Amicus Curiae Brief — Palazzolo v. Rhode Island

_ canal

cupreme Court, U.S.

yoy 22 20° ((0) FILED

No. 99-2047 | NOV 22 gop

IN THE |

CLERK

Supreme Court of the United States 4

ANTHONY PALAZZOLO,

Petitioner,

V.

RHODE ISLAND ex rel PAUL J. TAVARES,

General Treasurer, and

COASTAL RESOURCES MANAGEMENT COUNCIL

Respondents.

On Writ of Certiorari to the

Supreme Court of Rhode Island

BRIEF AMICI CURIAE OF

WASHINGTON LEGAL FOUNDATION AND

ALLIED EDUCATIONAL FOUNDATION

IN SUPPORT OF PETITIONER

DANIEL J. POPEO

R. SHAWN GUNNARSON

Counsel of Record

WASHINGTON LECAL FOUNDATION

2009 Massachusetts Avenue, N.W.

Washington, D.C. 20036

(202) 588-0302

Counsel for Amici Curiae

November 22, 2000

)

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D. C. 20001

QUESTION PRESENTED

Amici Curiae will address only the following

question presented:

Whether a regulatory takings claim is categorically

barred whenever the enactment of the regulation

predates the claimant’s acquisition of the property.

(i)

TABLE OF CONTENTS

QUESTION PRESENTED oo.....cc.c.cccsscccsssscesoosveseveeee

TABLE OF AUTHORITIES o....0....ccscccccssccoosseessoreeee

INTEREST OF AMICI CURIAE ooocccccccccccccccssccccone

SUMMARY OF ARGUMENT. ........... 7 Ee naka

a

1.

Il.

IV.

INQUIRING INTO AN OWNER’'S “REA-

SONABLE INVESTMENT BACKED

EXPECTATIONS” HAS BRED UNCER-

TAINTY, INCOHERENCE, AND UN-

FAIRNESS IN REGULATORY TAKINGS

TE a ncicerrtaerreeieicncencennsenanseessees

THE PHRASE “REASONABLE INVEST-

MENT BACKED EXPECTATIONS”

BEARS NO CLOSE RELATION TO

THE LANGUAGE OF THE FIFTH

AMENDMENT TAKINGS CLAUSE .....

WITH THREE EXCEPTIONS

“INVESTMENT-BACKED EXPECTA-

TIONS” OUGHT TO BE ABANDONED

AS A FACTOR IN REGULATORY

TD dctsstnseesssenbanepesssscvszscsnes

MR. PALAZZOLO’S “REASONABLE

INVESTMENT BACKED EXPECTA-

TIONS HAVE NO BEARING ON THE

FIRST QUESTION PRESENTED ........

TTT Tec cepeencenecnnsnemernuenennereocesenseecece

(iii)

19

24

26

iV

TABLE OF AUTHORITIES

Page

Cases:

Andrus v. Allard, 444 U.S. 51 (1979) ..............

Armstrong v. United States, 364 U.S. 40 (1960) 23

Board of Regents v. Roth, #Ué U.S. 564 (1972) i)

City of Monterey v. Del Monte Dunes at

Monterey, Ltd., 526 U.S. 687 (1999) ....... l

Concrete Pipe & Prods. of Cal., Inc. v. Con

struction Laborers Pens. Trust, 508 U.S.

SS CD cictenconscnentatendinnieaniasianinasibaiaimnndidian 11, 12, 13

‘Connolly v. Pension Benefit Guaranty Corp.

FG yy 11, 12, 13

Dolan v. City of Tigard, 512 U.S. 374, 383

I : cceccscececaticresciesatiaseareiieieiiaiciiineitiiciiaiahlichlsiiina 1, 19

Eastern Enterprises v. Apfel, 524 U.S. 498 (1998) 12, 18, 23

First English Evangelical Lutheran Church of

Glendale v. County of Los Angeles, 482

Gy, 20

Good v. United States, 189 F.3d 1355 (Fed Cir.

ND i aeteeeemaeneaimmmaanels 3

Hawaii Housing Auth. v. Midkiff, 467 U.S. 229

SID ccisunnsessnnsnmnsanininenaiasinaiacnaaainldteaaiediniedmssmaiaiiaiie 20

Herskovits v. Irwin, 149 A. 195 (Pa. 1930) ... 7

Hodel v. Irving, 481 U.S. 704 (1987) ...... 15, 16, 21, 22

Itel Containers Int'l Corp. v Huddleston, 507

fF | (Sa nee 24

Kaiser Aetna v. United States, 444 U.S. 164

STII sctacetdinieneisiniensseniniemaineimamienimniniie 6, 7, 18, 21, 24

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

en 13, 15, 18, 23

Lucas v. South Carolina Coastal Council, 505

I GS EE 1, 2, 16, 18, 23, 25

Penn Central Trans. Co. v. New York City,

ee passim

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393

SETTIIT incrstsnscincannaceeaneiineenaieaadnanampaiigeaiigasaaisiitianientiuaiian 4

Vv

TABLE OF AUTHORITIES—Continued

Page

Pension Benefit Guaranty Corp. v. R.A. Gray

& Co., 467 U.S. 717 (1984) ooo. 11

Phillips v. Washington Legal Found., 524 U.S.

See TID vidindicenetenninetidieiebieeeiin es 20

Pruneyard Shopping Center v. Robins, 447 U.S.

BPaE TEITITE srennnnienbabeinsidendanaenbieasoardieenntae ee 7-8, 18

Ruckelshaus v. Monsanto Co., 467 U.S. 986

ITITUTTTTIID . pevareibteneaeniansiaeinieenitatttieidciaeetaadieaitatace a a passim

Smith v. Allwright, 321 U.S. 649 (1944) ....... 22

Webb's Fabulous Pharmacies, Inc. v. Beckwith,

448 U.S. 156 (1960) ............................. 8-9, 11, 20, 24

Constitutional Provisions:

U.S. Const. amend. V. (Takings Clause) ....... passim

Miscellaneous:

William Blackstone, Commentaries on the Laws

of England (1766) (Legal Classics Library

as vice et ee eae 25

David P. Currie, The Constitution in the

Supreme Court: The Second Century,

I 23

John E. Fee, Unearthing the Denominator in

Regulatory Taking Claims, 61 U. Chi. L.

