Amicus Curiae Brief — RCK Properties, Inc. v. United States, 120 S. Ct. 373 (1999) (No. 99-286)

Supreme Ceurt, UG

EFILED

In the

Supreme Court of the United States

-

. 4

FOREST PROPERTIES, INC.,

Petitioner,

v.

UNITED STATES,

Respondent.

rs

~ 4

On Petition for Writ of Certiorari to the United States

Court of Appeals for the Federal Circuit

A.

- 4

BRIEF AMICUS CURIAE OF PACIFIC LEGAL

FOUNDATION IN SUPPORT OF PETITIONER

,™

—_

JAMES S. BURLING

Counsel of Record

Pacific Legal Foundation

10360 Old Placerville Road,

Suite 100

Sacramento, California 95827

Telephone: (916) 362-2833

Facsimile: (916) 362-2932

Counsel jor Amicus Curiae

Pacific Legal Foundation

i

QUESTIONS PRESENTED

1. May government deny a Clean Water Act § 404 permit

thereby taking a parcel of real property and avoiding the payment

of just compensation by claiming that the parcel is not the

relevant parcel but rather part of a larger parcel when in fact it

was a separate parcel acquired at a different time and by a

different method, is under different ownership, is located in a

different political jurisdiction, and is subject to an entirely

different permit process?

2. May a property purchaser be denied just compensation

because of notice of a preexisting governmental permit scheme,

especially one that does not indicate the property owner has any

reason to believe its permit application would not be granted or

that, if not, just compensation would not be paid?

TABLE OF CONTENTS

QUESTIONS PRESENTED ... cc scccccccccccveccces

TABLE OF AUTHORITIES .....ccsccccsssccvcceses

INTEREST OF AMICUS CURIAE .......cccccccvees

STATEMENT OF THE CASE .....ccccsscccccsccces

REASONS FOR GRANTING THE WRIT ............-. 3

SUMMARY AND INTRODUCTION ..........-5455. 3

I. WHEN GOVERNMENT TAKES PRIVATE

PROPERTY FOR A PUBLIC USE, IT OUGHT

TO PAY JUST COMPENSATION, EVEN IF

THE OWNER OWNS OR OWNED OTHER

PROPEREY 6s ccc ckdune Feuewueeeees veeevene

A.

A Taking of All Use of a Portion of an

Owner’s Property Warrants as Much

Protection as a Physical Invasion ............

The Lower Courts Do Not Agree on

Whether the Denial of All Use of a Portion

of a Single Parcel Is a Compensable Taking ....

A Few Courts Have Divided a Single Parcel

for the Purpose of a Takings Analysis .........

Courts Are Divided on How to Treat

a Landowner Who Has Already

Developed Other Land Near the Land

That Is Affected by a Prohibition ...........

The Federal Circuit Is One of Several

That Is in Conflict with the Logic of

i) Le GOP Tee a ee ee

7

9

iti

TABLE OF CONTENTS—Continued

Page

F. The Federal Circuit’s Holding in Forest

Properties \s Inconsistent With Those

Courts That Have Adopted the Doctrine

of Conceptual Severance... 6s ccccccccess 13

G. ‘Toward a Coherent Determination of the

Relevant Parcel--the Machipongo Example ... 14

Il. “NOTICE” OF A REGULATION DOES

NOT OBVIATE A TAKING .................. 17

A. The Government Should Not Be Rewarded

With a Windfall Just Because the Owner of

Property at the Time a Regulation Is

Adopted Is Not the One to Bring an As-

Applied Takings Claim ................... 17

B. The Federal Circuit Contradicts

This Court’s Holding in Lucas ............. 19

i ic6nes cna ee be ae eneeeteduh<¥enee et 20

iV

TABLE OF AUTHORITIES

Page

Cases

Agins v. City of Tiburon, 447 U.S. 255 (1980) .......... 4

American Savings and Loan Association v. County

of Marin, 653 F.2d 364 (9th Cir. 1981) .......... 9-10

Aptos Seascape Corp. v. County of Santa Cruz,

tie fF 8 0 ree errr 11

Babbitt v. Youpee, 519 U.S. 234 (1997) ..........04.. 14

Boise Cascade Corporation v. Board of Forestry,

ree oe er eee 8

Carson Harbor Village Ltd. v. City of Carson,

7F Fee Gs CEE bao cece rcekedsasiswes 19

Clajon Production Corp. v. Petera,

Fe Foe SCE es BED 0 do ob ce cocedaccessas 8

Creppel v. United States, 41 F.3d 627

ee Gale HE Dewi eaw owes heueeeerevesceces eat

Del Monte Dunes at Monterey, Lid. v. City of

Monterey, 95 F.3d 1422 (9th Cir. 1996),

Ce ee PPP ET EP ELT TT Eee 19

Fifth Avenue Corp. v. Washington County,

ge ree Y

First English Evangelical Lutheran

Church of Glendale v. Los Angeles

CO, See Ss PIED occ cccecebesGicnsenva 3

Florida Rock Industries, Inc. v. United States,

18 F.3d 1560 (Fed. Cir. 1994), cert. denied,

SR ae Se ED 'o-c4 0 Gb Oo 6a ee ber ckacaess 7-8

Vv

TABLE OF AUTHORITIES—Continued

Page

Florida Rock Industries, Inc. v. United States,

791 F.2d 893 (Fed. Cir. 1986), cert. denied,

ee ee ee ee ee 7

Good v. United States, 1999 WL 673336

(Fed. Cir. Aug. 31, 1999) (Case No. 97-5138) ....... 17

Hodel v. Irving, 481 U.S. 704 (1987) .............5.. 14

K & K Construction Co. v. Department of Natural

Resources, 575 N.W.2d 531 (Mich.), cert.

