Texas, Flooding, and Public Use

On June 17, 2016, the Texas Supreme Court issued a decision in Harris County Flood Control District v. Kerr, available here, http://www.txcourts.gov/supreme/orders-opinions/2016/june/june-17,-2016.aspx, which should be of great interest to all those who follow major developments in takings doctrine.

The Texas Supreme Court, by a vote of 5-4, rejected a takings claim based on the theory that Harris County should be held liable for property damage allegedly caused by the county’s prior approval of upstream development without adequate flood mitigation. The headline is that the Court’s recent decision supersedes the Court’s prior decision in this case, issued on June 12, 2015, http://www.txcourts.gov/media/996484/130303.pdf, supporting, again by a 5 to 4 vote, the plaintiffs’ takings theory.  The change in outcome was explained by Justice Eva Guzman’s decision, in response to an application for rehearing, to switch her vote.

The plaintiffs in the case were more than 400 residents and homeowners in the Upper White Oak watershed in Harris County, Texas, which surrounds the City of Houston. They brought suit under the Texas Takings Clause, Article 1, Section 17 of the Texas Constitution.  The plaintiffs’ case was based on the theory that the county should be held liable for just compensation under the Takings Clause because (1) the county was substantially certain at the time it approved the development that it would cause downstream flooding and (2) the upstream development in fact caused increased flooding downstream resulting in property damage.   The trial court and the intermediate court of appeals ruled that the county was not entitled to dismissal of the case on summary judgment, saying that plaintiffs had created a factual dispute about whether they could prevail on their takings claim.  In its latest decision, the Texas Supreme Court ruled that plaintiffs’ claims were insufficient as a matter of law, principally because they had offered no evidence that the county was “consciously aware” that approval of any particular development  upstream was substantially likely to lead to flooding of plaintiffs’ specific downstream properties.

The Court made clear that it was influenced by a concern that a contrary ruling would open a Pandora’s box of takings liability, stating, “[t]he homeowners’ theory of takings liability would vastly and unwisely expand the liability of governmental entities.” The court also observed that plaintiffs’ theory “lacks any discernible limiting principle and would appear to cover many scenarios where the government has no designs on a particular plaintiffs’ property, but only knows that somewhere, someday, its routine governmental operations will likely cause damage to some as yet unidentified property.”   In its parade of horribles that it thought might follow from awarding plaintiffs a victory in this case, the Court cited a potential climate takings lawsuit by victims of sea level rise against the government for issuing permits to oil and gas drillers or power plant operators.

The Court also expressed concern that a ruling in favor of plaintiffs could undermine the doctrine of sovereign immunity, observing that if the plaintiffs were allowed to proceed under takings doctrine, as opposed to, say, tort doctrine, sovereign immunity would not defeat the plaintiffs’ claim. The Court stressed, quoting one of its venerable precedents, that “the doctrine of the non-suability of the state is grounded upon sound public policy,” for “[i]f the state were suable and liable for every tortious act of its agents, servants, and employees committed in the performance of their official duties, there would result a serious impairment of the public service and the necessary administrative function of government would be hampered.”  In a striking final flourish, the Court justified its ruling by citing Justice Robert Jackson’s famous caution that the Bill of Rights should not be converted “into a suicide pact.”

This case is full of ironies. The most striking feature of the case is that the county was charged with a taking for failing to take regulatory decisions which themselves might have generated takings lawsuits.   Plaintiffs alleged that the county failed to control downstream flooding by failing to impose adequate mitigation conditions on upstream development approvals.  But imposing those kinds of conditions will inevitably draw takings fire under Nollan, Dolan, and Koontz, which impose a heavy burden on government to justify development “exactions.”  In other words, under the plaintiffs’ theory, the county should have been liable under the Takings Clause for failing to impose regulatory restrictions which themselves might well have resulted in takings liability.  Talk about being caught between the devil and the deep blue sea!  Or as the, Court aptly put it, entry into a suicide pact!

A second striking feature of this case is the Court’s convoluted discussion of the issue of “public use.” The county contended that one of the reasons it could not be held liable for a taking was that issuing approvals for private development could not properly be regarded as a “public use” supporting takings liability.  In its latest decision, the Texas Supreme Court appeared to embrace this argument (although an ambiguous footnote considerably muddies the waters).  But Justice Lehrmann, who provided a crucial fifth vote to make the new majority, filed a concurring opinion emphasizing her position that a takings claim that fails the public use requirement can still support an award of compensation in an inverse condemnation case.  Property rights advocates have frequently adopted a similar line:  the public use requirement should be strictly enforced if the question is whether the government can exercise the power of eminent domain (see Kelo), but the lack of a public use should not be a barrier to recovery in an inverse condemnation case.

