Petition for Writ of Certiorari — MacLeod v. County of Santa Clara
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APR 20 1985
84- 1657 AEEXANDER . stTey
No. 84- CLERK
In the Supreme Court
OF THE
United States
OCTOBER TERM 1984
Morton P. MACLEOD,
Petitioner,
VS.
COUNTY OF SANTA CLARA,
Respondent.
Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit
VAUGHN R. WALKER
Counsel of Record
ROBERT M. WESTBERG
JOHN M. GRENFELL
225 Bush Street
Mailing Address P.O. Box 7880
San Francisco, CA 94120
Telephone: (415) 983-1500
Counsel for Petitioner
PILLSBURY, MADISON & SUTRO
225 BUSH STREET
MAILING AppbrEss P.O. Box 7880
SAN FRANCISCO, CA 94120
Of Counsel
BOWNE OF SAN FRANCISCO. INC. « 190 NINTH ST. « S.F.. CA 94103 «¢ (415) 664-2300
QUESTIONS PRESENTED FOR REVIEW
1. Where a county has prohibited development of private
property and its historic use is not economically viable, may the
county, consistent with the Fifth Amendment, also prevent the
only available use able to cover the costs of maintenance, opera-
tion and taxes—in this case, timber harvesting—without compen-
sating the owner for at least the net income from that use?
2. Is mere ownership of property an “economically viable use”
sufficient to preclude a finding of unconstitutional taking, even
when regulation has cut off all the property’s sources of income?
PARTIES
Petitioner is an individual, Morton P. MacLeod. Respondent is
the County of Santa Clara, a political subdivision of the State of
California.
ii
TABLE OF CONTENTS
PN ae ees tas a seas ao Oho bE RS tr ado E eS
SNE IN os sido Ki se 4b nbn es Mada eb he care
A OE Ey Loe rr ee eer rey foe rere ee
Constitutional and Statutory Provisions Involved ........
re ree rer rer ree
I.
The opinion below disregards, and typifies the tendency of
lower courts to disregard, the standards established by
PP ry pr Ore a yy Py rn aye pre
II.
The allowable uses of property, and not the possibility that
other uses may be permitted in the future, should deter-
mine whether there has been a taking...............
CO os ain nk oo cc hae ree ee a ee ae
ili
TABLE OF AUTHORITIES CITED
Cases
Page
PE SU, ME WEA BD Gace Shcedccacscccsccse 5, 6, 11
Chicago, R. I. & P. Ry. Co. v. United States, 284 U.S. 80 11
Dirt, Inc. v. Mobile County Com’n, 739 F.2d 1562...... 9
Euclid v. Ambler Co., 272 U.S. 365 .................. 9
Goldblatt v. Hempstead, 369 U.S. 590 ................ 10
Hadacheck v. Sebastian, 239 U.S. 394 ................ 9
Hamilton Bank v. Williamson Cty. Reg. Planning C Comm.,
729 F.2d 402, cert. granted, 53 U.S.L.W. 3202 ....... 10
Kaiser Aetna v. United States, 444 U.S. 164 ......... 6, 10, 11
Kirby Forest Industries, Inc. v. United States, ___ US.
See EME REE 534 CdR A 00645400. ced¥cscodence 5, 6
Lake Country Estates v. Tahoe Planning Agcy., 440 U.S.
RE cane 1st Wadad eadedbnk <is ceeus wh bees l
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S.
DE Pec tuae etd ue enidsecdheten baecuwarrccecses 6, 11
Lynch v. Household Finance Corp., 405 U.S. 538....... 11
Maher v. City of New Orleans, 516 F.2d 1051, cert. denied,
Rees koe eed aces dede ss06eccecene 8,9
MacLeod v. Santa Clara County, 749 F.2d 541 ........ passim
MacLeod v. Superior Court, 179 Cal. Rptr. 520 ........ 3
Ortega Cabrera v. Municipality of Bayamon, 562 F.2d 91
sawed eWheedh shkdaks ennddns osancece 8,9
Penn Central Transp. Co. v. New York City, 438 U.S. 104
8 OS ee Ope ep POT Cerny e ee ee passim
Pennsylvania Coal Co. v. Mahon, 260 U.S. 393......... 11,12
Pompa Constr. Corp. v. City of Saratoga Springs, 706 F.2d
NRG Uae rhbsbe abs abs euchceetAeacseacnsdecs 8,9
Sadowsky v. City of New York, 732 F.2d 312 ...... ae 8
San Diego Gas & Electric Co. v. San Diego, 450 U.S. 621 10
Urbanizadora Versalles, Inc. v. Rivera Rios, 701 F.2d 993 10
iv
TABLE OF AUTHORITIES CITED
CASES
Page
William C. Haas v. City & Cty. of San Francisco, 605 F.2d
REE Ge EE, GE GA Fes vc ccccccctecccaccce 9
Yuba Goldfields, Inc. v. United States, 723 F.2d 884.... 10
1 Constitution
United States Constitution
Fifth Amendment (Just Compensation Clause) ....... 2
Statutes
es RED wh debt cdbwbedeus ci sicwidenentes l
St OME oso cd ddncbecsdusdecbdsinorcnsvices l
Fp as OE bik ook b adn decnes Keneeeses Saucedo l
GR BO ii iis pictinsee aaa 2,4
Other Authorities
Michelman, Property, Utility, and Fairness: Comments on
the Ethical Foundations of “Just Compensation” Law, 80
Sn, SE EEUE ovcacésoiesusnahocsndedces 9
Rose, Mahon Reconstructed: Why the Takings Issue is Still
a Muddle, 57 S.Cal. L. Rev. 561 (1984) ............ 9
No. 84-
In the Supreme Court
OF THE
United States
OcTOBER TERM 1984
MorTON P. MacLeop,
Petitioner,
vs.
COUNTY OF SANTA CLARA,
Respondent.
OPINIONS BELOW
The opinion of the Court of Appeals for the Ninth Circuit was
reported at 749 F.2d 541, and is printed as Appendix A hereto.
The judgment, unpublished memorandum opinion and order of
the district court are printed as Appendix B. The court of appeals’
order denying rehearing is printed as Appendix C.
JURISDICTION
The district court had jurisdiction under 28 U.S.C. §§ 1331 and
1343.' The opinion of the Court of Appeals for the Ninth Circuit
was filed and enizred on December 10, 1984 (App. A, p. 1), anda
timely petition for rehearing was denied on January 22, 1985
(App. C, p. 46). This Court has jurisdiction pursuant to
§ 1254(1) of Title 28 of the United States Code.
' See Lake Country Estates v. Tahoe Planning Agcy., 440 U.S. 391,
398-400 (1979).
2
CONSTITUTIONAL AND STATUTORY PROVISIONS
INVOLVED
Fifth Amendment, United States Constitution: “({N or shall
private property be taken for public use, without just
42 US.C. § 1983:
“Every person who, under color of any statute, ordinance,
regulation, custom, or usage, of any State or Territory or the
District of Columbia, subjects, or causes to be subjected, any
citizen of the United States or other person within the
jurisdiction thereof to the deprivation of any rights, privi-
leges, or immunities secured by the Constitution and laws,
shall be liable to the party injured in an action at law, suit in
equity, or other proper proceeding for redress.”
STATEMENT OF THE CASE
Petitioner Morton P. MacLeod seeks certiorari to review a
decision of the Court of Appeals for the Ninth Circuit which
holds that he did not suffer a taking even though he was
prohibited from making any gainful use of several thousand acres
and left only the “righ.” to hold the property at a loss. The court
of appeals equates mere ownership of property with its economi-
cally viable use and thus frustrates any limitation on the extent to
which the use of private property may be regulated.
In 1977, petitioner acquired three mvc ep totalling
about 8300 acres, in respondent County.“ The previous owner had
raised cattle on the property.
Petitioner found that cattle grazing did not cover the minimum
costs necessary for that operation, much less petitioner's actual
costs (App. B, pp. 19-20). Revenues from a grazing lease did not
even cover property taxes (App. B, pp. 19-20). The district court
found that petitioner could never have supported the ranches on
? The ranch properties were held by a corporation that petitioner
owned, and to which he is the successor in interest. See App. B, pp. 28.
30-31.
3
cattle income (App. B, pp. 29-30). Petitioner attempted a farm-
ing Operation but there was not an adequate water supply, even
though petitioner spent over $100,000 in attempting to locate a
well for irrigation (App. B, p. 20). A harvest of hardwood was
also unprofitable and could not be repeated for forty years (App.
B, p. 20).
Petitioner sought permission to subdivide one of the ranches
into single-family residence parcels averaging 43 acres each
(App. B, p. 20). The subdivision plan was rejected by the County,
and the district court found that any effort to develop the other
ranches “would likely have been doomed to similar failure” (id).
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forced petitioner to soll the ranch lands. Petitioner suffered a net
loss on the sale, since his costs of acquiring and holding the
ranches exceeded the sale price (App. B, p. 28). The three
* The California Supreme Court denied review but ordered that the
opinion of the court of appeal not be published in the official reports. 179
Cal. Rptr. at 520.
4
ranches were sold as a unit in October 1979, with petitioner
retaining ownership of the harvestable redwood timber for a
period sufficient to challenge the County’s denial of a permit and
to harvest, until mid-1982 (App. B, pp. 27-28). The value of the
harvestable redwood at the time was approximately $1 million
(id.).
Petitioner, after his timber rights had expired, brought this
inverse condemnation action under 42 U.S.C. § 1983.‘ The dis-
trict court found that subdivision and development of the property
was foreclosed by the County (App. B, p. 20); that the property
could not viably be operated as a cattle ranch or farming opera-
tion (App. B, pp. 19-20, 29); and that had petitioner been allowed
to harvest redwood timber he could have met his “immediate
operation and maintenance expenses, including taxes and insur-
ance” (App. B, pp. 29-30). However, since timber harvesting
could not also generate income sufficient to pay off petitioner’s
mortgage, the district court concluded that timbering was not an
“economically viable use” and was therefore entitled to no protec-
tion against an uncompensated taking (App. B, p. 44).
The court of appeals affirmed. Although rejecting the district
court's analysis, the court of appeals held that there had been no
taking because the County had not interfered with “the two
present and primary uses of the property” —that is, cattle grazing
and a so-called “holding” for investment use (749 F.2d at 547;
App. A, p. 10). In the face of the district court's finding that the
cattle operations were not economically viable (App. B, pp. 19-
20, 29), the court of appeals necessarily held that mere ownership
of the property was an economically viable use (749 F.2d at 549
n.8; App. A, p. 14)—even though, as the district court found,
iti suffered a loss when he was finally forced to sell the
property
REASONS FOR GRANTING CERTIORARI
This case presents an issue of recurring and great importance:
namely, whether a state or local government, through a series of
*See note | and accompanying text.
em |
5
regulatory actions, can deprive an owner of private property of all
gainful use of his property, and still avoid payment of any
compensation under the Fifth Amendment. The guidance of this
Court is needed to clarify widespread confusion in the lower
courts which is substantially eroding the protection of the Just
Compensation Clause.
In Agins v. Tiburon, 447 U.S. 255, 260 (1980), relying on Penn
Central Transp. Co. v. New York City, 438 U.S. 104, 138 1.34
(1978), this Court held that the test for a regulatory taking is
whether a property owner is denied the “economically viable use”
of his land. More recently, in Kirby Forest Industries, Inc. v.
United States, __. U.S. ___., 104 S. Ct. 2187, 2196 (1984), the
Court “recognized that a radical curtailment of a landowner’s
freedom to make use of or ability to derive income from his land”
may give rise to a taking.
Despite its central importance in the law of regulatory takings,
the concept of “economically viable use” remains undefined, with
the result that many courts deny any significant content to a basic
constitutional safeguard. The opinion below, like many recent
decisions, is premised on the notion that the value of property
must be completely destroyed before the owner may recover
compensation. This is contrary to the principles of fairness which
should apply in Fifth Amendment taking cases, and conflicts with
another line of lower court cases that permit recovery for tempo-
rary takings.
The instant action is not based on petitioner's frustrated hope of
developing the ranches into a residential subdivision, on his
failure to recover his investment in those ranches, or on his
inability to put the property to its highest and best use. It is based
on the fact that the County prevented petitioner from using the
existing resources of his property to meet current, necessary
expenses of ownership, not including acquisition costs,’ and
thereby forced him to operate at an actual out-of-pocket loss.
* By “current” expenses we mean the costs of operation and mainte-
nance, without any allowance for mortgage principal and interest. Thus,
we agree that an owner's right to recover compensation should not
depend on what he happened to pay for his property.
6
Petitioner seeks compensation for the denial of the minimal
gainful use of his land—i.e., redwood timber harvesting. The
taking claim in Kirby was rejected because “[t]he Government
never forbade petitioner to cut the trees on the land or to develop
the tract in some other way” (104 S. Ct. at 2196); the plaintiff in
Agins lost because he was able to build one residence per acre
(447 U.S. at 262). Here, by contrast, the County forbade both
residential development and the only use of petitioner’s existing
resources that could have covered the minimum expenses of
holding the property.
As a result, this case presents a question which goes to the very
heart of the law of inverse condemnation: whether the right to an
economically viable use of property,° like the rights to exclude
others or to be free of a permanent physical intrusion by the
government,’ is fundamental to ownership and cannot be de-
stroyed without compensation.
