OF THE AMICUS CURIAE

The Institute for Justice is a nonprofit, public interest

law center committed to defending the essential founda-

tions of a free society through securing greater protection

for individual liberty and restoring constitutional limits

on the power of government. Central to the mission of

the Institute is strengthening the ability of individuals to

control and transfer property and demonstrating that

property rights are inextricably connected to other civil

rights.

The Institute’s brief is co-authored with Professor

Richard Epstein of the University of Chicago Law School,

one of the nation’s leading authorities on property law.

The Institute also filed along with Professcr Epstein

amicus curiae briefs in Lucas v. South Carolina Coastal Coun-

cil, Dolan v. City of Tigard, and City of Monterey v. Del

Monte Dunes at Monterey, Ltd., among other important

takings cases before this Court. The Institute’s brief in

this case addresses both the jurisdictional and substantive

questions concerning regulatory takings.

The parties in this case consent to the filing of amicus

curiae briefs in support of their respective positions and

letters memorializing such consent have been filed with

the clerk.!

STATEMENT OF THE CASE

The facts of this case have been well set out in the

Petitioner's principal brief, so that only a short summary

of them is offered here. This land use dispute swirls

around a parcel of land consisting of eighteen acres of

marshlands and wetlands, plus a few additional acres of

uplands that had been independently developed. In 1959,

' Counsel for the parties in this case did not author this

brief in whole or in part. No person or entity, other than amicus

curiae Institute for Justice, its members, and its counsel made a

monetary contribution to the preparation and submission of this

brief.

2

Mr. Palazzolo formed a corporation, Shore Gardens Inc.

(SGI), with two partners, Natale and Elizabeth Urso. In

1961, he acquired their fractional interests to become sole

shareholder of SGI. In 1963, SGI sought a state permit to

fill in the submerged portions of the parcel; after this was

denied, SGI renewed its original application in 1966. That

application was approved in 1971, only to be revoked

seventeen days later. Also in 1971, Rhode Island trans-

terred all of its state powers over marshlands and wet-

lands to the Coastal Resources Management Council

(“CRMC”), P.L. 1971, ch. 279, codified as G. L. 1956 chap-

ter 23, title 46. In 1977, the CRMC issued comprehensive

regulations — the Coastal Resources Management Pro-

gram — that provided that coastal wetlands could be only

filled after obtaining a special exemption from the CRMC.

In 1978, Rhode Island’s Secretary of State, in an unrelated

action, revoked SGI's corporate charter so that the prop-

erty devolved on Mr. Palazzolo in his individual capacity.

Thereafter, Mr. Palazzolo renewed SGI's earlier applica-

tion to fill in the wetlands in 1983 and 1985, the latter of

which was denied in 1986. That last denial by the CRMC

became the basis of Petitioner’s inverse condemnation

action, also filed in 1986, in which he alleged that he

could only make beneficial use of his wetlands if he were

allowed to fill in his entire parcel. At a 1997 bench trial,

the trial judge held that Rhode Island’s actions did not

constitute a regulatory taking for which compensation

was owed under the Fifth Amendment. That decision was

affirmed by the Supreme Court of Rhode Island, 746 A.2d

707 (R.1. 2000). This Court granted certiorari on three

interrelated questions:

1. Whether a regulatory takings claim is cate-

gorically barred whenever the enactment of the

regulation predates the claimant's acquisition of

the property.

2. Where a land-use agency has authoritatively

denied a particular use of property and the

owner alleges that such denial per se constitutes

a regulatory taking, whether the owner must file

3

additional applications seeking permission for

“less ambitious uses” in order to ripen the tak-

ings claim.

3. Whether the remaining permissible uses of

regulated property are economically viable

merely because the property retains a value

greater than zero.

SUMMARY OF ARGUMENT

This case raises the important question of at what

point in time can an aggrieved property owner obtain

judicial review of a takings claim when the owner's pro-

posed use of his land has been authoritatively denied by

the relevant land use agency. Incredibly, the Supreme

Court of Rhode Island ruled that the doctrine of estoppel

makes Palazzolo’s challenge too late, and the doctrine of

ripeness makes it too early. The Supreme Court of Rhode

Island found that Petitioner’s challenge to the order came

too late because Mr. Palazzolo obtained title to the land in

his individual capacity only in 1978 after the state had

issued the regulations that stymied his development.

Rhode Island contends that in light of the climate at the

time of the passage, he could not have held any reason-

able investment-backed expectations of developing his

land. This position is flatly inconsistent with this Court’s

decision in Nollan v. California Coastal Comm'n, 483 U.S.

825, 833, n.2 (1987), which noted that “[s]o long as the

Commission could not have deprived the prior owners of

the easement without compensating them, the prior

owners must be understood to have transferred their full

property rights in conveying the lot.”

As Nollan requires, Rhode Island must treat all subse-

quent owners as being in privity with the original owner

of the property, so that any and all rights that the former

owner had against the government are transferred to the

new owner with the property unless specifically retained.

That rule holds in the instant case where the transfer

resulted from the involuntary dissolution of the corpora-

tion. It also applies with equal force to all voluntary

4

transfers by sale, exchange, gift, lease, mortgage, will or

inheritance. One of the prized attributes of land owner-

ship is the ability to alienate it to higher valued uses. The

integrity of the real estate market can be preserved only if

the new owner is allowed to “stand in the shoes” of his

predecessor in title; otherwise, free exchange routinely

carries with it the destruction of constitutional rights.

Accordingly, CRMC’s 1978 regulations can withstand a

takings clause challenge from Mr. Palazzolo only if they

could withstand a challenge brought by his predecessor

in title, the corporation SGI.

The Supreme Court of Rhode Island also held that

Petitioner's suit came too soon because the CRMC has

not rendered the “final decision” on Mr. Palazzolo’s

application needed to make the case ripe for review. See

Williamson County Reg'l Planning Comm'n v. Hamilton

Bank, 473 U.S. 172 (1985). That well-established rule is

itself highly problematic insofar as it induces state land

use agencies to bog down a landowner’s application with

endless requests for further information in order to delay

making the definitive decision that triggers judicial

review. Rhode Island has taken this controversial princi-

ple one dangerous step further by insisting that the

CRMC decision was not final because Petitioner might

still reapply for “a less ambitious use” of the property,

even though he had consistently asserted that his use

would be economically viable only if he were allowed to

fill in the entire land.