RRev. 1535 (1004) ..........cccccccecccccccccsecccesceoeess 17

Daniel R. Mandelker, Investment-Backed

Expectations in Taking Law, 27 Urb. L.

Ne I fiiitintias ran alt ab Ati on 19, 20

Daniel R. Mandelker, Investment-Backed

Expectations: Is There a Taking?, 31 J.

Urb. & Contemp. L. 3 (1987) ....000000000...... 7

Frank I. Michelman, Property, Utility, and

Fairness: Comments on the Ethical Foun-

dations of “Just Compensation” Law, 80

Harv. L. Rev. 1165 (1967) ......0..ccccccceee. 4

INTEREST OF AMICI CURIAE

The Washington Legal Foundation (WLF) is a

nonprofit public interest law and policy center based

in Washington, D.C., with supporters across the

Nation. WLF regularly appears in legal proceedings

before federal and State courts to defend the

principles of free enterprise and limited government.

WLF has appeared as amicus curiae before this and

other federal courts in cases involving Fifth Amend-

ment regulatory takings claims. See, e.g., City of

Monterey v. Del Monte Dunes at Monterey, Ltd., 526

U.S. 687 (1999); Dolan v. City of Tigard, 512 U‘S.

374 (1994); Lucas v. South Carolina Coastal Council,

505 U.S. 1003 (1992).

The Allied Educational Foundation (AEF) is a

nonprofit charitable and educational foundation based

in Englewood, New Jersey. Founded in 1964, AEF

is dedicated to promoting education in diverse areas

of study, such as law and public policy, and has

appeared as amicus curiae in this Court on several

occasions. Amici submit this brief in support of

Petitioner and with the consent of all parties. A

letter conferring blanket consent on all amici has

been filed with the Clerk of the Court.’

SUMMARY OF ARGUMENT

Since its adoption by the Court in 1977, the

phrase “reasonable investment-backed expectations”

has bedeviled regulatory takings doctrine. Never

precisely defined and invoked in a broad range of

circumstances, it has proven to be neither a determi-

nate tool of adjudication nor a reliable anchor to the

constitutional text. Worse yet, inquiry into an

owner’s “reasonable investment backed expectations”

' No counsel for a party authored this brief in whole or in

part, and no person or entity, other than the Washington Legal

Foundation, its supporters, and its counsel made a monetary

contribution to the preparation and submission of this brief.

2

has too often proceeded unfairly. It has been

routinely used to deny takings claims rather than

to support them.

For these reasons, regulatory takings doctrine

would be generally better off without the inquiry into

“reasonable investment backed expectations.” Three

exceptions must be made, however, to serve the

purposes of stare decisis. An exception occurs when

an owner can be said not to have an interest

amounting to “private property” on which to base

a claim for just compensation. Another exists when

the government attempts to restrict an owner's use

of property after having given its permission for

development. A catchall exception would allow the

owner's “reasonable investment backed expectations

to be considered in any case where that factor

supplied the ground of decision in a prior case

indistinguishable from the case at bar.

None of these exceptions fairly applies here. Mr.

Palazzolo’s claim arises from a bona fide property

interest, the government has created no vested rights,

and his claim falls outside the catchall exception.

An inquiry into Mr. Palazzolo’s “reasonable investment

backed expectations” has no part to play in deciding

the first Question Presented.

ARGUMENT

The first Question Presented asks “lwihether a

regulatory takings claim is categorically barred

whenever the enactment of the regulation predates

the claimant's acquisition of the property.” Pet. at 1.

On this point the Supreme Court of Rhode Island

issued two holdings, one in the context of Mr.

Palazzolo’s categorical takings claim under Lucas v.

South Carolina Coastal Council, 505 U.S. 1003 (1992),

Pet. App. A-16, the other under the heading of

= - eae rl ll

3

“reasonable investment backed expectations.” This

second holding supplies the focus of our arguments.

With regard to Mr. Palazzolo’s takings claim under

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

438 U.S. 104 (1978), the lower court found the factor

of “reasonable investment backed expectations”

“dispositive,” concluding that it “need not consider

the other factors of the Penn Central test.” Id.

Specifically, the court reasoned that when Mr.

Palazzolo acquired his property “there were already

regulations in place limiting Palazzolo’s ability to fill

the wetlands for development. In light of these

regulations, Palazzolo could not reasonably have

expected that he could fill the property and develop

a seventy-four-lot subdivision.” Pet. App. A-17 (citing

Good v. United States, 189 F.3d 1355, 1361-62 (Fed.

Cir. 1999)). Because the lower court construed the

existence of the State wetlands permitting scheme

at the time of property acquisition as decisive

evidence of Mr. Palazzolo's “lack of reasonable

investment-backed expectations,” id., resolving the

first Question Presented may require the Court to

take a fresh look at how that expression has been

interpreted and applied.

I. INQUIRING INTO AN OWNER’S “REASONABLE

INVESTMENT BACKED EXPECTATIONS” HAS

BRED UNCERTAINTY, INCOHERENCE, AND

UNFAIRNESS IN REGULATORY TAKINGS

DECISIONS

The term “investment backed expectations”

entered the lexicon of regulatory takings jurisprudence

in Penn Central, 438 U.S. 104. The Court held that

New York City’s Landmark Preservation Law did not

effect a taking by preventing the construction of a

50-story office building over Grand Central Terminal.