I. THE OPINION BELOW DISREGARDS, AND TYPIFIES
THE TENDENCY OF LOWER COURTS TO DISRE-
GARD, THE STANDARDS ESTABLISHED BY THIS
COURT.
Neither the district court nor the court of appeals identified any
allowable use of petitioner’s property that was economically
viable. The district court found that each possible use was either
impermissible or uneconomic (App. B. pp. 19-21), so that peti-
tioner was forced to hold the property at an actual loss (App. B, p.
28). The district court based its judgment in favor of the County
on the theory that unless timber harvesting would have allowed
petitioner to recoup his entire investment, including mortgage
payments and interest, it was not sufficiently profitable to be
“economically viable” and, therefore, was not susceptible to a
claim of taking (App. B, pp. 43-44). The court of appeals
° It may be assumed, for purposes of this case, that such a right is
limited to owners whose property actually Aas a presently available,
gainful use.
” Kaiser Aetna v. United States, 444 U.S. 164, 179-80 (1979); Loretto
v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435-38 (1982).
7
correctly rejected this standard,® but that court also failed to
identify any viable use of the property. Although its opinion
stressed that petitioner was able “to continue to use the property
for ‘its original intended uses’ ” (749 F.2d at 548-49; App. A, p.
13)—i.e., cattle operations and “holding” for investment—the
determination of the court of appeals cannot be reconciled with
the fact that those historic “uses” had ceased to be economically
viable, if they ever had been (App. B, pp. 19-20, 29-30).
To explain the importance that it attached to the property’s
“original intended uses,” the court of appeals purported to rely on
Penn Central (749 F.2d at 548-49; App. A, pp. 12-13) (see infra,
note 11). Yet Penn Central, in the very footnote cited by the court
below, made clear that the economic viability of a property’s
present use, and not the continued availability of its historic use,
determines the existence of a taking:
“We emphasize that our holding today is on the present
record, which in turn is based on Penn Central’s present
ability to use the Terminal for its intended purposes and in a
gainful fashion. The city conceded at oral argument that if
appellants can demonstrate at some point in the future that
circumstances have so changed that the Terminal ceases to
be ‘economically viable,’ appellants may obtain relief.” 438
U.S. at 138 n.36 (emphasis added).
The court of appeals’ evident conclusion that the mere owner-
ship of property is an economically viable “use” (749 F.2d at 547
n.7; App. A, pp. 10-11) would sanction the most overbearing
zoning and land use regulations. Any regulation which stops short
of actually divesting the property owner of title would allow
“holding property for investment” (id.), and would therefore pass
* Not only was the district court’s analysis “a major departure from
the prior jurisprudence in this area” (749 F.2d at 548; App. A, p. 12),
but it ignored that petitioner’s plans for residential subdivision would
have generated “sufficient capital to enable him to make the mortgage
payments on the ranches” (App. B, p. 20). Thus, the district court’s
reasoning simply leads to the conclusion that petitioner suffered a
taking, not when his timber harvest plan was denied, but when his
subdivision plan was rejected.
8
constitutional muster under the Ninth Circuit’s test. The logical
import of a ruie that holding property is a use, and is economically
viable without regard to costs, is that a taking cannot occur at
least until property has lost all value and become unmarketable.
This position has been made explicit in recent decisions of the
Second Circuit,? and seems to underlie several other decisions.'°
Although the Fifth Amendment may tolerate extensive regulation
of private property, we submit that such a rule removes any
effective limitation on regulation and constitutes an evasion of the
Fifth Amendment.
The Ninth Circuit’s conclusion that mere ownership of prop-
erty is an economically viable use conflicts with Penn Central.
There, it was of critical importance that the “present uses” of the
property were sufficient to provide the owner with some gain. 438
U.S. at 136 and 138 n.36 (emphasis added).'’ Here, petitioner
was forced to “hold” his property without any income to cover
operating expenses. To equate this state of affairs with economic
“viability” is to rob that concept of any real meaning.
9 Sadowsky v. City of New York, 732 F.2d 312, 318 n.3 (2d Cir.
1984); see also Pompa Constr. Corp. v. City of Saratoga Springs, 706
F.2d 418, 424-25 (2d Cir. 1983).
'© Ortega Cabrera v. Municipality of Bayamon, 562 F.2d 91, 100 (1st
Cir. 1977) (suggesting that “takings exist only when the diminution in
values amounts to the total destruction of the value of an identifiable
thing. . . perceived by a reasonable owner as the subject of a distinct
investment”); Maher v. City of New Orleans, 516 F.2d 1051, 1066 (Sth
Cir. 1975), cert. denied, 426 U.S. 905 (1976) (judgment for defendant
affirmed where the challenged ordinance did not “leave Maher, in effect,
nothing”).
'! Rather than come to grips with this language from Penn Central,
the court of appeals simply misquoted it. Thus, the opinion below states
that Penn Central linked the concept of economic viability “to ‘the
ability to use the property for its intended purpose in a gainful fashion.’ ”
749 F.2d at 548 (App. A, p. 12), citing 438 U.S. at 138, n.36; emphasis
in original. In fact, the cited footnote refers to “Penn Central’s present
ability to use the Terminal for its intended purposes and in a gainful
fashion” (emphasis added). This error was called to the attention of the
court of appeals in the petition for rehearing, but was not corrected.
9
Finally, the decisions below typify the tendency of lower
courts’? to dispense with “careful assessment of the impact of the
regulation,” as mandated by Penn Central (438 U.S. at 136), and
instead to observe simply that: (1) there is no fixed standard for a
regulatory taking, but (2) municipalities have broad discretion to
regulate land use, and (3) the plaintiff cannot prevail because he
is not in as desperate straits as the plaintiffs in cases like Euclid v.
Ambler Co., 272 U.S. 365 (1926) or Hadacheck v. Sebastian, 239
U.S. 394 (1915).'? The absence of clear and adequate standards
has not only confused the lower courts'* but has led them
increasingly to abandon the defense of private property.
'2 Pompa Constr. Corp. v. City of Saratoga Springs, 706 F.2d 418,
424-25 (2d Cir. 1983); William C. Haas v. City & Cty. of San Francisco,
605 F.2d 1117, 1120 (9th Cir. 1979), cert. denied, 445 U.S. 928 (1980);
Ortega Cabrera v. Municipality of Bayamon, 562 F.2d 91, 99-101 (Ist
Cir. 1977); Maher v. City of New Orleans, 516 F.2d 1051, 1065-66 (Sth
Cir. 1975), cert. denied, 426 U.S. 905 (1976); see also Dirt, Inc. v.
Mobile County Com’‘n, 739 F.2d 1562, 1565-66 (11th Cir. 1984).
'? In Euclid and Hadacheck, the plaintiffs sought to translate a huge
reduction in the market value of their properties, stemming from a
prohibition of the properties’ most profitable use, into a compensable
taking. See Euclid, 272 U.S. at 384 (75% reduction); Hadacheck, 239
U.S. at 405 (90% reduction). The courts below, like many others,
reasoned that because the whole of petitioner’s investment in his
property was not destroyed, he did not suffer a taking (App. A, p.11;
App. B, p. 45). Such logic ignores the fact that the property owners in
Euclid and Hadacheck retained what petitioner here did not: a use of
their property that was economically gainful. See Euclid, 272 U.S. at
380, 382 (two-family dwellings); Hadacheck, 239 U.S. at 408 (mining
for clay).
'* Rose, Mahon Reconstructed: Why the Takings Issue is Still a
Muddle, 57 S. Cal. L. Rev. 561 (1984); Michelman, Property, Utility,
and Fairness: Comments on the Ethical Foundations of ‘Just Compensa-
tion’ Law, 80 Harv.L.Rev. 1165, 1169-70 (1967).
10
Il. THE ALLOWABLE USES OF PROPERTY, AND NOT
THE POSSIBILITY THAT OTHER USES MAY BE
PERMITTED IN THE FUTURE, SHOULD DETER-
MINE WHETHER THERE HAS BEEN A TAKING.
It is settled that mere diminution in the value of property does
not establish a taking, and that an owner is not entitled to the
most gainful use of his property. Penn Central, 438 U.S. at 131;
Goldblatt v. Hempstead, 369 U.S. 590, 592 (1962). But it does
not follow that the complete destruction of value (or marketabil-
ity) is necessary to establish a taking. Rather, “the ‘taking’ issue
in these contexts is resolved by focusing on the uses the regula-
tions permit.” Penn Central, 438 U.S. at 131 (emphasis added).
There are compelling reasons that land use regulation should be
tested, for purposes of the Fifth Amendment, by its impact on the
availability of some gainful use of private property, rather than by
its impact on the value of such property.
1. The premise of permitting recovery for a temporary tak-
ing'® is that the denial of present use will support a taking claim.
That is, even though the restrictive regulation may ultimately be
invalidated or otherwise terminate, these cases suggest that the
Fifth Amendment requires compensation for the intervening
denial of use. No less should compensation be required where
government action requires an owner to forego the gainful use of
his property. Simply because the property can still attract a buyer
with the ability to wait for a change in economic or political
conditions affords insufficient excuse to deprive the owner of what
ought to be a “fundamental element of the property right”
(Kaiser Aetna, 444 U.S. at 179-80): the economically viable use
of property.
'S See, e.g., San Diego Gas & Electric Co. v. San Diego, 450 U.S. 621,
657-58 (1981) (Brennan, J., dissenting); Hamilton Bank v. Williamson
Cty. Reg. Planning Comm., 729 F.2d 402, 407 (6th Cir. 1984), cert.
granted, 53 U.S.L.W. 3202 (U.S., Oct. 1, 1984) (No. 84-4); Yuba
Goldfields, Inc. v. United States, 723 F.2d 884, 888 (Fed. Cir. 1983);
Urbanizadora Versalles, Inc. v. Rivera Rios, 701 F.2d 993, 996-97 (ist
Cir. 1983).
ee ce ene em ead
ORT Pe
11
“sé
2. This Court has recognized that “ ‘[c]Jonfiscation may result
from a taking of the use of property without compensation quite
as well as from the taking of the title.” Kaiser Aetna v. United
States, 444 U.S. 164, 174 n.8 (1979), quoting Chicago, R. I. & P.
Ry. Co. v. United States, 284 U.S. 80, 96 (1931). The gainful use
of property is as fundamental to ownership as the right to limit
public access to one’s property or to be free of physical intrusion
by the government,’* and should be protected no less by the Just
Compensation Clause. This protection is essential to reflect the
true character of the property right:
“Property does not have rights. People have rights. ... [A]
fundamental interdependence exists between the personal
right to liberty and the personal right in property. Neither
could have meaning without the other.” Lynch v. Household
Finance Corp., 405 U.S. 538, 552 (1972).
To limit the owner of the several thousand acres involved here
from attempting even a minimally gainful economic activity on
property of this scale “goes too far” in restricting the owner’s
freedom with relation to the physical thing (Pennsylvania Coal
Co. v. Mahon, 260 U.S. 393, 415 (1922) ).
3. As this Court has repeatedly explained, taking claims
require a balancing of public and private interests to determine
when “the public at large, rather than a single owner, must bear
the burden of an exercise of state power in the public interest.”
Agins, 447 U.S. at 260-261. Where a property owner is allowed
some gainful use while the public benefits from a ban on other
uses, such a balance may in some sense be achieved. But if
market value were the criterion for a taking, courts would be, and
apparently have been, unable to find a stopping point short of the
conclusion that property is not taken until its value is totally
destroyed.'’ Such an arbitrary rule makes no pretense of rationally
adjusting the competing public and private interests. The public
'© Kaiser Aetna v. United States, 444 U.S. 164, 179-80 (1979); Loretto
v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435-38 (1982).
'’ Compare Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415
(1922) (Holmes, J.):
12
would pay nothing during what may be a prolonged period of loss
by the private property owner.
4. The court of appeals’ conclusion that allowing an owner the
historic use of his property is a constitutionally adequate substi-
tute for economic viability ignores the impact of changing cir-
cumstances. The fact that petitioner’s predecessor did not use the
ranches for economic gain (App. B, p. 17) should not preclude
petitioner from seeking to realize some economic benefit from
this substantial, if historically underutilized, parcel of land. To
confine an owner to land uses simply because they are historic
takes from him the ability to respond to actual, and inevitably
changing, conditions. If the community imposes such a limitation
upon an owner of property it has deprived him of essential rights
denoted by the concept of property.
CONCLUSION
For the foregoing reasons, the petition for certiorari should be
granted.
Respectfully submitted,
VAUGHN R. WALKER
Counsel of Record
ROBERT M. WESTBERG
JOHN M. GRENFELL
PILLSBURY, MADISON & SUTRO
Of Counsel
“When this seemingly absolute protection [of the Fifth Amendment]
is found to be qualified by the police power, the natural tendency of
human nature is to extend the qualification more and more until at
last private property disappears. But that cannot be accomplished in
this way under the Constitution of the United States.”
l
Appendix A
United States Court of Appeals
for the Ninth Circuit
No. 83-2480
D.C. No. C-82-3751-RFP
Morton P. MacLeod,
Plaintiff-Appellant,
vs.
County of Santa Clara,
Defendant-Appellee.