At least as a matter of federal takings doctrine, this argument is plainly errant nonsense. In its unanimous 2005 decision in Lingle v. Chevron USA, Inc. the Court made crystal clear that the public use requirement is fully applicable in inverse condemnation cases, stating:

“The [Takings] Clause expressly requires compensation where government takes    private property for public use. It does not bar government from interfering with property rights,    but rather requires compensation in the event of otherwise proper interference amounting to a taking. First English Evangelical Lutheran Church, 482 U. S., at 315 (emphasis added).  Conversely, if a government action is found to be impermissible, for      instance because it fails to meet the public use requirement or is so arbitrary as to violate due process, that is the end of the inquiry. No amount of compensation can authorize such action.”

Now, of course, the Texas Supreme Court is free to adopt its own special reading of the Texas Takings Clause. But as a matter of textual analysis and plain common sense, it would be illogical to read the phrase “public use” in the Texas Takings Clause to mean once thing in the eminent domain context and another thing in the inverse condemnation context.   And the fact that reading the phrase “public use” in a disjunctive fashion would be most beneficial to developers (an apparently favored class in Texas), and least protective of government (not so much), is not an argument in favor of this reading, at least not one rooted in law.

A final, sadly telling point:   The Texas Supreme Court has stepped back from the precipice of an expansive takings ruling, and has found a new respect for the constitutional principle of sovereign immunity, in a case in which hundreds of ordinary homeowners were seeking recovery for property damages they claimed to have suffered at the hands of their government (acting for the benefit of developers by issuing them lax permits)  Without disputing the merits of the Texas Supreme Court’s ruling in this case, one has to wonder about the Texas courts’ apparent lack of concern about  a “vast and unwise” expansion of takings doctrine, or about undermining the principle of sovereign immunity, when they issued rulings expanding the scope of takings doctrine for the benefit of developers and agricultural interests.  (See, e.g., Town of Flower Mound v. Stafford Estates Ltd. Partnership, 135 S.W.3d 620 (Tex. 2004) (ruling that an exaction imposed on a developer resulted in taking), or Edwards Aquifer Authority v. Bragg, 421 S.W.3d 118 (Tex. App. 20130, review denied (May 1, 2015) (ruling that implementation of the Edwards Aquifer Act resulted in taking of a farmer’s property),  In Texas, one has to wonder if there are property owners and then there are property owners.

Tobacco, Takings and the TPP

As furious negotiations continue to try to complete a Trans-Pacific Partnership (TPP) trade agreement, for which Congress granted the Obama administration fast track authority a few months  ago, a dispute has arisen over whether tobacco companies should be allowed to invoke the takings and other “investor protections” in the TPP to beat back efforts by developing countries to adopt regulations to protect their populations from the ravages of tobacco.  The Coalition for Tobacco Free Kids has a done a nice job of documenting how tobacco companies have used international investor-state claims under international trade agreements to attack tobacco regulation.  The Obama administration, under pressure from numerous public health groups, has proposed  a provision in the TPP to protect member countries from “abusive” tobacco company investor-state claims

A major argument against this approach by the tobacco companies and their allies in Congress has been: “First they come for the tobacco companies . . . “   In other words, maybe tobacco will be denied the opportunity to exploit the investor-state process today, but who knows what other kinds of “abusive’ takings claims will be targeted next?   Which is not a bad point.   If tobacco companies should be denied the opportunity to exploit trade agreements to challenge tobacco regulations, why shouldn’t this good thinking be applied to  protect all manner of lawful domestic environmental and social welfare legislation from abusive investor-state litigation?

Meanwhile, the Bloomberg and Bill and Melinda Gates foundations have set up a mufti-million dollar fund to provide advice to countries targeted by tobacco companies with investor-state litigation.    Which is all well and good, but one would hope the foundations would also pay some attention to the root causes of this international litigation explosion in the out-of-control  property rights ideology currently being promoted not only on the international scene but in our own domestic court system, including the U.S. Supreme Court.

