On Friday, April 20, 2018, the U.S. Court of Appeals for the Federal Circuit issued an important ruling in the case of St. Bernard Parish v. United States, reversing a judgment of the U.S. Court of Federal Claims that threatened to impose hundreds of millions of dollars of liability on U.S. taxpayers based on flood losses allegedly attributable to the construction and management of the Mississippi River-Gulf Outlet (MRGO) navigation channel. The decision represents a potential landmark precedent limiting the extent to which the government can be held financially responsible for flood damages, an already serious challenge for private landowners that will only get more serious with advancing climate change.
Fifty years ago the U.S. Army Corps of Engineers completed construction of the MRGO channel for the purpose of providing a more direct navigation connection between the Gulf of Mexico and the port of New Orleans. MRGO was never much of a success as a navigation project, but it produced major environmental damage. Increased volumes of salt water invaded Louisiana’s coast, leading to the destruction of cypress forests and marshlands. Over time, steady erosion of its banks led to expansion of the MRGO channel, allowing more water to flow up the channel at higher velocities. When Hurricane Katrina struck in 2005, the coastal storm surge traveling up the channel flooded St. Bernard Parish and the city’s Lower Ninth Ward. Following this destruction, the Army Corps closed and partly filled in the MRGO channel.
Property owners affected by the flooding sued the United States in tort (in federal District Court) and under the Takings Clause (in the U.S. Court of Federal Claims). The takings litigation was initially stayed to allow the tort litigation to proceed first. The District Court ruled in favor of the tort plaintiffs and that judgment was affirmed by a panel of the U.S. Court of Appeals for the Fifth Circuit, but upon rehearing the Fifth Circuit panel rejected the tort claims on the grounds that the United States was immune from suit under the federal Flood Control Act and under the discretionary–function exception to Federal Tort Claims Act. See In re Katrina Canal Breaches Litig., 696 F.3d 436 (5th Cir. 2012).
The takings litigation was then revived in the claims court. In a ruling issued on May 2, 2015, claims court Judge Susan Braden ruled that “plaintiffs established that the Army Corps’ construction, expansions, operation, and failure to maintain the MRGO caused subsequent storm surge that was exacerbated by a ‘funnel effect’ during Hurricane Katrina and subsequent hurricanes and severe storms, causing flooding on plaintiffs’ properties that effected a temporary taking under the Fifth Amendment to the United States Constitution.” See St. Bernard Parish Government v. United States, 121 Fed Cl. 687 (2015). On May 4, 2016, the court made just compensation awards in favor of the owners of eleven selected properties and entered a partial final judgment subject to review by the U.S. Court of Appeals for the Federal Circuit. St. Bernard Parish Government v. United States, 126 Fed Cl. 707 (2016).
Now, with two clear-cut holdings, the Federal Circuit, in an opinion by Judge Timothy Dyk, has reversed the claims court’s liability determination. First, the Court ruled that, to the extent the claims court rested its finding of takings liability on the Army Corps’ alleged failure to act (alleged failure to maintain or modify MRGO), the claims court relied on a theory of liability outside the scope of takings doctrine as conventionally understood. The Court wrote, “[o]n a takings theory, the government cannot be liable for failure to act, but only for affirmative acts by the government.” In addition, “[i]n the flooding context, in particular, both Supreme Court precedent and our own precedent have uniformly based potential takings claims on affirmative government acts.” In the process, the Federal Circuit implicitly declined to take up the suggestion by some academics that government inaction should be recognized as a potential basis for takings liability. See Christopher Serkin, “Passive Takings: State Inaction and the Duty to Protect Property,” 113 Michigan Law Review 345 (2014).
Second, the Federal Circuit ruled that the claims court erred in ruling that plaintiffs established that the government’s actions related to the MRGO project caused the plaintiffs’ property injuries. To carry their burden of proof on the issue of causation, the Court ruled, the plaintiffs were required to show that they would not have suffered flooding in the absence of government action. But the plaintiffs’ case rested “entirely on the premise that it was sufficient to establish that the plaintiffs’ injury would not have occurred absent the construction and operation of the MRGO channel.” This approach ignored the fact that in the mid 1960’s, while the MRGO project was still under construction, the government launched a program of constructing levees and floodwalls to control flooding in the vicinity of the MRGO project. What the plaintiffs needed to address, but failed to address, was whether the combination of MRGO and the flood control project made the flooding associated with Katrina worse than it would have been in the absence of government action. Stated differently, “the causation analysis must consider both risk-increasing and risk-decreasing government actions over a period of time to determine whether the totality of the government’s actions caused the injury.”