Id. at 138. In characterizing its prior regulatory

takings cases, the Court identified three “factors that

4

have particular significance.” Id. at 124. These

included “|t]he economic impact of the regulation

on the claimant,” “the character of the governmental

action.” and “the extent to which the regulation has

interfered with distinct investment-backed expecta-

tions.” Id.

Rather than defining this novel formulation, the

Court proceeded by analogy. It relied on the seminal

case of Pennsylvania Coal Co. v. Mahon, 260 U.S.

393 (1922) to illustrate “the proposition that a state

statute that substantially furthers important public

policies may so frustrate distinct investment-backed

expectations as to amount to a ‘taking. 438 U.S.

at 127. In Mahon the Court found that a Pennsylva-

nia law prohibiting coal mining where it would cause

the subsidence of certain houses resulted in a taking,

when the coal owners had contractually reserved the

right to mine under those houses. 260 U.S. at 414-15.

The Penn Central Court suggested that the Pennsylva-

nia law at issue in Mahon had impermissibly

frustrated the coal owners’ investment backed

expectations. The law accomplished this result by

making it “commercially impracticable to mine the

coal,” which “had nearly the same effect as the

complete destruction of rights clarmant had reserved

from the owners of the surface land.” 438 U.S. at

127. However, the Court’s discussion left open the

question whether it understood the relevant “expecta-

tions” in terms of the simple fact of property

* The Court apparently borrowed the phrase from a law review

article, see 438 U.S. at 128, where Professor Michelman couched

the diminution of value test in terms of “whether or not the measure

in question can easily be seen to have practically deprived the

claimant of some distinctly perceived, sharply crystallized,

investment-backed expectation.” Frank I. Michelman, Property,

Utility, and Fairness: Comments on the Ethical Foundations of

“Just Compensation” Law, 80 Harv. L. Rev. 1165, 1233 (1967)

(emphasis added).

— _—

5

ownership or in the special circumstance of an

express contractual reservation of rights.

Turning to the validity of the New York City

Landmark Act, the Penn Central Court invoked

“investment backed expectations” to deny the owners’

contention that they could “establish a ‘taking’ simply

by showing that they have been denied the ability

to exploit a property interest that they heretofore

had believed was available for development.” 438

U.S. at 130. In particular, the Court explained, its

precedent furnished no support for the notion “that

full use of air rights is so bound up with the

investment-backed expectations of appellants that

governmental deprivation of these rights invari-

ably—i.e., irrespective of the impact of the restriction

on the value of the parcel as a whole—constitutes

a ‘taking.’” Id. at 130 n.27.

Certain features of the “reasonable investment

backed expectations” factor stand out from its debut

in Penn Central. Like the “economic impact of the

regulation on the claimant,” id. at 124, it directs

attention toward the owner's interest rather than the

government's. The manner of applying the factor

diminished any apparent advantage to the owners.

however, by asking what expectations they lacked

rather than what they possessed. Despite the Court's

use of the words “investment backed expectations”

as a factor having “particular significance,” id., it

remained unclear exactly why the owners’ expecta-

tions to develop the airspace above Grand Central

Station were not “distinct” and “investment backed.”

The distinction between “discrete segments,” id. at

130, and the “parcel as a whole,” id. at 131, did not

straightforwardly deny the owners’ contention that

“the airspace above the Terminal is a valuable

property interest.” Id. at 130. With these questions

6

unanswered, clarifying the meaning of “investment

backed expectations” was left for another day.

In Andrus v. Allard, 444 U.S. 51 (1979) the Court

upheld Department of the Interior regulations banning

the sale of certain “avian artifacts,” id. at 64,

especially Indian relics crafted from eagle feathers.

The owners claimed that the law imposed an

uncompensated taking of their property. Id. at 67-68.

In the course of declining the government's argument

that the owners lacked standing merely because they

had failed to allege that they acquired the artifacts

before the law banning their sale became effective,

id. at 64 n.21, the Court shed further light on its

understanding of “reasonable investment backed

expectations.” “The timing of acquisition of the

artifacts is relevant to a takings analysis of appellees’

investment-backed expectations, but it does not erect

a jurisdictional obstacle at the threshold.” Id.

Nonetheless, the Court did not directly explain how

and why the “timing of acquisition” affected the

owners’ investment backed expectations. Nor did

it clarify why such expectations were not

impermissibly frustrated when the Court's refusal

to grant just compensation left the owners holding

a title whose only economic value lay in the dubious

right to “exhibit the artifacts for an admissions

charge.” Id. at 66.

In Kaiser Aetna v. United States, 444 U.S. 164

(1979), the Court concluded that the Takings Clause

obligated the federal government to compensate the

owners of a Hawaiian marina if it wished to open

the marina to the public. Id. at 180. The Court

described the marina as “a body of water that was

private property under Hawaiian law, linked to

navigable water by a channel dredged by |the owners]

with the consent of the Government.” Id. at 179.

While acknowledging that the government's permission

7

to dredge the channel “cannot ‘estop’ the United

States,” the Court emphasized that such permission

“can lead to the fruition of a number of expectancies

embodied in the concept of ‘property’ —expectancies

that, if sufficiently important, the Government must

condemn and pay for before it takes over the

management of the landowner’s property.” Id.

Kaiser thus appears to have rested, at least in

part, on the Court’s judgment that the government

created reasonable investment backed expectations

when it granted permission to dredge Kuapa Pond

and that the government's later attempt to open the

pond for public use represented an impermissible

interference with such expectations. Supporting this

judgment is the long-settled doctrine of vested rights

This doctrine holds that an owner can claim protec-

tion from a regulatory change if he can show that

he relied in good faith on the government’s permis-

sion “by making substantial expenditures on his

development.” Daniel R. Mandelker, Investment-

Backed Expectations: Is There a Taking?, 31 J. Urb.

& Contemp. L. 3, 37 (1987); see also Herskovits v.

Irwin, 149 A. 195, 197 (Pa. 1930) (explaining the

doctrine of vested rights).

In Pruneyard Shopping Center v. Robins, 447 U.S.