It the decision below is allowed to stand, Rhode

Island and other states can cleverly avoid judicial review

in perpetuity simply by standing ready to consider the

new proposals for development that the landowner is

unwilling to make. The apparent generosity of agencies

thus postpones land use decisions until the owner drops

from financial exhaustion. So long as state agencies need

not pay interim damages for the delays their conduct

induces, see First English Evangelical Lutheran Church v.

County of Los Angeles, 482 U.S. 304 (1982), they have at

5

their fingertips a painless way to evade their constitu-

tional obligations to compensate for interim takings.

Finally, Rhode Island has adopted an approach as to

what counts as a deprivation of all beneficial economic

use that likewise universally insulates the state from any

obligation to compensate when it imposes an outright

ban on the development of privately owned wetlands.

Any landowner may always make an open-space gift that

will generate a tax deduction, in this case for a stated

$157,000. The federal tax deduction cannot be allowed to

excuse the state from its own obligation to pay just com-

pensation — that is, full market value — for land it acquires

under a regulatory taking.

Likewise, the Supreme Court of Rhode Island is

surely incorrect in holding that the prior sale and devel-

opment of an upland portion of the original tract requires

a landowner to forfeit all compensation when all devel-

opment is wholly prohibited on an adjacent wetland. This

position is indistinguishable from one that allows the

state to seize without compensation the remainder of a

unified tract of land because part of it has been previ-

ously sold. That grotesque position mocks the Fifth

Amendment by making the constitutional obligation of

compensation turn on such inessential fortuities as to

whether two plots of land were acquired at the same time

or by the same entities.

Indeed, the conceptual difficulties in this area will

remain so long as this Court continues to hew to the view

that one set of rules apply to complete losses of economic

value and a second, more lenient, set of rules apply to

partial diminution in value. The only way to clear out this

logjam is to apply the same rules to both partial and

complete takings, so that the Lucas rules for total takings

are extended to partial takings.

6

ARGUMENT

1. THE TAKINGS CLAIM OF A SUCCESSOR IN

TITLE IS ALWAYS JUDGED BY THE SAME STAN-

DARDS THAT ARE APPLIED TO HIS PREDE-

CESSOR IN TITLE.

A. All Relevant Principles of Property Law Treat

the Transferee of Property in Privity with his

Transferor.

Land is permanent, but people are mortal. Of neces-

sity, land passes through the hands of large numbers of

individuals in a wide range of voluntary and involuntary

transactions. It is routinely transterred by sale, exchange,

lease, mortgage, gift or will. In this case the subject

property was involuntarily distributed from Petitioner's

solely owned corporation to the Petitioner when Rhode

Island's Secretary of State ordered the dissolution of SGI.

Land can also be transterred by the order of a bankruptcy

court, by a property settlement incident to a divorce, or

by a court-ordered partition of joint tenancy. Indeed, for

all real estate, the typical question is not whether it will

be transferred, but when it will be transferred. But no

matter when or how that transter takes place, the obliga-

tions of the state under the takings clause have tradi-

thonally been and should be left unaltered by any change

in the identity of the cwners of the land

[he soundness of this basic proposition of takings

law is well illustrated by the analogous rules that govern

adverse possession. Adverse possession is the set of rules

that deternmunes when any person who wrongly takes

possession ot the land of another (the quintessential tak-

ing) is able to obtain over time perfect title to the land,

even against its original owner. See Ralph E. Boyer, et al.,

The Law of Property: An Introductory Survey 49 (4th ed.

1991). The operation ot all systems of adverse possession

is tied to the operation of a statute of limitations, which

must run betore the adverse possessor is able to claim an

unencumbered title. One key rule in deciding whether or

7

not the appropriate statute of limitations has run con-

cerns the operation of “tacking” for parties who are “in

privity” so that one party takes by voluntary transfer the

full interests of his predecessor in title.

To see how this privity rule applies, suppose that A

takes land by adverse possession from O, and three years

betore the expiration of a 10 year statute of limitations,

transfers that property by deed or will to B. The law in

every jurisdiction holds that the voluntary transfer from

A to B does not restart afresh the statute of limitations

period for O's benefit. Rather, B steps in the shoes of A

and need continue to hold the land only for three years to

get the benefit of the 10 year statute of limitations. Any

other rule results in a perversion of the basic statutory

scheme. The purpose of an adverse possession rule is to

quiet title by removing stale claims and to render land fit

for conveyance. Henry W. Ballantine, Title by Adverse

Possession, 32 Harv. L. Rev. 135, 135-36 (1918). A and B are

said to be in privity so that B can tack his own period of

occupation onto the prior period of A. See American Law of

Property § 15.10 (J. Casner ed., 1952); Patrick J. Rohan,

Real Property: Practice and Procedure § 2.06 (1981). To

advance the free alienation of land, O's claim is barred

after 10 years of continuous occupation whether A trans-

fers the land to B or keeps it himself.-

2 The disregard of the privity rule creates weird incentives

that disrupt the sound operation of the real estate market. If

both A and B know the legal situation, they may postpone an

otherwise beneficial transfer in order to protect A’s title from

O's: why should B accept a 10-year exposure when A had only

three years to go to perfect title? Yet if that property is worth

$200 to B and $150 to A, then the inability to go torward with the

transaction results in a social loss of $50. Alternatively, if A and

B are ignorant of the legal rule, then the refusal to tack B's

period of occupation onto A’s gives O an undeserved windfall,

while forcing A and B to the expense of sorting out the loss

between them should O prevail in the 15th year after he lost

possession. Worse still, if B transfers the property to C, the

8

In this case, the state asks this Court to reject this

sensible and well-established privity rule in the context

of eminent domain. It insists that anyone who acquires

title to property after the adoption of a complex regula-

tory scheme cannot protest its imposition against him.

But nowhere do they justify the fetters that this unfortu-

nate rule places on the alienation of private property. The

analogy to the adverse possession cases is precise. Sup-

pose that X owns land worth $150 to him and $200 to Y.

