Amdt5.5.1.2.4.1 Regulatory Takings: General Doctrine

Fifth Amendment:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Although it is established that government may take private property, with compensation, to promote the public interest, that interest also may be served by regulation of property use pursuant to the police power, and for years there was broad dicta that no one may claim damages that result from a police regulation designed to secure the common welfare, especially in the area of health and safety.¹ What distinguishes eminent domain from the police power is that the former involves the taking of property because of its need for the public use while the latter involves the regulation of such property to prevent the use thereof in a manner that is detrimental to the public interest.² But regulation may deprive an owner of most or all beneficial use of his property and may destroy the values of the property for the purposes to which it is suited.³ The older cases flatly denied the possibility of compensation for this diminution of property values,⁴ but the Court in 1922 established as a general principle that if regulation goes too far it will be recognized as a taking.⁵

In Mahon, Justice Holmes, for the Court, over Justice Brandeis’ vigorous dissent, held unconstitutional a state statute prohibiting subsurface mining in regions where it presented a danger of subsidence for homeowners. The homeowners had purchased by deeds that reserved to the coal companies ownership of subsurface mining rights and that held the companies harmless for damage caused by subsurface mining operations. The statute thus gave the homeowners more than they had been able to obtain through contracting, and at the same time deprived the coal companies of the entire value of their subsurface estates. The Court observed that [f]or practical purposes, the right to coal consists in the right to mine, and that the statute, by making it commercially impracticable to mine certain coal, had essentially the same effect for constitutional purposes as appropriating or destroying it.⁶ The regulation, therefore, in precluding the companies from exercising any mining rights whatever, went too far.⁷ However, when presented 65 years later with a very similar restriction on coal mining, the Court upheld it, pointing out that, unlike its predecessor, the newer law identified important public interests.⁸

The Court had been early concerned with the imposition upon one or a few individuals of the costs of furthering the public interest.⁹ But it was with respect to zoning, in the context of substantive due process, that the Court first experienced some difficulty in this regard. The Court’s first zoning case involved a real estate company’s challenge to a comprehensive municipal zoning ordinance, alleging that the ordinance prevented development of its land for industrial purposes and thereby reduced its value from $10,000 an acre to $2,500 an acre.¹⁰ Acknowledging that zoning was of recent origin, the Court observed that it must find its justification in the police power and be evaluated by the constitutional standards applied to exercises of the police power. After considering traditional nuisance law, the Court determined that the public interest was served by segregation of incompatible land uses and the ordinance was thus valid on its face; whether its application to diminish property values in any particular case was also valid would depend, the Court said, upon a finding that it was not clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare.¹¹ A few years later the Court, again relying on due process rather than taking law, did invalidate the application of a zoning ordinance to a tract of land, finding that the tract would be rendered nearly worthless and that to exempt the tract would impair no substantial municipal interest.¹² But then the Court withdrew from the land-use scene until the 1970s, giving little attention to states and their municipalities as they developed more comprehensive zoning techniques.¹³

As governmental regulation of property has expanded over the years – in terms of zoning and other land use controls, environmental regulations, and the like – the Court never developed, as it admitted, a set formula to determine where regulation ends and taking begins.¹⁴ More recently the Court has observed that, [i]n the near century since Mahon, the Court for the most part has refrained from elaborating this principle through definitive rules.¹⁵ Indeed, [t]his area of the law has been characterized by ‘ad hoc, factual inquiries, designed to allow careful examination and weighing of all the relevant circumstances.’¹⁶ Nonetheless, the Court has now formulated general principles that guide many of its decisions in the area.¹⁷

In Penn Central Transportation Co. v. City of New York,¹⁸ the Court, while cautioning that regulatory takings cases require essentially ad hoc, factual inquiries, nonetheless laid out general guidance for determining whether a regulatory taking has occurred. The economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations are . . . relevant considerations. So too, is the character of the governmental action. A ‘taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.¹⁹

At issue in Penn Central was the City’s landmarks preservation law, as applied to deny approval to construct a 53-story office building atop Grand Central Terminal. The Court upheld the landmarks law against Penn Central’s takings claim through application of the principles set forth above. The economic impact on Penn Central was considered: the Company could still make a reasonable return on its investment by continuing to use the facility as a rail terminal with office rentals and concessions, and the City specifically permitted owners of landmark sites to transfer to other sites the right to develop those sites beyond the otherwise permissible zoning restrictions, a valuable right that mitigated the burden otherwise to be suffered by the owner. As for the character of the governmental regulation, the Court found the landmarks law to be an economic regulation rather than a governmental appropriation of property, the preservation of historic sites being a permissible goal and one that served the public interest.²⁰

Justice Holmes began his analysis in Mahon with the observation that [g]overnment hardly could go on if to some extent values incident to property could not be diminished without paying for every . . . change in the general law,²¹ and Penn Central's economic impact standard also leaves ample room for recognition of this principle. Thus, the Court can easily hold that a mere permit requirement does not amount to a taking,²² nor does a simple recordation requirement.²³ The tests become more useful, however, when compliance with regulation becomes more onerous.