Having determined that the plaintiffs failed to establish causation, the Federal Circuit found it unnecessary to address whether the plaintiffs’ flooding losses were a “foreseeable” consequence of the government’s actions or whether the other elements of a takings claim based on a temporary flooding theory pursuant to Arkansas Game & Fish Commission v. United States, 568 U.S. 23 (2012), were met in this case.
The Federal Circuit’s ruling probably brings an end to this lengthy litigation arising from Hurricane Katrina’s devastating effects on Louisiana. In addition, the ruling will have important collateral impacts in other important pending litigation. Most importantly, the St. Bernard’s Parish decision will make it more difficult for plaintiffs to recover in the scores of takings cases filed in the aftermath of Hurricane Harvey based on flooding damage allegedly caused by the operation of an Army Corps flood control dam in Houston, Texas; after St. Bernard Parish, the relevant question is not whether the Army Corps’ operation of the flood control dam may have caused flood damage, but what level of flooding would have occurred if the flood control dam had never been built to begin with. Likewise, in the ongoing litigation over whether ESA-mandated modifications to the operation of water projects along the Missouri River resulted in a taking, see Ideker Farms v. United States, an important issue after St. Bernard Parish is whether landowners along the Missouri River still enjoyed greater protection from flooding than they would have if the projects had not been built.
The U.S. Court of Federal Claims in Washington D.C. recently issued a remarkable opinion in a case captioned Sacramento Grazing Association, Inc. v. United States. The court ruled that a cattle ranching corporation using U.S. Forest Service lands in New Mexico is entitled to a financial payment from the taxpayers because the agency’s efforts to control the damage the corporation’s cattle were doing to the public lands “took” private property rights in water in violation of the U.S. Constitution.
The remarkable nature of the opinion, authored by Chief Judge Susan Braden, begins with the first paragraph, which reads: “On January 2, 2016, several dozen ranchers, who unsuccessfully attempted to find common ground with environmental groups and officials from Oregon’s Malheur National Wildlife Refuge for over a decade, decided to take up arms to protest federal policy and regulations to prioritize migrating bird water habitat, by limiting the number of cattle that historically grazed and used water in that area–decades before it was subject to federal control. In contrast, the Sacramento Grazing Association, Inc. (“SGA”) filed a complaint in the United States Court of Federal Claims for an adjudication of its right to beneficial use of stock water sources within the Sacramento Allotment of the Lincoln National Forest, New Mexico.”
For starters, Judge Braden’s description of who was involved in the takeover of the Malheur Wildlife Refuge is wildly inaccurate, as confirmed by the single news piece she cites in support of her description. See Cranes, Curlews, And Cows—The Delicate Debate Over Oregon’s Federal Lands PBS NEWS (May 24, 2016), http://www.pbs.org/newshour/bb/cranes-curlews-and-cows-the-delicate-debate-over-oregons-federal-lands/). The PBS piece describes how Oregon ranchers in the vicinity of the Malheur Wildlife Refuges have found common cause with conservationists and government officials in finding workable compromises on how the Malheur Refuge should be managed.
But the members of the Bundy family and their allies who took over the Malheur refuge by force of arms were not part of this collaborative group and they were not even part of the community surrounding the refuge. The Bundy family ranch, the site of an earlier standoff with federal officials, is located in Nevada! Ironically, the takeover of the refuge by outsiders reportedly actually strengthened the resolve of the Oregon ranchers to pursue their collaborative approach.
Facts aside, what is one to make of the judge’s comparison of ranchers who sue in court and those who take over federal facilities? Is the point that those who object to the federal government’s policies regarding the public range, but who refrain from armed conflict, are especially entitled to judicial relief? Is the point that, if the public wants to avoid violence, it must it pay, regardless of the merits of the legal claims?