I, Si as PEE 6 85 V8.6 6 Cbd Keke tances 12

Kaiser Aetna v. United States,

oo Pt ee er re ae rr 5

Kaiser Development Co. v. City and County of

Honolulu, 649 F. Supp. 926 (D. Haw. 1986),

aff'd, 898 F.2d 112 (9th Cir. 1990)................ 10

Karam v. State of New Jersey Department of

Environmental Protection, 70S A.2d 1221 (N.J.

Super. 1998), affirmed by adopting appellate

opinion, 723 A.2d 943 (N.J. 1999), petition for

cert. filed, 67 U.S.L.W. 3774 (May 20, 1999)

CE FU SPL: Sade dwewsbb ke bceee ce eye 12,19

Keystone Bituminous Coal Association v.

DeBenedictis, 480 U.S. 470 (1987) .............44. 5

Loretto v. Teleprompter Manhattan CATV Corp.,

A RT | ee ere 5

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

jut, $> % Per epee errr 10-11

Lucas v. South Carolina Coastal Council,

Fae Ws POEUN co dv cesetdecceces 5-6, 12, 17, 20

vi

TABLE OF AUTHORITIES—C ontinued

Page

Machipongo Land and Coal Co. v.

Commonwealth of Pennsylvania,

719 A.2d 19 (Penn. 1998) 2.0... 0.0. cece eee ee 15-16

Manocherian v. Lenox Hill Hospital, 84 N.Y.2d

385, 643 N.E.2d 479 (N.Y. 1994), cert. denied,

15D GS CR. FSGS Capea 6b hresw en eees cbhekue tenes 13

Nectow v. Cambridge, 277 U.S. 183 (1928) ............ i)

Nollan v. California Coastal Commission,

4E3 U.S. Gis CHGS hevvndetdbcewetvevisesssO 1,3

Penn Central Transportation Company v.

New York City, 42 N.Y.2d 324,

eo PE & fee ty fy) ei tte 12

San Diego Gas & Electric Co. v. City of

San Diego, 450 U.S. 621 (1981)... ........ cece wees 6

Seawall Associates v. City of New York, 74 N.Y.2d

92, 542 N.E.2d 1059 (N.Y. 1989) ..... cc cccccees 13

Suitum v. Tahoe Regional Planning Agency,

RE ee Te ee er eer er a |

Twain Harte Associates, Lid. v. County of

Tuolumne, 217 Cal. App. 3d 71 (1990) «2... ....4.. 1]

United States v. Riverside Bayview

Homes, Inc., 474 U.S. 121 (1985) ..... 2.2... eee 18

Vatalaro v. Department of Environmental

Regulation, 601 So. 2d 1223, rev. denied,

tt ww ee! | Ue eee 19

vil

TABLE OF AUTHORITIES—Continued

Page

Volkema v. Department of Natural

Resources, 542 N.W.2d 282 (Mich.

App. 1996), aff'd, 42 N.W.2d 282,

cert. denied, 119 S. Ct. 590 (1998)... .........00455. 12

Whitney Benefits, Inc. v. United States,

926 F.2d 1169 (Fed. Cir.), cert. denied,

Pe ey SN cb e004 sb bs cet be cebetccdecses &

Williamson County Regional Planning

Commission v. Hamilton Bank of Johnson

Cay Ga Gees BOS CUD Bi hovers caccsicccecees 18

Rules of the Court

United States Supreme Court Rule 37 ................. |

SD SPUD bb ov cews en ah dbbvés 60 tbedeceoveseedes |

Miscellaneous

Steven J. Eagle, The 1997 Regulatory Takings

Quartet: Retreating from the “Rule of Law,”

42 N.Y.L. Sch. L. Rev. 345 (1998) ............. 19-20

John F. Fee, Unearthing the Denominator

in Regulatory Takings Claims, 61 U.

Cah Ss Hes MEUPENUED coc cccceceseceesiocs 14-16

]

INTEREST OF AMICUS CURIAE'

Pacific Legal Foundation is a nonprofit public interest legal

foundation that specializes in defending property rights and other

individual liberties. Since its inception 26 years ago, PLF has

had extensive litigation experience in cases involving individuals

adversely affected by the government regulation of private

property.

Attorneys for Pacific Legal Foundation have represented

other property owners before this Court when regulatory agencies

have taken rights in property without the payment of just

compensation, see, ¢.g., Suitum v. Tahoe Regional Planning

Agency, 520 U.S. 725 (1997), Nollan v. California Coastal

Commission, 483 U.S. 825 (1987), and have participated as

amicus curiae in almost all of the major Takings Clause cases

before this Court in the past 20 years. Pacific Legal Foundation

attorneys are also currently representing Mr. Bailey Jones in a

petition for certiorari before this Court in Jones vy. City of

Berkeley, Supreme Court Docket No. 98-1774, another case in

which an appellate court denied a property owner relief for a

regulatory taking. Because of the Foundation’s experience in the

field of regulatory takings, it can add a unique perspective that

will assist this Court’s consideration of this case.

Pursuant to Supreme Court Rule 37, written permission

from all parties for Pacific Legal Foundation to file this brief has

been lodged with the Clerk of this Court.