74 (1980), the Court held that no taking had resulted

from provisions of the California Constitution, which

prohibited the owner of a shopping center from

interfering with the reasonable activities of high

school students soliciting support for a United Nations

resolution on his property. Id. at 88. The Court

attempted to distinguish Kaiser Aetna. There, it said

the federal government's “attempt to create a public

right of access to the improved pond interfered with

Kaiser Aetna’s ‘reasonable investment backed expecta-

tions.” Id. at 84. In Pruneyard, on the contrary,

the Court reasoned that the owners had “failed to

8

demonstrate that the ‘right to exclude others’ is so

essential to the use or economic value of [his]

property that the state-authorized limitation of it

amounted to a ‘taking.’ Id. at 84.

The Court’s attempt to distinguish Kaiser Aetna

clouded the meaning of reasonable investment backed

expectations. Kaiser Aetna chiefly rested on the

holding that “the ‘right to exclude,’ so universally

held to be a fundamental element of the property

right, falls within this category of interests that the

Government cannot take without compensation.” 444

U.S. at 179-80. If the right to exclude is “so

universally held to be a fundamental element of the

property right,” id., one wonders why a shopping

center owner’s right to exclude unwanted petition-

gatherers fails to qualify as a reasonable investment-

backed expectation. Certainly both owners had

substantially invested in developing their property

and both had justified their takings claim based on

the alleged violation of their right to exclude.

Perhaps the answer lies in the breadth of the owner's

asserted right. In Kaiser Aetna the government had

tried to force the owners of a private marina to open

it to the public, while in Pruneyard the government

prevented the owner of a shopping mall from

excluding only selected members of the public.

Assuming that this correctly harmonizes the cases,

it is still difficult to see how a reasonably prudent

owner could have known in advance that one exercise

of the right to exclude would be backed with the

constitutional guarantee of compensation, while the

other would not.

In Webb’s Fabulous Pharmacies, Inc. v. Beckwith,

449 U.S. 155 (1980), the Court determined that a

Florida county had imposed a taking by appropriat-

ing “the interest accruing on an interpleader fund

deposited in the registry of the county court, when

9

a fee . = [was] also charged for the clerk’s services

In receiving the fund into the registry.” Id. at

155-56. The concept of an owner’s expectations was

refined by the Court's teaching that “a mere unilat-

eral expectation or an abstract need is not a property

interest entitled to protection.” Id. at 161 (citations

_ omitted). However, the Court found that the creditors

claiming the disputed interest “had more than a

unilateral expectation. The deposited fund was the

amount received as the purchase price for Webb’s

assets. It was property held only for the ultimate

benefit of Webb's creditors, not for the benefit of

the court and not for the benefit of the county.”

Id. The Court therefore concluded that the creditors

“had a state-created property right to their respective

portions of the fund.” Id.

Webb’s reaches the correct result, supported by

sound reasoning. In disposing of the argument that

Webb's lacked reasonable investment backed expecta-

tions, the Court relied on the distinction between

“a State created property right” and “a mere unilateral

expectation or an abstract need,” id., as a criterion

for excluding owner expectations that do not deserve

constitutional protection. This approach to identifying

bona fide reasonable investment backed expectations

is grounded on the principle that “‘{[p]roperty interests

- are not created by the Constitution. Rather,

they are created and their dimensions are defined

by existing rules or understandings that stem from

an independent source such as state law .. .

Id. (quoting Board of Regents v. Roth, 408 U.S 3

577 (1972)). | sacs

In Ruckelshaus v. Monsanto Co., 467 U.S. 986

( 1984), the Court found “the force” of reasonable

investment backed expectations “so overwhelming,”

id. at 1005, that it alone decided the case. There

the Court held that a taking had resulted from the

10

government’s disclosure of trade secret information

submitted with applications for certain pesticide

registrations. See id. at 1011. Disclosure of data

that had been submitted from 1972 to 1978, when

the statute guaranteed confidentiality and thus

“formed the basis of a reasonable investment-backed

expectation,” id., would have destroyed the property

value of trade secrets. Such disclosure constituted

a taking. Id. In contrast, the Court reasoned,

disclosure following 1978 statutory amendments setting

forth conditions of data disclosure effected no taking,

because applicants voluntarily submitting data in

exchange for the economic benefits of registration

had no reasonable expectation of additional protec-

tions of confidentiality. Id. at 1006-07. Similarly,

disclosure of data submitted before the confidentiality

guarantee was placed in the law did not frustrate

reasonable expectations, because the Trade Secrets

Act merely protected against “unauthorized” disclo-

sure. Id. at 1008-10.

Monsanto thus equated “reasonable investment

backed expectations” with regulatory notice. When

federal regulations promised confidentiality, the Court

held the government to that promise by finding that

Monsanto had reasonable investment backed expecta-

tions during the period of time the regulations were

in effect. When the federal regulation gave Monsanto

notice that loss of confidentiality was the price of

obtaining government registration, however, the Court

found that the exchange of confidentiality for

registration meant Monsanto lacked reasonable

investment backed expectations. Once again, the

analysis raises troubling questions. Why excuse the

government from compensating Monsanto for the

disclosure of trade secrets, merely because the law

permitted the government to make such disclosures?

Such a principle, if taken to the limit of its logic,

ll

would allow the government “by ipse dixit .. . [to]

transform private property into public property

without compensation ....” Id. at 1012 (quoting

Webb's, 449 U.S. at 164). As the Monsanto Court itself

acknowledged, “This is the very kind of thing that

the Taking Clause of the Fifth Amendment was

meant to prevent.” Id. '

yo (quoting Webb’s, 449 US.