Several times the Court has relied on the concept of distinct [or, in most later cases, ‘reasonable’] investment-backed expectations first introduced in Penn Central. In Ruckelshaus v. Monsanto Co.,²⁴ the Court used the concept to determine whether a taking had resulted from the government’s disclosure of trade secret information submitted with applications for pesticide registrations. Disclosure of data that had been submitted from 1972 to 1978, a period when the statute guaranteed confidentiality and thus formed the basis of a distinct investment-backed expectation, would have destroyed the property value of the trade secret and constituted a taking.²⁵ Following 1978 amendments setting forth conditions of data disclosure, however, applicants voluntarily submitting data in exchange for the economic benefits of registration had no reasonable expectation of additional protections of confidentiality.²⁶ Relying less heavily on the concept but rejecting an assertion that reasonable investment backed-expectations had been upset, the Court in Connolly v. Pension Benefit Guaranty Corp.²⁷ upheld retroactive imposition of liability for pension plan withdrawal on the basis that employers had at least constructive notice that Congress might buttress the legislative scheme to accomplish its legislative aim that employees receive promised benefits. However, where a statute imposes severe and substantially disproportionate retroactive liability based on conduct several decades earlier, on parties that could not have anticipated the liability, a taking (or violation of due process) may occur. On this rationale, the Court in Eastern Enterprises v. Apfel²⁸ struck down the Coal Miner Retiree Health Benefit Act’s requirement that companies formerly engaged in mining pay miner retiree health benefits, as applied to a company that spun off its mining operation in 1965 before collective bargaining agreements included an express promise of lifetime benefits.

On the other hand, a federal ban on the sale of artifacts made from eagle feathers was sustained as applied to the existing inventory of a commercial dealer in such artifacts, the Court not directly addressing the ban’s obvious interference with investment-backed expectations.²⁹ The Court merely noted that the ban served a substantial public purpose in protecting the eagle from extinction, that the owner still had viable economic uses for his holdings, such as displaying them in a museum and charging admission, and that he still had the value of possession.³⁰

The Court has made plain that, in applying the economic impact and investment-backed expectations factors of Penn Central, courts are to compare what the property owner has lost through the challenged government action with what the owner retains. Discharging this mandate requires a court to define the extent of plaintiff’s property – the parcel as a whole – that sets the scope of analysis.³¹ In Murr v. Wisconsin, the Court stated that, [l]ike the ultimate question whether a regulation has gone too far, the question of the proper parcel in regulatory takings cases cannot be solved by any simple test. Courts must instead define the parcel in a manner that reflects reasonable expectations about the property.³² In Murr, the owners of two small adjoining lots, previously owned separately, wished to sell one of the lots and build on the other. The landowners were prevented from doing so by state and local regulations, enacted to implement a federal act, which effectively merged the lots when they came under common ownership, thereby barring the separate sale or improvement of the lots. The landowners therefore sought just compensation, alleging a regulatory taking of their property.

In ruling against the landowners, the Supreme Court set forth a flexible multi-factor test for defining the proper unit of property to analyze whether a regulatory taking has occurred.³³ The Court continued the approach of prior cases whereby the boundaries of the parcel determine the denominator of the fraction of value taken from a property by a governmental regulation, which in turn can determine whether the government has taken private property.³⁴ Under this formula, regulators have an interest in a larger denominator—in the Murr case, combining the two adjoining lots—to reduce the likelihood of having to provide compensation, while property owners seeking to show that their property has been taken have an interest in the denominator being as small as possible. The Murr Court instructed that, in determining the parcel at issue in a regulatory takings case, no single consideration can supply the exclusive test for determining the denominator. Instead, courts must consider a number of factors, including (1) the treatment of the land under state and local law³⁵; (2) the physical characteristics of the land³⁶; and (3) the prospective value of the regulated land.³⁷

In the course of its opinion in Penn Central the Court rejected the principle that no compensation is required when regulation bans a noxious or harmful effect of land use.³⁸ The principle, it had been contended, followed from several earlier cases, including Goldblatt v. Town of Hempstead.³⁹ In that case, after the town had expanded around an excavation used by a company for mining sand and gravel, the town enacted an ordinance that in effect terminated further mining at the site. Declaring that no compensation was owed, the Court stated that [a] prohibition simply upon the use of property for purposes that are declared, by valid legislation, to be injurious to the health, morals, or safety of the community, cannot, in any just sense, be deemed a taking or an appropriation of property for the public benefit. Such legislation does not disturb the owner in the control or use of his property for lawful purposes, nor restrict his right to dispose of it, but is only a declaration by the State that its use by anyone, for certain forbidden purposes, is prejudicial to the public interests.⁴⁰ In Penn Central, however, the Court denied that there was any such test and that prior cases had turned on the concept. These cases are better understood as resting not on any supposed ‘noxious’ quality of the prohibited uses but rather on the ground that the restrictions were reasonably related to the implementation of a policy – not unlike historic preservation – expected to produce a widespread public benefit and applicable to all similarly situated property.⁴¹ More recently, in Lucas v. South Carolina Coastal Council,⁴² the Court explained noxious use analysis as merely an early characterization of police power measures that do not require compensation. [N]oxious use logic cannot serve as a touchstone to distinguish regulatory ‘takings’ – which require compensation – from regulatory deprivations that do not require compensation.⁴³