STATEMENT OF THE CASE

Forest Products, Inc. (FPI), acquired an equitable interest in

9.4 acres of property that were suitable for single-family home

development. (This equitable interest is a protected property

' Pursuant to Supreme Court Rule 37.6, Amicus Curiae Pacific Legal

Foundation affirms that no counsel for any party in this case authored

this brief in whole or in part; and furthermore, that no person or entity

has made a monetary contribution specifically for the preparation or

submission of this brief.

2

right according to California law.) The land was similar in many

respects to property that had already been developed in the area.

The property is in an environmentally significant area.

Petitioner’s Appendix (App.) at B10. FPI worked hard to make

the area--along with an adjacent 54-acre upland parcel--suitable

for development. In its final plan, FPI agreed to 25 mitigation

measures including avoidance of the rare plants, a scaled-back

development proposal, the setting aside of 16 acres of the uplands

as “open space” and wetlands mitigation. App. at B10-11.

Although it received the necessary state and local permits,

FPI had to obtain a permit from the United States Army Corps of

Engineers. The Corps asserted jurisdiction over the wetlands and

found that FPI’s final proposal would involve the fill of “7 acres

of vegetated shallows” and 1.6 acres of wetlands. App. at B16.

Because single-family homes are not “water-dependent,” and

because the Corps found that the property could be put to some

unspecified “alternative uses,” it denied a permit that was neces-

sary to build the homes. App. at B15-17. In other words,

building single-family homes in a wetland is out of the question.

FPI was able to develop the upland property that it owned

in fee but not the 9.4-acre parcel. Trial testimony indicated that

FP! was unable to make economically viable use of the 9.4 acres,

it lost several million dollars, and that its equitable title is

worthless. App. at AS-6, B20. FPI sued for a taking. /d. at B20.

The trial court found if it had focused on the 9.4-acre parcel

in which FPI had only an equitable interest, it “would most likely

have proceeded to analyze this case as a Lucas-type categorical

taking.” App. at B35. Instead, it forewent the categorical

approach and measured the loss of economically viable use by

looking at FPI’s total landholdings in the area-the 9.4-acre parcel

combined with the 54-acre parcel. Because FP! was able to make

use of the 54-acre parcel, FP! was also able to make enough use

of the total 63 acres of land (the 9.4 acres owned as an equitable

interest and the 54 acres owned in fee) to obviate a finding of a

regulatory taking, categorical or otherwise. App. at B54-55. The

3

court also found that, at the time FP! purchased its option to buy

in 1988,

the public was clearly on notice that the development

of wetland areas was subject to compliance with

section 404 of the Clean Water Act... . Indeed FPI

also had actual knowledge that the lakebottom

property was subject to the section 404 permit

application.

Id. at B47-48. Therefore FPI did not have any “reasonable

investment-backed expectation” to develop the property. See id.

at BSO.

The Court of Appeals affirmed. It found that the trial court

did not commit “clear error” when it directed its takings analysis

at the total 63 acres of land rather than the 9.4-acre parcel for

which the permit had been denied. The court also found that FP!

should be denied recovery because “[o]ne who buys with

knowledge of a restraint assumes the risk of economic loss.”

App. at Al2 (citing Creppel v. United States, 41 F.3d 627, 632

(Fed. Cir. 1995)).

REASONS FOR GRANTING THE WRIT

SUMMARY AND INTRODUCTION

Twelve years ago, this Court laid down the law in Nollan v.

California Coastal Commission, 483 U.S. 825, and First English

Evangelical Lutheran Church of Glendale v. Los Angeles

County, 482 U.S. 304 (1987), and explained that there was such

a thing as a regulatory taking and that money damages would

have to be paid in the event that a government agency takes

property through regulation. But this Court has left it to the lower

courts to define when a taking has actually occurred. The lower

courts have failed to reacii any consensus. Some landowners get

fairly compensated; most do not. Some courts have enunciated

clear standards; most have not. This case presents an opportunity

for this Court to clarify two of the more bedeviling questions in

takings jurisprudence. First, what happens when a landowner

4

faces something less than a total wipeout of his property

holdings? And second, what difference does it make to a govern-

ment’s ability to obtain property without paying just

compensation if the landowner knew of a regulatory regime

before acquiring the property? This amicus brief will explain that

this Court should grant FPI’s Petition for Writ of Certiorari

(Petition) in order to put an end to the confusion among the lower

courts and to ensure that the Constitution’s promise that property

Shall not be taken for public use without the payment of just

compensation becomes something more than a hollow promise.

WHEN GOVERNMENT TAKES PRIVATE

PROPERTY FOR A PUBLIC USE, IT OUGHT TO

PAY JUST COMPENSATION, EVEN IF THE

OWNER OWNS OR OWNED OTHER PROPERTY

A. A Taking of All Use of a Portion of an Owner’s Property

Warrants as Much Protection as a Physical Invasion

A taking can occur when a regulation deprives an owner of

the “economically viable use of his land.” Agins v. City of

?buron, 447 U.S. 255, 260 (1980). In analyzing what has

bee wie known as the “relevant parcel” or the “denominator

probh m,” this Court recognizes that, if a trial court were to

examin in a takings analysis only the discrete segment of

property. «is affected by a use prohibition, then it is more likely

that the cour: vill find a taking. Concomitantly a deprivation of

“economically v:.ble use” is less likely to be found if a court were

to examine the larg,*r land holdings of a landowner because, so

long as the owner can use some property, the owner has not been

deprived of economically viable use of all of his property. Thus

government regulators encourage courts to consider as the

“relevant parcel” the entirety of the affected parcel. Some

government advocates even suggest that courts should also

consider other lots owned by the landowner now or in the past

that are adjacent to or in the vicinity of the segment of land

actually impacted by the use prohibition.

a EN ee aE RR EIEN

5

This Court put the issue this way in Keystone Bituminous

Coal Association v. DeBenedictis, 480 U.S. 470 (1987):

Because our test for regulatory taking requires us

to compare the value that has been taken from the

property with the value that remains in the property,

one of the critical questions is determining how to

define the unit of property “whose value is to furnish

the denominator of the fraction.”