[Filed Dec. 10, 1984]
Appeal from the United States District Court
for the Northern District of California
Robert F. Peckham, District Judge, Presiding
Argued and submitted October 2, 1984
OPINION
Before: FARRIS, ALARCON, and NORRIS, Circuit Judges.
ALARCON, Circuit Judge:
Morton P. MacLeod (hereinafter MacLeod) appeals from the
judgment in favor of Santa Clara County (hereinafter the
County) holding that the County’s denial of his application for a
permit to harvest timber on his property did not constitute a
compensable taking. MacLeod contends that the district court
erred in holding that the denial of a permit to harvest timber did
not effect a “taking” of his property for a public use, within the
meaning of the fifth amendment, requiring just compensation. '
' The fifth amendment is made applicable to the States through the
fourteenth amendment, see Chicago, B. & O. R. Co. v. Chicago, 166 U.S.
226, 239 (1897). We note jurisdiction under 28 U.S.C. § 1291 (1983).
2
FACTS
Appellant MacLeod is the successor in interest to, and the
former president and director of, the Castro-Escondido Ranch
Corporation (hereinafter the Ranch Corporation). In June of
1974, while MacLeod was serving as its president, Triad Capital
Management Holding Company (hereinafter Triad) formed the
Ranch Corporation for the purpose of purchasing and holding title
to the Castro-Valley and Escondido Ranches. MacLeod was
responsible for the purchase of the property, which was offered for
sale as a single parcel consisting of approximately 7,000 acres.
The Escondido Ranch, which contains about 1,800 acres, is
primarily a mountainous woodland. The Castro-Valley Ranch,
which contains about 5,200 acres, is primarily covered by a
mountain range and woodland, with many sections of open
grazing land. An enclosed valley of approximately 150 acres of
relatively flat land, known as the Castro-Valley, gives that ranch
its name. The entire property is located within the Al Residential
and Agricultural zoning district of Santa Clara County. Mac-
Leod, anticipating a significant increase in value, purchased the
property on behalf of the Ranch Corporation for $2,700,000 as a
long-term investment, with interim use as a cattle ranch.
In December of 1976, MacLeod’s association with Triad was
involuntarily terminated. On January 1, 1977, in exchange for his
stock in the parent company and other consideration, MacLeod
received 100% of the Ranch Corporation's stock.? MacLeod’s
stock in Triad was deemed to be worth the sum of the down
payment on the property ($800,000) and the two-year carrying
costs ($640,000). Thus, MacLeod’s “investment” in the Castro-
Escondido property was $1,400,000. He assumed the outstanding
mortgage of $1,700,000.’
? MacLeod received the Ranch Corporation stock rather than cash or
some other asset because Triad determined that MacLeod should be the
one to “live with” his investment decision.
> In early 1978, the name of the Ranch Corporation was changed to
the Bloomfield-Hereford Corporation because MacLeod, on behalf of
a
3
MacLeod continued the historic use of the property, by leasing
it out in its entirety for cattle grazing during the first years of
ownership. In 1977, MacLeod purchased approximately 150 cow-
calf units in an effort to run his own cattle operation on the
Castro-Escondido property. In 1978 and 1979, MacLeod again
leased out the entire property for cattle grazing. Neither activity
proved sufficient to cover the costs of maintaining the property. In
October of 1977, MacLeod obtained a permit from the County to
harvest hardwood. The harvest was conducted in 1978-1979, but
proved unprofitable as well. In 1978, MacLecd attempted an
experimental farming operation on the 150 acre valley in the
Castro-Valley parcel. Water problems led to the abandonment of
this project. MacLeod then began to pursue the possibility of
large-scale timber harvesting.
MacLeod employed the firm of Hammon, Jensen, Wallen, and
Associates, professional foresters, to prepare an inventory of the
property and a timber harvest plan (hereinafter the Plan). The
resulting plan involved the selective harvesting of a maximum of
2.5 million board feet of timber. Pursuant to the California
Z’berg-Nejedly Forest Practice Act of 1973, Cal. Pub. Res. Code
§ 4511 et seg., MacLeod submitted this Plan to the State Depart-
ment of Forestry. After inspecting the property, the State Depart-
ment of Forestry approved the Plan.
MacLeod subsequently entered into an agreement with Big
Creek Lumber Company (hereinafter Big Creek) whereby Mac-
Leod agreed to sell, and Big Creek agreed to harvest, 2.5 million
the Ranch Corporation, purchased the Bloomficid-Hereford Ranch,
which was contiguous to the Castro-Escondido property. The district
court found that because the Bloomfield Ranch was acquired separately,
zoned differently, and had an overall topography different from that of
the Castro-Escondido Ranch, MacLeod’s ownership of the Bloomfield
Ranch would be considered somewhat a “fortuity, ” and, for purposes of
the taking analysis, only the Castro Valley and Escondido ranches would
constitute the property at issue. Since MacLeod does not challenge this
particular finding, we need not address it here. But hereafter, all
references to the ranch property refer to the Castro-Escondido property
only unless otherwise noted.
4
board feet of redwood timber. Under the terms of the contract,
MacLeod was to receive a fixed price of $325 per thousand board
feet of redwood timber.
The timber sale agreement was conditioned on the obtaining of
a use permit from the County that was satisfactory to Big Creek.
MacLeod applied for a permit in September of 1978. The
planning commission conducted a hearing on MacLeod’s applica-
tion in September of 1979. The application was denied for public
health, safety, and welfare reasons.
MacLeod appealed the denial to the County Board of Supervi-
sors. That body held a de novo hearing on the application. The
denial of the permit was upheld. MacLeod then filed a complaint
in the Superior Court in California seeking to set aside the
determination of the Board. The Santa Clara County Superior
Court entered judgment for the County. MacLeod then sought
expedited review before a California appellate court by writ of
mandate.‘ In an opinion issued December 29, 1981, the California
Court of Appeal denied the writ, effectively affirming the judg-
ment. MacLeod’s petition for a hearing in the California Supreme
Court was denied on March 11, 1982.
Shortly thereafter, MacLeod filed this action under the Civil
Rights Act of 1871, 42 U.S.C. § 1983 seeking compensation for
the alleged “taking” of his property by the County in violation of
the fifth and fourteenth amendments. After a trial, the district
court entered judgment for the County. The district court found
that although MacLeod had a right to an economically viable use
of his property, such use did not exist. The court held that the
property in question would not have been sufficiently profitable,
even if the permit to harvest timber had been granted, for the
denial of the permit to constitute a taking.
“In the meantime, MacLeod sold the ranches. The Bloomfield-
Hereford Ranch Corporation entered into an agreement to sell the entire
property to the C.M. Trading Company for $7,201,524. The Bloomfield-
Hereford Ranch Corporation was dissolved in April of 1980, but
MacLeod personally assumed its assets and liabilities.
5
We do not agree with the district court’s reliance on immediate
overall profitability as the standard for determining whether a
compensable taking has occurred. We agree, however, that no
taking has occurred on the facts of this case, and affirm the
judgment for the reasons stated below.
DISCUSSION
I
The fifth amendment guarantees that private property shall not
“be taken for public use, without just compensation.” Tradition-
ally, a compensable “taking” was deemed to occur whenever a
government agency or entity formally condemned a landowner’s
property and obtained the fee simple pursuant to eminent domain
proceedings. Cf United States v. Clarke, 445 U.S. 253 (1980)
(distinguishing traditional condemnation and eminent domain
proceedings from modern takings); Andrus v. Allard, 444 U.S. 51
(1979) (comparing the two methods of taking—compelling sur-
render or physical invasion vs. restriction of use or rights in private
property); Pennsylvania Coal Co. v. Mahon, 260 US. 393
(1922). Under present law, a taking can also occur, without the
filing of condemnation proceedings, whenever government action
beneficial to the public results in the destruction or restriction of
the use and general enjoyment of privately owned real property.
See, e.g., Kaiser Aetna v. United States, 444 U.S. 164, 178-180
(1979) (navigational servitude allowing public right of access);
United States v. Causby, 328 U.S. 256, 261-62 (1946) (frequent
low altitude flights of Army and Navy aircraft over a chicken
farm). The rationale for expanding the traditional notion of
“taking” is relatively simple: “Police power regulations such as
zoning ordinances and other land use restrictions can destroy the
use and enjoyment of property in order to promote the public
good just as effectively as formal condemnation or physical
invasion of property.” San Diego Gas & Electric Co. v. San Diego,
450 U.S. 621, 652 (1981) (Brennan, J. dissenting).°
* The cause of action alleged in such an instance is inverse condemna-
tion. The term “inverse condemnation” simply refers to “a cause of
6
Although it is now well established that government regulations
can effect a fifth amendment taking, see, e.g, Penn Central
Transp. Co. v. New York City, 438 U.S. 104 (1978) (no taking
found on the facts of the case); Jn re Aircrash in Bali Indonesia
on April 22, 1974, 684 F.2d 1301, 1312 (9th Cir. 1982), we
cannot agree with MacLeod’s contention that the denial of the
permit operated to effect a taking of property in this instance. No
set formula has been developed for determining when “justice and
fairness” require that economic injuries caused by government
reguiations for the good of the general public must be compen-
sated by the government rather than left to remain disproportion-
ately concentrated on a few individuals. See, e.g., Andrus, supra at
65. Instead, the question of whether or not a particular restriction
effects a taking depends largely upon the particular circumstances
of the case. See Penn Central, supra at 124. The law is well
settled, however, that the application of a general zoning law to
particular property effects a taking if “the ordinance does not
substantially advance legitimate state interests... or denies an
owner economically viable use of his land....” Agins v. City of
Tiburon, 447 U.S. 255, 260 (1980), citing Penn Central, supra. If
a regulation or prohibition is a valid exercise of the police power,
there is no taking if economically viable use of the property
remains. 3
II
The phrase “economically viable use” became an important
part of taking jurisprudence after the Supreme Court decision in
Penn Central, supra. Penn Central involved the application of
New York City’s Landmark Preservation Law to Grand Central
Terminai (hereinafter the Terminal). The Terminal, owned by
action against a governmental defendant to recover the value of property
which has been taken in fact by the governmental defendant, even
though no formal exercise of the power of eminent domain has been
attempted by the taking agency.” Clarke, supra at 257. An action for
inverse condemnation is cognizable under 42 U.S.C. § 1983. See Lake
Country Estates v. Tahoe Planning Agency, 440 U.S. 391, 398-400
(1979).
7
Penn Central Transportation Compaiiy and its affiliates (herein-
after Penn Central), is one of New York City’s most famous
buildings, and as such, had been designated a landmark.
To increase its income, Penn Central entered into a renewable
50-year lease and sublease agreement with UGP Properties, Inc.
(hereinafter UGP). Under the terms of the agreement, UGP was
to construct a multi-story office building above the Terminal.
UGP and Penn Central then applied to the Landmarks Preserva-
tion Commission (hereinafter the Commission) for permission to
construct the proposed office building atop the Terminal. Permis-
sion was denied un the ground that the proposed tower would
overwhelm the existing building, destroy its aesthetic appeal, and
reduce the designated landmark to the status of a curiosity. Jd. at
118.
Rather than seek review of the denial of the certificate of
construction, appellants filed suit in New York State Court
claiming that the application of the Landmark Law had “taken”
their property without just compensation in violation of the fifth
amendment, and arbitrarily deprived them of their property with-
out due process of law in violation of the fourteenth amendment.
The New York Court of Appeals summarily rejected any claim
that the Landmark Law had taken appellant’s property without
just compensation.
In affirming the New York Court of Appeals, the Supreme
Court used a two-step analysis, deciding first whether the
Landmark Law was constitutional, and second, whether it so
interfered with appellant’s property as to require compensation. In
deciding that the law was a constitutional exercise of the police
power, the Court noted that use prohibitions or restrictions are
unconstitutional takings if the government action in issue cannot
be characterized as an acquisition of resources to permit or
facilitate uniquely public functions, see United States v. Causby,
328 U.S. 256 (1946), if the regulation in issue is not reasonably
necessary to effectuate a substantial public purpose, or if the
government regulation or action so frustrates the distinct invest-
ment-backed expectations of the claimant as to have nearly the
same effect as the complete destruction of the claimant’s rights,
8
see Armstrong v. United States, 364 U.S. 40 (1960) (govern-
ment’s complete destruction of a materialmen’s lien in certain
property held a “taking”); Pennsylvania Coal Co. v. Mahon,
supra. Penn Central, supra at 127-28. The Court quickly disposed
of Penn Central’s contentions that the law amounted to discrimi-
natory zoning, or was arbitrary because it was basically a matter
of taste. Jd. at 132. It rejected the argument that the law unfairly
distributed the benefits and burdens of governmental action by
not imposing identical restrictions on all structures located within
a particular community, holding that the imbalanced distribution
of the benefits and burdens resulting from such an ordinance did
not mean that the law effected a taking. Jd. at 133. It also held
that the fact that a regulation had the effect of denying the owner
the ability to exploit a property right that was heretofore believed
available, or diminishing the value of the property did not prove
that such regulation amounted to a taking. Jd. at 130-31. Finally,
the Court rejected Penn Central’s challenge to the law’s constitu-
tionality by holding that the law had not operated to appropriate
part of the property for strictly governmental purposes. Jd. at 135.
