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 »
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 »
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.
Yesterday, on May 1, 2015, in Saint Bernard Parish Government v. United States, the U.S. Court of Federal Claims found the U.S. government liable in a major takings case arising from property damage in Louisiana caused by Hurricane Katrina and other hurricanes. The lawsuits were brought by St Bernard Parish itself and by numerous property owners in the Lower Ninth Ward of New Orleans and in St Bernard Parish. The takings claims are based on the theory that Army Corps of Engineer’s construction, expansion, operation and failure to maintain the Mississippi River – Gulf Outlet (“MR-GO”) resulted in temporary takings by causing increased flooding of the plaintiffs’ properties during Hurricane Katrina and several lesser hurricanes. Read the rest of this entry »
Who could have imagined that the takings case of Horne v Department of Agriculture argued in the Supreme Court this past Wednesday might portend revival of the doctrine of public trust ownership of wildlife? But it might. Really. Read the rest of this entry »
The mischief threatened by the Supreme Court’s strikingly incoherent decision in Koontz v. St John’s Water Management District continues to reverberate in the lower courts. The latest for instance is the October 21, 2014, decision by the federal District Court for the Northern District of California in Levin v. City & County of San Francisco. The Court (Breyer, Charles, J.) ruled that a recently enacted San Francisco ordinance requiring landlords who withdraw from the rent-controlled rental market to make a lump sum payment to displaced tenants constitutes a taking under the Nollan/Dolan/Koontz trifecta. Read the rest of this entry »
On September 30, 2014, the federal District Court for the District of Columbia let the first shoe drop in the controversial takings litigation based on the federal government’s bailout of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). In Perry Capital, LLC v. Lee, the District Court (Judge Royce Lamberth) rejected stockholder claims that the decision by the Federal Housing Finance Agency (“FHFA”) to virtually wipe out the stockholders’ equity in these companies resulted in a compensable taking. An appeal will surely follow.
In 2008, during the so-called Great Recession, after Fannie Mae and Freddie Mac had suffered serious financial losses as a result of widespread mortgage defaults, the FHFA placed the companies into a conservatorship. The terms of the conservatorship evolved over time. In 2012, the companies and the FHFA entered into an agreement that required the companies, in consideration for the infusion of taxpayer dollars, to pay a quarterly dividend to the Treasury Department equal to the entire worth of the companies, minus only a small reserve that shrinks to zero over time. Various shareholders, including some hedge funds that purchased shares in the companies at a deep discount, brought suit seeking just compensation for the taking of their stakes in the companies. (The lawsuit might have proceeded in the District Court, rather than the U.S. Court of Federal Claims, because the plaintiffs framed their case as a class action suit under the Little Tucker Act.)
Judge Lamberth rejected the takings claim on the ground that the plaintiffs lacked a protected property based on their stock in the companies given that the shareholders were at all times exposed to the risk, based on pre-existing federal regulations, that they might lose their investments if and when the companies were placed in a conservatorship. Relying on several Federal Circuit precedents involving similar cases, the District Court ruled that the “shareholders necessarily lack the right to exclude the government from their investment when FHFA places the [companies] under governmental control—e.g., into conservatorship.” In addition, and in the alternative, the Court ruled, emphasizing the plaintiffs’ lack of reasonable investment-backed expectations, that the plaintiffs’ takings claims failed under the Penn Central analysis.
For a withering critique of this litigation – and the similar AIG lawsuit – see Stephen Ratner’s column in the NY Times.
Illustrating the principle that voluntariness is a defense to a takings claim, the U.S. Court of Appeals for the Eleventh Circuit recently ruled that a Florida hospital could not challenge a cap on reimbursements for providing medical treatment to federal detainees because the hospital voluntarily subjected itself to the requirement to provide medical care according to these terms. The decision in Baker County Medical Services, Inc. v. U.S. Attorney General was issued on August 14, 2014. Read the rest of this entry »
The California Court of Appeals has issued an interesting decision rejecting a takings claim based on restrictions imposed by the California Coastal Commission on landowners’ alleged “right to defend” their properties from coastal erosion. Following a serious storm that destroyed erosion control structures protecting two neighboring properties on the coastal bluff in Encinitas, California, the Commission granted the owners permission to construct new coastal erosion structures. However, the Commission took the (relatively new and unusual) step of limiting the permits for the new structures to twenty years, giving rise to the takings issue in the case. Read the rest of this entry »
Last week, in Dimare Fresh, Inc. v. United States, the U.S. Court of Federal Claims affirmed that, after all, there really are some categorical limits to takings liability. The case arose from a public advisory issued by the Food and Drug Administration identifying certain types of tomatoes as the apparent source of a salmonella outbreak – a link that was ultimately demonstrated not to exist. Tomato producers sued under the Takings Clause seeking just compensation for the economic losses they suffered following collapse of the market for tomatoes as a result of the FDA’s public warning. The claims court, citing a persuasive pile of precedent, dismissed the claim, relying on the following principle: “A regulatory takings claim is not plausible and cannot proceed when the government action at issue has no legal effect on the plaintiff’s property interest. Advisory pronouncements, even those with significant financial impact on the marketplace, are not enough to effect a taking of property under the Fifth Amendment.” Plaintiff’s counsel has vowed an appeal.