Id. at 497 (citation omitted).

In Lucas v. South Carolina Coastal Council, 505 U.S. 1003,

1015 (1992), this Court found that, when a regulation prohibiting

the construction of a single-family home in a residential

neighborhood denied “all economically beneficial or productive

use of land,” it was a “categorical” taking. In this Court’s

terminology, a “categorical” taking is one where the denial of all

economically viable use is a given and where no countervailing

concerns--such as the owner’s reasonable expectations or the

public interest advanced by the use prohibition--can negate the

need to pay just compensation for the taking. But this Court

expressly left open the question of whether a denial of all use of

a part of a parcel might constitute a regulatory taking. 50S U.S.

at 1016 n.7.

Quite naturally, government agencies argue that, the larger

the ratio between the total parcel and the area affected by the use

prohibition, the less likely it will be that there has been a

“categorical” taking of all use. But why should this be? For the

only other type of “categorical” takings--physical invasions--this

Court has made it plain that any physical invasion of any size is

a taking that can lead to the compensation requirement.

It is well known that, if government authorizes a “physical

invasion” of private property, it is a taking, no matter how smal!

a portion of the property may be affected. In both Kaiser Aetna v.

United States, 444 U.S. 164, 179-80 (1979), and Loretto v.

Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435-40

6

(1982), this Court found that a physical invasion was a per se

taking, even though the interest in land affected by the invasion

was small (Kaiser Aetna) to minuscule (Loretto). Accord Lucas,

50S U.S. at 1014. And it is black letter law that, if the

government takes even a tiny portion of one’s property for a

public works project, the government must pay just

compensation. So why should it be any different if the

government destroys the use and value of a portion of property

through regulation rather than invasion? Indeed, the distinction

between physical invasion, formal condemnation, and regulatory

takings was questioned by Justice Brennan in 1981. Dfssenting

over this Court’s refusal to reach the merits in San Diego Gas &

Electric Co. v. City of San Diego, 450 U.S. 621 (1981), Justice

Brennan wrote:

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 condem-

nation or physical invasion of property.

Id. at 652 (footnote omitted) (Brennan, J., dissenting). In other

words, if compensation must be paid when government action

results in a physical invasion of property, or if it builds on a

discrete segment of property, then why not if through regulation

the government converts a segment of private land into a de facto

and de jure refuge for wildlife, wetlands, or open space?

Government agencies counter, however, by arguing with

some justification that, if every prohibition on using a portion of

a parcel of property were to constitute a taking, then

government's ability to control inappropriate land uses would be

made more difficult. This tension between the interests of the

affected property owners and the need for efficient operation of

government has pervaded the case law on regulatory takings. For

the simple question of what is the relevant parcel when

government prohibits the use of only a discrete segment of land,

the lower courts are hopelessly split. The split is even more

7

pronounced when the question becomes more complicated, as

when multiple lots are involved or when some lots have already

been sold off. Fortunately, there is a coherent and logical

solution to this dilemma that has been suggested by one

commentator and which has been adopted by one lower court.

With this case, this Court can put an end to the unsatisfying state

of conflict in the lower courts and adopt a meaningful standard.

This brief will next describe the state of the conflict in the

relevant parcel doctrine and then suggest a workable solution.

B. The Lower Courts Do Not Agree on

Whether the Denial of All Use of a Portion

of a Single Parcel Is a Compensable Taking

In Florida Rock Industries, Inc. v. United States, 791 F.2d

893 (Fed. Cir. 1986), cert. denied, 479 U.S. 1053 (1987)

(Florida Rock 1), the Federal Circuit Court of Appeals was

confronted by a single 1,560-acre parcel subject to the Corps of

Engineers’ restrictions. The landowner argued that all 1,560

acres of its wetland mining property had been taken after a permit

to mine 98 acres was denied. 791 F.2d at 895-96, 904-05. The

government argued that there was no taking because the use of

only 98 acres had been denied--leaving the “parcel as a whole”

largely unaffected by the denial. /d. at 904. The Federal Circuit

rejected both arguments, holding that (1) it would be unfair to

award compensation for the 1,458 acres for which the applicant

had no immediate plans, id. at 904-05, and (2) the court would

focus on the 98 acres to see if there had been a taking. /d. at 904.

Several years after Florida Rock I, the Federal Circuit

responded to the government’s new argument that the takings

denominator should include more than the mineral rights and

surface resources needed for mining. The court disagreed:

By taking some portion of Florida Rock’s economic

use of the property--its power to disturb the overlying

wetlands, and with it the common law property right

to mine its subsurface minerals--the Government

8

appears to have destroyed part of the value of Florida

Rock’s holdings.