In Connolly v. Pension Benefit Guaran

475 U.S. 211 (1986), the Court “tle adhe s se

challenge to the “withdrawal liability,” Pension Benefit

Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717

725 (1984), provisions of the Multiemployer Pension

Plan Amendments Act of 1980 (MPPAA). The Court

concluded that the retroactive imposition of liability

for pension plan withdrawal posed no facial violation

of the Takings Clause. Id. at 228 (O’Connor. J

concurring). Such liability did not impermissibly

frustrate reasonable investment backed pa sae

the Court reasoned, because the employer had at least

constructive notice that Congress might bolster the

legislative scheme to accomplish its legislative aim

that empl el

ee pioyees receive promised benefits. Id. at

Seven years later, in Concrete Pipe

of California, Inc. v. Construction ie mee

Trust, 508 U.S. 602 (1993), the Court followed Connoll

to deny a takings claim based on an as aeatiel

challenge to the same liability provisions of the

MPPAA at issue in Connolly. Id. at 605. The Court

held that, given the prevalence of federal regulation

in the field of private pension funds, the objecting

employer “could have had no reasonable expectation

that it would not be faced with liability for promised

benefits.” Id. at 646. Moreover, the Court observed

the employer's reliance on a statutory limitation of

liability was “misplaced, there being no reasonable

12

basis to expect that the legislative ceiling would never

be lifted.” Id. (footnotes omitted).

Contrast Eastern Enterprises v. Apfel, 524 US.

498 (1998), where the Court determined that a federal

law effected a taking when it allocated retroactive

liability for health benefits to a coal company that

had left the coal industry more than three decades

earlier. Id. at 529 (plurality opinion). The Court

rested that decision in part on its conclusion that

the law “substantially interferes with Eastern’s

reasonable investment-backed expectations.” Id. at

532. Not only did the law “reach{ | back 30 to 50

years to impose liability,” id., a degree of retroactivity

considered “particularly far reaching.” Id. at 534.

Such liability was “not calibrated either to Eastern’s

past actions or to any agreement—implicit or

otherwise—by the company. Nor would the pattern

of the Federal Government's involvement in the coal

industry have given Eastern ‘sufficient notice’ that

lifetime health benefits might be guaranteed to

retirees several decades later.” Id. at 536 (quoting

Connolly v. Pension Ben. Guar. Corp., 475 U.S. 211,

227 (1986).

Connolly, Concrete Pipe, and Eastern Enterprises

belong together, for purposes of assessing the Court's

treatment of reasonable investment backed expecta-

tions. Connolly is perhaps best explained as a facial

challenge case, where the takings claim predictably

failed to invalidate the statute. See 475 U.S. at 228

(O’Connor, J., concurring). Concrete Pipe and Eastern

Enterprises present more difficult questions. Concrete

Pipe relied on Connolly to hold that constructive

notice sufficiently diminished an owner’s reasonable

investment backed expectations to defeat a takings

claim. 508 U.S. at 646. Yet neither case adequately

explained how the passage of one regulatory scheme

——

13

en gr = notice, whether constructive or

, to defeat a takings claim based

} ; on ch

(sometimes substantial changes) to that a

Eastern Enterprises is j

in some tension with

ar Pipe and Connolly. There the Court found

es e owners had reasonable investment backed

pn en in avoiding liability, despite the owners’

yn ey yy

| b ». at 532. Distinguishi

po eager — to turn on the length of > et

, See id. at 534, and the degree of “cali

, anc calibration,”

aa ¢ ve the marginal change in out-of-pocket

relative to a claimant's “past acti

any agreement.” Id. at 536. How atthe -

d. . ever, neith

_s facts fits particularly well within the mo el

~ i a investment backed cumetatinne.

roactivity seems more a problem of d

! ue

—. ory ye - as Justice Kennedy cndehaah

S. a 5 (Kennedy, J., concurri

. . ‘ ee =

ee and dissenting in part), and the pine

> ao in out-of-pocket costs fits most snugly within

€ independent inquiry into a regulation’s “economic

impact.” Penn Central Trans. Co

438 U.S. 104, 124 (1978). a

Of particular significance for | sti

a is the Court’s decision ro —

em gerceng ener Commission, 483 U.S. 825 (1987).

peter ourt found a taking where a state agency

— its grant of permission to rebuild a house

e owner's transfer to the public of an easement

— their beachfront property.” Id. at 897

—— the permit condition [failed to | serve[ ] the

ye S vernmental purpose as the development ban,”

id. a 7 (a relationship labeled the “essential nexus.”

id.) the Court understood it as “the obtaining of a

easement to serve some valid governmental purpos :

but without just compensation.” Id. As a i

14

condition was invalid without just compensation.

Id. at 841-42.

Writing in dissent, Justice Brennan charged that

the owners “can make no reasonable claim yr wd

expectation of being able to exclude members . ~

public from crossing the edge of their property 7

gain access to the ocean.” Id. at 857 oranges

dissenting). He based this contention on two mere

First, he asserted that both the California Constituti ;

and the state code “clearly established that the a

of exclusion for which appellants seek ar pwr ve

simply is not a strand in the bundle of 7“ _—

property rights .. . .” Id. at 858. Second, — oo

Brennan turned to Ruckelshaus v. Monsanto, 4 S.

986 (1984), from which he concluded that the a

lacked reasonable investment backed — —

because they “were on notice that new deve ——

would be approved only if provisions were ma a

lateral beach access.” 483 U.S. at 860 (quoting

Monsanto, 467 U.S. at 1005).

The Court sharply disagreed. It pocorn

Monsanto not as standing for the “peculiar proposl a

that a unilateral claim of entitlement by the apna

ment can alter property rights, but rather as _—_ .

where an owner had sacrificed certain property -

to obtain a “valuable Government benefit. a : -

833 n.2. Because the Court considered that “the -

to build on one’s own property... cannot ss

be described as a ‘government benefit, it — u =

that “the announcement that the ager Ps -

granting of) the permit will entail the sree Me

a property interest cannot be = rl — ~* - me

luntary ‘exchange’... tha Ww

ca: iy Present Id. (quoting apnea md

US. at 1007). The Court added that the —— A .

