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.


Ruling in MR-GO Takings Lawsuit

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 »


The Horne Case and the Public Trust in Wildlife

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 »


Catching Up

Ever since the cert. grant in Horne v Department of Agriculture in January, plus teaching responsibilities, plus a bunch of other things, I have been delinquent in keeping this blog up to date.  With the Horne argument before the U.S. Supreme Court yesterday and my last class today, I feel liberated.  I’ll have some observations on the oral argument in Horne tomorrow.   But first, some accounting of what I have been up to:

I filed this amicus brief on behalf of the International Municipal Lawyers Association in the Supreme Court in Horne.

Thirteen briefs were filed in support of the Petitioners,  and the second brief in support of the Respondent was filed by Sun-Maid Growers of California.  So, at a minmum, the IMLA brief offers the Court a unique perspective.

Here is a new article on Koontz, “The Costs of Koontz,” which will be published in the Vermont Law Review, 39 Vt. L. Rev. 573 (2015).   The purpose of the article is to lay out as plainly as I can the costs of Koontz in terms of (1) increased incoherence of takings doctrine, (2) impairment of separation of powers, (3) undermining of federalism values, and (4) lost effectiveness and efficiency of land protection and management.

It is a follow up to “Koontz: The Very Worst Takings Decision Ever?” published in the NYU Environmental Law Review.

Finally, this piece was just published by the Harvard Law Review Forum as a Response to an Essay by Professor Tom Merrill  published in the Harvard Law Review, “Eschewing Anticipatory Remedies for Takings: A Response to Professor Merrill,” responding to “Anticipatory Remedies for Takings,” 128 Harv. L. Rev. 1630 (2015).

Comments welcome.

John Echeverria

 


Cert Grant in Horne v. Department of Agriculture

Today the U.S. Supreme Court granted a petition for certiorari in the takings case of Horne v. Department of Agriculture.    As followers of this blog may recall, the U.S. Supreme Court has already been around once in this case.

The issues as presented in the cert petition are as follows:   “(1) Whether the government’s “categorical duty” under the Fifth Amendment to pay just compensation when it “physically takes possession of an interest in property,” Arkansas Game & Fish Comm’n v. United States, applies only to real property and not to personal property; (2) whether the government may avoid the categorical duty to pay just compensation for a physical taking of property by reserving to the property owner a contingent interest in a portion of the value of the property, set at the government’s discretion; and (3) whether a governmental mandate to relinquish specific, identifiable property as a “condition” on permission to engage in commerce effects a per se taking.”

Stay tuned.  More to follow.

 


Penn Central Lives On

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 »


Alleged Takings of Private Contracts

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 »


WI Court of Appeals on the Parcel Rule and Just v. Marinette County

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 »


Fires and Takings in Alaska

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 »


Koontz and San Francisco Rent Control

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 »