[*PG1]PRIVATE PROPERTY RIGHTS AND THE ENVIRONMENT AFTER PALAZZOLO
Abstract: With the ascendancy of environmentalism in American law has come a renewed focus on private property rights. That in turn has rekindled the debate over whether our ability to use private property is a fundamental right rather than an essentially revocable right that derives from the government. This debate was recently played out in Palazzolo v. Rhode Island where the United States Supreme Court addressed several elements of regulatory takings doctrine: When is a claim against government ripe? Does an acquirer of already regulated property have the same rights to challenge the regulation and bring a takings claims as the owner at the time the regulations were adopted? Whether there can be a regulatory taking if some use and value remains in the property, albeit a greatly diminished use and value, or if use and value is diminished on only a portion of a property.
This Article focuses on these questions in light of the Supreme Courts holdings in Palazzolo, as potentially modified in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency. Attention will be focused on the role that environmental protection concerns play in determining whether a regulation constitutes a regulatory taking, including a discussion of wetlands and the public trust doctrine.
[*PG2][A]nd it is not without reason that [man] seeks out and is willing to join in society with others who are already united, or have a mind to unite for others who are already united, or have a mind to unite, for the mutual preservation of their lives, liberties and estates, which I call by the general name property.1
[It] is annexed to the Soveraigntie, the whole power of prescribing the Rules whereby every man may know, what Goods he may enjoy and what Actions he may doe, without being molested by any of his fellow Subjects: And this is it men call Propriety.2
The State may not put so potent a Hobbesian stick into the Lockean bundle.3
The battle over property rights in America has rekindled an age-old debate: whether our legal system is based upon the assumption that man uses and has dominion over property for his own benefit, limited only by the proviso that no harm is done to the public, or whether property can be put to private beneficial use only with the consent of the sovereign, and that private property is held subject to an inchoate trust for larger societal interests. In the traditional American view, the former philosophy has held sway over the latter: property is seen to be not only an economic boon, but a key ingredient of American libertywhere individual rights are sacrosanct over the needs of the group. But there are those who are uncomfortable with this view and who suggest it is an anachronism in this Age of the Environment.4 Because any use of any property has some measurable, or at least some spiritual, environmental effect, critics advocate the adoption of a legal philosophy that would make the use and ownership of property subject to common consent. These advocates point to riparian property as a model. Aquatic resources such as riparian land and wetlands are already to some degree imbued with public concerns, and may arguably be subject to navigational servitudes, the public trust doctrine, and even, some suggest, the law of custom. Those in favor of greater state intervention in the use of property wish [*PG3]to strengthen such public rights in aquatic resources and expand their application to dry land. Those who argue in favor of greater respect for individual property rights emphasize the limitations on such public rights in aquatic resources, and emphasize that whatever public rights may exist should be strictly confined to riparian lands. Thus, it is often over aquatic resources that the battle between the competing visions of property is most keenly fought. The case of Palazzolo v. Rhode Island5 may be the most significant skirmish in this war in many yearsand one that firmly rejects the vision of property as a state derived benefit that can be altered at will by the State.6
When John Locke first described the fundamental nature of property as being those rights and liberties that predate sovereign power, he pointedly noted that the sovereigns primary duty is to protect the property of the people. When the sovereign fails in this duty, the legitimacy of the sovereign is called into question.7 This view stands in marked contrast to the competing absolutist philosophy of government of his day, best known today through the work of Thomas Hobbes. Hobbes believed that because no man had security in property before such rights were surrendered to a powerful sovereign, all claims to liberty and property can be fulfilled only at the sufferance of that sovereign.8
Indisputably, having had their fill with one absolute sovereign, the Framers of the Constitution were firmly predisposed to the philosophy of Locke and were very much aware of the need to preserve [*PG4]rights in property.9 Indeed, our Constitution was but the latest manifestation of the long-standing natural law understanding that an individuals property should not be taken without compensation.10 Thus, under the Lockean theory of government, which underpins our Constitution, property is an individual right derived from the labor of individuals.11 It is inherently possessed by the people, and not born of government largessewhether the property be money, real estate, or another manifestation.