The second remarkable feature of the case is that it involves an effort to relitigate issues that have already been exhaustively litigated in a prior case, Hage v. United States, which after twenty-seven — yes, twenty-seven –years, is almost (but still not quite) complete. The Hage case also involves a public land rancher who claimed that the U.S. Forest Service (and the Bureau of Land Management) took water rights by regulating cattle grazing on the public range. The case was originally filed in 1991, and after two trials and several opinions, in 2010 the U.S. Court of Federal Claims (per Judge Loren Smith) issued a final judgment awarding compensation for so-called “regulatory” and “physical” takings.
The U.S. Court of Appeals for the Federal Circuit reversed that judgment in 2012, and (following further proceedings in the trial court) reaffirmed that ruling in a 2017 decision. The plaintiffs have filed a last-gasp petition for certiorari with the U.S. Supreme Court, which will almost certainly be denied; the petition is so insubstantial that the Trump Department of Justice has waived its right to file a response.
In the Hage case, Judge Smith, over the course of twenty years, explored – with a deep sympathy for the plaintiffs’ case that tested the limits of judicial propriety – every conceivable theory that might possibly support a finding of a taking. These theories included, for example, that Hage (rather than the United States) was the actual owner of the public range, that Hage had a property right in grazing permits issued by the federal agencies, and that Hage’s water and ditch rights impliedly conferred on him a property right to run cattle on federal public lands.
After twenty years of effort, Judge Smith finally determined, among other things, that Hage had suffered a taking of his water rights because the agencies had erected fencing along the borders of various stream to prevent cattle from trampling stream-side lands. On appeal, the Federal Circuit rejected this theory, and specifically the argument that the fences resulted in a “physical taking” of his water rights. The appeals court pointed out that Hage offered no proof that the fences blocked the flow of water or that Hage’s cattle lacked sufficient water. In sum, the Court said, “there is no evidence that the government’s actions resulted in a taking.” (The appeals court also rejected Judge Smith’s other takings ruling, arising from the restrictions on the maintenance of ditches, on the ground that Hage had not even applied for a permit to do maintenance work in the ditches and therefore could not claim a taking based on allegedly not receiving permission to do maintenance work.)
The third remarkable feature of the Sacramento Grazing case, which arises from facts that are essentially identical to those in the Hage case, is that Judge Braden’s legal analysis is so plainly mistaken. The Fifth Amendment to the U.S. Constitution states; “nor shall private property be taken for public use, without just compensation.” While exercises of eminent domain are the most obvious form of taking, the Supreme Court has recognized that severely burdensome restrictions on property use can also be takings. Generally speaking, the courts analyze regulatory takings claims by examining the extent of economic harm imposed by a regulation, the degree of interference with investment-backed expectations, and the character of the government action.
At the same time, the Court has recognized that a relatively narrow set of government actions constituting “physical takings” of private property should be analyzed under a more stringent test. Under the categorical, or per se approach applicable to physical takings, the government’s physical intrusion is deemed sufficient, by itself, to establish a taking, without regard to economic impact or other factors normally considered in a takings case. Under this approach, for example, the government takes property in a physical sense when it builds a dam and permanently floods land behind the dam.
To support the finding of a taking in the Sacramento Grazing case, Judge Braden invoked the per se physical takings theory. She concluded that any restriction on the plaintiff’s ability to access water at any single location within the company’s grazing allotment resulted in a taking. Under this analysis, it was irrelevant if water flowing down the stream passed through the fences and then became available to the cows to drink downstream, or if the plaintiff’s cows never lacked for adequate water at all. This analysis obviously flies in the face of the more sensible approach of the Federal Circuit in the Hage case, which the claims court should have followed.
While the Sacramento Grazing case involves a number of issues, the court made at least two fundamental errors. First, the court ignored the fact that this case arises from a dispute over the use of federal public lands. Under the Property Clause, the Supreme Court has long held, the federal government has plenary power to regulate private use of federal public lands. To quote a landmark 1911 Court decision, “the United States can prohibit absolutely or fix the terms on which its property may be used.” Thus, while federal land management agencies have long allowed cattle grazing on the public range, permission to do so is a privilege that the federal government can withdraw or restrict as it deems appropriate to protect the public welfare.