Ordinarily, X will sell the land to Y for a social benefit

equal to $50 less the cost of sale. But once the state’s land

use regulation may be challenged only by X, and not by

Y, then the market shrinks or shuts down. Y will be leery

of purchasing land that could become worthless in his

hands solely because he has bought it. A valuable volun-

tary transaction is therefore undone by an unsound rule

that against all reason treats a sale from X to Y as though

it were a gift of X’s takings claim to the state. Only by

treating buyer and seller in privity is this ridiculous

result avoided. Now Y stands in the shoes of X and can

raise whatever objections that were available to the origi-

nal owner. The state is not prejudiced in its administra-

tion of the legal scheme because it can defend its

regulation against Y just as it could against X. No longer

is land kept in idle or unproductive use. The situation,

moreover, hardly improves in those cases, such as this

one, when the transfer of title is brought about by opera-

tion of law. The new record owner should not be forced to

forfeit his constitutional protections under the takings

clause solely because of events utterly beyond his control.

limitation period will start yet again. The more rapid the

movement in real estate, the more costly the rejection of tacking

under the privity rule. The only sensible rule holds that O's

position is not improved by any voluntary transfer by A or any

of his successors in title. .

9

B. The Decision of the Rhode Island Court Below

is Fundamentally Inconsistent with this Court’s

Decisions in Nollan and Lucas.

The Petitioner’s reliance on the standard rules of

privity and tacking has already received explicit and

resounding endorsement in this Court’s decision in

Nollan. Footnote 2 reads:

Nor are the Nollans’ rights altered because they

acquired the land well after the Commission

had begun to implement its policy. So long as

the Commission could not have deprived the

prior owners of the easement without compen-

sating them, the prior owners must be under-

stood to have transferred their full property

rights in conveying the lot.

483 U.S. 825, 833, n.2.

This principle makes perfectly good sense as a matter

of both contract and constitutional law. The normal rules

for the ownership of property do not refer to the “vulgar

and untechnical” reference to the physical thing that is

subject to ownership. Rather, under this Court’s decisions

it has been construed “in a more accurate sense to denote

the group of rights inhering in the citizen’s relation to the

physical thing, as the right to possess, use and dispose of

it.” United States v. General Motors, 323 U.S. 373, 377-378

(1945). See generally A. M. Honoré, Ownership in Oxford

Essays on Jurisprudence 107 (A.G. Guest ed., 1961).

The interplay between the incidents of use and dispo-

sition is brought into high relief in this case. For the sake

of argument, assume that land offers its owner two com-

ponents of value. The first is the ordinary use value of the

land - which includes not only the current uses but also

includes “all the uses for which it is suitable.” Olson v.

United States, 292 U.S. 246, 255 (1934). The second is a

possible takings claim against the government when and

if the state seeks to restrict that present or otherwise

suitable use. The contract question is whether X transfers

to Y his right of action against the government along with

the title to the land. In answering that question, the first

10

place to look is the agreement itself. If it transfers any

right of action against the state from X to Y, that should

dispositively establish that the takings claim was so

transterred. No court should rule that this sensible busi-

Ness assiynment of claims violates some undefined public

policy. Typically, however, the parties do not address this

issue, so law must adopt the default rule that best reflects

their joint intention. That task is discharged by asking

what rule ts likely to maximize the value of their joint

holdings at the conclusion of the transaction.

A moment's reflection makes it clear that virtually all

parties would choose to allocate any future takings claim

to the buyer. The passage of the restriction is only the

first step in a complex process of regulation that may or

may not run the course to completion. Yet in all cases it is

the buyer, not the seller, who will have to let the state

onto the premises to inspect the land; it is the buyer, not

the seller, who must negotiate with the state about the

scope of anv future restrictions; it is the buyer, not the

seller, who will have the best information on the adverse

effects that the regulation has on his proposed plans for

development. It makes no sense for the parties to allocate

the takings claim to the former owner who has no knowl-

edge of the particulars of the dispute, no ongoing interest

in the property, and who may not even be alive or in the

jurisdiction at the time that the dispute ripens. As a

matter of constitutional law, therefore, any compensation

owing should be determined on the assumption that the

buyer and seller wished, as they are perfectly entitled to

do, to preserve against the government their full rights

under the takings clause. The appropriate default rule

therefore must be that the takings claim rides through all

voluntary and involuntary transfers.

The state will surely argue, as it did below, that its

position is supported by the passage in Lucas v. South

Carolina Coastal Council that states: “Where the state seeks

to sustain regulation that deprives land of all economi-

cally beneficial use, we think it may resist compensation

only if the logically antecedent inquiry into the nature of

11

the owner’s estate shows that the proscribed use interests

were not part of his title to begin with.” 505 U.S. 1003,

1027 (1992). That position surely implies that both the

original owner and his successor in title are equally sub-

ject to the constraints of the nuisance law. It also implies

that any servitudes that attach as a matter of general law,

e.g., the navigation servitude, attach with equal force to

the successor in title. See, e.g., Palm Beach Isles Associates v.

United States, 208 F.3d 1374, 1383-1384 (Fed. Cir. 2000).

The state’s position, however, goes far beyond the

principle that this Court enunciated in Lucas. It claims

that wetlands regulations consciously adopted by Rhode

Island for its own advantage count as part of these back-

ground conditions and thus stripped Petitioner of all

development rights before he acquired title to the land. In

light of footnote 2 in Nollan, however, the only sensible

reading of the passage in Lucas - one that gives due

weight to its last three words - is “that the proscribed use

interests were not part of his chain of title to begin with.”

The Rhode Island court, however, mangles this passage

from Lucas by writing “when Palazzolo became the owner

of this land in 1978, state laws and regulations already

substantially limited his right to fill wetlands. Hence, the

right to fill wetlands was not part of the title he

acquired.” Palazzolo, 746 A.2d at 716; see also Grant v.

South Carolina Coastal Council, 461 S.E.2d 388, 391 (S.C.

1995) (making similar mistaken holding).

This bald proposition, however, begs the essential

question for it presupposes what is in issue, namely, that

the regulations are valid in the first place. But if the

regulations are themselves invalid because their applica-

tion would lead to an uncompensated taking under Lucas,

then Palazzolo rightly expects that he will be able to

challenge them once the state turns down his permit

application. The theory.of reasonable expectations is a

two edge sword that protects the legitimate expectations

of the landowner at least as much as the regulatory

ambitions of the state. See Preseault v. United States, 100

1?

-

F.3d 1525 (Fed. Cir. 1996). Preseault decisively rejected the

government's position

that an owner’s subjective expectations of keep-

ing or losing her property under various possi-

ble scenarios define for that owner the extent of

her title. Just the reverse is true. It is the law-

created right to own private property, recog-

nized and entorced by the Constitution, legisla-

tion, and the common law that gives the owner

an historically rooted expectation of compensa-

tion. The expectations of the individual, how-

ever well- or ill-founded, do not define for the

law what are that individual’s compensable

property rights.