Prodded by the United States Supreme Court, the lower federal and state courts have become increasingly attentive to the plight of property owners as they are confronted with increasing governmental regulation. These courts have begun to award significant monetary damages for regulatory takings of property.12 Nevertheless, the [*PG5]trend toward increased government regulation of property shows little sign of abating. Government regulators continually question the existence of a vibrant Lockean tradition in defining property rights, often arguing that rights do not become actualized until the government grants an irrevocable permit.13 Among government regulators and allied environmental groups, substantial efforts are underway to distinguish, diminish, and otherwise divert the takings threat.14 The doctrine of regulatory takings is also evolving; with each major decision from the United States Supreme Court, landowners, government agencies, and the lower courts attempt to understand the implications and apply that decision to regulatory actions.15 Also, with each new decision, a host of additional questions is raised.
On June 28, 2001, the Court issued a significant chapter in the saga of regulatory takings with Palazzolo v. Rhode Island.16 Palazzolo addressed three issues that have been bedeviling the litigation of regulatory takings: When is a takings claim ripe? When does notice of a preexisting regulation destroy the right to challenge the application of that regulation? And how much use and value may a regulation destroy before compensation is due.17 This Article shall address each of these issues in light of the decision in Palazzolo.
For over forty years, Anthony Palazzolo owned, directly or indirectly, a valuable parcel of property in the ocean resort town of Westerly, Rhode Island.18 Shore Gardens, Inc. (Shore Gardens), acquired the property in 1959 and 1960. Mr. Palazzolo became the sole owner of Shore Gardens in 1960. The property consists of roughly eighteen acres of wetlands and a small indeterminate amount of uplands. The land was divided into seventy-four parcels in two subdivision map filings that occurred in 1936 and 1959. Just north of the property is Winnapaug Pond, an intertidal pond with an outlet to the Atlantic Ocean. According to the states biologist, [l]and uses of Winnapaug Pond/Atlantic Beach area are moderate-to-heavy density seasonal development, residential and commercial; development directly adjacent to this site is moderate density seasonal dwellings.19 At the time of his application, the vicinity of Mr. Palazzolos property was developed with vacation homes, mostly on the northern, western, and eastern boundaries of the pond and along the neighboring ocean beach.20 Mr. Palazzolos property is bisected by a gravel road and there are several homes in the immediate vicinity; the road and homes were built on fill prior to the 1970s. Like the neighboring homes, the only way to develop Mr. Palazzolos land is to raise the grade with fill.21
In 1971, the Rhode Island Legislature authorized the Coastal Resources Management Council (CRMC) to regulate the filling of coastal wetlands.22 The CRMC promulgated regulations requiring that any filling of coastal salt marsh, such as that found on Mr. Palazzolos property, meet certain public interest requirements.23 For example, Section 130(A) of the Coastal Resources Management Plan (CRMP) states:
[*PG7]Special exceptions may be granted . . . only if and when the applicant has demonstrated that:
(1) The proposed activity serves a compelling public purpose which provides benefits to the public as a whole as opposed to individual or private interests. The activity must be one or more of the following: (a) an activity associated with public infrastructure such as utility, energy, communications, transportation facilities; (b) a water-dependent activity that generates substantial economic gain to the state; and/or (c) an activity that provides access to the shore for broad segments of the public.24
Tellingly, the CRMC has ruled that private housing, and even low-income public housing, does not meet this public interest requirement.25
Prior to the adoption of this regulatory regime, Mr. Palazzolo applied twice to utilize the property, in 1963 and in 1966, to the Department of Natural Resources (DNR) seeking permission to dredge Winnapaug Pond in order to develop the property. The State approved both applications in April of 1971, finding that neither application would have any significant effect on wildlife.26 Shortly thereafter, however, the State withdrew the approval, and Mr. Palazzolo did not appeal.27