Accordingly, in Sacramento Grazing, the company using the public range for cattle grazing has no basis for claiming a property entitlement to use any portion of the range. When the Forest Service decided to restrict the company’s access to portions of the public range with its cows, it was simply exercising the lawful rights of a landowner, and not impinging on any private property right. The fact that governmental restrictions on private uses of the public lands may impair a rancher’s ability to use water rights does not result in a taking; a rancher simply has no right to occupy any portion of the public range without government permission to begin with. As numerous courts have recognized, a public land rancher cannot use private water rights as a bootstrap to claim effective possession and control over the federal public lands themselves.
The second reason the takings ruling in Sacramento Grazing is incorrect is that the per se physical takings theory does not apply on the facts of this case. The Supreme Court has explained that this stringent takings test applies in either one of two circumstances. The Court has said that a per se physical taking occurs when government action results in a permanent physical occupation of private property, such as by flooding private property or granting the public an easement to cross private property. The Court also has said that a per se physical taking occurs when the government appropriates private property, such as by forcing an owner to transfer ownership of the property to some new owner or to the government itself acting in its proprietary capacity.
Neither type of physical taking is present in this case. In New Mexico and throughout the West, a property right in water is a usufructury interest, meaning that the right holder has a right to use the water, but does not own the water molecules themselves. As a result, a senior water right holder has no right to physically exclude others from using her water; for example, if she decides not to use her water right for a certain period, she cannot bar a junior water right holder from using the water. Because the holder of a water right has no right to exclude, the theory that the government can take a water interest by somehow physically occupying the interest is simply a logical nonstarter.
Nor does the theory of a physical taking by appropriation apply in these circumstances. The government might appropriate a water right if it took some action that transferred a water right from its original owner to some new owner, for example. But a mere limitation on the use of water, as occurred in this instance as a result of the erection of fencing, is not an appropriation. If every restriction of private property use to protect the public welfare were regarded as an appropriation of private property, every regulatory restriction would be a per se physical taking, which very clearly is not and has never been the law.
To support her physical takings theory, Judge Braden relies on the fact that the government erected fencing around certain water sources in order to protect sensitive riparian lands. But while a fence is a physical structure, it does not result in a physical taking, because it neither physically occupies property owned by the company (after all, the fence is on federal public land), nor result in an appropriation of private property. As numerous Supreme Court and other appellate decisions have recognized, a mere denial of access may result in a restriction of property use, but it does not result in a “physical” taking triggering application of a per se rule.
Just as it did in the Hage case, the U.S. Court of Appeals for the Federal Circuit should make short work of the erroneous decision in Sacramento Grazing, assuming the Department of Justice files the necessary appeal.
On June 23, 2017, the U.S. Supreme Court issued its decision in Murr v. State of Wisconsin, affirming the judgment of the Wisconsin Court of Appeals that enforcement of a “lot merger” provision in a county zoning ordinance did not result in a compensable taking under the Fifth Amendment. While seemingly narrow and technical, Murr represents the most significant takings decision from the Supreme Court in at least a decade. The Court’s opinion has particularly important implications for future takings litigation involving land use and environmental regulations. Here are the basic takeaways from Murr. (Full disclosure: I filed an amicus brief in Murr on behalf of a group of land economists urging the Court to embrace a more rigorous analysis of how land values are affected by regulation.)
The facts of the case are straightforward. Four adult siblings in the Murr family jointly owned two adjacent building lots on the Lower St. Croix River, one with a house on it (Lot F), and one vacant (Lot E), both of which the Murrs had acquired from their parents in a series of transactions in the 1990’s. Under the county zoning regulations, both of the lots were substandard in size. Furthermore, because the Murrs held both lots in common ownership, they were “merged” – effectively treated as one lot – under the zoning’s merger provision. When the Murrs approached county officials about developing Lot E, they were told the lots had merged and they were barred from building a house on Lot E (or selling Lot E to someone else). Disappointed by this regulatory obstacle, they brought suit under the Takings Clause.
The issue before the Supreme Court was whether the “relevant parcel” for the purpose of assessing the economic impact of the restriction was Lot E or Lots E and F combined. The Murrs, represented by the Pacific Legal Foundation, argued for Lot E alone while the government argued for combining the lots. Defining the relevant parcel as Lot E made the potential adverse economic impact of the restriction appear relatively severe, increasing plaintiffs’ chances of establishing a taking. Defining the relevant parcel as both lots combined reduced the apparent economic impact (because the plaintiffs already had one house on the combined lots), virtually precluding a finding of a taking.