Thus, it held that although the New York City Landmark Law
restricted the exploitation of a property interest to a greater extent
than applicable general zoning law, it was not unconstitutional. Jd.
at 135-36. :
The Court then went on to consider the severity of the impact
of the law on Penn Central’s property. After a careful assessment
of the impact of the regulation on the terminal site, the Court
found that the Landmark Law did not interfere in any way with
the present uses of the terminal:
Its designation as a landmark not only permits but contem-
plates that appellants may continue to use the property
precisely as it has been used for the past 65 years: as a
railroad terminal....So the law does not interfere with
what must be regarded as Penn Central’s primary expecta-
tion concerning the use of the parcel.
Id. at 136. The Court also found that the law permitted Penn
[Central] to obtain a “reasonable return” on its investment. Jd. at
136. The Court concluded that the law permitted a “reasonable
9
beneficial use” of the landmark site, and thus held that it had not
effected a taking of Penn [Central]’s property. Jd. at 138.°
Ill
MacLeod contends that the denial of the permit operated to
deny him economically viable use of his property. We cannot
agree. The issue of whether the denial of the permit was a
legitimate exercise of the County’s police power was decided by
the California State Courts in favor of the County. MacLeod has
not pursued that question before this court. Therefore, our review
is limited to the issue of whether the rejection of the application
denied MacLeod the economically viable use of his property.
Any analysis of whether a regulation or prohibition denied an
owner the economically viable use of his property necessitates a
review of the impact of the regulation or prohibition on the
property as a whole. See Penn Central, supra at 130. In Goldblatt
v. Town of Hempstead, 369 U.S. 590 (1962), appellant chal-
lenged a city ordinance that completely prohibited a beneficial use
to which the property had previously been devoted by prohibiting
further excavation on 20 acres of their 38 acre lot. In holding that
the ordinance was a valid exercise of the police power, the Court
took into consideration the availability of the remaining 18 acres
of land in determining that the ordinance was neither so onerous
or unreasonable as to result in a taking of appellant’s property. Jd.
In Gorieb v. Fox, 274 U.S. 603 (1927), the challenged ordinance
created a setback or building line to which all buildings subse-
quently erected had to conform. The appellant owned several
building lots within the area covered by the ordinance. He applied
to the city council for a permit to erect a brick building upon a lot
within the ordinance area, and the council gave him permission to
erect a building 34% feet back from the street line. He thereupon
sought to compel the council to issue a permit to occupy the lot
up to the street line, alleging that the setback ordinance deprived
him of his property without due process of law. The. Court
® The Court refers to the importance of this economically viable use in
footnote 36 on this same page.
10
sustained the setback ordinance as reasonable and constitutional,
holding that the restriction was not so substantial as to amount to
a taking of appellant’s property.
Thus, it is well settled that taking jurisprudence does not divide
a single parcel into discrete segments or attempt to determine
whether rights in a particular segment of a larger parcel have been
entirely abrogated. The Supreme Court has long since rejected
any contention that denial of the use of a portion of a parcel of
property is so bound up with the investment-backed expectations
of a claimant that government deprivation of the right to use a
portion of the property in issue invariably constitutes a taking,
irrespective of the impact of the restriction on the value of the
parcel as a whole. Penn Central, supra at 130, n.27. In deciding
whether a particular governmental action has effected a taking,
the Court must focus both on the character of the action and on
the nature and extent of the interference with the rights in the
parcel as a whole. /d. at 130-31.
The denial of the permit, unlike the government acts in
Causby, supra, did not interfere in any way with the two present
and primary uses of the property. Specifically, the denial of the
permit did not affect MacLeod’s ability to continue to hold the
property for investment purposes, with interim use as a cattle
ranch, and grazing land, the very uses for which the property was
purchased. It is an undisputed fact that MacLeod was free to
continue to raise cattle or to lease out the property for grazing
lands, and retained the right to continue to hold the property as an
investment.’ Thus, it is clear that the denial of the permit did not
’ Holding property for investment purposes can be a “use” of prop-
erty. See, e.g., Euclid v. Ambler Realty Co., 272 U.S. 365, 384 (1926) (a
suit brought by an owner of unimproved land that was vacant and had
been held for years for the purpose of sale and development for
industrial use, seeking relief from the enforcement of a zoning ordinance
on the grounds that the ordinance operated to reduce the normal value
of his property, and to deprive him of liberty and property without due
process of law. The ordinance was held to be a valid exercise of the
police power. The validity of the owner’s “uses” was never questioned);
United States v. 156.81 Acres of Land, 671 F.2d 336, 337 (1982), cert.
\
11
interfere with MacLeod’s primary “investment-backed expecta-
tion” concerning the use of the parcel. See Penn Central, supra at
136.
MacLeod would have us disregard the fact that the denial of
the permit did not affect his expected uses of the Ranch property
because he eventually found out that these uses were not the most
profitable or the highest and best use of the property. It is
undeniable that rejection of the permit kept MacLeod from
pursuing what may have been the most profitable short term use
of the property, i.e., large scale timber harvesting. The fact that
the denial of the permit prevented MacLeod from pursuing the
highest and best use of his property does not mean that it
constituted a taking.
In addition, appellant’s “highest and best use” argument is
simply another way of claiming that he has suffered a diminution
in the value of his property rather than the complete destruction
of its economically viable use. The Supreme Court has repeatedly
held that mere diminution in value, standing alone, cannot estab-
lish a taking. See Penn Central, supra at 131; Euclid, supra (735%
diminution in value); Hadacheck v. Sebastian, 239 U.S. 394
(1915) (value reduced from $800,000 to $60,000). See also
William C. Haas & Co. v. City & County of San Francisco, 605
F.2d 1117, 1120 (9th Cir. 1979), cert. denied, 445 U.S. 928
(1980) (value reduced from $2,000,000 to $100,000).
Moreover, the timber sale agreement with Big Creek was
contingent upon MacLeod obtaining all necessary permits. Al-
though at the time MacLeod applied for the permit he had every
reason to believe that his application would be granted, he must
have been aware that the standards and conditions governing the
issuance of the permit might cause his application to be denied.
denied, 459 U.S. 1086 (1982) (where appellants owned roughly 156.81
acres of undeveloped land in Marin County, California which was
undisputedly not income producing, but had been purchased and was
being held for its “development potential.” A condemnation judgment
which denied the economically viable use of the property was neverthe-
less held to be a taking requiring just compensation).
12
Thus, MacLeod had an expectation, but not an assurance that the
permit would issue. In essence, MacLeod is contending that there
has been a taking requiring compensation because he has been
denied the opportunity to exploit his property by pursuing a
particular project he had come to believe would be available for
development. This argument fails. In Penn Central, supra, the
Supreme Court rejected as “quite simply untenable” the conten-
tion that property owners “may 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 ....” Jd. at 130.
MacLeod finally argues that the district court erred in holding
that the denial of the permit was not a taking because the timber
harvesting operation would not have produced a profit over and
above the overall expenses of the entire ranch operation. He
asserts that the standard to be applied in the determination of
“economic viability” does not depend on the overall profitability
(ability to generate income sufficient to cover expenses and
Carrying costs), of the property or business in issue. We agree.
Although the Supreme Court has never elaborated on the mean-
ing of “economically viable,” Penn Central, supra linked its use of
the term to “the ability to use the property for its intended
purpose in a gainful fashion.” Jd. at 138, n.36 (emphasis added).
Further, the Supreme Court has stated with respect to a “lost
future profits” based taking claim, that: “Prediction of profitabil-
ity is essentially a matter of reasoned speculation that courts are
not especially competent to perform. Further, perhaps because of
its very uncertainty, the interest in anticipated gains has tradition-
ally been viewed as less compelling than other property-related
interests.” Andrus v. Allard, supra at 66.
We are unwilling to equate immediate overall profitability with
the requirement of “economic viability.” To do so would be a
major departure from the prior jurisprudence in this area. We
perceive nothing in the language of Agins, supra, or Penn Central,
supra, that would in any way cast doubt on our analysis. It was
thus error for the district court to consider the immediate overall
profitability as the measure of whether or not there had been a
ee ee ae
13
taking of appellant MacLeod’s ranch property. This error was
neither dispositive nor prejudicial, however, in light of MacLeod’s
inability to prove that the denial of the permit had indeed
operated to effect a taking of his property. It is clear from the
record that the denial of the permit in no way affected MacLeod’s
ability to continue to use the property for “its original intended
uses.” See Penn Central, supra at 138, n.36. His assertion that the
denial of the permit effectively extinguished an expected opportu-
nity for exploitation of his property, thereby preventing him from
pursuing the highest and best use of his property, is not enough to
establish a taking. See Penn Central, supra.
CONCLUSION
In sum, existing authority compels us to reject MacLeod’s
contention that the denial of the right to use a portion of a parcel
of property invariably constitutes a taking, irrespective [of] dimi-
nution of value, or denial of the highest and best use of property
can constitute a taking have each been rejected by the Supreme
Court. The determination of whether or not an economically
viable use of property remains is essentially an ad hoc factual
inquiry. Penn Central, supra at 124. That decision turns upon the
economic impact of the regulation and, particularly, the extent to
which the regulation or prohibition has interfered with the distinct
investment-backed expectations of the claimant. Jd. The denial of
the permit to harvest timber merely prohibited an additional
expected use of the property. This is not enough to allow us to
conclude that it interfered with MacLeod’s investment-backed
expectations, extinguished a fundamental attribute of ownership,
or prevented MacLeod from deriving a reasonable return on the
property.
We are not insensitive to the fact that the denial of the permit
may have placed MacLeod in a difficult short term financial
situation. But the fifth amendment is not a panacea for less-than-
perfect investment or business opportunities. It cannot be said
that the denial of the permit denied MacLeod the “ ‘justice and
14
fairness’ guaranteed by the Fifth... Amendment....” Agins,
supra. We therefore conclude that no taking occurred.*
Accordingly, the opinion of the district court is AFFIRMED.
®* We are aware of the recent Sixth Circuit decision in Hamilton Bank
of Johnson City v. Williamson County, No. 82-5388 (6th Cir. March 7,
1984). The Supreme Court has recently granted certiorari in that case.
We do not find Hamilton Bank dispositive of the question before us. The
Hamilton Bank Court held that the evidence supported a finding that
the property in question had no remaining economically viable use after
the zoning ordinance was instituted. This was not the case with Mac-
Leod’s ranch property. Further to the extent that the Hamilton Bank
Court relies on the notion that diminution in value is a significant
interference with investment-backed expectations amounting to a tak-
ing, id. at p.10, it is contrary to the law of this circuit. William C. Haas
& Co. v. City & County of San Francisco, 605 F.2d 1117, 1120 (9th Cir.
1979), cert. denied, 445 U.S. 928 (1980).
15
Appendix B
In the United States District Court
For the Northern District of California
No. C-82-3751 RFP
Morton P. MacLeod,
Plaintiff,
v.
County of Santa Clara,
Defendant.
JUDGMENT
[Filed Sept. 15, 1983]
This matter having come before the court, the Honorable
Robert F. Peckham, Chief Judge, presiding, and the issues having
been presented, and a decision having been duly rendered,
IT IS HEREBY ORDERED AND ADJUDGED that judg-
ment be formally entered in favor of defendant.
Dated: September 15, 1983
/s/ Robert F. Peckham
Chief United States District Judge
16
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
No. 82-3751 RFP
Morton P. MacLeod,
Plaintiff,
v.
County of Santa Clara,
Defendant.
MEMORANDUM AND ORDER
[Filed Sept. 15, 1983]
1.
INTRODUCTION
Plaintiff Morton P. MacLeod brings this action under 42
U.S.C. § 1983, seeking relief for an alleged denial of rights
guaranteed by the fifth and fourteenth amendments of the United
States Constitution. Defendant County of Santa Clara is a legal
subdivision of the state of California; the Board of Supervisors is
its governing body. The Board enacts and administers provisions
of the county Code. Plaintiff alleges that the Board of Supervi-
sors’ failure to grant him a use permit to narvest timber on his
land effected a taking of his property without just compensation.
Jurisdiction over this action is founded upon 28 U.S.C. §§ 1331
and 1343. For the reasons stated below, we conclude that plaintiff
cannot prevail upon his asserted claim.
Il.
FINDINGS OF FACT
In June of 1974, while plaintiff Morton P. MacLeod was
serving as its president, Triad Capital Management Holding
formed the Castro-Escondido Ranch Corporation (Ranch Corpo-
ration), for the purpose of purchasing and holding title to the
Castro Valley Ranch and the Escondido Ranch. At the time of
this purchase, plaintiff owned 15% of the stock in Triad and
served also as president and director of the Ranch Corporation.
17
Plaintiff was responsible for the purchase of the property, which
was being offered for sale as a single, approximately 7,000 acre
parcel by the estate of Harold Chase of Santa Barbara.
Plaintiff, on behalf of the corporation, purchased the property
for $2,700,000 for the general purpose of long-term investment,
anticipating a significant increase in its value. The Escondido
Ranch, which contains about 1800 acres, is mountainous wood-
land. The Castro Valley Ranch, which contains about 5200 acres,
is mostly mountainous range and woodland with some parts
characterized by rolling and open grazing land. An enclosed
intermountain valley of approximately 150 acres of relatively flat
land, known as Castro Valley, gives that ranch its name. The
entire property is located within the “Al Residential and Agricul-
tural” zoning district of the County of Santa Clara. It is located
south of Hecker Pass Highway and West of Monterey Highway in
the County of Santa Clara.