Mr. Palazzolo had an interest in the property through the 1960s and early 1970s as the sole shareholder of Shore Gardens. Eventually, Mr. Palazzolo let the corporation lapse, and its charter was revoked in 1978. At this point, the property pass[ed] by operation of law to Palazzolo, its sole shareholder.28
After that time, Mr. Palazzolo, now as the owner of the property in his individual capacity, twice more applied for permits to CRMC to fill the property. The first application, filed in 1983, like the one filed in 1963, was to fill approximately eighteen acres of the property.29 Unlike the original applications, this involved no dredging. Mr. Palazzolo [*PG8]expected that approval of this application would allow him to proceed with the development of homes on the seventy-four lots that had been previously subdivided, although the 1983 application was only for the preliminary step of filling the wetlands, not the development of homes.30 CRMC denied this application on July 12, 1984, and Mr. Palazzolo did not appeal the denial.31
In 1985 Mr. Palazzolo applied to fill 11.4 acres; like his 1966 application to DNR, he intended to prepare the site to make it suitable for a family beach recreational area. The plan called for the construction of a fifty-car parking lot with room for boat trailers and the provision of picnic tables, concrete barbecue pits, and portable toilets.32 This plan was rejected in 1986. CRMC found that, in its natural state, Mr. Palazzolos property provided the public benefits of refuge and feeding areas for larval and juvenile finfish and shellfish and for migratory waterfowl and wading birds, access of [f]auna . . . to cover areas, and that the property facilitates the exchange of nutrient/waste products, and allows sediment trapping, flood storage, and nutrient retention.33
Furthermore, the proposal failed to meet various regulatory criteria outlined in CRMCs CRMP regulations. For example, it found that Mr. Palazzolos beach club was in conflict with CRMP Section 130(A)(1) because the proposed beach club did not serve a compelling public purpose which provides benefits to the public as a whole as opposed to individual or private interests.34 Mr. Palazzolo unsuccessfully appealed the denial of the permit.35
Based on the four denials over the span of twenty-three years, Mr. Palazzolo sued in 1988 for inverse condemnation, alleging that the property had a net value of $3,150,000. The trial court ruled against Mr. Palazzolo and the Rhode Island Supreme Court upheld the trial courts decision.36 The courts first ground for affirming the trial court decision was that Mr. Palazzolos claim was not ripe because he failed to apply for less ambitious development plans.37 It found that [*PG9]the 1963 and 1983 applications sought to fill the entire eighteen acres of wetlands and (mistakenly) that the beach club applications sought to fill all of the wetlands except for a fifty-foot strip.38 The court concluded that Mr. Palazzolo should have filed another application to fill fewer acres of wetlands or to utilize just the upland area of the property.39
The court also provided two other alternative bases for affirming the trial court decision.40 It held that because Mr. Palazzolo acquired the property in 1978 by virtue of the dissolution of Shore Gardens,41 he had acquired the property after the adoption of the regulations restricting the filling of wetlands and thus had no reasonable investment-backed expectations.42 Put another way, the right to fill wetlands was not part of the title he acquired.43
The court also found that Mr. Palazzolo had not been deprived of all beneficial use of his property because had he developed the upland portion of the land he could have realized some value from the property (approximately $200,000 compared to Palazzolos estimate of a $3.1 million net value).44 Alternatively, he could have realized value in the amount of $157,000 as an open-space gift.45
On October 10, 2000, the United States Supreme Court granted certiorari on three questions:
1. Whether a regulatory takings claim is categorically barred whenever the enactment of the regulation predates the claimants acquisition of the property.
2. Where a land-use agency has authoritatively denied a particular use of the property and the owner alleges that such denial per se constitutes a regulatory taking, whether the owner must file additional applications seeking permission for less ambitious uses in order to ripen the takings claim.