Id. at 1540.

The Rhode Island Court repeated that same error in

this case in its blatant attempt to short-circuit Lucas’s

entire apparatus for evaluating regulatory takings claims.

After eviscerating footnote 2 in Nollan, the Rhode Island

Court writes as though knowledge that the regulation has

been promulgated ipso facto destroys the property rights

of all subsequent transferees. In so doing, the court badly

misconstrues the relevant factors under Lucas for decid-

ing when a total destruction of economic use amounts to

a compensable taking of land. Lucas looked explicitly to

state nuisance law, and it cited extensively to the provi-

sions of the Restatement (Second) of Torts §§ 826-831. It also

noted that “[i]t seems unlikely that common-law principles

would have prevented the erection of any habitable or

productive improvements on petitioner’s land.” Lucas,

505 U.S. at 1031 (emphasis added). At no point did Lucas

mention a single statutory provision that might have

bound the subsequent transferee but not the original

owner. To the contrary, Lucas stressed that “when the

owner of real property has been called upon to sacrifice

all economically beneficial uses in the name of the com-

mon good, that is, to leave his property economically

idle, he has suffered a taking.” Id. at 1019.

13

The Constitution does not have one takings clause for

beach land adjacent to water and another takings clause

for land below water. Lucas's emphasis on the Restate-

ment and common law principles covers both cases, and

it is wholly incompatible with the claim that any statu-

tory or administrative concoction, whatever its content,

automatically defeats any takings claim brought by trans-

ferees who acquire title thereafter.

There are, moreover, good structural reasons for sin-

gling out, as Lucas does, statutory rules for special scru-

tiny. The traditional common law of nuisance does not

seek to privilege the position of the state against some

fraction of its citizens. Rather, its general pronounce-

ments apply equally to all landowners against all others,

and thus does not have any disproportionate impact of

one land owner against another. See Armstrong v. United

States, 364 U.S. 40, 49 (1960). Its purpose is to maximize

the value of all parcels of land by protecting each against

the invasions of others while allowing all to make reason-

able use of their own property. In those cases where the

law relaxes the physical invasion requirement, e.g., those

of lateral support, it again does so for the advantage of

both parties. See Richard A. Epstein, Nuisance Law: Correc-

tive Justice and Its Utilitarian Restraints, 8 J. Legal Stud. 49,

94-98 (1979). The common law of nuisance thus secures

the average reciprocity of advantage that has long been

held to be the hallmark of a just legislative regime. See

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922).

Rhode Island's regulatory scheme for wetlands offers

no such protection. It is the product of factional legisla-

tive politics of the sort that the takings clause, like other

constitutional provisions, guard against. The restrictions

that these regulations impose on Petitioner are not

designed to benefit his neighbors (who are similarly

wiped out), but are consciously designed to provide ben-

efits for the public at large. As such, these forms of

wetlands regulations unquestionably meet any intellig-

ible standard for public use, even under a neutral inter-

pretive standard that does not give the state every benefit

14

of the doubt as does Hawaiian Housing Authority v. Mid-

kiff, 467 U.S. 229 (1984). But the implication is clear: once

it is decided that certain takings of private property have

been for public use, the state is unambiguously required

to make the payment of just compensation that is point-

edly omitted here.

Nor is the Supreme Court of Rhode Island's decision

justified under this Court’s decision in Penn Central Trans-

portation Co. v. City of New York, 438 U.S. 104 (1978). On its

facts, that case is easily distinguishable because it did not

involve a total prohibition against all beneficial use,

which makes Lucas the closer precedent. But after wholly

ignoring the different contexts, the Rhode Island Court

treated Penn Central as if it barred Petitioner's claim by

limiting the protection of the takings clause solely to

“investment-backed expectations”. In particular, Pal-

azzolo, 746 A.2d at 717, n.9, explicitly rejected the proposi-

tion that “a party to whom property passes through

operation of law could assume the investment-backed

expectations of the original owner.”

Palazzolo’s logic is flawed on many grounds. First, its

reading of Penn Central eviscerates the full holding of that

case. Penn Central “identified several factors that have

particular significance. The economic impact of the regu-

lation on the claimant and, particularly, the extent to

which the regulation has interfered with distinct invest-

ment-backed expectations are, of course, relevant consid-

erations. So, too, is the character of the governmental

action.” Penn Central, 438 U.S. at 124 (emphasis added)

(internal citations omitted).

Left to its own devices, the Rhode Island Court,

without justification, elevated its own (misguided) inter-

pretation of investment-backed expectations from rele-

vant consideration to dispositive status. Yet nowhere did

Penn Central so much as mention any rule that makes it

impossible for the transferee to raise takings objections

available to the transferor, even though that ostensible

rule would have applied on Penn Central's facts. In Penn

Central, the City designated the Grand Central Terminal

15

as a landmark in 1967 while the lessee and co-plaintiff in

the case, UGP, a British Corporation, had acquired its

interest only in 1968. Penn Central, 438 U.S. at 115-116. Yet

UGP, the subsequent transferee, was rightly allowed to

raise the same challenges against the regulation as Penn

Central, thus avoiding the unnecessary inconsistent treat-

ment of takings claims that the estoppel rule would

require.

More generally, as noted in Preseault, 100 F.3d at 1540,

“investment-backed expectations” has never been con-

strued by this Court to eviscerate the constitutional pro-

tections for private property. That phrase, for example,

has never been read to hold that a state may seize land

from a donee without compensation because he made no

investment in the property. Nor could the reference to

investment-backed expectations make sense if every state

announcement of future legislative intentions could shat-

ter the expectations of property owners that they will be

allowed to hold and transfer the ordinary rights to pos-

sess, use and dispose of property that have been part and

parcel of all schemes of private property from Roman

times forward. Rather, the right response is that this state

claim of system-wide estoppel is invalid on its face, so

that subsequent takers have every expectation of being

able to stand in the shoes of their predecessors in raising

challenges to state regulations.

C. Federal and State Courts Should No Longer Be

Allowed to Depart from the Teachings of

Nollan and Lucas.

The principles of Nollan and Lucas set a general con-

stitutional framework for evaluating takings challenges

by original owners and their subsequent transferees.

Their principles apply across the board to both facial and

as-applied challenges. They also apply to both cases of

physical occupation (Nollan) or a regulatory taking

(Lucas). Yet many federal circuits and the state courts

have joined Rhode Island in departing from the teachings

of both cases.