Floodplain Regulation Not a Taking in South Carolina

Yesterday the South Carolina Supreme Court produced an important ruling in a regulatory takings case involving floodplain management.  In Columbia Venture, LLC v. Richland County, the Court issued a unanimous decision affirming a ruling by a Special Referee that county restrictions on development in a federally-designated floodway did not result in a taking.   This ruling is consistent with an apparently unbroken string of precedent from around the country holding that floodplain development restrictions do not represent takings. Read the rest of this entry »

Looking for “property” in 9th circuit workers comp “lien activation” case

In another demonstration of the challenges sometimes presented by the need to identify the relevant property interest in a takings case, the U.S. Court of Appeals for the Ninth Circuit recently ruled in Angelotti Chiropractic, Inc. v. Baker that a takings claim failed for lack of a predicate property interest. The case involved an alleged taking based on a California law requiring medical providers to pay an “activation fee” in order to enforce a “lien” covering payment for medical services. Read the rest of this entry »

Kelo Before the House Judiciary Committee (Again)

Kelo continues to provide fodder for political debate ten years after the decision, and the latest installment of this debate was a hearing last week before the U.S. House of Representatives Judiciary Commitee, Subcommittee on the Constitution and Civil Justice, entitled “The State of Property Rights in America Ten Years After Kelo v. City of New London.”   My testimony is available here and other testimony is available on the subcommittee website. Read the rest of this entry »

Horne: Supreme Court Says Seizures of Personal Property Are Subject to a Per Se Rule

The U.S. Supreme Court issued its decision today in Horne v. Department of Agriculture, reversing the Ninth Circuit and ruling that the Hornes are not subject to monetary fines for violating the Department’s raisin marketing order.  The fines were invalid, the Court ruled, because compliance with the marketing order would have resulted in a taking of private property without compensation under the Takings Clause. The Court split along depressingly predictable partisan lines, with four justices (you know who they are) joining an opinion for the Court written by Chief Justice John Roberts, and four other justices (you know who they are) dissenting in whole or in part.  Many people will have interesting things to say about this case, which will deserve continued study, but here is a brief recap and a few initial observations.  Read the rest of this entry »

California Supreme Court Upholds Inclusionary Housing

Earlier this week the California Supreme Court issued a major takings decision rejecting a suit by the California Building Industry Association (“CBIA”) seeking invalidation of the City of San Jose’s inclusionary housing ordinance. The unanimous decision In CBIA v. City of San Jose is not only a ringing affirmation of the constitutionality of inclusionary housing policies but also an important explication of the line between “exactions” (subject to unusually strict judicial review) and land use regulation (subject to more traditional, deferential review). The case was brought under both the California and the Federal takings clauses, but the California Court assumed the two clauses should be interpreted congruently in this context. Read the rest of this entry »

Zero for Starr International in Bailout Lawsuit

The U.S. Court of Federal Claims today handed Maurice (“Hank”) Greenberg and his attorney David Boies a stinging defeat by declining to award a penny in monetary compensation in their lawsuit seeking in excess of $40 billion in connection with AIG bailout. (The NY Times headline for today’s story about the case starts off by asserting, “Victory for Ex-A.I.G. Chief in Bailout Suit . . .;” we have to wonder what part of goose egg they don’t understand over at the gray lady.) Read the rest of this entry »

Oddball State Takings Measures

Now that the state legislatures have mostly wrapped up for the year, it is worthwhile to comment on two of this year’s oddball state takings measures, one from Florida and the other from Arkansas.  Both measures are more interesting for what they don’t do than for what they do. Read the rest of this entry »

Lost Tree Redux: How Do We Measure Economic Impact?

In Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), the Supreme Court famously announced that when, as in that case, the trial court found that a regulation rendered the property “valueless,” the owner could assert a per se takings claim on the theory that he had been “called upon to sacrifice all economically beneficial uses” of his property.  Several justices in Lucas expressed discomfort with the idea that a regulation barring development can literally render property “valueless,” and courts and scholars have struggled to define the scope of the Lucas rule ever since.

The very recent decision of the U.S. Court of Appeals for the Federal Circuit in Lost Tree Village Corp. v. United States considerably deepens the mystery surrounding the Lucas per se rule and, unless reexamined by the Federal Circuit or overturned by the Supreme Court, will make the Lucas rule considerably harder to apply in practice.

A little background on the Lost Tree case:  In 1968, plaintiff acquired an option to purchase several thousand acres of land along the Atlantic coast in Florida.  Over the ensuing decades plaintiff purchased portions of the property in increments and developed them, gradually creating a very high-end gated community complete with two golf courses, a beach club and so forth.  Toward the end of the development process, plaintiff purchased the five-acre wetland property at issue in the Lost Tree case for the modest price of $5370, and originally announced that it would set the area aside for conservation purposes, but later changed its mind.  The Federal Circuit has now ruled that the parcel had a value of $4,245,000 for development and that the Army Corps of Engineers’ rejection of a section 404 wetlands-fill permit constituted a taking entitling plaintiff to just compensation in (roughly) that amount.