[*PG10]3. Whether the remaining permissible uses of regulated property are economically viable merely because the property retains a value greater than zero.46
On June 28, 2001, the Court ruled in Mr. Palazzolos favor on the first two issues and rejected his proposed formulation on the third; however it also did not accept the States contention that the remaining use was enough to avoid a taking.47 Instead the Court remanded the case back to the Rhode Island courts for further analysis on whether the economic impacts on Mr. Palazzolos property, when weighed against the States interests, constituted a taking.48 To put these questions into proper context, however, it is necessary to first address the general parameters of regulatory takings.
The United States Supreme Court has described the basic purpose of the Fifth Amendments Takings Clause:49 The Fifth Amendments guarantee . . . [is] designed to bar 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.50 The Court stated in Agins v. City of Tiburon: The application of a general zoning law to particular property effects a taking if the ordinance does not substantially advance legitimate state interests . . . or denies an owner economically viable use of his land.51
The first prong of this test is the takings law analog of a due process inquirya determination of whether the regulation advances a legitimate governmental interest.52 Most regulations do advance a legiti[*PG11]mate governmental interest, although there have been some exceptions.53 The parallel between the language of due process and the first part of the Agins takings formulation should not be taken as a sign that the Agins test is anything but a takings test that, when placed before a court, deserves the heightened scrutiny that is appropriate in a takings analysis. More often than not, the legitimacy of the state interests is not in question; regulatory goals in a takings case usually fall [*PG12]within the otherwise proper rubric of First English Evangelical Lutheran Church v. County of Los Angeles, that the Takings Clause is designed . . . to secure compensation in the event of otherwise proper interference amounting to a taking.54
The point of the first part of the Agins test is that when government interferes with the use and enjoyment of property in a way that does not achieve any legitimate governmental goals then the government has usurped, for all practical purposes, the incidents of ownership.55 A property owner, for example, is not required to provide a reason, legitimate or otherwise, to justify the owners decision to put private property to a particular lawful use. Nor does the owner have to provide a reason for not putting property to a particular use. And so when government prohibits a landowner from putting property to a particular use, and when government cannot provide a legitimate reason for the prohibitionthat is when it fails to substantially advance a legitimate governmental interestthen the government is acting in the manner of an owner. By restricting or prohibiting the use of private property without a valid justification, the government assumes the mantle of an owner. Thus, it is appropriate to recognize that the first prong of the Agins test as a takings standard.
By and large, however, the second prong, known as the economic impact test, has proven most effective for property owners in bringing takings claims. In Penn Central Transportation Co. v. City of New York,56 the Court found three factors relevant to the inquiry of whether a regulation effects a taking: (1) the economic impact of the regulation; (2) its interference with distinct investment-backed expectations; and (3) the character of the governmental action.57 The interplay of these three factors will determine whether a regulation has violated the economically viable use test of Agins. In addition, Lucas v. South Carolina Coastal Council amplified our understanding of this second prong of the Agins takings inquiry by expanding the terminology to include such formulations as economically beneficial or productive use of land.58
There are also special categorical circumstances where a regulation will almost certainly be a taking, as when there is an actual per[*PG13]manent physical invasion59 of the property or when 100 percent of the economically beneficial or productive use of the property is taken.60