Florida Rock Industries, Inc. v. United States, 18 F.3d 1560,

1572 (Fed. Cir. 1994), cert. denied, 115 S. Ct. 898 (1995)

(Florida Rock IV). The court said this could be a taking. /d. It

also noted that in appropriate circumstances a subset of the

bundle of rights can be taken through inverse condemnation. See

id. at 1572 n.32. See also Whitney Benefits, Inc. v. United States,

926 F.2d 1169, 1174 (Fed. Cir.), cert. denied, 502 U.S. 952

(1991) (the court rejected the government’s suggestion that there

was no taking because the coal owner could farm about half of its

property.)

The Tenth Circuit in Clajon Production Corp. v. Petera,

70 F.3d 1566 (10th Cir. 1995), however, expressly rejected the

Florida Rock IV holding. Clajon involved an attempt to bring a

takings challenge to hunting regulations in Wyoming that limited ~

wild game licenses sold to hunters from out-of-state. The plain-

tiff, who owned a ranch and derived income from out-of-state

hunters, complained that this was a taking of a property right in

hunting. 70 F.3d at 1577. In ruling against the landowner, the

Tenth Circuit expressly rejected the Federal Circuit’s language in

Florida Rock IV that it can be appropriate to focus more narrowly

on the property interest actually taken:

However, we believe that the relevant denominator

must be derived from the entire bundle of rights

associated with the parcel of land. . .. Thus, we reject

the Florida Rock approach.

Id. (citations omitted).

More recently, in Boise Cascade Corporation v. Board of

Forestry, 935 P.2d 411 (Ore. 1997), a landowner was prohibited

from logging 56 acres on a 64-acre tract because of a spotted owl

nest. The Oregon Supreme Court held that the landowner could

State a claim for a regulatory taking. Jd. at 415-16. Thus the

court segregated the 56 acres of owl habitat from the remaining

9

8 acres of harvestable timber and considered the timber on the 56

acres to be the relevant parcel.

The lesson from these cases is that some courts have been

quite willing to focus on what has actually been taken out of a

single parcel. But in the case of Forest Properties, the Federal

Circuit is in conflict with itself and the Supreme Court of Oregon.

And while the Tenth Circuit is in conflict with Florida Rock,

there is no apparent conflict with Forest Properties.

C. A Few Courts Have Divided a Single Parcel

for the Purpose of a Takings Analysis

In American Savings and Loan Association v. County of

Marin, 653 F.2d 364 (9th Cir. 1981), the county placed two

contiguous sections of an owner’s property into two distinct

zoning classifications. First, there was a 48-acre section called

Strawberry Spit zoned as “urban open space” with a 5-acre mini-

mum lot size. Another 20-acre section known as “Strawberry

Point” was zoned to allow four “multiple residential units” per

acre. Id. at 367. The owner alleged a taking of Strawberry Point.

In response, the county advocated a “single parcel” theory under

which both the point and the spit would be considered together

in a takings analysis.

The court rejected as inapplicable cases where property was

treated as a single unit for takings purposes because in those

cases “the entire subject property was covered by a uniform

restriction.” Jd. Instead, the court noted that in Nectow v.

Cambridge, 277 U.S. 183 (1928), this Court “considered the

smaller tract separately from the larger tract.” American Savings,

653 F.2d at 370.

The Ninth Circuit also agreed with dicta in Fifth Avenue

Corp. v. Washington County, 581 P.2d 50, 60 (Ore. 1978), where

“the [Oregon Supreme] court divided the property analytically

into two parcels” depending on whether they were zoned as

developable or not. American Savings, 563 F.2d at 370.

10

Most significantly, the American Savings court concluded

by holding that if the appellant can show that

the Spit and Point have been, or would be, treated

separately when its development plans are submitted

. . . [then] the Spit must be analyzed as a separate

parcel for takings purposes.

Id. at 372.°

But in Forest Properties, although the Corps regulated only

the 9.4 acres of the lake bottom parcel, the court did mot consider

it to be a “separate parcel for takings purposes.”

D. Courts Are Divided on How to Treat a Landowner

Who Has Already Developed Other Land Near the

Land That Is Affected by a Prohibition

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

(Fed. Cir. 1994), the landowner started off in the 1950’s with 250

acres. After some 199 acres had been subdivided and sold off,

the owner sought to develop the remaining 51. New Jersey

required the owner dedicate 38.5 acres as a wetland preserve in

order to get a state permit. When the Corps denied a permit on

the remaining 12.5 acres, the owner sued for a taking.

The government argued that the relevant parcel must be the

original 250 acres or, in the alternative, the 51 acres. The Federal

Circuit had no trouble holding that the 199 acres that were

developed and sold before the imposition of the current regula-

tory environment should not be considered in the denominator.

* Accord Kaiser Development Co. v. City and County of Honolulu,

649 F. Supp. 926 (D. Haw. 1986), aff'd, 898 F.2d 112 (9th Cir.

1990). (“Most importantly, the City has treated Queen’s Beach

separately for zoning and planning purposes. . . . [U]nder the facts of

this case, Queen’s Beach is to be considered a separate parcel for the

purposes of determining whether there has been a taking. 649 F.

Supp. at 947-48.).

1]

Id. at 1181. As for the 38.5-acre parcel, the court suggested it

would be “ungrateful in the extreme” to count the 38.5 acres in

the denominator. /d.