Amendment right to compensation is unaffecte be

the fact that they acquired the land after the coa

15

land use regulations were being enforced. “So 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.” Id.

Nollan contributed important elements to the

doctrine of reasonable investment-backed expectations.

The Court directly refuted Justice Brennan's attempt

to push Monsanto to the limit of its logic. Notice

of a regulatory permit scheme does not, the Court

said, automatically destroy an owner’s reasonable

investment backed expectations in developing his

property. The Court also declined to characterize

the acquisition of property after the enactment of

a regulation as a bar to the owner’s Fifth Amendment

claim. Nollan thus furnishes compelling support for

resolving the first Question Presented in favor of

Mr. Palazzolo.

In Hodel v. Irving, 481 U.S. 704 (1987), the Court

found that certain members of the Ogala Sioux Tribe

had suffered a taking from a federal law that

abolished the right to transfer small fractionated

interests in reservation land by intestacy or devise.

Id. at 718. However, the Court doubted whether the

owners’ descendants nad “investment-backed expecta-

tions’ in passing on the property.” Id. at 715.

Fueling its doubts, the Court-said, was the would-be

beneficiaries failure to “point to any specific

investment-backed expectations beyond the fact that

their ancestors agreed to accept allotment only after

ceding to the United States large parts of the original

Great Sioux Reservation.” Id. Evidently the Court

placed great importance on the word “investment”

and found that the absence of investment demon-

Strated the lack of “reasonable investment-backed

expectations.”

16

Because the Court ultimately decided Irving based

on its determination that the “character of the

Government regulation here is extraordinary,” id. at

716. its discussion of investment backed expectations

may be regarded as dicta, though no less troubling

for that. Denying the takings claim of an owner

based, even in part, on the ground that the property

was acquired by devise or intestacy rather than

purchase, has the effect of excluding such property

from Takings Clause protection. And the Court

simply failed to explain why property acquired

through inheritance carries with it less potent

constitutional rights than property acquired otherwise.

Lucas v. South Carolina Coastal Council, though

not strictly speaking a “reasonable investment backed

expectations” case, contributed additional detail to

that doctrine. There the Court held that a state

statute barring the construction of “occupiable

improvements,” id. at 1009, seaward of a particular

baseline effected a taking when it deprived the owner

of two beachfront lots of “all economically beneficial

use” of his property. Id. at 1027. In contrast with

the admittedly “ad hoc, factual inquiries.” Penn

Central Trans. Co. v. New York City, 438 U.S. 104,

124 (1978), the Court in Lucas based its holding on

a “categorical,” id. at 1015, rule:

Where the State seeks to sustain regulation

that deprives land of all economically benefi-

cial use, we think it may resist compensation

only if the logically antecedent inquiry into

the nature of the owner's estate shows that

the proscribed use interests were not part of

his title to begin with.

Id. at 1027.

The issue of reasonable expectations arose

indirectly, during the Court’s attempt to address the

17

“denominator problem,” J

: | , John E. Fee, Unearthi

ye in Regulatory Taking Claims, 61 Ur ch

. Rev. 1535, 1537 (1994), meanin roblem of

| ev. 153% . g the problem

scape pe the property interest’ against which Pus

: 4 of value is to be measured.” 505 US. at 1016

ne a Court noted that a solution might be

os by “how the owner’s reasonable expecta-

a S 2 ave been shaped by the State’s law of

foe tae ent ce and to what degree the State’s

accorded legal recognition and tecti

the particular interest in land with noord rep ti

the takings claimant

ie allege imi

elimination of) value.” lan a

wee on aan pene weyers. the Court’s

rbitrary,” he argued that u

is isinithed te chee a ee proper

ue Yo recovers nothing, whi

i ca ae property is diminished 100% Panne

pel ~ value. | Id. at 1064 (Stevens, J.,

a pa he Court disagreed with that description

piped A effect. “This analysis errs in its

Se . the landowner whose deprivation

polis. ” sl ort of complete is not entitled to

Sergey Id. at 1019 n.&. It acknowledged

ae aie Argue hong cases the landowner with 95%

o - get not ing, while the landowner with total

= ao recover in full.” Id. However, it pointed

not - Soe ag Central factors would

a r whose loss “is one step sh

of complete.” Jd. For such own " Ae ote

ger of the regulation on the phn poe ae

paces to which the regulation has interfered with

istinct investment-backed expectations’ are kee l

relevant to takings analysis generally.” Id. aeanen

y,

18

Lucas employed the concept of “reasonable

investment backed expectations” rather loosely. When

referring to those expectations “shaped by the State's

law of property,” id. at 1016 n.7, it used the term

“reasonable expectations.” Id. When referring to

the elements of Penn Central, it used the older

terminology “distinct investment-backed expectations.”

Id. at 1019 n.8. The Court did not explain whether

it considered the “expectations” tied to State law,

which it found relevant to defining the denominator

in a takings claim, synonymous with the “expecta-

tions” relevant as one factor in a multi-factor

balancing test for deciding non-categorical regulatory

takings claims. Nor did it explain what relationship

(if any) that it perceived between these varied

“expectations.”