Mr. Chase had utilized the property for cattle grazing (and
polo playing) during the previous forty years of his ownership, and
the Ranch Corporation purchased the property primarily as a
cattle ranch. The Corporation retained Mr. Chase’s foreman of
forty years, Mr. Sxheigza, who provided information concerning
the carrying capacity and other characteristics of the land. Ac-
cording to Mr. Sxheigza, and as confirmed by a report from the
United States Department of Agriculture, see Plaintiff's Exh. 28
at 4, the entire property had been capable historically of sus-
taining about 250 head of cattle.
Plaintiff had had significant exposure to the cattle-raising
industry. From 1972-1975, he had served on the Board of Direc-
tors of the Arizona Land & Cattle Company, one of the largest
public cattle companies in America; at the request of President
Sadat, he had worked on a large project in Egypt in connection
with a dairy operation; and for President Numeiry of Sudan, he
had been very instrumental in putting together a million-acre
cattle ranch for the Sudanese and Nile. Hence, he was generally
familiar with cattle ranching and its attendant expenses.
The Ranch Corporation continued the historical use of the
property, leasing it out in its entirety for cattle grazing at $6/acre
during the first two years of its ownership. Plaintiff, for the
corporation, did not undertake an inventory of the timber poten-
tial prior to the purchase of the property, nor did he purchase the
laud with the distinct intention of exploiting the timber resources
thereon, although before April 12, 1976, Santa Clara County had
no ordinance or other restriction, limitation or regulation impos-
ing a use permit requirement on proposed timber harvesting
operations. The Ranch Corporation considered, but declined, to
place the property under the California Williamson Act, Cal.
Govt. Code §§ 51200 et seg., which would have reduced the
immediate property tax burden, but which also would have
limited the potential of the lana for subsequent development.
In December of 1976, plaintiff's association with Triad was
involuntarily terminated. On January 1, 1977, in exchange for his
stock in the parent company and other consideration, plaintiff
received 100 percent of Ranch Corporation’s stock. Plaintiff's
stock in Triad was deemed to be worth the sum of the down
payment on the property ($800,000) and the two-year carrying
costs ($640,000). Thus plaintiff's “investment” in the Castro
Valley-Escondido property was $1,400,000. He assumed the out-
standing mortgage of $1,700,000. Plaintiff received the Ranch
Corporation stock rather than cash or some other asset because
Triad determined that plaintiff should be the one to “live with”
his investment decision.
In November of 1977, the Ranch Corporation, by plaintiff,
purchased the Bloomfield Hereford Ranch which was contiguous
to the Castro-Escondido Ranch and also acquired options on two
parcels adjacent to the Bloomfield Ranch, referred to as the
Mondali and Floriani option parcels. The purchase price was
$2,260,000. Plaintiff made a $500,000 down payment and ob-
tained a 10-year mortgage for the remainder at 8% interest. In
January or February of 1978, the name of Castro-Escondido
Ranch Corporation was changed to Bloomfield Hereford
Corporation.
19
The Bloomfield Ranch, which contains about 1300 acres, is
gently rolling and mostly open grazing land along the western side
of the Santa Clara Valley and was zoned “A Exclusively Agricul-
tural.” It is separated from the Castro Valley Ranch by a range of
Santa Cruz Mountain foothills known as the Carlyle Hills. Unlike
the Castro Valley and Escondido ranches, which fall entirely
within the wildland classification used at the University of Cali-
fornia for land and resource economics, the Bloomfield lands are
transitional between wildlands and croplands. The property had
been placed under the Williamso:. Act, although there was a
clause therein which permitted a certain amount of subdivision.
Plaintiff testified that he purchased Rloomfield in order to obtain
better acces" to the Castro Valley-Escondido property and to
generate income to enable him to satisfy his mortgage obligations
on the latter property.
In December of 1976, when plaintiff accepted his Triad distri-
bution in the form of 100% ownership of Ranch Corporation
stock, he intended generally to investigate more actively the
“potential” of the ranch, still emphasizing, however, its use as a
cattle ranch.' In 1977, plaintiff purchased approximately 150 cow-
calf units in an effort to run his own cattle operation on the Castro
Valley-Escondido property. From this endeavor, plaintiff derived
approximately $48,000 in gross income. However, the minimum
cost of maintaining such an operation was $76,500 (with property
taxes assessed under the Williamson Act) and, in fact, due in
large part to the actual $75,000 yearly tax liability on the property,
was considerably more. Although all three ranches together could
have sustained 400 cow-calf units, the increased revenue would
still not have compensated for the costs of operation, including
property taxes, and most certainly could not have carried the
mortgage payments.
In 1978 and 1979, plaintiff leased the entire property for cattle
grazing at $8/acre. This, too, did not prove sufficient to cover the
' Although he considered harvesting redwood timber when he ob-
tained ownership of the corporate stock, he did not know the true market’
value of the timber at that time.
20
costs of maintenance and retention of the property. The taxes
alone exceeded the lease revenues from all three ranches.
In October of 1977, plaintiff obtained a permit from the County
to harvest hardwood. The harvest was conducted in 1978-1979
but proved to be unprofitable. Such a harvest could not be
repeated within the next forty years.
Plaintiff expended substantial funds in an effort to identify
water resources for the ranch. In 1978, he had attempted an
experimental farming operation on the 150 acre valley in the
Castro Valley parcel. He planted 14 acres with cucumbers, corn
and string beans, and pumped two wells completely dry in an
effort to irrigate the plants. Thereafter, he spent in excess of
$100,000 attempting to locate a well which would provide the
necessary 600 gallons/minute but was unsuccessful. He had filed
an application with the State Water Resources Board for a permit
to construct a large dam in the valley at a probable cost of
$500,000, but sold the property before obtaining such permit.
Finally, plaintiff attempted to develop the Bloomfield Ranch.
By subdividing the ranch and selling the parcels, plaintiff hoped to
be able to generate sufficient capital to enable him to make the
mortgage payments on the ranches. He presented a subdivision
plan to the County, involving a farm-residence complex of 24
parcels, each on 43 acres. The Board of Supervisors rejected the
plan on the grounds that such a subdivision would require the
extension of urban services such as police, fire, road maintenance,
animal control and schools, and the Bloomfield Ranch was
beyond the County’s Urban Service Areas. Since the Castro
Valley-Escondido property is even more remotely located, any
effort by the plaintiff to develop that land for residences would
likely have been doomed to similar failure. Hence, residential
development was also not a viable use of that property during the
relevant time period 1974-1982.
Plaintiff testified that, between 1974 and 1980, the cattle
market suffered a depression, and the Castro Valley-Escondido
property (as well as the Bloomfield) could not, if indeed « ever
could have been, operated solely as a viable cattle ranch. Hence,
———
cA Dr Dalen athe on
ae owt eat
21
discovering that he lacked sufficient water to grow crops or
grapes, failing to succeed in his residential development plans,
and faced with impending mortgage payments, plaintiff was
forced to pursue seriously the possibility of timber harvesting, in
order to attempt to keep the ranch.
In the fall of 1977, plaintiff employed the firm of Hammon,
Jensen, Wallen and Associates, professional foresters, which pre-
pared a timber inventory of the property and a Timber Harvest
Plan. That Plan involved a selective harvest of a maximum of 2.5
million board feet of timber. Although the inventory indicated
that over 8 million board feet of timber existed on the property,
apparently much of that footage was located in scattered patches
or inaccessible areas. The Plan covered 116 noncontiguous acres
on the Lake Field area of the Castro-Escondido property and
would have involvec the harvesting of 50% of the trees over 18
inches in diameter. An additional million board feet could have
been harvested again in ten years. The logging would have
required approximately 300 trips by truck during a six-week or
longer period in the summer months to the sawmill in Santa Cruz
County. The project would have required the construction of 700
feet of new road, the installation of culverts and the grading of
trails and log landings.
Pursuant to the California Z’berg-Nejedly Forest Practice Act
of 1973, Cal. Pub. Res. Code §§ 4511 et seq., plaintiff submitted
this timber harvesting Plan to the State Department of Forestry.
After inspecting the property, the Department approved the Plan
on September 8, 1978.
On December 15, 1978, plaintiff entered into an agreement
with Big Creek Lumber Company whereby plaintiff agreed to sell
and Big Creek agreed to harvest 2.5 million board feet of redwood
timber under the timber harvest Plan approved by the California
Department of Forestry. Under the contract, plaintiff was to
receive a fixed price of $325 per thousand board feet of redwood
22
timber harvested.’ Hence, plaintiff would have realized approxi-
mately $812,000 from the contract. Considering further the har-
vest of one million board feet which could have been repeated in
ten years, the timber harvesting would have yielded an annualized
income of approximately $82,000. The Timber Sale agreement
was conditional upon a use permit satisfactory to Big Creek being
obtained from the County.
Plaintiff reserved title to the lumber until the permit should be
obtained and the timber harvested. The timber sale agreement
was to extend until April 1, 1981, except that this period was to be
enlarged by one year to April 1, 1982, if permits for timber
harvesting had not been procured by June |, 1979. During 1978
and 1979, in order to meet his obligations under the mortgages,
plaintiff borrowed $500,000 from Wells Fargo Bank on the
security of the timber contract. Big Creek advanced plaintiff
$200,000 on the contract.
On April 12, 1976, the County enacted an ordinance to regulate
timber harvesting and related operations pursuant to authority
granted under the Z’berg-Nejedly Forest Practice Act, which
allows counties to adopt rules and regulations that are stricter
than those promulgated under the Act. Cal. Pub. Res. Code
§ 4516. The Act does not restrict the power of a county under its
zoning authority to review the specific site of a timber harvest
application. On May 6, 1976, the county Planning Commission
passed and adopted standards for such operations, which were
amended on April 6, 1978. Under the ordinance and standards,
timber harvesting required a use permit.
In September of 1978, plaintiff applied for this use permit.
Defendant’s Central Permit Office declared the permit complete
on October 23, 1978. Yet, despite the fact that plaintiff's applica-
tion was to have been agendized for a public hearing before the
appropriate public agency within 45 days of that date, the County
did not act upon the application until June 12, 1979. Action or
plaintiffs application was delayed pending the outcome of u
? At present, the value of timber has fallen to approximately $150 per
thousand.
23
timber harvest application submitted by the California Province
of the Society of Jesus (Noviate application).
On June 12, 1979, having analyzed plaintiff's timber harvest
plan, the County Planning Department staff issued a report which
concluded that the proposed harvest would have no significant
adverse environmental and safety impact that could not be miti-
gated. The staff specifically analyzed any potentially injurious
effects upon water resources and traffic safety. They suggested
that the former could be adequately mitigated by the imposition
of appropriate conditions and the proper enforcement thereof; the
latter could be mitigated by the use of experienced truck opera-
tors, a flag vehicle, adequate turnouts and restrictions on hours of
operation. The staff recommended a negative declaration pursu-
ant to Cal. Pub. Res. Code § 21064.
However, during the time that plaintiff's application for a use
permit was thus pending, a member of the county Board of
Supervisors suggested that timber harvesting be banned from the
County. Although the Planning Commission considered this pro-
posal, it was unable to agree whether or not to adopt it.
On August 6, 1979, the Board of Supervisors considered the
proposed ban and voted four to one to prohibit commercial timber
harvesting as a “nuisance” and to permit the cutting of trees only
to salvage timber after a fire and the cutting of fallen trees for
domestic use. Thereafter, the Board directed the county counsel
to prepare an ordinance formally banning commercial timber
harvesting and further directed the Planning Commission to
revise the standards for harvest permits. During December and
January, the supervisors conducted several hearings concerning
the proposed harvest ban but did not formally adopt the ordi-
nance. On January 21, 1980, the Board adopted an interim
ordinance prohibiting new applications.
On August 16, 1979, on the basis of the Board’s newly-declared
policy against timber harvesting, the county Planning Commis-
sion staff reversed its June recommendation concerning plaintiff's
operation and instead recommended denial of the application,
24
although the substance of the report involving impact and mitiga-
tion remained unchanged.
On September 6, 1979, the Planning Commission conducted a
hearing on plaintiff's application. Witnesses included Phillip E.
Nemir and Dale Holderman, registered foresters; and William
McKillop and Paul Zinke, Prefessors of Forestry at the University
of California. All witnesses urged that the application be granted
and testified that the proposed selective harvest would have a
salutary effect upon the environment and would benefit the public
as a whole. No evidence was presented to the contrary. At the
hearing, the county counsel stated that the Planning Commission,
in making its decision, could consider the articulated policy of the
Board. The Planning Commission denied the application. The
following findings were sent to the Board of Supervisors:
1. That the Commission was not satisfied that the poten-
tial adverse impacts determined in the environmental assess-
ment could be mitigated;
2. That the proposed use of this property is not essential or
desirable to the public convenience or welfare in that the
potential impacts would not be mitigated;
3. That the proposed use would be detrimental to the
public health, safety and general welfare in that the potential
adverse impacts could not be mitigated.