16

One judicial line of cases undermines these prece-

dents by denying that the subsequent transferee even has

standing to mount a takings challenge in the first place. In

Levald, Inc. v. City of Palm Desert, 998 F.2d 680, 688 (9th

Cir. 1993), the Ninth Circuit denied takings and due

process challenges to California's Mobile Home Resi-

dency Law, which prohibited park owners from increas-

ing rents upon termination of a tenancy or sale of a

mobile home. See also Carson Harbor Village Ltd. v. City of

Carson, 37 F.3d 468, 476 (9th Cir. 1994) (same). Any land-

lord who purchased his mobile home park after the pas-

sage of the Residency Law was forever barred. As the

position was stated in Carson Harbor:

Because Carson Harbor did not own the prop-

erty when the statutes were enacted and when

the alleged facial takings occurred, it has

incurred no injury entitling it to assert a facial

claim .... A landowner who purchased land

after an alleged taking cannot avail himself of

the Just Compensation Clause because he has

suffered no injury. The price paid for the prop-

erty presumably reflected the market value of

the property minus the interests taken. Carson

Harbor has no standing to assert facial claims

based on the loss of the premium and the loss of

the right to dispose of property.

37 F.3d at 476.

Not so. As stated, this misguided rule would have

quite literally forced tens or hundreds of landowners to

bring suit instantly upon passage of the Residency Law to

protect their rights. As such, Levald and Carson Harbor

gratuitously invite a torrent of lawsuits long before any

concrete dispute has arisen when it makes sense to allow

the landowner the option to delay the facial challenge

until some specific dispute arises. No discernible reason

of public policy precludes the assignment of either facial

or as-applied constitutional causes of action along with

the property if the parties so desire. And there is no

reason to depart from the default rule that presumes such

17

assignment in facial challenges. Certainly, Footnote 2 in

Nollan draws no distinction between the two kinds of

claims. This Court should reaffirm that position in the

instant case.

In addition, some state courts have read Lucas to

allow a state to treat its own regulations as a background

condition even in the context of physical occupation by

the state. Consider the plight of the plaintiff in Kim v. City

of New York, 681 N.E.2d 312 (N.Y. 1997). His car wash was

located on a plot of land abutting a public road. In 1978,

the City published a map indicating that the street would

have a new legal grade some four feet higher than its

then-current actual grade. Some ten years later, plaintiff

purchased the land with constructive notice of the map,

and he was held estopped when the City’s public con-

struction project brought the street up to legal grade by

placing side fill on top of about 2,400 square feet of his

property to keep the road physically in place. The New

York Court of Appeals held that Kim could not receive

any compensation for this physical invasion because he

purchased the land with constructive notice of the legal

grade, by virtue of the common law and City Charter

obligation of lateral support to a public roadway. It then

concluded, with an erroneous reliance on Lucas, that

plaintiff's title never encompassed the property interest

that the claim had been taken. See id.

Yet, as the dissent perceptively pointed out, the refer-

ence to the common law obligations of lateral support

were pure window-dressing, for they could never have

justified forcing one person to accept side fill from

another without his consent. Beyond doubt, the common

law rules only required that a person not remove his own

land in ways that withdraws support from his neighbor.

See Restatement (Second) of Torts § 817; Kim, 681 N.E.2d at

324 (Smith, J., dissenting). In truth, the state’s entire case

turned on the utterly asymmetrical obligation that

requires private individuals to accept side fill for public

benefit, but which never would have tolerated so much as

an inch of fill on public property to prop up any private

18

lands. The test of average reciprocity of advantage

requires an even distribution of benefits and burdens

between the affected parties. But that test is clearly

flunked by a decision that imposes the full burdens of

occupation on the private owner and gives the full bene-

fits to the public at large.

The entire situation cries out for immediate redress,

but note that the government taking goes utterly

unchallenged on the view that Rhode Island takes here.

For starters, the filling of plaintiff's land constitutes a per

se taking under Loretto v. Teleprompter Manhattan CATV

Corp., 458 U.S. 419, 426 (1982) (“a permanent physical

occupation authorized by government is a taking without

regard to the public interests that it may serve”). Yet it

seems wholly impractical to put the plaintiff's prede-

cessor in title to the cost of challenging a map designation

when there is a high probability that the actual grade

alteration may never be made. Nor can he be expected to

maintain that challenge 10 years later just before he sells

the property, or 12 years later when New York City

commences its improvement of property now owned and

occupied by plaintiff. The upshot of this case is clear: the

constitutional obligation to compensate for physical occu-

pation under Loretto has been effectively side-stepped by

the simple maneuver of announcing in 1978 actions that

were only undertaken in 1990. The incentive for the state

to make broad announcements to defeat private rights is

too painfully evident to require further elaboration. Any

state could render that constitutional protection wholly

nugatory within a generation by the simple expedient of

enacting today a blanket rule that henceforth subjects any

and all use of private property to the unfettered discre-

tion of state officials.

Fortunately, not all state and lower federal courts

have pursued this destructive legal course. In Preseault,

100 F.3d at 1525, Preseault’s predecessor in title conveyed

in 1899 to the Rutland-Canadian Railway right-of-way

that allowed it to use the subject property for railroad

purposes. The Railroad was to return the property to the

19

fee owner on the succession of that use. Thereafter, the

Transportation Act of 1920, ch. 91, 41 Stat. 456 (1920),

restricted the power of railroads to abandon their lines;

and in 1976, Congress passed the Rail Revitalization and

Regulatory Reform Act of 1976 (the 4-R Act), Pub. L. No.

94-210, 90 Stat. 31 (1976) (codified as amended in scat-

tered sections of 45 U.S.C., 49 U.S.C., 15 U.S.C., and 31

U.S.C.), which authorized the use of abandoned railroad

lines as bike trails for the public at large, without paying

any compensation to the underlying holder of the fee —

interest. The United States had urged that the appropriate

time to bring a takings claim was either in 1920 or 1976,

and claimed that Preseault was accordingly barred from

suing the United States for compensation when Vermont

(pursuant to federal grant) built the bike path through

the middle of his property and barred Preseault’s access

to it. The Federal Circuit thus refused to accept an argu-

ment that either the 1920 Transportation Act or the 4-R

Act counted as a background condition under Lucas, not-

ing that its background principles were “state-defined

nuisance rules.” Preseault, 100 F.3d at 1538. It further

rejected the contention that the Preseaults had no reason-

able expectations to recover their property because they

“should have anticipated that at some time in the future

the Government might exercise its general regulatory

powers in a way that could frustrate the Preseault’s inter-

est in obtaining the land free of the easement upon its

abandonment by the railroad.” Id. at 1539.

