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U.S. Supreme Court Develops New Multi-Factor Test In Regulatory Takings Analysis

The U.S. Supreme Court recently issued an important property rights case, holding that the Court of Appeals of Wisconsin was correct in analyzing a landowner’s property as a single unit for purposes of determining whether a local regulation effected a regulatory taking. In addition to affirming the state Court of Appeal’s decision that there was no compensable regulatory taking, the U.S. Supreme Court announced a new test that will likely create confusion and uncertainty in the Takings Clause analysis. [Murr v. Wisconsin, ___U.S.___, 137 S.Ct. 1933, (June 23, 2017).]

Legal and Factual Background

The case before the Supreme Court involved two contiguous lots located near the St. Croix River in Wisconsin. Although the lots were held under common ownership, they were purchased and taxed separately. The landowner was prevented from selling one of the lots by a local regulation that effectively “merged” the two pieces of property. After a request for a variance from the regulation was denied, the landowner filed suit, alleging that the regulation worked a regulatory taking.

The Takings Clause of the Fifth Amendment provides that private property shall not “be taken for public use, without just compensation.” This foundational constitutional notion applies to a direct appropriation of property as well as a regulatory burden on private property. Since the test for a regulatory taking requires a comparison of the value that has been taken from the property with the value that remains in the property, the critical issue for purposes of a takings analysis is determining how to define the unit of property forming the denominator of the fraction.

The Majority Decision

In the majority opinion, delivered by Justice Kennedy, the Supreme Court prefaced its decision by acknowledging that a “central dynamic of the Court’s regulatory takings jurisprudence” is its “flexibility.” The Court also noted that:

 

  • …the purpose of the Takings Clause is to prevent the government from forcing some people alone to bear public burdens, which, in all fairness and justice should be borne by the public as a whole.

Articulation of Multi-Factor Test to Determine the ‘Denominator’ in Takings Claims

Significantly, in articulating a new multi-factor test for determining the appropriate “denominator” in takings claims, the Court turned to its decision in Penn Central v. New York that created the “parcel as a whole” concept. The new test articulated by the Court for determining the relevant parcel consists of three elements:

 

  • First, courts should give substantial weight to the treatment of the land, in particular how it is bounded or divided, under state and local law. The reasonable expectations of an acquirer of land must acknowledge legitimate restrictions affecting his or her subsequent use and dispensation of the property.

 

  • Second, courts must look to the physical characteristics of the landowner’s property. 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 likely to become subject to, environmental or other regulation.

 

  • Third, courts 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.

Applying this test, the Supreme Court found that no regulatory taking had occurred. First, the merger provision at issue was a legitimate exercise of government power and was consistent with a long history of state and local merger regulations. Since the land was subject to this regulatory burden, it was properly evaluated as a single parcel, as opposed to two separate parcels. Under the second step, the Court found that the contiguous nature and physical characteristics of the property supported its treatment as a unified parcel:

 

  • Considering petitioners’ property as a whole, the state court was correct to conclude that petitioners cannot establish a compensable taking. They have not suffered a taking under Lucas, as they have not been deprived of all economically beneficial use of their property. See 505 U. S., at 1019. Nor have they suffered a taking under the more general test of Penn Central, supra, at 124. Pp. 17–20.

The fact that the land was located along the St. Croix River also made it reasonable to expect that public regulation could affect enjoyment of the property. Finally, the third step was satisfied because the combined valuation of the two lots was higher than the value of each lot if considered separately.

 

  • Under the appropriate multifactor standard, it follows that petitioners’ property should be evaluated as a single parcel consisting of Lots E and F together. First, as to the property’s treatment under state and local law, the valid merger of the lots under state law in- forms the reasonable expectation that the lots will be treated as a single property. Second, turning to the property’s physical characteristics, the lots are contiguous. Their terrain and shape make it reasonable to expect their range of potential uses might be limited; and petitioners could have anticipated regulation of the property due to its location along the river, which was regulated by federal, state, and local law long before they acquired the land. Third, Lot E brings prospective value to Lot F. The restriction on using the individual lots is mitigated by the benefits of using the property as an integrat- ed whole, allowing increased privacy and recreational space, plus an optimal location for any improvements. This relationship is evident in the lots’ combined valuation.

Chief Justice Roberts’ Dissent

In a compelling dissent, Chief Justice Roberts expressed that the majority’s ultimate conclusion was not troubling; rather, the majority’s “new, malleable definition of ‘private property’—adopted solely ‘for purposes of the takings inquiry,’” undermines the protections afforded to individuals under the Takings Clause. Chief Justice Roberts disagreed with the majority because he would have stuck to the “traditional approach,” namely that state law defines the boundaries of distinct parcels of land, and those boundaries should determine the “private property” at issue in regulatory takings cases.

The dissenting opinion also addressed the majority’s application of the “parcel as a whole” language from Penn Central, noting that Penn Central does not provide any basis for disregarding state property lines when identifying the “parcel as a whole.” According to Chief Justice Roberts, the majority decision:

 

  • …knocks the definition of ‘private property’ loose from its foundation on stable state law rules and throws it into the maelstrom of multiple factors that come into play at the second step of the takings analysis.

Conclusion and Implications

This Supreme Court’s decision is a particularly important property rights case because it introduces a new set of factors to be considered for purposes of a regulatory taking. The decision can be seen as a loss for property owners and a victory for local government regulators. However, the vagueness of the new rule perhaps adds an additional layer of ambiguity to the already complicated Takings Clause analysis. The Supreme Court’s decision is accessible online at:

https://www.supremecourt.gov/opinions/16pdf/15-214_f1gj.pdf

(Nedda Mahrou)