Plaintiff appealed this decision to the County Board of Supervi-
sors, which held a de novo hearing on the application on October
15. Plaintiff requested the Board to delay hearing until it had
formally acted on its proposed ordinance, but the Board refused to
grant a continuance. Again, all witnesses, including Professors
McKillop and Zinke, urged that the proposed harvest application
be granted and testified that the harvest would not have an
adverse effect on the environment but would be beneficial to the
land and wildlife and would be of economic and social benefit to
the county. This testimony notwithstanding, several Board mem-
bers expressed their concern with the particular dangers of plain-
tiffs project, including the traffic hazards and threat to water
25
resources and steelhead spawning. By a vote of four to one, the
Board denied the application.’
Subsequently, on February 22, 1980, plaintiff filed a complaint
in state superior court, seeking by administrative mandamus, Cal.
Civ. Proc. Code § 1094.5, to set aside the determination of the
Board. Plaintiff did not raise, nor did the court adjudicate,
plaintiff's constitutional claim; rather, plaintiff's action alleged
violations of zoning and administrative law. The trial court ruled
that the Board’s decision was supported by substantial evidence,
that plaintiff was not denied a fair hearing, and that the plaintiff
had waived any claim that the permit was granted by operation of
law. The court entered judgment for the county on December 4,
1980.
Plaintiff thereupon filed both an appeal and a petition for writ
of mandate in the court of appeal. That court denied the petition
but the Supreme Court granted hearing and retransferred the
>The Board made the following findings:
1. The proposed use of the property would be detrimental to the
public health, safety and welfare in that the project presents a
significant risk of degradation of water resources in the Bodfish
Creek and Hatfield Creek watershed area. It has not been estab-
lished that this adverse impact can be effectively mitigated to less
than significant levels.
2. The proposed use of the property would be detrimental to the
public health and safety in that the introduction of logging trucks
into the area would present a significant safety hazard to users of
the Hecker Pass Highway (State Route 152) and Mount Madonna
Park. This adverse impact cannot be significantly mitigated.
3. The proposed use of the property will be detrimental to the
public health and safety in that the timber harvest operation will
significantly increase the risk of fire in the area. The proposed
mitigation measures would not reduce this risk to less than signifi-
cant levels.
4. The proposed use of the property is neither essential nor
desirable for the public convenience or welfare in that the proposed
project presents significant risks of environmental damage and
hazards to the public health, safety and welfare without any
overriding benefit to the citizens of the County of Santa Clara.
26
matter to the court of appeal with a directive that the writ issue.
The court of appeal denied the petition for writ of mandate,
finding that the Board had considered plaintiff's application on
the merits, as was evidenced by the specific concerns articulated
by several Board members, and had not denied the permit on the
basis of an unenacted policy to prohibit timber harvesting. It held
further that, in light of the potential adverse environmental
impacts identified in the Planning Commission staff report, plain-
tiff had the burden of proving to the satisfaction of the Board that
effective mitigation would indeed take place. The court averred
that, despite the fact that no witnesses testified against the
application, the Board was entitled to take a skeptical view of
whether the mitigative actions would in fact be taken and whether
forestry officials would indeed enforce full compliance. The
Board, the court continued, was not required uncritically to accept
the opinions of plaintiffs experts and of the planning staff that
mitigative efforts would be effective merely because no contrary
testimony was presented; instead the Board could disbelieve even
uncontradicted testimony if the testimony is inherently improba-
ble or if the witness has an interest in the matter. The court noted
that the Board found it improbable that the mitigation procedures
would be properly effectuated and that forestry officials would
effectively police the project. The court emphasized that, had
plaintiff presented evidence that similar operations had been
carried out by the same logging company under similar permit
conditions and supervision and that mitigation efforts had suc-
ceeded, the Board could likely not have rejected the application
without actual counterevidence. However, the court stated that
plaintiff's witnesses did not provide such factual support for their
opinions.
On March 11, 1982, the California Supreme Court denied a
petition for hearing filed by plaintiff. On September 13, 1982, the
California Court of Appeal dismissed the appeal from the deci-
sion of the trial court.
Ultimately, the county did not adopt the proposed ordinance
banning commercial timber harvesting. The California State
FA in ade oat ae weet Hats)
27
Board of Forestry opposed the ordinance, finding it “very restric-
tive” and likely “to foreclose opportunities to harvest timber
which’ would be economically and environmentally desirable.”
The State Board noted that its experience, and that of other
counties in heavily populated areas, indicated that “iess preclusive
methods” could be implemented to control any possible adverse
impacts. It urged that a continuous long-term supply of forest
products is essential to the public interest and that the land upon
which harvestable timber lies can provide an “economically self-
supporting forum of open space land use.” By memorandum of
April 29, 1980, county counsel advised the Board that the pro-
posed ordinance would be unlawful, inasmuch as there was not
sufficient evidence to justify the outright banning of commercial
timber harvesting. He acknowledged that
the overwhelming weight of the evidence presented at public
hearings, supported by the State Department of Forestry, is
that a managed timber harvest conducted in accordance with
a plan approved by the Department of Forestry is beneficial
to the forest and would not be injurious to the environment.
This evidence has been presented by professional foresters
and educators in the field of forestry and is essentially
uncontradicted.
On May 5, 1980, the Board voted not to adopt the ordinance.
In the meantime, plaintiff, finding himself unable to sustain the
heavy ownership and operation costs of the three
ranches—particularly the former—was forced to sell the ranches
and the options. On October 3, 1979, before the Board of
Supervisors had acted on plaintiff's appeal from the Planning
Commission, the Bloomfield Hereford Ranch Corporation en-
tered into an agreement to sell the entire property to C.M.
Trading Co. for a sale price of $7,201,524. The uncontradicted
evidence at trial indicated that, pursuant to this sales agreement,
plaintiff retained ownership of the 2.5 million board feet of
harvestable redwood timber subject to the December 15, 1978,
contract with Big Creek until June 1, 1982.‘ Plaintiff received no
“The agreement contained the following covenant:
28
compensation for this timber from ©.M. Trading Co. The trans-
action was closed on October 22, 1979. As of June 1, no timber
had been harvested, and plaintiff's right therein expired without
his hiaving received any compensation. The denial of the timber
permit reduced the value of the combined ranches by approxi-
mately $1,000,000.
Bloomfield was dissolved in April of 1980, and plaintiff person-
ally assumed its assets and liabilities, including its rights of action
against Santa Clara County.
Although plaintiff sold the ranches at a higher price than that
which he paid, he in fact lost money during his ownership of the
lands, when the mortgage payments and expenses of operation
and improvements are considered. Such losses, however, were not
completely unforeseeable, and as such, constitute a part of the
risk of speculative investment and subsequent ownership. Plaintiff
intially purchased the Castro Valley-Escondido ranches for Triad
Corporation for the purpose of realizing a long-term appreciation
on the investment. In light of the purchase price and the concom-
itant mortgage payments and property taxes, plaintiff must have
anticipated from the outset that the ownership expenses, espe-
cially including those just mentioned, could not be carried by the
profits of a cattle grazing or raising operation. At $2,700,000, it is
simply incredible that plaintiff would have purchased the land for
CM acknowledges the Timber Sale Agreement dated December
15, 1978, between Seller and Big Creek Lumber Co. . . . and agrees
to allow Big Creek to harvest timber from the Castro Valley Ranch
in accordance with the terms of that Agreement until October 1,
1982 when all timber harvesting shall have been completed and all
obligations to restore the property shall have been fulfilled. Seller
and MacLeod shail be entitled to the net proceeds of such timber
harvesting after payment of any expenses incurred by CM, as the
owner of the property under the terms of said Agreement, as a
res! ‘t of said harvesting or due Big Creek under the terms of said
Agreement. CM has no responsibility to assist Seller, Big Creek or
MacLeod in their efforts to obtain the required permits. If such
permits are not obtained by June 1, 1982, all rights of MacLeod,
Seller and Big Creek pursuant to said Agreement and to harvest
said timber shall terminate.
29
the purpose of cattle raising. At that price, plaintiff must have
contempiated that Triad would retain the land for some number
of years, satisfying the mortgage payments from resources other
than the cattle operation, and would finally subdivide the property
or sell the ranches at a substantial profit to some developer who
would do so. Such a plan, however, is inevitably fraught with risk,
e.g., the risk that the real estate market will suffer a depression or
that the governing body will not rezone the land or permit
economically feasible subdivision therof. In the instant case, those
risks were exacerbated by the fact that plaintiff became the sole
owner of the ranches and was forced to bear the ownership
expenses individually.
Although at trial, plaintiff asserted that the cattle industry had
suffered a depression in 1974-1980,° making a cattle operation
impractical, plaintiff acknowledged that a cow-calf operation in
mountainous terrain like that of the Castro Valley-Escondido
ranches “is always a losing operation.” R.T. 81. When asked by
counsel for defendant why, if he was generally familiar with the
cattle business, did he attempt such an operation on the lands,
plaintiff obscurely remarked that:
This ranch had been used historically as a cow/calf unit
ranch. And until you have actually grazed your own cattle on
there and see what kind of feed you got and what kind of
water and what kind of summer hay, et cetera, you never
know.
Secondly, the price of your cows vary from A to Z all the
time. 1974 to 1980 were real depression years in the cattle
business. We wanted to see if we could make money on it.
R.T. 104. But plaintiff could never have supported Castro Valley-
Escondido, nor those ranches and Bloomfield combined, on the
basis of a cattle operation. Had he been permitted to harvest the
timber ($82,000/year), in addition to a cattle operation, he would
have been able to meet the immediate operation and maintenance
> Plaintiff did not introduce evidence quantifying the extent of this
alleged depression.
30
expenses, including taxes and insurance, but he would nor have
been able to satisfy the mortgage payments of capital and interest,
as well as other expenses of ownership. At most, the timber
harvest would have enabled plaintiff to mitigate his losses.
III.
CONCLUSIONS OF LAW
A. Standing
We find that plaintiff has standing to bring this action. First,
plaintiff is the successor in interest to and owner of the assets of
the dissolved Bloomfield-Hereford Ranch Corporation. He has
assumed all its rights and liabilities, including the cause of action
asserted here. Plaintiff has standiug by virtue of that assignment.
See Pacific Coast Agr. Export Ass'n v. Sunkist Growers, Inc., 526
F.2d 1196, 1207-08 (9th Cir. 1975), cert. denied, 425 U.S. 959
(1976) (an association may sue as an assignee of the legal rights
of its members); /sidor Weinstein Investment Co. v. Hearst Corp.,
303 F. Supp. 646, 648-49 (N.D.Cal. 1969) (corporation’s succes-
sor in interest could assert assigned antitrust claims). Plaintiff is
not attempting to assert the corporation’s cause of action in the
capacity of a stockholder. Cf. Erlich v. Glasner, 418 F.2d 226 (9th
Cir. 1969).
Second, plaintiff is challenging the County’s denial of his
application for a use permit. The County’s failure to issue such a
permit restricted plaintiff's ability to dispose of or utilize his
property to the fullest extent possible. Plaintiff would have been
able to sell the timber on his land to Big Creek Lumber but for
the absence of the use permit. He did not convey the rights to the
trees to C.M. Trading Co. when he transferred title to the land,
and his rights in the timber expired without his having received
compensation therefor because of the absence of the use permit.
He therefore has suffered individualized injury such that he has a
“personal, concrete, live interest in the coniroversy.” Andrus v.
Allard, 444 U.S. 51, 64 n.21 (1979), citing Baker v. Carr, 369
U.S. 186, 204 (1962). The fact that plaintiff does not presently
31
have an interest in the timber is not relevant to the threshold issue
of standing.®
B. Res Judicata and Collateral Estoppel
The doctrines of res judicata and collateral estoppel may be
applied to prior state court judgments to bar subsequent civil
rights actions brought in federal court. Allen v. McCurry, 449
U.S. 90 (1980). The preclusive effect of a state court judgment is
determined by the law of the state. 28 U.S.C. § 1738. However.
bar is limited to cases where there was a “full and fair opportunity
to litigate” the issue in the earlier state court case, 449 U.S. at 95,
and “where the state courts have recognized the constitutional
claims asserted.” Jd. at 99. Under the doctrine of res judicata, a
final judgment on the merits of an action precludes the parties or
their privies from relitigating claims or issues that were or could
have been raised in that action. Jd. at 94.
Under California law, in order to determine whether a prior
action serves to bar a subsequent action, a court must ascertain
* Therefore, for purposes of the standing doctrine, we need not
determine whether the timber became “constructively” severed from the
land by virtue of either the Big Creek or the CM Trading contracts.
Defendant has argued that, under the CM contract, plaintiff retained
only the speculative right to receive the proceeds if the timber were
harvested by Big Creek. Defendant contends that loss of such an interest
constitutes, at best, consequential damages, which cannot form the basis
of a fifth amendment takings claim. We do not agree. If defendant's
position were correct, mo one would have standing to assert the present
cause of action. Because no permit was issued, Big Creek never had a
present interest in the timber or an obligation to pay for it. Its right to
purchase the timber would not have confe:red standing. Omnia Co. v.