This review of the decisions suggests that

inquiring into an owner's “reasonable investment

backed expectations” has bred uncertainty, incoher-

ence. and unfairness. The uncertainties we have

already limned. The incoherence of decisions

applying “reasonable investment backed expectations”

may be attributed to its conceptual emptiness. It

has been used to describe air rights that fail judicial

scrutiny, Penn Central, 438 U.S. 104 (1978), and water

rights that survive it, Kaiser Aetna v. United States,

444 U.S. 164 (1979); a prevailing right to exclude, id.;

and a failing right to exclude, Pruneyard Shopping

Center v. Robins, 447 U.S. 74 (1980); regulatory notice

that defeats a takings claim, Ruckelshaus v. Monsanto

Co.. 467 U.S. 986 (1984), and regulatory notices that

fail to defeat a takings claim, Nollan v. California

Coastal Commission, 483 U.S. 825 (1987); Eastern

Enterprises v. Apfel, 524 U.S. 498 (1998). No wonder

one commentator has concluded, “The Court is

confused about the meaning of this term, federal and

state courts divide on how to apply it, and its role

19

in taking law remains a a |

puzzle.” Daniel R. M

delker, Investment-Backed E raking

xrpect

Law, 27 Urb. L. 215 (1995). ee ae

| Worse still, inquiry into an a

investment backed eee to page no

proceeded unfairly. “The Court has eanieied

almost entirely on deciding when investment-backed

expectations do not exist rather than on decidin

rigs they can provide a basis for a taking claim.”

eB! 8 . 1S a strange rule of constitutional law

meget mem p> Prone a ~ontanceretigee~ right more

. e observance.

First Amendment doctrine at a sod ne

content discrimination when the government me

reste that the speaker had no reasonable expectation

at his speech would influence public policy. Just

as this rule would clearly turn the words of the First

Amendment on their head by privileging government

censorship over the freedom to speak, so too routine]

deploying “reasonable investment backed expectation

as a justification for denying takings claims ‘oo

the Fifth Amendment upside-down by privile ss

confiscation, or the substantial loss of propert ra :

compensation. This flies in the face of the Court's

teaching: “We see no reason why the Takings Clau ;

of the Fifth Amendment, as much a part of the Bill

of Rights as the First Amendment or Foust

Amendment, should be relegated to the status of

poor relation in these comparable Preneliosase eet

Dolan v. City of Tigard, 512 U.S. 374, 392 (1994).

Il. THE PHRASE “REASONAB

LE INVESTMEN

BACKED EXPECTATIONS” BEARS NO clos

RELATION TO THE LANGUAGE OF THE

FIFTH AMENDMENT TAKINGS CLAUSE

ieee from the uncertainty, incoherence, and

airness it has bred, inquiry into an owner's

20

“reasonable investment backed expectations” is also

flawed because it is not anchored in the text of the

Takings Clause. Correctly evaluating the place of

“reasonable investment backed expectations” in

regulatory takings doctrine “begin{s] with direct

reference to the language of the Fifth Amendment.”

First English Evangelical Lutheran Church of Glendale

v. County of Los Angeles, 482 U.S. 304, 314 (1987):

see also Penn Central Transp. Co. v. City of New

York, 438 U.S. 142 (Rehnquist, J., dissenting) (arguing

for “a closer scrutiny” of the language of the Fifth

Amendment).

Those words say, “nor shall private property be

taken for public use, without just compensation.”

U.S. Const. amend. V. Hawaii Housing Authority

v. Midkiff, 467 U.S. 229 (1984) all but eliminated

“public use” as an issue for adjudication. Id. at 241.

Interpreting the Takings Clause thus centers on the

meaning of “private property,” “taken,” and “just

compensation.” From its understanding of these key

terms, “[t]he Court recognizes three distinct issues

implicated by a takings claim: whether the interest

asserted by the plaintiff is property, whether the

government has taken that property, and whether

the plaintiff has been denied just compensation for

the taking.” Phillips v. Washington Legal Found.,

524 US. 156, 172 (1998) (Souter, J., dissenting). Only

the first two~issues are relevant in this case.

The phrase “reasonable investment backed

expectations” bears no close relationship with the

words chosen by the authors of the Fifth Amendment.

Cf. Mandelker, 27 Urb. L. at 225 (“A major problem

in the decisions may be the choice of terms to

describe this taking element.”). The word “expecta-

tions” is both over- and underinclusive. It could be

said to embrace a “unilateral expectation” or “an

abstract need.” Webb’s Fabulous Pharmacies, Inc.

——— oe

21

v. Beckwith, 449 U.S. 155 (1980). The classic example

lies with the owner who purchases 100 acres of

agricultural land on the edge of town. His “expecta-

tion that the property will be eventually rezoned

for more intensive and valuable uses could not be

vindicated, were he to bring a takings claim against

the town, because his “exnectation” does not qualify

as “private property.” At the other end of the

spectrum, the category of “expectations” has been

drawn narrowly enough to exclude property interests

independently protected under State law See, e

Penn Central, 438 U.S. at 130n27.

Choosing the word “expectation” also raises the

question whether these expectations are subjective

or objective, to be tested according to proof of a

particular owner’s actual expectations regardin

property or according to a court’s AO ttt

assessment. With the substitution of “reasonable”

for “distinct” in the formulation, Kaiser Aetna Vv

United States, 444 U.S. 164, 175 (1979) the Court

implicitly settled this question early on in favor of

objectivity. But the addition of that adjective has

not removed the subjectivity inherent in the word

it modifies. And it is the inherent subjectivity of

the word “expectations,” not the words “taken” or

private property,” that accounts for much of the

uncertainty and incoherence we have described

These faults belong to the judicial test used to

interpret the Fifth Amendment. n

, not to th

of the amendment itself. a

It remains unclear why only “investme x

expectations deserve constitutional nenoirhonyas-etl

the Constitution uses the words “private property.”

What then about property acquired through gift

devise, or intestacy? Hodel v. Irving, 481 U.S 704

(1987) highlighted the potential for mischief when

22

it suggested, albeit in dicta, that property not

acquired through investment may not qualify for Fifth

Amendment protection. See id. at 715. Irving

illustrates how the judicial test of “reasonable

investment backed expectations” might be used to

substantially reduce the range of property interests

given constitutional protection, despite the clear

language of the Fifth Amendment securing compensa-

tion for the taking of “private property.”

Ill. WITH THREE EXCEPTIONS “INVESTMENT-

BACKED EXPECTATIONS” OUGHT TO BE

ABANDONED AS A FACTOR IN REGULATORY

TAKINGS CASES

A review of the Court's decisions and an analysis

of “reasonable investment backed expectations” in

light of the text of the Fifth Amendment reveals at

least three critical flaws. First, “reasonable invest-

ment backed expectations” is not a phrase closely

anchored to the constitutional text. Decisions

applying it can be expected to wander from constitu-

tional first principles.