The Murrs argued that Lot E was the appropriate parcel because Lot E had been lawfully created under Wisconsin subdivision rules and state property rules should govern definition of the relevant parcel. The Court rejected this theory and instead ruled that the relevant parcel for takings purposes turns on “whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel.” More specifically, the Court said this inquiry should be guided by, among other things, how land is bounded and divided under state and local law, the physical characteristics of the property in question, and the potentially positive impact of a restriction on one of a claimant’s holdings on the value of an adjacent holding. Applying this multi-factor analysis, the Court ruled that combined Lots E and F represented the relevant parcel, taking into account that the lots had merged under the county’s lot merger provision, the Murrs were aware that their lots bordered a national wild and scenic river and might be subject to stringent regulation, and the fact that the restrictions on Lot E contributed to the value of the development rights on Lot F.
Justice Kennedy wrote the opinion for the Court for himself and four other justices. Chief Justice Roberts wrote a dissenting opinion, joined by Justices Alito and Thomas. He contended that lot lines established under local law “should in all but the most exceptional circumstances determine the parcel at issue,” meaning that in his view Lot E alone should have been regarded as the relevant parcel. Justice Thomas wrote a separate dissent arguing, in typically iconoclastic fashion, that the Court has “never purported to ground” its takings precedents “in the Constitution as it was originally understood,” and suggesting that the Court should take a “fresh look” at takings doctrine. Justice Gorsuch did not participate in the case. Bottom line, the Court split 5 to 3 on the important “parcel issue” presented by the case.
The Major Takeaways.
The Parcel Status Quo Maintained. Murr basically reaffirms the traditional “parcel as a whole rule” in takings litigation. Murr breaks new ground by firmly grounding the parcel as a whole concept in a claimant’s “reasonable expectations about property ownership” and by enumerating three apparently nonexclusive factors for gauging a claimant’s expectations relevant to the parcel issue: the treatment of the land under state and local law, the physical characteristics of the land, and the effect of restricting use of one land holding on the value of an adjacent land holding. In practice, however, these guidelines should generally lead courts to adopt parcel definitions in line with the traditional approach to the parcel issue prior to the Murr decision. State and local law can support either a narrow or, as in the Murr case, a broader definition of the relevant parcel. Consideration of the physical characteristics of the land and the economic interactions between adjacent land holdings will often support unified treatment of adjacent holdings. Ultimately, it appears likely that the courts, under the Murr “reasonable expectations” approach, will typically treat a contiguous or otherwise connected set of land holdings as a single parcel for takings purposes so long as they are part of a single development project or investment venture. Thus, it appears that the Court effectively endorsed the parcel approach it previously applied in Palazzolo, where the Court treated a property that had been subdivided into dozens of separate building lots as a single parcel for the purpose of takings analysis. This approach also is consistent with how the overwhelming majority of lower federal and state courts have resolved the parcel issue in takings challenges to land use and environmental regulations. In short, the Court in Murr offered a mainstream answer to the parcel question that is consistent with longstanding practice.
By contrast, if the Court had adopted the Pacific Legal Foundation’s position, and defined each lawfully subdivided lot as the relevant parcel (or at least as the presumptively relevant parcel), it would have produced a substantial increase in takings liability for government at all levels. Happily, the Court declined to make a radical change in this feature of takings law.
Economic Pros and Cons of Regulation Recognized. The Murr decision breaks new ground by recognizing more explicitly than the Court ever has before that land use regulations produce a complex mix of positive as well as negative effects on private property values. A land use regulation may depress property values by limiting what an owner can do with her land. But it also can increase property values by protecting the amenities that make a community an attractive place to live and work and by restricting available development opportunities and making them scarcer and hence more valuable.