Surely that decision is the soul of good sense. It

makes no sense to require every landowner to sue upon

the passage of a general regulatory scheme years before

any actual conflict arises. Preseault deserved a fair shot at

the government's action when the physical occupation

took place, whether he was the original owner or a subse-

quent transferee. Preseault should govern here. The deci-

sion of the Rhode Island Court should be reversed on this

point.

0

—

Il. PALAZZOLO’S CLAIM IS RIPE FOR HEARING

ON THE CURRENT RECORD.

As noted earlier, this Court's position in Williamson

holds as a general proposition that an administrative

agency must issue a final decision on the takings issue in

order tor the landowner to obtain review of that decision

in state or federal court. In so holding, this Court's posi-

tion is at sharp variance with its view that individuals

who claim violation of their First Amendment rights are

entitled to a prompt and effective judicial review. Under

First Amendment law, any general licensing scheme is

viewed under a presumption of distrust. The grounds for

decision must be narrowly and clearly defined, and pro-

cedures at the very least must be introduced to allow for

a prompt review of the administrative decision. See, ¢.g.,

City of Lakewood v. Plain Dealer Publishing Co., 486 U.S. 750

(1988) (striking down standard licensing ordinance for

placement of newspaper vending racks on public streets);

Freedman v. Maryland, 380 U.S. 51, 59 (1965) (noting the

need tor “prompt final judicial decision, to minimize the

deterrent effect of an interim and possibly erroneous

denial of a license.”); Lovell v. City of Griffin, 303 U.S. 444

(1938).

It is hornbook law that the strict scrutiny required

under the First Amendment manifests a deep and

deserved suspicion of government motives. For these

purposes, it is only necessary to argue that some fraction

of that healthy skepticism about government discretion

should carry over to the takings area. All the signs of

government abuse that are subject to powerful scrutiny

under the First Amendment are present in abundance in

the wide range of government initiatives that impact

property rights, such as wetlands regulations, govern-

ment actions under the Endangered Species Act, zoning

statutes, eminent domain actions, and landmark preser-

vation laws: broad discretion, standardless rules, endless

procedural delays, evidentiary presumptions in favor of

~

21

state action all combine to often insulate takings chal-

lenges from judicial review in either federal or state

court. This abuse was perfectly evident in the endless

string of false administrative promises in City of Monterey

v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687 (1999),

that strung out over several years, as proposals to

develop 344, then 264, then 224, and finally 190 units all

were rejected for one reason or another over a period of

over five vears, before the first lawsuit was filed.

That streng whiff of administrative malfeasance is

equally manifest in the instant case, given that the Peti-

tioner had to wait 28 years to get his case to court and

another 10 years to obtain an adverse trial ruling. But if

the Supreme Court of Rhode Island is to be believed, the

case has still not resulted in a controversy ripe for judicial

review. Justice delayed, justice denied. In principle, the

sting of these endless delays could be compensated for in

money, which is one reason why takings cases do not

present as compelling a case for immediate judicial inter-

vention as First Amendment cases that strike down var-

ious licensing systems. But the landowner’s interim

losses are nonetheless irreversible unless state compensa-

tion is paid once the state action is found to constitute a

regulatory taking.

In this case, Rhode Island seeks to extend the period

of uncompensated interim loss by imposing a further

condition that the Petitioner reapply for a grant, even

after he has already reduced the number of acres that he

wishes to develop. In so doing, it brings into view a

qualification to the First English rule requiring compensa-

tion for interim takings: “We limit our holding to the facts

presented, and of course do not deal with the quite

different questions that would arise in the case of normal

delays in obtaining building permits, changes in zoning

ordinances, variances, and the like which are not before

us.” First English, 482 U.S. at 321. Unfortunately, the basic

rule of First English is frequently swallowed up by this

22

exception when administrative agencies expand the “nor-

mal delays” of permit process without any temporal lim-

itation at all. Some effort should be made to redress this

manifest imbalance.

In this case, the Petitioner only asks that this Court

take a first modest step toward a restoration of that

balance; he only asks for the right to now lose definitively

before the administrative agency in order to clear the

path to judicial review. He insists that he be taken at his

word when he claims that any lesser use of the wetlands

than that he now proposes will not result in some net

benefit.

In assessing the reasonableness of that request, it is

imperative to look at the possible errors both ways from a

prompt and clear decision. One possibility is that the

reviewing court will sustain the position of the adminis-

trative agency by denying that the regulations in question

work a partial or total taking of the subject property. If so,

the agency is put to some additional expense. But these

are hardly large on net, for the judicial hearing has like-

wise permitted it to economize on additional expenses

that would otherwise take place for the further gear-

grinding within the regulatory process. In addition, if the

agency achieves a judicial victory then it may obtain

some protection under the doctrine of res judicata, or, at

the very least, gain the opportunity to further prolong the

administrative process. Wholly apart from any ripeness

prohibition, an aggrieved landowner has strong incen-

tives not to bring rash actions that are likely to result in

an adverse decision.

The costs to the landowner, however, are quite high if

the administrative agency has issued an incorrect denial.

Here the gist of Petitioner’s claim is that any coherent

development of his land requires adding fill to the entire

wetland portion of his plot. If this Court requires that he

put forward some “less grandiose plan,” then he will

never be able to obtain any clear judicial determination

that addresses the question of whether his demand is

right or wrong. At this point, the landowner runs the risk

23

of obtaining approval of a less ambitious plan. That “vic-

tory” will then give him the right to construct a project

that will enable him to lose more money than he already

has. But it will not give him the right to obtain a judicial

decision on the merits of what he claims is his bare

minimum proposal. In Suitum v. Tahoe Regional Planning

Agency, 520 U.S. 725 (1997), this Court rebuffed a plan-

ning agency’s effort to extend Williamson by holding that

a planning denial for new construction was final even

though the agency held out the possibility that the land-

owner in time could receive just compensation by assem-

bling enough transferable development rights to build

somewhere else at some indefinite future time. Suitum

helps point the way here. In its simplest terms, the convo-

luted logic of the Supreme Court of Rhode Island impli-

cates not only the substantive concerns raised under the

takings clause, but also the elementary requirements for

procedural due process binding on the states under the

Fourteenth Amendment.