How the plaintiff came to the decision to develop the five-acre property is itself instructive.  A neighboring property owner, likewise subject to federal wetlands strictures, identified a separate undeveloped portion of plaintiff’s vast property holdings as a suitable location to conduct wetlands mitigation work that would generate “mitigation credits” and allow the neighbor to proceed with a planned development project under the Army Corps regulations.   Thus alerted to the opportunity to generate mitigation credits on its property, plaintiff decided to try to use the credits for its own account; this led plaintiff to search for development opportunities on its lands that would require mitigation, which is turn led plaintiff for the first time to consider developing the five acres. So if you ever wondered if the Army Corps wetlands mitigation policies can actually foster wetlands destruction, here is proof positive that they can!

In an initial appeal to the Federal Circuit, the court of appeals rejected the government’s effort to defeat the claim based on application of the parcel as a whole rule.  See Lost Tree Village Corp. v. United States, 707 F.3rd 1286 (Fed Cir. 2013).  The government argued that the five-acre parcel on which plaintiff based its claim should be considered in the context of the several thousand acres that comprised the entire development; in the alternative, the government argued that, at a minimum, the trial court properly rejected the takings claim by evaluating the five-acre parcel in conjunction with several other adjacent and nearby parcels.  But the Federal Circuit rejected both arguments, concluding that the special history leading to the plaintiff’s decision to attempt to develop this particular parcel several years after the rest of the development had been largely completed somehow meant that plaintiff had developed “distinct economic expectations” with respect to this particular parcel, justifying its treatment as a distinct parcel for the purpose of takings analysis.   It remains a mystery why, if (as the court correctly assumed) the parcel rule would bar the takings claim if the developer sought to develop the five-acre parcel concurrently with the rest of the development, the result should be different because this particular parcel had so little development interest that the developer essentially forgot about it until the rest of the development had been completed.  Nonetheless, the Federal Circuit denied an application for rehearing and the case has proceeded on the basis that the five acres represented the relevant parcel.

On remand, the trial court found that the permit denial constituted a taking under Lucas and the Federal Circuit has affirmed; the Federal Circuit declined to reach the trial court’s alternative holding that the plaintiff also suffered a taking under Penn Central.   The most interesting part of this recent decision is the Court’s problematic reasoning for rejecting the government’s argument that the trial court’s conclusion that the property retained (post permit-denial) a residual value of $27,500 precluded a finding of a taking under Lucas.  Under Lucas, the government argued, the destruction of value must be total, as under the facts of Lucas, or as the Court articulated the test in the Tahoe-Sierra case.   The Federal Circuit’s answer to this argument was that the parcel’s residual value only reflected its “environmental value” and not its “economic value,” and that property value attributable to environmental value can and should be disregarded for the purpose of applying the Lucas test.

But this approach is surely wrong, on multiple grounds.   First, there is no warrant in the Takings Clause for privileging property value that derives from the development of land from value that depend on its preservation.   The government’s expert testified at trial that the land had economic value for recreational purposes, and the courts accepted that testimony; even if this use is “environmental” in nature, there is no reason why the value of the land for private recreational purposes should not be taken into account in determining a property’s value after a permit application has been denied.  Also, as illustrated by the origins of this case in wetlands mitigation, undeveloped areas (either in pristine or restored states) can have real economic value in the marketplace as mitigation sites and there is no sound reason why these values should be disregarded for the purpose of takings analysis.

Second, the Federal Circuit’s approach is flawed because it divorces takings analysis from the realities of the actual marketplace in land.  Takings analysis is difficult enough, and already subject to too much gamesmanship.  Tethering estimates of the economic impact of regulation on land values to actually observable real estate values provides at least some assurance that takings law will remain in touch with reality.  But if the courts decide that some factors affecting land values are legally cognizable (because they are “economic” in nature) and others are not (because they are “environmental” in nature), then fact-based data on the market value of regulated property become irrelevant.  Environmental values, like development opportunities, can have significant impacts on the market value of land.   But, in the real world, the impacts of these different influences on land value cannot be distinguished one from the other.   If the courts are supposed to look for evidence of land value divorced from environmental value, they will come up empty handed, meaning that the search for economic impact for the purpose of takings analysis will become a purely abstract exercise.  Absent some grounding in actual data, takings analysis will likely become difficult if not impossible to perform; at a minimum, it will become more random and unpredictable.

Perhaps the Federal Circuit needs to rethink its latest decision.