As just discussed, the Court recognized that the mix of negative and positive economic impacts of regulation will support a broad definition of the relevant parcel in many cases. The Court explained: “[C]ourts should assess the value of the property under the challenged regulation, with special attention to the effect of burdened land on the value of other holdings. Though a use restriction may decrease the market value of the property, the effect may be tempered if the regulated land adds value to the remaining property, such as by increasing privacy, expanding recreational space, or preserving surrounding natural beauty . . . . [I]f the landowner’s other property is adjacent to the [owner’s] lot, the market value of the properties may well increase if their combination enables the expansion of a structure, or if development restraints for one part of the parcel protect the unobstructed skyline views of another part. That, in turn, may counsel in favor of treatment as a single parcel and may reveal the weakness of a regulatory takings challenge to the law.”
In addition, once the relevant parcel has been determined, the Court’s economic insights in Murr also should improve the fairness and accuracy of the courts’ analysis of whether a “taking” has occurred, in particular the assessment of the economic impact of a regulatory restriction. A regulatory restriction typically applies not only to part of a claimant’s land, but also to many other property owners in the community. For the reasons the Court has explained in Murr, enforcement of the regulation against others in the community will benefit the claimant. Murr strongly suggests that these benefits received by takings claimants should be factored into the analysis of whether the application of the regulation to the claimant results in a “taking” of his property.
Parcel Rule is a Federal Law Rule. Murr makes clear that federal law, not state or local law, ultimately determines the proper definition of the relevant parcel for the purpose of takings analysis. The Court rejected both the Murrs’ and the State of Wisconsin’s efforts to tie the parcel definition to state and local property rules. The Court said that allowing state law rules to define the relevant parcel would give states or their localities too much authority to define the relevant parcel either too narrowly or too broadly, undermining the Supreme Court’s authority to define the scope of what is, after all, a federal constitutional protection. Instead, the Court articulated a multifactor test which evidently derives from the Takings Clause itself. Under this test, state and local property rules are relevant, but they are not determinative of the parcel question. It is not entirely clear from Murr whether the parcel issue is part of the analysis of whether a government action amounts to a “taking,” or whether instead it is part of the threshold question of how to define the “property” the claimant possesses. In any event, regardless of how the result is rationalized in doctrinal terms, Murr makes clear that the parcel issue is ultimately governed by federal law. Chief Justice Roberts, in dissent, took a different position, arguing that the definition of the relevant parcel should be governed by state law.
Lot Merger Provisions Upheld. The Murr case offers a ringing endorsement of the constitutionality of lot merger provisions. It is especially noteworthy that, even as the Court split on the proper approach to the parcel issue, the justices agreed unanimously that there was no taking in this case. That common sense conclusion is hardly surprising. Prior to Murr, no lower federal or state court had ever ruled that a lot merger provision results in a compensable taking, and it would have been surprising indeed if the Supreme Court had been the first court to do so. As explained in the effective amicus brief filed by the State and Local Legal Center, lot merger provisions in local zoning ordinances are very widespread and have been around almost since the advent of zoning. And, setting doctrinal complexities to one side, lot merger provisions are eminently fair and just, which is the Supreme Court’s ultimate test under the Takings Clause. When a community adopts zoning (and the Supreme Court has left no doubt that zoning itself is constitutional), there almost always will be some pre-existing lots that are too small to comply with new minimum lot-size requirements. Regulators could simply bar use of these lots, imposing heavy economic losses on the owners, or allow the owners to develop the lots even though they are not consistent with the zoning plan. Faced with this choice, local governments commonly permit the development of so-called “non-conforming” lots. This decision is arguably fair, although it allows the owners of these lots to ignore the zoning rules being followed be everyone else while simultaneously reaping the benefit of their neighbors’ compliance with the rules. The calculus is different, however, if citizens acquire adjacent substandard lots that together constitute conforming lots. In that situation, it is fairer to treat owners of adjacent substandard lots as owners of conforming lots and subject them to the same rules that apply to everyone else, rather than allow them to reap double the special benefits conferred on owners of single substandard lots. Small wonder that no Justice in Murr was inclined to assert that sensible, time-tested lot merger provisions result in a taking.