The Rhode Island Court sought to justify its contin-

ued evasion of its judicial obligations by insisting that

“this [Rhode Island] Court will not render advisory opin-

ions or function in the abstract.” Palazzolo, 746 A.2d at

713; see also Abbott Laboratories v. Gardner, 387 U.S. 136,

148-49 (1967). But this is no abstract dispute when the

Petitioner wishes to fill in a wetland that Rhode Island

wishes to keep in its natural state. It is already quite clear

that Petitioner has alleged that any acceptable program

must allow him to fill in at the very least that portion of

the wetland designated in his proposal, so the case is ripe

no matter what plan is ultimately implemented. Accord

Greenbriar, Ltd. v. City of Alabaster, 881 F.2d 1570, 1576

(11th Cir. 1989); Mayhew v. Town of Sunnyvale, 964 S.W.2d

922 (Tex. 1998), cert. denied, 526 U.S. 1144 (1999).

To be sure, once Petitioner obtains his initial fill

permit, then subsequent supervision is necessary to make

sure that any site development will not result in dis-

charge that harms either public waters or wetlands

24

owned by neighbors. But current law, virtually every-

where, already requires that any landowner receive myr-

iad permits before he pours the first ounce of dirt on any

wetlands site. It cannot be the law that a landowner has

to simultaneously put in requests for all the permits

needed for fill before he is allowed to challenge the

threshold determination of the overall regulatory scheme.

And that challenge is all the more appropriate when

it appears that the CRMC will deny any and all proposals

for development as a matter of course by announcing by

regulation that it is only prepared to issue a special fill

permit if Petitioner’s “proposed activity serves a compel-

ling public purpose which provides benefits to the public

as a whole as opposed to individual or private interests.”

See Coastal Resource Management Program § 130/A). The

construction of any number of private homes or ot a

beach club do not meet this standard, which in any event

is suspect after Lucas for failing to distinguish restrictions

that seek to create benefits for the public at large (for

which compensation is required) and those which pre-

vent the creation of nuisance, which have yet to be impli-

cated at this stage of argument. The ripeness requirement

performs a useful function in forcing the parties to join

issues before there is any expenditure of judicial

resources. But that requirement should not be converted

to the ignoble end of making sure that an aggrieved

landowner never receives his day in court.

Ill. THE SUPREME COURT OF RHODE ISLAND

HAS EVISCERATED THE CONSTITUTIONAL

REQUIREMENT OF JUST COMPENSATION FOR

REGULATORY TAKINGS THAT DEPRIVE

LANDOWNERS OF ALL BENEFICIAL ECO-

NOMIC USE.

The third roadblock that the Rhode Island Court has

thrown in the path of Petitioner’s claim for compensation

stems from its interpretation of the just compensation

requirement in the event that the regulations in question,

as is clearly the case here, deprive the landowner of all

25

beneficial use. As a matter of general theory, this Court

has already held that the loss of all such beneficial use

amounts to a taking of the land in question. That equiva-

lence was highlighted in Lucas proper when the trial

judge ordered Lucas to provide a fee simple deed to the

state once it found that he had been deprived of all

economic value. The same remedy could clearly be

imposed in this case, and once a deed memorializes the

transaction, then it becomes evident that the only accept-

able level of compensation is the fair market value of the

property taken prior to imposition of the wetlands

restrictions condemnation. See, e.g., Monongahela Naviga-

tion Co. v. United States, 148 U.S. 312 (1893).

Yet in this case, the state seeks to wiggle out from

this requirement by pointing to two related factors. First,

that Petitioner could have made an open-space gift of the

wetlands that would “have value in the amount of

$157,000,” presumably as a charitable deduction from

both federal and state income taxes. Palazzolo, 746 A.2d at

715. In the next breath, however, the Rhode Island Court

concedes that this amount is far less than “the speculative

$3,150,000 profit that Palazzolo alleged he could earn

from filling and developing the wetlands.” Id. The adjec-

tive “speculative” does nothing, however, to avoid the

serious conceptual issue here, for even if the rock-bottom

fair market value for the unregulated land were, say,

$1,000,000, the question remains why Palazzolo is not

entitled to receive that amount in compensation for his

loss.

It is instructive to note that Lucas could have also

made an open-space gift of his beachfront property, and

yet that point was never advanced as a reason to deny

him full market value of the land once the total restriction

on development was imposed. One obvious reason why

these open-space gift values have never been taken into

account is that Lucas requires compensation when the

land has been deprived of all beneficial use. To speak of a

use presupposes that the landowner remains in posses-

sion of the land, which cannot be done if the property is

26

given away. The larger issue in this case does not depend

ultimately, however, on how narrowly or broadly the

word “use” is construed. It depends on the larger struc-

ture and functions of the just compensation language

found in the takings clause. The central problem with the

State’s position is that it guts the operation of the takings

clause for all takings, both regulatory and possessory. In

each and every case the state can avoid its obligation to

pay just compensation by the simple expedient of

announcing that it will accept an open-space gift of the

property, or by finding some private conservation organi-

zation with tax-exempt status that can so receive the

property. At this point, the state never has to face the

hard question of whether it thinks the property in public

hands is worth as much to the state as it was to the

private owner. It becomes all too easy to force the open-

space “gift” via a threat of condemnation on property

that is worth millions for development - development

that benefits real people - and thousands in private

hands. The Constitution does not state, “Nor shall private

property be taken for public use without a tax deduction

equal to a small fraction of its overall value.” Yet that is

exactly how it has been construed by the Rhode Island

Court.

The second argument advanced to justify the total

Wwipe-out imposed by the CRMC refers back to the

famous “denominator problem” that has troubled this

Court in both Penn Central and Lucas. See Penn Central,

438 U.S. at 130-31; Lucas, 505 U.S. 1016, n.7; see also

Keystone Bituminous Coal Assn. v. DeBenedictis, 480 US.

470, 497 (1987); Palm Beach Isles Associates, 208 F.3d at

1380; Loveladies Harbor Inc. v. United States, 28 F.3d 1171

(Fed. Cir. 1994); Florida Rock Indus. Inc. v. United States, 18

F.3d 1560 (Fed. Cir. 1994); Jan G. Laitos, Law of Property

Rights Protection: Limitations on Governmental Powers

§ 11.08 (1998).