In one of the most significant takings decisions, the Supreme Court in Lucas refuted the notion that a regulation designed to protect the public interest by preventing harm is automatically immune from takings liability.61 In other words, the theory held that even if a regulation totally destroyed the value of property, no damages could be awarded if the regulation prevented harm.62 The Supreme Court disagreed.63 Instead, it first noted that it is of course true that no one has the right to develop property in a way that will injure a neighbor or cause a nuisance.64 However, the Court continued, a regulation that destroys the use and value of private property is always subject to scrutiny in accordance with the Fifth Amendmentunless the regulation merely codifies the existing common law nuisance limitations on property.65 Thus, if a landowner never had the right to build a dam that would flood a neighbors property in the first place, a regulation that also prevented that same dam building activity would not give rise to a taking. However, a regulation that restricted an otherwise permissible use, for instance a regulation designed to preserve open space or [*PG14]to protect fisheries from natural erosion, may well give rise to a taking, especially if the regulation destroys 100 percent of the economically beneficial or productive use of the property.66
In accordance with Lucas, the first step is to define the property right and analyze the extent of the allowable uses under traditional common law. As in Lucas, building homes in an existing subdivision is very likely to be an allowable use, but building a nuclear reactor on a fault zone would not be.67
Next, the regulation itself should be analyzed. If it does not substantially advance a legitimate governmental interest, there is a taking.68 Compensation must be paid for the time during which the regulation took the property.69 If the regulation is not rescinded, the government agency may be responsible for the full fair-market value of the affected property, meaning the value as if there were no regulatory restrictions in place.70
[*PG15] Next, the impact of the regulation on the affected property should be analyzed. If the regulation denies all economically beneficial or productive use of land71 or if it leaves 100 percent of the property economically idle72 contrary to the owners reasonable investment-backed expectations,73 then the Lucas categorical test is invoked and compensation must be paid.74 If only a portion of the beneficial or productive use of the parcel of property is completely destroyed, or if only a distinct severable property interest (such as a mineral right) is completely destroyed, then a court may find that there is a partial taking.75
If less than 100 percent of the productive or beneficial use is destroyed, the court will weigh various factors (including the economic [*PG16]impact, interference with investment-backed expectations, and the character of the regulation) in what has been called an ad hoc and case-by-case analysis to sort out whether justice and fairness call for a taking.76 The fact intensive nature of the inquiry necessitates an active role for the courts in regulatory takings litigation.
As with all legislative incursions on constitutional rights, the courts have a duty to correct the deprivation of property rights:
In taking claims the judge does not sit as super legislator or executive, intent on preventing regulation that goes too far, as a facile reading of Justice Holmes might imply. . . . The job of the court is to deal with a concrete claim, by an aggrieved person or persons, that their constitutional rights under the Fifth Amendment have been violated by some governmental action.77
In an action against the United States that alleges a taking, the proper remedy is not to find that a regulation is unconstitutional because it takes without payment of just compensation, but, instead, is to require the payment of just compensation in accordance with any applicable statutory mechanism for providing such just compensation.78 Under federal law, the Tucker Act provides such a remedy.79 So long as the Tucker Act is an available remedy, the Supreme Court has found that federal courts should not attempt to invalidate a federal [*PG17]action that takes property.80 When money damages are not available, then an action for declaratory relief may be appropriate.81 The Tucker Act provides no right to a jury trial on the question of liability in a federal takings claim.82
For an alleged regulatory taking by a state government, a claimant must first pursue state takings remedies before utilizing a federal court remedy.83 In order for a court to know whether a governmental [*PG18]action has actually taken property, a prospective claimant must obtain a final administrative decision before filing a takings claim.84 This ripeness requirement has proven to be an ineluctable burden for property owners asserting takings claims.85 Indeed, this issue is at the heart of Palazzolo v. Rhode Island, discussed in Part IV infra. Once past this procedural hurdle, a claimant is entitled to a jury trial in trying a due process or takings claim against a state or local government in federal court under 42 U.S.C. § 1983.86
