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.
The recent decision by the federal District Court for the Eastern District of North Carolina in the case of Town of Nags Head v. Toloczko, provides some insight into the potential obstacles presented by the Takings Clause to the use of nuisance-abatement ordinances to effect orderly retreat from eroding shores in the era of climate change.
In November 2009, a powerful storm hit Nags Head, North Carolina, including the Toloczkos’ beachfront cottage. The storm caused considerable damage to the property, including leaving the septic system exposed. In addition, while erosion had been a chronic problem for the Toloczkos, the 2009 storm substantially eroded the remaining beach in front of their property, leaving the cottage on the dry sand portion of the beach.
The Town declared the cottage a “nuisance” under a local ordinance which defined a storm- or erosion-damaged coastal structure a “public nuisance” when (1) the structure is “in danger of collapsing,” (2) the damaged structure or debris creates a “likelihood of personal or property damage,” or (3) the structure or debris “is located in whole or in part in a public trust area or public land.” In response to the Town’s request, the Toloczkos declined to remove the damaged cottage. Citing the second and third provisions of the ordinance, the Town filed suit seeking to abate the nuisance and penalties for failure to comply with the removal order. (Subsequently, following completion of a beach renourishment project, the Town concluded that the cottage could safely remain in place but continued to pursue recovery of civil penalties.) The Toloczkos filed counterclaims alleging, among other things, a taking of their property. Read the rest of this entry »
The “parcel as a whole rule” has long been one of the few ironclad rules one could count on in takings litigation. But in a controversial decision issued on January 1, 2013, in Lost Tree Acres v. United States, the U.S. Court of Appeals for the Federal Circuit adopted a novel approach to the parcel issue that seemed to knock everything into a cocked hat. But it turns out the U.S. Department of Justice believes there is still more to talk about in the Lost Tree case.
The case arose from the U.S. Army Corps of Engineers’ denial of a CWA section 404 permit to fill approximately 5 acres of tidal wetlands and submerged lands on the Atlantic coast of central Florida for residential development. The parcel at issue is a tiny fraction of a larger 1300-acre real estate holding the plaintiff purchased and developed over a period of several decades. Thus, the 5-acre parcel was the last potentially developable portion of an essentially complete, highly successful real estate development. Notwithstanding the fact that a court would normally treat the entire 1300-acre holding as the relevant parcel as a whole, the Federal Circuit ruled that the 5-acre property was the relevant parcel, essentially because plaintiff had “ignored” the possibility of developing this particular parcel for most of the development process and only focused on it when an unexpected opportunity arose to use wetlands mitigation credits in connection with the possible development of this last parcel. The Federal Circuit denied the United States’ interlocutory rehearing petition on the parcel issue. On remand, the claims court, applying the Federal Circuit’s narrow definition of the relevant parcel, found a taking and entered a judgment in favor of plaintiff for $4.2 million (plus interest).
Now, the United State has filed a brief appealing the final judgment. While the parcel ruling represents law of the case for the purpose of review by a panel of the Federal Circuit, the Department of Justice brief “preserves” the government’s “disagreement with the earlier panel ruling,” observing that the “ruling remains subject to further appellate review,” apparently referring to potential en banc review or possibly even review in the U.S. Supreme Court. The brief argues in part:
The panel based its holding on Lost Tree’s subjective treatment
of Plat 57 as a “distinct economic unit[ ],” A24, rather than the objective
factors—e.g., physical contiguity, unity of purchase, and mutual
enhancement of value—that the Supreme Court has considered when
defining the parcel-as-a-whole. The panel opinion allows a developer to
artificially sever the regulated portion of a project from the unregulated
portion merely by developing the unregulated portion first and then
alleging a “temporal severance” between different phases of the project.
A24–25. In effect, the panel’s ruling permitted Lost Tree to “defin[e]
the property interest taken in terms of the very regulation being
challenged,” a “circular” approach that the Supreme Court and other
courts have “consistently rejected.” Tahoe-Sierra, 535 U.S. at 331; see
also, e.g., Zealy v. City of Waukesha, 548 N.W.2d 528, 533 (Wisc. 1996).
The proceedings on remand highlighted the flaws in the panel’s holding.
It is perverse that Lost Tree’s vociferous denial of investment backed
expectations—a factor of “particular significance” to the takings
inquiry, Penn Central, 438 U.S. at 124—was precisely what allowed the
company to circumvent Penn Central and “shoehorn its claim into [the
Lucas] analysis” before the trial court. Concrete Pipe, 508 U.S. at 643;
see, e.g., A782 (plaintiff’s summary judgment reply brief) (“Lost Tree did
not have any economic expectations for Plat 57 until 2001–02, and
therefore before that time Lost Tree could not and did not consider the
value of Plat 57 to be part of a ‘single economic unit’ with other property
in the vicinity.”).
Of course, the United States’ brief also cites several other asserted errors by the trial court, which might, depending on their resolution, obviate the need to reconsider the parcel issue.
This should be interesting to watch.
Regulatory restrictions on the development of mineral resources produce some of the most interesting takings issues. For instance:
On July 1, 2014, in Schmude Oil, Inc. v. Department of Environmental Quality, the Michigan Court of Appeals affirmed rejection of a takings claim filed by an oil company based on regulatory restrictions on shale oil drilling. The claim arose from a decision by the Michigan Department of Environmental Quality to deny applications to drill several wells on a private inholding within the protected Pigeon River Country State Forest. Based largely on the fact that the company could still proceed with development of the resources using horizontal drilling (albeit at greater cost), the Court rejected both a Lucas per se takings claim and a Penn Central takings claim. While the Court’s analysis is quite conventional and unsurprising, the case is worth noting because it implicitly repudiates a controversial Court of Appeals decision of 20 years ago in Miller Bros. v. Department of Natural Resources, 513 N.W.2d 217 (Mi. Ct. App.), review denied, 447 Mich. 1038 (1994). In that case, involving essentially identical facts, the Court of Appeals upheld a finding of a taking, rejecting the government’s argument that the oil company’s ability to conduct horizontal drilling should have defeated the takings claim. The Miller Bros. court reasoned, “If allowed, directional drilling could not be used to extract all the oil and gas there may be under the protected area. Consequently, the [permit denial] completely deprived plaintiffs of all use of at least some portion of their property holdings in the protected area.” The new decision in Schmude Oil plainly rejects this logic. What a difference 20 years makes.
Earlier in the spring, on April 29, 2014, in Vane Minerals v. United States, the U.S. Court of Federal Claims rejected a takings claim arising from restrictions on uranium development on federal public lands in the West. The plaintiff claimed a property right in a uranium deposit based on the 1872 Mining Act. However, the Forest Service and BLM, acting pursuant to the Federal Land Policy & Management Act, “withdrew” the lands (in the vicinity of the Grand Canyon) from mineral entry – subject to “valid existing rights.” Thus, the issue was whether the plaintiff had established a valid existing right, and hence a compensable property interest, by the time the agencies withdrew the lands from mineral entry, The court ruled that the plaintiff lacked a valid existing right because it had failed to go through the necessary agency procedures to obtain a determination that it possessed a valid exiting right. Absent such a determination, the court ruled, the takings claim failed for lack of a predicate property interest as well as on ripeness grounds.