United States, 261 U.S. 502 (1923). Furthermore, the evidence is
uncontradicted that plaintiff reserved the timber from the sale of the
property. CM did not acquire the right to the timber until June |, 1982.
Throughout the relevant time period, plaintiff alone had a present
property interest in the timber. The transactions were arranged such that
piaintiff bore the risk and the economic burden of the county’s actions,
and he is the proper party to challenge the denial of the use permit.
32
whether the same “primary right” is involved in both actions. In
doing so, a court is to examine the harm suffered, rather than the
particular theory asserted or relief sought by the litigant. S/ater v.
Blackwood, 15 Cal. 3d 791 (1975). Defendant asserts that only
one cause of action is involved herein, which arises from a single
injury, that is, the denial of a use permit. Defendant maintains
that the mandamus and the section 1983 actions are but different
theones seeking different remedies for the same wrong.
We disagree. In the mandamus proceeding, the court deter-
mined whether the County’s decision was based upon “substantial
evidence” of possible harm to the environment. It did not adjudi-
cate whether the denial had deprived plaintiff of all viable use of
his property, that is, whether the regulation went so far as to
constitute a taking for which compensation must be paid. As the
County argued before the state court, “administrative mandamus
... iS concerned with the jurisdictional basis for the decision and
the procedures observed in rendering it, not the financial impact
of the decision upon the interested party.” Pl. Exh. 35, p.S. The
proper analysis of a takings claim requires the court to inquire into
the nature and extent of interference with the plaintiff's rights and
to determine whether justice and fairness require that plaintiff's
loss be compensated by the government. Penn Central Transpor-
tation Co. v. New York City, 438 U.S. 104, 124 (1978). Neither
the Board of Supervisors, nor the California courts, engaged in
such an analysis. The inquiry in the mandamus action differed
qualitatively from that required in the case at bar.
Therefore, it is clear that plaintiff's section 1983 claim was not
in fact litigated in the state court proceedings, nor, under Califor-
nia law, could it have been so litigated under the facts of this case.
Concededly, plaintiff may have been able to raise his federal
claim as part of the administrative mandamus action. Judicial
review of the validity of an administrative action is governed by
Cal. Civ. Proc. Code § 1094.5. A constitutional challenge which
seeks to invalidate a specific application of an ordinance is
properly raised in California in an action for declaratory relief or
mandamus. See Agins v. City of Tiburon, 24 Cal. 3d 266, 273
(1979), affd on other grounds, 447 U.S. 255 (1980); State of
33
California v. Superior Court (Veta), 12 Cal. 3d 237, 251 (1974).
However, under California law, plaintiff had no obligation to
present his federal constitutional claim to the Board of Supervi-
sors, Cal Gov *t Code § 905.1,’ and did not do so. A mandamus
proceeding is limited to determining “the validity of any final
administrative order or decision,” section 1094.5(a); review does
not extend to matters which were not before the administrative
body. Markley v. City Council, 131 Cal. App. 3d 656, 663 (1982);
section 1094.5(e). Therefore, having decii-ed to raise the inverse
condemnation claim before the administrative body, the plaintiff
in this case could not have raised his constitutional claim as part
of the mandamus proceeding, although perhaps, at plaintiff's
option, he could have joined an action for declaratory relief with
the mandamus action.
The California courts themselves have recognized the limited
scope of administrative mandamus proceedings and have declined
to give such actions broad res judicata effect. See, e.g. San
” Section 905.1 provides:
No claim is required to be filed to maintain an action against a
public entity for taking of, or damage to, private property pursuant
to Section 19 of Article | of the California Constitution.
However, the board shall, in accordance with the provisions of this
part, process any claim which is filed against a public entity for the
taking of, or damage to, private property pursuant to Section 19 of
Article | of the California Constitution.
Although section 905.1 applies explicitly only to inverse condemna-
tion claims brought under the state constitution, we shall presume, and
defendant has offered no authority to the contrary, that federal condem-
nation claims similarly need not be brought before the administrative
agency.
* Certainly, plaintiff could have brought his section 1983 action in
state court in the first instance; however, an aggrieved person has the
right to bring his or her federal cause of action in federal court if he or
she so chooses.
We conclude, on the basis of the above discussion, that the doctrine of
collateral estoppel similarly does not bar the piaintiff’s claim. Collateral
estoppel applies only with respect to specific issues which were actually
litigated and decided in a previous action.
34
Francisco Unified School Dist. v. State of Calif., 131 Cal. App. 3d
54 (1982); Markley, supra, at 674-75. In Markley, the court
stated:
Certainly the effect of an affirmance of the judgment below
and denial of a writ [of mandamus] does not create any res
judicata effect or estoppel by judgment on the right of the
petitioner to file a new and plenary action for damages.
Id.
Furthermore, had plaintiff brought his section 1983 claim in
the mandamus proceeding, he would not have been able to secure
an adequate remedy therein; California does not “recognize the
constitutional claim” for just compensation. The California Su-
preme Court has ruled that money damages are not available in
claims for inverse condemnation; instead, a plaintiff must seek a
declaration that the contested regulation is invalid. See Agins,
supra. In Agins, the California Supreme Court held that a
property owner aggrieved by a local land use regulation “may not
elect to sue in inverse condemnation and thereby transmute an
excessive use of the police power into a lawful taking for which
compensation in eminent domain must be paid.” 24 Cal. 3d at
273. Hence, Agins would preclude monetary relief for an uncom-
pensated regulatory taking claim raised in state court under
section 1983. Gilliland v. County of Los Angeles, 126 Cal. App.
3d 610, 617 (1981).
However, “the present vitality of this aspect of Agins has been
substantially undercut by Justice Brennan’s dissenting opinion in
San Diego Gas & Electric Co. v. City of San Diego, 450 U.S. 621,
636-661... (1981), in which Justices Stewart, Marshall and
Powell joined.” Martino v. Santa Clara Valley Water District, No.
81-4578, slip. op. at 1575 (9th Cir. Apr. 14, 1983). Justice
Brennan stated:
The only constitutional requirement is that the landowner
must be able meaningfully to challenge a regulation that
allegedly effects a “taking” and recover just compensation if
it does so.
35
Id. at 660. He suggested that, once a court determines that a
regulation results in a “taking,” the governmental body must pay
just compensation for the period commencing on the date the
regulation first effected the taking and continuing until the entity
either rescinds or amends the regulation. Jd. at 658. Under such a
constitutional rule, a property owner would receive monetary
relief for the period during which the regulation was in place.
Under the California rule, the governing body could repeatedly
amend its regulation, thereby continuously frustrating the plain-
tiff’s right to relief. Justice Rehnquist, concurring, remarked that,
if he could agree that the appeal were from a “final judgment,” he
“would have little difficulty in agreeing” with much of Justice
Brennan’s opinion. /d. at 633. Thus, as Martino noted, it appears
that a majority of the Court may agree that “damages are
recoverable for inverse condemnation.” Slip. op. at 1576. See also
In re Aircrash in Bali, Indonesia, On April 22, 1974, 684 F.2d
1301, 1311 n.7 (9th Cir. 1982).
In light of this unsettled state of federal law, which seems to
tend towards a rejection of Agins, we cannot say that “the state
courts [would] have recognized the constitutional claims asserted
and provided fair procedures for determining them.” Allen v.
McCurry, supra, at 99. Hence, we are unwilling to conclude that
the previous administrative mandamus proceeding operates to
preclude plaintiffs federal court action. A civil rights action
cannot be barred by the judgment of a state c_..« which does not
fully recognize the claim. Had plaintiff presented his claim to the
state courts, he would have been forced to sacrifice any possibility
of fair compensation, the only remedy which would rectify his
alleged harm. Had he sought to embroil this court in a local
zoning controversy by bringing his state law claims in the first
instance to the federal forum (under its pendent jurisdiction), this
court would likely have abstained. See Santa Fe Land Imp. v. City
of Chula Vista, 596 F.2d 838 (9th Cir. 1979); Sederquist v. City
of Tiburon, 590 F.2d 278 (9th Cir. 1978).
36
C. The Takings Claim
1. The Nature of the Property Interest
In order to determine whether or not Santa Clara County’s
denial of the timber harvesting permit constituted a taking of
plaintiff's property, the court must first identify the “property” at
issue. In the instant case, the property may be characterized as
the standing timber itself, the timbezlands, the Castro Valley-
Escondido Ranch, or the entire 8300 acres, comprising all three
ranches.
For purposes of fifth amendment just compensation analysis, a
federal court will refer to state law to define rights in property.
Richmond Elks Hall Ass'n v. Richmond Redevelopment Agency,
561 F.2d 1327, 1330 (9th Cir. 1977). Plaintiff contends that,
under California law, he owned a protected property interest in
the standing timber. In California, standing timber is ordinarily
regarded as “affixed to land,” Cal. Civ. Code § 660, and therefore
part of the real property. Section 658. However, timber “agreed to
be severed before sale or under the contract of sale, shall be
treated as goods.” Sections 658, 660. “[G ]rowing crops which are
agreed to be severed under a contract of sale cease to be a part of
the realty and become personalty. Under these circumstances, in
substance, a constructive severance . .. occurs.” Carey v. Glenco
Citrus Products, 235 Cal. App. 2d 572, 578-79 (1965). Such a
constructive severance may result either from a conveyance of
standing timber or other crops, or from a conveyance of land with
a reservation of the crops. Smith v. Baker, 95 Cal. App. 2d 877,
878 (1950). A separate estate in timber may be limited to a term.
Palmer v. Walker, 133 Cal. App. 2d 705, 711 (1955).
On the basis of such authority, plaintiff argues that a “construc-
tive severance” was effected by the Timber Sale Agreement
between plaintiff and Big Creek Lumber and again by the
contract of sale of the ranch to C.M. Trading Co. Under the latter
contract, the ownership of land and timber were separated.
Alternatively, plaintiff argues that the timberlands themselves
should be considered separately from the remainder of the ranch
land. Depriving him of the right to harvest the timber, plaintiff
urges, effectively deprived him of all viable use of these lands.
37
We assume, without deciding, that the C.M. Trading Co.
contract effected a “constructive severance” of the timber and
that the 116 acres of timberland in the Lakefield area had no
viable use other than that of timber harvesting. However, for the
reasons stated below, this conclusion is not determinative of the
matter at hand. The impact of the timber permit denial must be
considered, in any case, in relation to the Castro Valley-Escon-
dido ranch land as a whole. The timberlands were acquired as a
part of the above Ranch, were zoned identically to the remainder
of the Ranch, were first leased, and later sold, with the Ranch as a
whole. When acquiring the Ranch in 1974, plaintiff did not
explicitly intend to develop the Lakefield timberlands separately.
In light of these circumstances, plaintiff will not now be permitted
to isolate these lands and their timber for purposes of his taking
claim. Compare the instant case with American Savings & Loan
Ass'n v. County of Marin, 653 F.2d 364 (9th Cir. 1981} (for
taking purposes, all plaintiff's land to be considered a single parcel
where ordinance had isolated a portion of the property in a unique
zone). By contrast, we will not include the potentiality of the
Bloomfield Ranch in our analysis. Bloomfield was acquired sepa-
rately, is zoned differently and has a different overall topography
from that of Castro Valley-Escondido. The difference in zoning
alone indicates that the County views the ranches differently.
Plaintiff's contiguous ownership of Bloomfield is somewhat a
fortuity.
2. Standard of Review
Modern “takings” jurisprudence involves a balancing of several
factors in an “essentially ad hoc inquiry.” Penn Central, supra, at
124. The Court has identified several considerations to be
weighed in determining whether “ ‘justice and fairness’ require
that economic injuries caused by government action be compen-
sated by the government, rather than remain disproportionately
concentrated on a few persons.” Jd. These factors include:
(1) the economic impact of the regulation;
(2) its interference with reasonable investment-backed
expectations;
38
(3) the character of governmental action.
Id. A land use regulation effects a taking if it does not substan-
tially advance legitimate state interests or denies an owner eco-
nomically viable use of his land.” Agins v. City of Tiburon, 447
U.S. 255, 260 (1980) (emphasis added). Generally, the inquiry
concerning the extent of a regulation’s interference with a private
property right has focused on the use of the property that is
permitted. See Andrus v. Allard, 444 U.S. 51, 65-66 (1979); Penn
Central, supra, at 131, 136. The mere fact that a regulation
reduces the value of land does not constitute a taking. See, e.g.,
Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926).
In the instant case, a determination that plaintiff had had a
property interest in the standing timber is relevant but not
dispositive. We are still obliged to undertake the ad hoc analysis
previously noted. The existence of plaintiff's property interest is
merely one consideration in the balancing process. Hence, plain-
tiffs argument proves both too much and too little. On the basis
of plaintiff's theory, any home owner could enter into a contract to
sell the “timber rights” to any single tree on his residential lot,
despite city and county ordinances forbidding, without a permit,
the cutting of trees over a certain diameter in residential areas.
The mere fact that one “constructively severs” certain goods, or,
indeed, portions of real property, and then is completely denied
permission to dispose of that contrivedly limited property,
whether by zoning regulations or otherwise, cannot suffice to
establish a taking. The courts are not required to adhere to such a
mechanistic approach; indeed, to do so would represent an abdi-
cation of our duty. Instead, we are required to pierce through to
the realities of the situation.