Similarly, in Twain Harte Associates, Ltd. v. County of

Tuolumne, 217 Cal. App. 3d 71 (1990), the county had applied

different zoning criteria to different portions of an 8.5-acre

parcel. After most of the 8.5-acre parcel had been developed, the

county rezoned an undeveloped 1.7-acre plot to open space. In

response to a taking allegation, the county argued that there was

no economic deprivation and no taking because the “8.5-acre

parcel has . . . undoubted monetary benefit” from the past

development. /d. at 85. The court first noted that “the nature of

a particular land use regulation has been recognized as potentially

creating separate parcels for ‘taking’ purposes.” /d. (citing Aptos

Seascape Corp. v. County of Santa Cruz, 138 Cal. App. 3d 484,

495-96 (1982); Nectow; and Fifth Avenue). The court concluded:

the law does not demand the entire 8.5 acre parcel be

treated as a whole in an “as applied” inverse

condemnation analysis.

Id. at 87.

In contrast to Twain Harte and its own decision in

Loveladies, the Federal Circuit decided in Forest Properties to

lump 9.4 acres of lake bottom property with an adjoining 53-acre

segment of uplands. The court concluded that it was proper to

look “to the economic reality of the arrangements, which

transcended these legalistic bright lines.” App. at A10-11. But

the economic reality in Loveladies was that the owner was able

to develop nearly 200 acres and still receive compensation for the

taking of 12.5 acres. The economic reality in Twain Hart was

that the owner was able to develop 6.8 acres and still receive

consideration for the remaining 1.7 acres. The “economic

reality” is no different here-except that in contrast to Twain Hart

and Loveladies, the Federal Circuit has included other holdings

in the takings denominator.

12

E. The Federal Circuit Is One of Several That Is in

Conflict with the Logic of This Court in Lucas

In Lucas, this Court expressly rejected as “extreme” and

“unsupportable” the notion advocated by the New York Court of

Appeal in Penn Central Transportation Company v. New York

City, 42 N.Y.2d 324, 333-34, 366 N.E.2d 1271, 1276-77 (1977),

where the state court examined the diminution in a

particular parcel’s value . . . in light of total value of

the takings claimant’s other holdings in the vicinity.

Lucas, 505 U.S. at 1016 n.7. Despite the logical incongruity of

the idea that owners of lots of property should be treated worse

than owners of only a small amount of property, the idea that the

ownership of other clearly separate parcels diminishes the impact

on a regulated parcel has been adopted by the Federal Circuit in

Forest Properties.

The Federal Circuit is not the only court to make this error.

The Michigan Supreme Court in K & K Construction Co. v.

Department of Natural Resources, 575 N.W.2d 531 (Mich.),

cert. denied, 119 S. Ct. 60 (1998), the court combined a 55-acre

parcel with two other parcels of 16 and 3.4 acres for purposes of

determining whether there was a taking. The court reasoned that

the parcels were owned in whole or in part by the same owner of

the 5S-acre parcel and that there was a unified plan of

development. The same reasoning was followed in Volkema v.

Department of Natural Resources, 542 N.W.2d 282 (Mich. App.

1996), aff'd, 42 N.W.2d 282, cert. denied, 119 S. Ct. 590 (1998).

The Michigan example was also followed in Karam v. State

of New Jersey Department of Environmental Protection,

705 A.2d 1221 (N.J. Super. 1998), affirmed by adopting appel-

late opinion, 723 A.2d 943 (N.J. 1999), petition for cert. filed,

67 U.S.L.W. 3774 (May 20, 1999) (Case No. 98-1866). In

Karam, the appellate court examined the history of a lot

comprised of an upland and wetland unit and found the two

portions to be a single unit for a takings analysis.

13

These cases all follow the logic of the notion that this court

rejected in Lucas: the more real property one owns, the more the

government can take without having to pay for it. Would this

Court have countenanced the uncompensated taking of one of

David Lucas’ lots if he had been allowed to build on his second

lot?

F. The Federal Circuit’s Holding in Forest Properties

Is Inconsistent With Those Courts That Have

Adopted the Doctrine of Conceptual Severance

In Seawall Associates v. City of New York, 74 N.Y.2d 92,

542 N.E.2d 1059 (N.Y. 1989), the New York Court of Appeals

addressed a challenge to New York City’s law regulating the

conversion of single-room occupancy housing. The city had

suggested that the property owners could have no claim to a

taking or denial of economically viable use after comparing the

value of the rights affected by the law with the total “bundle” of

the owners’ property interests. 542 N.E.2d at 1067. The court

did not agree:

But the permanent abrogation of one of those rights,

without regard to its comparative value in relation to

the whole, may well be sufficient to constitute a

taking.

Id. The court elaborated by citing with favor

various comments on the theory of “conceptual sever-

ance” [i.e., assessing only the value of the rights taken

without regard to its relationship to the value of the

whole property].

Id. Accord Manocherian v. Lenox Hill Hospital, 84 N.Y .2d 385,

398-400, 643 N.E.2d 479 (N.Y. 1994), cert. denied, 115 S. Ct.

1961 (1995) (finding the destruction of a reversionary interest to

constitute a regulatory taking).

This Court has also on occasion found a taking when only

one strand in the bundle of property rights was affected. In both

14

Hodel v. Irving, 481 U.S. 704 (1987), and Babbitt v. Youpee,

519 U.S. 234 (1997), the Court struck down congressional

attempts to force the transfer of small fractional interests to the

tribes upon an owner’s death.

In the case of Forest Properties, the court below declined

to consider separately (or sever horizontally) the 9.4 acres of

wetlands from the separately owned and regulated 54-acre upland

parcel. In this case, the “horizontal” severance is much more

severe than the conceptual severance that some courts have

embraced. The difference in results is illogical.