RIBE’s Defense Strengthened. The Murr decision expands the significance of the claimant’s reasonable investment-backed expectations (“RIBE’s”) in takings analysis, enhancing the ability of government defendants to point to the regulations in place when the claimant purchased the property as a basis for rejecting a takings claim. In Palazzolo, the Court (in an opinion by Justice Kennedy) famously rejected the-so-called “notice rule,” the idea that a landowner is barred from suing for a taking based on a regulation already in place when she purchased the property. The opinion for the Court left uncertain whether, even if a pre-existing regulation is not a complete bar to a takings claim, it should be a factor potentially weighing against a takings claim. Justice Scalia wrote a concurring opinion insisting that the fact that a rule was already in place at the time of purchase should be irrelevant in a regulatory takings case. Justice O’Conner filed a separate concurrence taking the opposite tack, asserting that notice of pre-existing regulations should be a relevant consideration. Because four dissenters in Palazzolo embraced Justice O’Connor’s viewpoint, most lower courts accepted Justice O’Connor’s position as probably representative of a majority of the Court. But, until now, the Court had never squarely addressed the issue in a majority opinion. In Murr, Justice Kennedy, speaking for the Court, stated that “[a] reasonable restriction that predates a landowner’s acquisition . . . can be one of the objective factors that most landowners would reasonably consider in forming fair expectations about their property.” Furthermore, the Court specifically relied on this consideration in resolving the Murr case, pointing out that plaintiffs’ “land was subject to this regulatory burden . . . only because of voluntary conduct in bringing the lots under common ownership after the regulations were enacted.” So, following Murr, there is no question that an owner’s knowledge of regulatory restrictions in place when she purchased the property will weigh against the owner’s subsequent takings claim based on that restriction.
Importance of Environment Recognized. The Murr decision recognizes the significance of the government’s goal of protecting ecologically fragile parts of the landscape, both for the purpose of defining the relevant parcel and in deciding whether a taking has occurred. As discussed, the Court said one relevant factor in defining the relevant parcel is “the physical characteristics of the landowner’s property.” The Court continued: “These include the physical relationship of any distinguishable tracts, the parcel’s topography, and the surrounding human and ecological environment. In particular, it may be relevant that the property is located in an area that is subject to, or is likely to become subject to, environmental or other regulations.” Under this standard, the likelihood that a portion of a claimant’s land holdings might be strictly regulated due to environmental constraints supports treating an owner’s adjacent holdings as a unified parcel. Thus, in Murr the Court said that the “rough terrain” encompassed by the Murr lots, and their location on a designated wild and scenic river, both supported defining the relevant parcel as Lots E and F.
The Court also said that the government’s environmental protection objectives are relevant as part of the takings analysis, observing that, in assessing the “character” of the county zoning under the Penn Central analysis, it was noteworthy that “the governmental action was a reasonable land-use regulation, enacted as part of a coordinated federal, state, and local effort to preserve the river and surrounding land.”
Time to Revisit Lucas? Murr raises a serious question about whether the Court may be prepared to revisit the apparently strict doctrine laid down twenty-five years ago in Lucas v. South Carolina Coastal Council. In that case, in an opinion by Justice Scalia, the Court said that a regulation that denies an owner “all economically viable use” of his property should be regarded as a “categorical” taking, unless the government is responding to an emergency or the restriction parallels “background principles” of nuisance or property law. Based on this test, the U.S. Supreme Court overturned a ruling by the South Carolina Supreme Court that a state setback line barring developing along the ocean shore did not result in a taking. Justice Kennedy concurred in the judgment in Lucas but expressed various reservations about the narrowness of Justice Scalia’s per se rule. In his opinion for the Court in Murr Kennedy quoted twice from his concurring opinion in Lucas. First, in explaining that a claimant’s reasonable expectations about property ownership should be the guide in defining the relevant parcel, he quoted his statement in Lucas that “[t]he expectations protected by the Constitution are based on objective rules and customs that can be understood as reasonable by all parties involved.” Second, in explaining why the physical characteristics, including the environmental sensitivities, of land should be relevant in defining the relevant parcel, he quoted the following: “Coastal property may present such unique concerns for a fragile land system that the State can go further in regulating its development and use than the common law of nuisance might otherwise permit.” Of course these are only brief snippets in a lengthy opinion. But they do appear in an opinion for the Court. And they reflect the current thinking of the Justice, as illustrated by the vote in Murr, most likely to decide the outcome of hotly debated takings cases before the Court. At a minimum, Murr appears to open the door to reconsideration of the Lucas precedent and raise the question whether the Court, if presented with the Lucas case today, would be more likely to issue a decision tracking the thinking of Justice Kennedy or the views of the late Justice Scalia.