It is true that, had the County itself harvested the timber or had
the County condemned the timberlands as parkland, the loss of
the trees or timberlands would be specifically compensable. See
United States v. 3,035.73 Acres of Land, Etc., 650 F.2d 938, 941
(8th Cir. 1981) (court awarded compensation for condemned
forest land in part to the holder of an “Option to Purchase
Standing Timber” since optionee had a present right to enter land
and cut and remove timber); State of Louisiana Sabine River
ee
39
Authority v. Carter, 293 F.Supp. 1171, 1172 (W.D.La. 1968)
(where condemned land was subject to 99-year timber lease, of
which 76 years were unexpired, both the landowner’s and lessee’s
rights were expropriated). However, the analyses of such cases
are not directly applicable to the instant situation, since
In condemnation cases the issue is damages: how much is
| due the landowners as just compensation. In inverse con-
demnation, the issue is liability: Has the government’s action
effected a taking of the landowner’s property. In the latter,
the boundaries of the property taken must be determined by
taking jurisprudence rather than the law of eminent domain.
American Savings & Loan, supra, at 369. In actions for eminent
domain, the apportionment of property interests is relevant, in-
deed crucial, to the inquiry concerning whom should receive
compensation for which portion of the “bundle” of property rights
that have been taken.
Thus, there is a distinction between cases involving regulatory
actions and those involving a physical invasion where an owner
has been displaced from his property. Where there has been a
direct appropriation of property, Webb's Fabulous Pharmacies,
Inc. v. Beckwith, 449 U.S. 155 (1980); or a physical invasion,
Loretto v. Teleprompter Manhattan CATV Corp., 102 S.Ct. 3164
(1982); Kaiser Aetna v. United States, 444 U.S. 164 (1980), or
where the owner has been physically excluded from any use of the
property, Foster v. United States, 607 F.2d 943 (Ct.Cl. 1979);
Devines v. Maier, 665 F.2d 138 (7th Cir. 1981), the issue again is
the value of the specific property interest which has been taken.
Indeed, cases of physical invasion constitute per se a taking of
property, regardless of the amount by which the overall parcel has
been reduced by the action. Loretto, supra. The identification of
such takings does not require the same balancing of factors
enumerated in Penn Central.
The case at bar does not involve such invasion or appropriation,
but rather regulatory action of a non-intrusive nature. In such a
context, a property owner will not be permitted to divide his
property into separate elements in order to determine whether
40
specific rights have been completely abrogated. Instead, the
determination must be made on the basis of governmental inter-
ference with rights in the parcel as a whole. Penn Central, supra.
In Penn Central, the city of New York had denied plaintiffs
permission to erect a 55-story office building atop Grand Central
Station on the basis of a law enacted to preserve and protect
historic landmarks. The plaintiffs had argued, inter alia, that the
airspace above the terminal was a valuable property interest and
urged that the landmarks law had deprived them of any beneficial
use of those air rights, “irrespective of the value of the remainder
of their parcel.” 438 U.S. at 130. In rejecting this contention, the
Court did not hold that “air rights” were not property interests
under New York law, but rather stated:
[T]he submission that appellants may 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 is quite simply untenable.
Were this the rule, this Court would have erred not only in
upholding laws restricting the development of air rights, see
Welch v. Swasey, supra, but also in approving those prohibit-
ing both the subjacent, see Goldblatt v. Hempstead, 369 U.S.
590, ... (1962), and the lateral, see Gorieb v. Fox, 274 U.S.
603, ... (1927), development of particular parcels. “Taking”
jurisprudence does not divide a single parcel into discrete
segments and attempt to determine whether rights in a
particular segment have been entirely abrogated. In deciding
whether a particular governmental action has effected a
taking, this Court focuses rather both on the character of the
action and on the nature and extent of the interference with
rights in the parcel as a whole—here, the city tax block
designated as the “landmark site.”
Id. at 130-31.
In analyzing the parcel as a whole, the Court determined that
there had been no taking, premising its holding on several factors:
First, the landmark law did not interfere with the then-present
uses of the parcel; rather, the property owners “could continue to
use the property precisely as it [had] been used for the past 65
41
years[,]” id. at 136; that is, the law did not “interfere with what
must be regarded as [the owners’] primary expectation regarding
the use of the parcel.” Jd. Second, and “[m]ore importantly,” id.,
the property owners were able to obtain a “reasonable return” on
their investment. Jd. Third, Penn Central had received compensa-
tory development rights for other properties it owned. Fourth, the
City had not prohibited a// construction above the Terminal, but
merely 2 project of that enormity.
We conclude that the analysis and reasoning of Penn Central
must control in the instant case. Plaintiffs contention to the
contrary notwithstanding, the “extension” of Penn Central to the
present facts does not require an overruling of Pennsylvania Coal
Co. v. Mahon, 260 U.S. 393 (1922). In Pennsylvania Coal, a
mining company had conveyed the surface rights to particular
land but expressly reserved the right to remove coal thereunder.
The grantee waived all claims for damages resulting from the
mining operations. A Pennsylvania statute, subsequently enacted,
forbade the mining of coal in such a way as to cause the
subsidence of a residential structure if the surface was not owned
by the owner of the underlying coal. The Court held the statute
invalid as an unconstitutional exercise of police power, in that it
effectively abolished what was recognized in Pennsylvania as an
estate and destroyed binding contractual rights. The right to coal,
the Court noted, “consist[ed] in the right to mine it,” id. at 414,
and to render the mining thereof commercially impracticable
effectively destroyed or appropriated that right.
In Pennsylvania Coal, however, the contract had been consum-
mated prior to the enactment of the ordinance. Hence, the coal
company had relinquished valuable property rights in the surface
with the reasonable, “investment-backed” expectation of continu-
ing to extract the subsurface coal. Furthermore, the grantees had
voluntarily assumed the risk of subsidence. Hence, when consid-
ering the question “upon whom the loss of the changes desired
should fall,” id. at 416, the Court held:
So far as private persons or communities have seen fit to take
the risk of acquiring only surface rights, we cannot see that
42
the fact that their risk has become a danger warrants the
giving to them greater rights than they bought.
Id. The Court did not rule that the effective destruction of the
property interest in coal in and of .tself established a taking, but
rather that under the circumstances, the coal company had been
forced to bear an unfair burden.
Our reading of Pennsylvania Coal is sunnorted by Penn Cen-
tral. In the latter case, the Court characterized Pennsylvania Coal
as
the leading case for the proposition that a state statute that
substantially furthers important public policies may so frus-
trate distinct investment-backed expectations as to amount to
a “taking.”
438 U.S. at 127 (emphasis added). The Court noted further that
the statute in Pennsylvania Coal had been enacted after the
transactions. In a later fooinote to its ruling concerning “air
rights,” the Court remarked:
These cases [Welch v. Swasey, Goldblatt v. Hempstead,
and Gorieb v. Fox] dispose of any contention that might be
based on Pennsylvania Coal Co. v. Mahon... that full use
of air rights is so bound up with the investment-backed
expectations of appellants that governmental deprivation of
these rights invariably—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. Pennsylvania Coal, it seems, although not
overruled, is to be limited to extraordinary circumstances where
the entirety of an individual’s legitimate expectation/ property
interest has been completely destroyed by subsequent regulation.
In light of Penn Central, however, this property cannot be
artificially subdivided into “discrete segments.” The court is to
consider the complete bundle of a property owner’s rights when
engaging in the necessary ad hoc balancing process to determine
whether governmental regulation has gone so far as to effect a
taking.
43
Therefore, we conclude that Penn Central, rather than Penn-
sylvania Coal, is applicable to the case before us. And, as did the
Court in Penn Central, we find that the governmental action at
issue did not effect a taking of plaintiff's property. First, the
challenged governmental act did not interfere with the historical
use of the Castro Valley-Escondido land, i.e., cattle raising and
grazing. Plaintiff had primarily expected to use the property in
this manner, while holding the land in anticipation of its ultimate
appreciation.
Second, it cannot be said that the Big Creek Lumber contract
and the subsequent loans plaintiff obtained on the basis thereof
created reasonable investment-backed expectations. The County
had promulgated its use permit requirement prior to the time
plaintiff entered into the contract and borrowed the funds; he
therefore was aware that County approval was a prerequisite to
the consummation of the contract and payments of proceeds
thereunder. Indeed, title to the timber was to pass only if this
contingency were fulfilled. Hence, although plaintiff did encum-
ber himself on the basis of his hope that the permit would be
granted, he did so, assuming the risk of county non-approval.
Plaintiff cannot talismanically transform such risk-assumption
into the more reasonable investment-backed expectation of the
coal company in Pennsylvania Coal. One who seeks governmental
approbation must contemplate governmental rejection.
Third, the county did not, in fact, completely forbid all timber
harvesting on the basis of a blanket policy against such harvesting.
The state court litigation conclusively determined that the county
had denied plaintiff a permit on the merits of his particular case,
rather than on the basis of a per se interdiction. Plaintiff is barred
from relitigating this issue. Plaintiff failed to satisfy the Board
members that the adverse environmental impacts and traffic
dangers which they feared would indeed be mitigated or obviated.
The prevention of such affirmative harms is clearly within the
police power of the county, and we must give substantial weight in
the balancing calculus to its concerns.
The instant case does differ from Penn Central in that plaintiff
was not able to realize a reasonable return on his investment in
44
the operation of the ranch lands. However, as we noted earlier,
given the purchase price of that land and the concomitant
mortgage obligations, the combined income from a cattle opera-
tion and timber harvesting could not have provided such a
reasonable return. Plaintiff continually asserts that he had a right
to an economically viable use of his land; but such use did not
exist. Viability vel non must be evaluated in the light of the
aggregate costs of ownership and operation.
At heart, plaintiff merely seeks to mitigate the losses he
incurred as the result of an unfortunate concatenation of events.
Had plaintiff paid a purchase price that reasonably reflected the
value of a cattle operation, which operation then became infeasi-
ble due to a depression in the cattle market; had he then
attempted to supplement has income through timber harvesting in
order to meet ownership and operation expenses; had he been
prevented from doing so by the County, with the result that he
was forced to sell the land, whereas with county cooperation, he
would have been able to retain and maintain the operation—we
would, perhaps, have a different case. See Penn Central, supra, at
138, n.36. But plaintiff did not purchase the land with the
legitimate expectation of realizing a “reasonable return” on his
capital by means of cattle raising, timber harvesting, crop grow-
ing, or a combination thereof. That reasonable return was to be
casiured, if ever, upon subsequent sale of the land, as was
evidenced by the fact that the land was not placed under the
Williamson Act in »er to preserve the possibility of later
development and s=Su:vision. Such is the nature of a long-term
investment of that magnitude. Plaintiff cannot credibly contend,
particularly with his knowledge of the cattle business, that he
intended to use the land rather than later to sell it for a profit.
And the land did indeed appreciate; plaintiff did in fact sell all
three ranches for considerably more than the original purchase
price.” Admittedly, the value of Bloomfield Ranch, being the
* The fact that plaintiff may actually have lost money on the transac-
tion as a result of operational expenses and interest/mortgage payments
does not change the fact that plaintiff sold the land for a profit, as that
45
most desirable of the three ranches, no doubt represented a
share of the ultimate purchase price paid by
C.M. Trading. However, plaintiff has proffered no evidence which
would indicate what proportion of that price was represented by
the value of Castro Valley-Escondido. We are not required to
assume that the latter not only was reduced in value by the denial
of the timber permit but further did not otherwise appreciate in
value. Hence, we cannot say that plaintiff did not realize a profit
on that property as well. Surely, having purchased the land for
long-term investment, if plaintiff was able to sell his
land—although perhaps sooner than he wished—for a profit, he
cannot be heard to complain of government regulatory action
which allegedly reduced the value of his land. Even had the land
merely depreciated in value as a result of the denial of the use
permit, we could not say that a taking had resulted. The value of
the timber—$1,000,000—would have reduced the value of the
ranch at most by little more than a third.'° Governmental actions
which have reduced property valves even more significantly have
survived claims of inverse condemnation. See, e.g., Hadacheck v.
Sebastian, 209 U.S. 394 (1915); Euclid v. Ambler Realty Co.,
272 U.S. 365 (1926); Haas v. City and County of San Francisco,
605 F.2d 1117 (9th Cir. 1979).
On the basis of the above considerations, we conclude that the
county’s denial to plaintiff of a timber harvesting permit did not
effect a taking of plaintiff's property without just compensation.
JUDGMENT FOR DEFENDANT
Dated: September 15, 1983
ROBERT F. PECKHAM
Chief United States District Judge
term is normally understood, i.e., sale price less purchase price plus
capital improvements.
'° If the initial purchase price reflected the value of the timber.
46
Appendix C
United States Court of Appeals
For the Ninth Circuit
No.83-2480
D.C. No.
C-82-3751-RFP
Morton P. MacLeod,
Plaintiff-Appellant,
vs.
County of Santa Clara,
Defendant-Appeilee.
[Filed Jan. 22, 1985]
Appeal from the United States District Court
for the Northern District of California
Robert F. Peckham, District Judge, Presiding
Argued and submitted October 2, 1984
ORDER
Before: FARRIS, ALARCON, and NORRIS, Circuit Judges.
Appellant’s petition for rehearing is denied.
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