Second, inquiring into an owner's “reasonable

investment backed expectations” has produced a

pattern of decisions that is uncertain and incoherent.

In a word. the formulation is indeterminate.

Announcing that it applies says little if anything

about how and why the case will be decided.

Contrary to the rule of law, the meaning of “reason-

able investment backed expectations,” as applied in

a particular case, remains unclear until it receives

its limited definition, “good for this day and train

only.” Smith v. Allwright, 321 U.S. 649, 669 (1944)

(Roberts, J., dissenting). Such indeterminacy leaves

takings claims vulnerable to manipulation, despite

the Court's affirmation that “[wle view the Fifth

Amendment’s Property Clause to be more than a

23

pleading requirement, and complianc ith j

more than an exercise in pant a wt ened .

Nollan v. California Coastal Commission. 483 US

825, 841 (1987); see Lucas v. South Carolina Coa t

Council, 505 U.S. 1003, 1025 n.12. (1992). _

Third, the application of “reasona

backed expectations” has bred xis tlaag to

ok not be terribly surprised by this, given that

wine rh a itself was “insensitive to taking clause

: ; avid P. Currie, The Constitution in the

upreme Court: The Second Century, 1888-1986. at

521 n.104 (1990). Yet the unfairness of applying an

analytical tool principally to deny takings claims i

fundamentally inconsistent with a cnmitininiens

eggs whose aim is “to prevent the government

rom forcing some people alone to bear public

burdens which, in all fairness and justice, should

be borne by the public as a whole.’” ‘Basten

Enterprises v. Apfel, 524 U.S. 498. 522 (1998) (plurality

opinion) (Armst ;

(1960)). strong v. United States, 364 U.S. 40. 49

“Reasonable investment backed expectations”

ought to be generally abandoned as a factor i

regulatory takings cases. As bold as it seems this

proposal would not require the Court to overrule a

single precedent because the inquiry into “reasonable

investment backed expectations,” though a familiar

part of regulatory takings cases, has rarely served

as the ground of decision. Carving out three excep-

tions would amply serve the purposes of stare pre

Cf. Itel Containers Int’l Corp. v Huddleston, 507 U S.

60, 78-79 (1993) (Scalia, J., concurring in part and

concurring in the judgment) (recommending the

abandonment of negative Commerce Clause doctrine

except as necessary to preserve reliance interests),

24

First, the phrase performs a useful service by

alerting takings claimants to the requirement that

any takings claim must be grounded in “private

property” independently created under State or federal

substantive law. See Webb’s Fabulous Pharmacies,

Inc. v. Beckwith, 449 U.S. 155 (1980).

Second, the phrase “reasonable investment backed

expectations” accurately captures the common law

principle of “vested rights.” See Kaiser Aetna v.

United States, 444 U.S. 164, 179 (1979). “A similar

reliance rule is appropriate in deciding when

investment-backed expectations are reasonable and

entitled to protection under the Taking Clause.”

Daniel R. Mandelker, Investment-Backed Expectations

in Taking Law, 27 Urb. L. 215, 237 (1995).

Third, “reasonable investment backed expectations”

may supply the ground of decision in any other case

where that factor supplied the ground of decision

in a case indistinguishable from the case at bar.

Cf. Itel Containers Int’l Corp. v Huddleston, 507 U.S.

60. 78-79 (1993) (Scalia, J., concurring in part and

concurring in the judgment) (allowing for negative

Commerce Clause challenges “against a state law that

is indistinguishable from a type of law previously

held unconstitutional by this Court”). The principal

case that appears to fit this exception is Monsanto.

Because the holding in Monsanto has been sharply

limited, see Nollan v. California Coastal Commission,

483 U.S. 825, 833 n.2 (1987), the reach of this

exception is correspondingly limited, as well.

IV. MR. PALAZZOLO’S “REASONABLE INVEST-

MENT BACKED EXPECTATIONS HAVE NO

BEARING ON THE FIRST QUESTION PRE-

SENTED

Contrary to the decision below, see Pet. App. A-17,

Mr. Palazzolo’s takings claim cannot be properly

25

analyzed according to his

. reasonable invest

backed expectations. His claim fits none y he

narrow og we have described where an owner's

reasonable investment backed ex

pectations fo

ee mk - A ag constitutional analysis There is

u a r. Palazzolo has asserted P b

| . ona fid

yey Aree Fee simple title to real aaa

\-2-A-3, is “an estate with a rich traditi

seer at common law.” Lucas v. South Seeatinn

wae Council, 505 U.S. 1003, 1016 n.7 (1992); see

4 2 William Blackstone, Commentaries on the Lowe

roy pa 104-05 (1766) (Legal Classics Library ed

a greg the rights of a tenant in fee simple).

~ ode Island has conferred no vested interest on

; r. Palazzolo, because the State has not wavered

me “gre to deny him a development permit

et. 2-3. nd Mr. Palazzolo’s claim fal] ide

S outs

ee category. As the Court has held, "the

right to build on one’s own property ... cannot

es be described as a ‘governmental benefit.”

—- r v. California Coastal Commission, 483 US

chee ( pee oe geengeaae investment backed

é ns us have no legitimate role to

. . la

in deciding whether Mr. Palazzolo’s takings ord

is categorically barred, merely because he acquired

the property aft !

Siected y after the State wetlands regulation was

26

CONCLUSION

For the foregoing reasons the judgment of the

Supreme Court of Rhode Island should be reversed.

Respectfully submitted,

Daniel J. Popeo

R. Shawn Gunnarson

Counsel of Record

Washington Legal Foundation

2009 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 588-0302

November 22, 2000 Counsel for Amici Curiae