G. Toward a Coherent Determination of the

Relevant Parcel--the Machipongo Example

Much more faithful to the Takings Clause of the

Constitution is a model for analyzing the takings denominator

that was proposed by a commentator and which has been

expressly followed by at least one court. A better way to analyze

the takings denominator is to conclude that

any identifiable segment of land is a parcel for

purposes of regulatory taking analysis if prior to

regulation it could have been put to at least one

economically viable use, independent of the

surrounding land segments.

John F. Fee, Unearthing the Denominator in Regulatory Takings

Claims, 61 U. Chi. L. Rev. 1535, 1557 (1994).

The key language here is “independent of ihe surrounding

land segments.” With this qualifier, the specter of governments

being forced to pay for setbacks and similar regulatory restric-

tions is substantially lessened. Under this standard,

it must be shown that there existed prior to regulation

at least one economically viable use for the land, the

value of which is derived independently of the

immediately surrounding land interests.

Id. at 1558. As Fee explains:

15

In many situations, an identifiable segment of land

may be put to no economically viable use, other than

to expand or beautify a building or business operation

existing on a neighboring segment of land.

Id. at 1559. A restriction on the use of such a segment of land,

such as with a typical setback, would not be typically

compensable under this “independent of the surrounding land

segments” qualifier. The only exception would be if this segment

were significant enough that by itself it could be economically

useful for a purpose unrelated to the use of the neighboring

segment. “Under no circumstances,” Fee concludes,

should an owner of a city lot be compensated for what

is in fact a diminution in value of the entire lot by

alleging that the buffer zone has been completely

taken.

Id. at 1559-60.

The test proposed by Fee was adopted by a Pennsylvania

appellate court in Machipongo Land and Coal Co. v.

Commonwealth of Pennsylvania, 719 A.2d 19 (Penn. 1998). In

Machipongo, the Owners of a coal deposit alleged that the

designation as “unsuitable for mining” (UFM) of 157 acres, out

of a total of 2,037 acres, constituted a taking of at least 1,344,800

tons of coal. Another coal owner alleged that 27 acres of 1,350

acres had been taken by the UFM designation.

The court first rejected the commonwealth’s theory that the

appropriate bright-line test should be to consider together all

“contiguous land under a common owner.” The court rejected

the test for two reasons: first it was facially unfair to treat owners

of larger parcels less favorably for the sole reason that such

owners have more property. Second, the court noted that owners

who had “sold off” portions of their property would be arbitrarily

better off than those owners who had not yet sold off their land.

The court also rejected the approach suggested by the

landowners: “defining the property interest by the regulation.”

DEEL ES COR TE

16

Under that test, virtually any segment of land affected by a

prohibitory regulation, such as a setback ordinance, would result

in a verdict of a taking. This, the court felt, would not reach a

proper balance of the public’s interest with the interests of the

private property owner.

A third approach rejected by the court was what it called a

“multi-faceted approach.” This test considers “investment-

backed expectations,” whether any land had already been sold off

or developed, “the dates of acquisition,” “the extent to which the

test has been treated as a single unit,” and “the extent to which

the protected land enhances the value of the remaining land.”

The problem with this approach, the court wrote, is that it “fails

to offer either regulators or property owners any certainty as to

whether a regulation will result in a taking.” 719 A.2d at 27-28.

Instead, the court adopted the “defining the property interest

by regulation” test as modified by Fee’s suggestion that only

segments that are economically viable independent of

surrounding segments be considered. It employed the Fee

analysis by asking the following questions:

¢ whether the regulated land had value prior to the

regulation;

¢ whether the regulated land has a separate use

from the non-regulated contiguous parcel(s)—i.e.,

whether it may be profitably used if it is the

only parcel; and

° if the regulated land has value separate from the

contiguous land, whether all of its economic

benefit is gone.

Fee, Unearthing the Denominator in Regulatory Takings Claims,

61 U. Chi. L. Rev. at 28.

If this Court were to grant FPI’s Petition, it could put an end

to the rampant conflicts in the lower courts by adopting the

ane

17

workable and fair test that has been utilized by the Pennsylvania

court.

“NOTICE” OF A REGULATION

DOES NOT OBVIATE A TAKING

A. The Government Should Not Be Rewarded With

a Windfall Just Because the Owner of Property at

the Time a Regulation Is Adopted Is Not the One

to Bring an As-Applied Takings Claim

In its decision below, the Federal Circuit held that “[o]ne

who buys with knowledge of a restraint assumes the risk of

economic loss.” App. at Al3 (quoting Creppel v. United States,

41 F.3d at 632).° That certainly is the result of the court’s

decision but, when it comes to bringing an as-applied challenge

to a regulatory program, the real question is why should any

landowner bear this “risk of economic loss.” It is, after all, the

government that has created the restraint, not the landowner at

the time the regulation was adopted and not the purchaser of the

property who brings an as-applied challenge. The end result of

the Federal Circuit’s rule is that the government is getting

something for nothing.”

Suppose that a government regulation establishes a permit

process for the use of real property--the use of which would not

‘A similar result was reached by the Federal Circuit in Good v.

United States, 1999 WL 673336 (Fed. Cir. Aug. 31, 1999) (Case

No. 97-5138), finding that owner has no reasonable investment-

backed expectations to develop heavily regulated property which he

bought in 1973 because the owner was “not oblivious” to the trend of

ever-increasing environmental regulation that resulted in statutes

being adopted after the purchase.