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.
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.
During oral argument in the Koontz case Chief Justice John Roberts asked rhetorically of counsel for the government: “Do you know of any case where the government has lost a Penn Central case?” In response, counsel cited several Supreme Court cases in which Penn Central claims prevailed. He also might have cited an assortment of successful Penn Central claims in the lower courts. It is certainly true that most Penn Central claims fail, which is only natural given, for example, the bedrock understanding that the Takings Clause is reserved for “extreme circumstances” (Riverside Bayview Homes v. United States) and Justice Antonin Scalia’s affirmation that a “property owner necessarily expects the uses of his property to be restricted, from time to time, by various measures newly enacted by the State in legitimate exercise of its police powers.” (Lucas v. South Carolina Coastal Council). But a claim under Penn Central certainly can be successful.
A sort of oddball case on point is the recent decision of the New York Appellate Division in In the Matter of New Creek Bluebelt, Phase 4. The case was actually a straight condemnation case involving a half-acre parcel on Staten Island. Normally the compensation award in a condemnation case takes into account the regulatory restrictions in place that limit the market value of the property. But the claimants contended that wetlands regulations limiting the development of their property were so onerous that they constituted a taking, and that the condemnation award therefore should be increased to reflect the probability that the regulations were a taking. Read the rest of this entry »
In Pennington v. Gwinnett County, the Georgia Court of Appeals has obliquely revisited the endlessly interesting question of whether the government can “take” private contract rights. This case was a laydown for the government, but it still provides a useful opportunity to highlight how difficult it is to prevail against the government in this type of takings case. Read the rest of this entry »
In Murr v. State of Wisconsin, the Wisconsin Court of Appeals has offered an instructive decision on how the parcel-as-a-whole rule applies to two contiguous, legally subdivided lots. Applying the traditional parcel-as-whole-rule in this context, the Wisconsin Court of Appeals affirmed a circuit court decision rejecting the owners’ claim that they suffered a taking as a result of a restriction on their ability to develop the (combined) lots. The decision also represents an interesting application of the Wisconsin Supreme Court’s landmark decision in Just v. Marinette County, 201 N.W.2d 761 (1972). Read the rest of this entry »
The Alaska Supreme Court issued a troubling decision on November 28, 2014, in Brewer v State, reversing a trial court ruling absolving the State of liability under the Alaska Takings Clause for property damage caused by State firefighters in a successful effort to protect the plaintiffs’ properties from being consumed by wildfire. In the summer of 2009, a major fire engulfed hundreds of thousands of acres of forestland south of Fairbanks. In order to protect the plaintiffs’ structures from the approaching fire, firefighters lit a “backfire” on plaintiffs’ land in order to burn away combustible vegetation and deprive the oncoming fire of fuel. The tactic worked, because the fire passed through the plaintiffs’ subdivision without destroying the plaintiffs’ buildings. Read the rest of this entry »
On Friday, September 19, 2014, the 17th Annual Conference on Litigating Takings Challenges to Land Use and Environmental Regulations will be held at UC Davis School of Law in Davis, California. The event is sponsored by Vermont Law School, UC Davis School of Law, Georgetown University Law Center and many others. The speakers include numerous experts from academia as well attorneys from the U.S. Department of Justice, the U.S. Army Corps of Engineers, the Congressional Research Service, the California Attorney General’s Office, the New York State Governor’s Office of Storm Recovery, the California Coastal Commission, the American Securitization Forum, as well as private and public interest practice.
The conference will feature a keynote “Appreciation of Joe Sax,” presented by Holly Doremus, who has the honor of sitting in Joe’s former seat, the James H. House and Hiram H. Hurd Professor of Environmental Regulation at UC Berkeley. Conference panels will address the long-term doctrinal and practical implications of Koontz, the latest permutations on the parcel as a whole issue, the controversial idea of “taking” underwater mortgages, Brandt and the rails to trails program, takings and water management, and the takings implications of adapting to sea level rise caused by climate change. Details are available here
Space is still available at the conference (go here to register). In addition, copies of the conference papers and audio recordings will be available after the conference. Articles based on conference papers will be published in an upcoming edition of the Vermont Law Review