The root of the problem is conceptual, and not easily

avoided or resolved under current law. A consistent and

straightforward version of the takings clause would begin

27

by triggering the amount of the compensation owing in

both regulatory and possessory takings, to the diminu-

tion in fair market value of the land attributable to the

loss of any stick contained in the bundle of rights. If the

state decided to take 10 acres from a 50 acre plot, then

presumptively the compensation owing would equal 20

percent of the overall value. Subsequent adjustments in

the payments could then be made if the severance of a

unified parcel increased or decreased the value of the 40

acres that remained in private hands. In effect, the state

would not have the proper incentives on the decision of

whether or not to take, and it would receive credit for the

positive spillovers that the takings created for the

retained land (e.g. access to a public road), and it would

have to pay additional compensation for any negative

spillovers of its action (e.g. the inability to make efficient

use of the smaller parcel).

In principle, regulatory takings could — and should -

be governed by the same principles. See Richard A. Eps-

tein, Takings: Private Property and the Power of Eminent

Domain, 93-125, 195-215 (1985). The first step of the

inquiry would ask solely the question of whether the

government took by regulation some portion of the cus-

tomary bundle of rights associated with ownership -

including the rights of use and disposition necessarily

involved with regulatory takings. The reduction in value

from that government action thus represents the first

approximation of the amount of money owed by way of

just compensation. Next, just as in Lucas, the question is

whether the government could justify all or part of those

restrictions by showing that these were necessary to pre-

vent the occurrence of a common law nuisance, as that

expression has been traditionally understood. To the

extent that the regulation in question counteracts a nui-

sance, the loss in question is not compensable to the

owner, even if it should turn out to be total. Finally, it is

critical to ask whether the regulation in question sweeps

more broadly than the single owner who receives some

implicit in-kind compensation from the imposition of like

28

restrictions on the parcels owned by neighbors. Any such

compensation should be credited against the amounts

owed by the government. That credit is more likely to be

relevant in regulatory takings cases (which are not

directed toward single parcels) than in physical takings

cases. Nonetheless it cannot be presumed, because com-

prehensive regulation (as of the rebuilding of beachfront

property in Lucas) could work to the uniform detriment

of all the regulated parties. And at the end of the day,

theretore, what is ultimately compensated is the net loss

in value attributable to regulation that is not justified in

the name of nuisance prevention.

In effect, the only way to bring overall coherence to

the law of takings is to recognize that the Lucas frame-

work cannot be artificially truncated with total takings,

when its logic rightly extends to all forms of partial

regulatory takings brought about by government action.

There is no magic point at which the constitutional world

flips over, such that regulations that require the loss of 99

percent of value always generate zero by way of compen-

sation, while losses of 100 percent of value generate full

compensation unless the state can offer an antinuisance

justification for its action. The single thread that links all

the cases together is this proposition: the greater the legal

restrictions on the traditional common law bundle of owner-

ship rights, then the more the state has to pay. .

That one rule eliminates the conceptual conundrums

under current takings law. The so-called denominator

problem disappears because it no longer matters whether

the owner has lost all of a small parcel or some of a larger

parcel. No matter which characterization is used, the

compensation is measured by net loss in economic value

subject to the nuisance defenses. Unfortunately, however,

under Lucas, the definition of “the” property matters in

regulatory (but not possessory) takings, the requirement

of compensation only kicks in once the landowner has

been deprived of all beneficial economic use of the prop-

erty. But no one has developed a coherent account of

what that property might be. See Laitos, supra, at § 11.08.

29

Thus if the air rights were considered separately in Penn

Central, then the restriction against further building

would be fully compensated. But if they are treated as

part of a single unit that contained the terminal on the

location, then some beneficial use remains and no com-

pensation is owing. Likewise, if the value of the under-

ground coal in DeBenedictis is treated separately, then full

compensation for the lost mineral rights is owing. But if it

is treated as part of the fee, then it is not.

Within the confines of Lucas and Penn Central, the

general approach of this Court has been to treat all lim-

ited interests in some designated parcel of land as part of

the property, so long as it is owned by a single party at

the onset of regulation. See Penn Central, 438 U.S. at

130-31. That approach, however, makes it difficult to deal

with cases in which the mineral rights or the air rights

had been severed from the fee simple long before the

imposition of the state regulation. The individual owner

is fully wiped out, but receives nothing in compensation.

Worse still, this test has generated endless difficulties

when the issue is how it applies to contiguous parcels of

land that fall under common ownership. In some cases,

the parcels are acquired at one time; but on other occa-

sions they are acquired in separate transactions. In some

cases, the parcels are subject to the same zoning restric-

tions; but in other cases they are not. In some cases title is

taken by the same legal entity; but in other cases, differ-

ent parcels may, for example, be acquired by different

corporate entities that have overlapping shareholder

interests. In these cases, the willingness to treat each

parcel separately increases, see Palm Beach Isles, 208 F.3d

at 1381, especially where some portion of the land has

been sold off long before the state has adopted its current

regulatory framework.

By that standard, the pre-1978 sale of the upland

parcel does not seem to have any effect on the outcome,

since the title to that plot of land appears to be separatelly

held, and its use was not regulated by the wetland stat-

utes. It appears therefore that under current law, such as

30

it is, the Petitioner is entitled to treat his wetland hold-

ings as “the” property without regard to any uplands

interest that he previously sold off. To hold otherwise is

to penalize retroactively thousands of landowners who

entered into pertectly normal commercial transactions

without any knowledge that subsequent articulation of

takings law renders them defenseless against any and all

land use regulations. And its implications are, frankly,

frightening tor the law of possessory takings by raising

the possibility that the state could confiscate all the Peti-

tioner’s current land because he had the misfortune to

sell off one fraction of it. The dangers of this system can

only be avoided by taking the consistent position that the

more the state takes by regulation, the more it must pay.

But its inconveniences can be obviated by a simple

approach that treats parcels as separate when they have

been separately acquired unless their owner unites them

into a single parcel. In this case, no such unification has

taken place, so that the judgment of the Supreme Court of

Rhode Island should be reversed on this point.

CONCLUSION

For the reasons stated above, the decision of the

Supreme Court of Rhode Island should be reversed.

Respectfully submitted,

RicHarp A. Epstein INSTITUTE FOR JUSTICE

1111 East 60th Street *"WiitiAM H. MEettor

Chicago, IL 60637 Cunt Bouck

(773) 702-9494 Scott G. BuLtock

Suite 200

1717 Pennsylvania Ave., NW

Washington, DC 20006

(202) 955-1300

*Counsel of Record