* If it were not for the court’s error regarding the relevant parcel, this

would have been a categorical taking. App. at B35. The relevancy

of expectations in the context of a categorical taking is questionable

after this Court’s decision in Lucas. See Lucas, 505 U.S. at 1015.

18

be considered a nuisance or otherwise barred by background

principles of a law. The regulation falls short, on its face, of

denying all use and value of a parcel of real property. Is that a

taking? Of course not. This Court has found that the mere

passage of a discretionary permitting requirement does not,

without more, constitute a taking. United States v. Riverside

Bayview Homes, Inc., 474 U.S. 121, 126 (1985) (“the mere

assertion of regulatory jurisdiction . . . does not constitute a

regulatory taking”).

In many instances the owner at the time the regulation is

adopted may be able to file one or more applications to use the

property--only to have each application unequivocally denied.

But in other instances an owner may not be able to ripen a claim

through the application process. This is especially true for the

owner of a smaller lot, or an owner who is too old or too poor. It

may be that such an owner’s only recourse is to sell the property.

Suppose further, that the actual application--through the

permit process—of this regulation prohibits all use of the property

such that there is no value remaining. Who should bear the cost

of the prohibition--the owner at the time the regulation is

adopted, the subsequent owner who applied for a permit one or

more times, or the government that denied the permit?

It is true that the subsequent purchaser may have acquired

the regulated property at a discount. But so what? The new owner

is assuming certain expenses, risks, and transaction costs in

pursuing the permit process and takings claim. The question here

is not whether any just compensation damages are fairly allocated

between the original owner and the subsequent purchaser, but

* This Court has also made it quite plain that courts should not hear

an as-applied takings claim unless and until the owner has availed

himself of the appropriate permitting procedures. Until that happens,

the claim is simply not ripe. See, e.g., Williamson County Regional

Planning Commission v. Hamilton Bank of Johnson City, 473 U.S.

172, 186-94 (1985) (describing need to obtain “final decision” from

administrative agency).

act he i NE. ml I sent

19

whether the government will have to pay any damages at all to

anyone at all. Under the Federal Circuit’s rule, the answer is no.

Because the owner at the time the regulatory scheme was adopted

was not the same person who made the permit applications, the

government gets the benefits of a regulatory taking with none of

the costs.”

B. The Federal Circuit Contradicts

This Court’s Holding in Lucas

In a recently published article, Professor Steven J. Eagle 1s

highly critical of the notion that just compensation is not available

when the application of a regulation takes private property just

because the owner purchased the land subject to an existing

regulatory scheme. See Steven J. Eagle, The 1997 Regulatory

Takings Quartet: Retreating from the “Rule of Law,” 42 N.Y.L.

Sch. L. Rev. 345, 376 (1998). One of Professor Eagle’s principal

criticisms is that this doctrine artfully rewrites this Court’s

holding in Lucas.

° As with so many other areas of takings law, the courts below are in

substantial conflict on how to resolve the issue of who should pay

when a subsequent owner of real property brings an as-applied

takings challenge. See, e.g., Karam v. State of New Jersey, supra

(“the right of a property owner to fair compensation when his

property is zoned into inutility by changes in the zoning law passes to

the next owner despite the latter's knowledge”); Carson Harbor

Village Ltd. v. City of Carson, 37 F.3d 468 (9th Cir. 1994) (an “as

applied” but not a “facial” takings challenge can be brought by a

purchaser of regulated property); Vatalaro v. Department of

Environmental Regulation, 601 So. 2d 1223, 1229, rev. denied,

613 So. 2d 3 (Fla. 1992) (“no taking occurred until DER denied

Vatalaro’s permit application and determined the property was

suitable only for limited passive recreational use”), see also Del

Monte Dunes at Monterey, Ltd. v. City of Monterey, 95 F.3d 1422

(9th Cir. 1996), affirmed, __ S. Ct. __ (1999) (takings claims

proceeds despite the fact that land was purchased with knowledge of

permitting requirements). FPI’s Petition cites to several cases that are

contrary to these. See Petition at 24-24.

:

+

|

20

Focusing on several holdings from New York that reach the

same conclusion as the Federal Circuit, Eagle suggests that the

idea that the nght to bring an inverse condemnation claim against

the application of a regulation must be transferable with the

property. Otherwise, the court

converts an important component of the fee simple--

the right to use one’s land--into a personal right that

has to be exercised during life or else vanishes.

Id. at 368. The impact of such a rule is especially apparent when

the prior owner was a decedent who “through infirmity or other

reason, could not challenge a confiscatory regulation prior to the

decedent’s death.”” /d. This conversion of the fee simple into

something else contradicts this Court’s admonition in Lucas that

the government’s power to redefine the range of

interests included in the ownership of property was

necessarily constrained by constitutional limits.

505 U.S. at 1014.

CONCLUSION

To resolve the conflicts among the lower courts, and to

ensure that property owners are not deprived of just compen-

sation when they suffer regulatory takings, this Court should

grant FPI’s Petition for Writ of Certiorari.

DATED: September, 1999.

Respectfully submitted,

JAMES S. BURLING

Counsel of Record

Pacific Legal Foundation

10360 Old Placerville Road, Suite 100

Sacramento, California 95827

Telephone: (916) 362-2833

Facsimile: (916) 362-2932

Counsel for Amicus Curiae

Pacific Legal Foundation