As a result of development of takings law, landowners who employ the proper regulatory procedures are beginning to reap substantial judgments in their favor from the courts. Prior to 1990, there were no significant cases where the federal government was found liable for a taking. That all changed with Whitney Benefits Inc. v. United States,87 where the United States was found responsible for $60 million in takings damages, plus interest, that ultimately exceeded $200 million.88 In that case, the Office of Surface Mining refused to grant a permit to the owner of a valuable coal deposit in the Powder River Basin as a result of the Surface Mining Control and Reclamation Act of 1977. The case was settled in early 1995, when the government agreed to pay plaintiffs $200 million for the taking.89
The Whitney Benefits precedent was bolstered by the holdings in a number of wetlands takings cases. For example, in Beuré-Co. v. United States,90 the property owner survived a summary judgment motion on a takings claim that arose when the Army Corps of Engineers denied a [*PG19]permit to fill a calcareous fen bog91 in Minnesota. In early 1992, the federal government settled and paid $761,818 for the wetland.92 And in Bowles v. United States,93 a taking was found after the Army Corps of Engineers denied a wetlands dredge and fill permit in 1984 to the owner of a residential lot. The permit was necessary for a septic system installation which was necessary to build a single-family home.94 Fifty-five thousand dollars, plus interest, was awarded to the owner of the lot.95 In Loveladies Harbor, Inc. v. United States,96 the Federal Circuit upheld a $2.6 million takings award arising out of a dredge and fill permit denial. In the fifth iteration of Florida Rock,97 the Court of Federal Claims awarded $752,444, plus interest, from the date of taking for the taking of ninety-eight acres of a wetland limestone quarry. In Cooley v. United States,98 the same court awarded $2,065,200.42, plus interest, for taking of thirty-three acres of wetlands. Finally, in one of the very few cases finding a taking as a result of the impact from the Endangered Species Act,99 the Court of Federal Claims found a taking as a result of the protection of two species of fish.100 As the following sections will show, however, there have been numerous cases where landowners have not prevailed because of a variety of procedural and substantive barriers erected by the courts.
In Palazzolo, the Rhode Island Supreme Court began by holding that Mr. Palazzolos claim for [just] compensation was not ripe for review.101 Traditionally, courts have required litigants to utilize administrative procedures in order to determine exactly what can, and [*PG20]what cannot, be done with a disputed parcel of property. After all, until the parties know what uses have been denied, how can the court know whether there has been a taking? The United States Supreme Court held in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City102 that a takings litigant must obtain a final administrative decision from the permitting agency before bringing a takings action. The Court further held that if the alleged regulatory taking was done by a state or local governmental agency, then a landowner must utilize the state courts before going to federal court.103 In Palazzolo, the state supreme court believed that Mr. Palazzolo had not met the first test of Williamson County, finding that Mr. Palazzolo should have sought additional permits.104
In City of Monterey v. Del Monte Dunes at Monterey, Ltd.,105 the Supreme Court seemed to be influenced at oral argument by the fact that the landowner had applied for at least five permits, with the parameters of each subsequent application tailored to the citys concerns and suggestions that it provided on each previous denial.106 There is no set rule governing how many applications is enough for a claim to be ripe. Rather, the Court has stressed that there must be certainty regarding what uses are available for the property.107 As articulated in Williamson County, the question is whether the administrative agency has arrived at a final, definitive position regarding how it will [*PG21]apply the regulations at issue to the particular land in question. 108 In MacDonald, Sommer & Frates v. County of Yolo,109 the Court stressed that a case is ripe if the type and intensity of development legally permitted is known.110 Likewise, [t]he demand for finality is satisfied [when there is] . . . no question here about how the regulations at issue [apply] to the particular land in question.111
Landowners who only halfheartedly pursue the permit process have difficulty proving the existence of a taking. As exemplified in Supreme Court holdings from Agins v. City of Tiburon,112 and United States v. Riverside Bayview Homes, Inc.,113 to MacDonald, Sommer & Frates v. County of Yolo,114 there is not a ripe takings claim until the landowner first pursues the administrative permitting process and receives a final decision. State courts have adhered to this rule as well.115
In Suitum v. Tahoe Regional Planning Agency,116 the Tahoe Regional Planning Agency imposed an artificial finality requirement upon an elderly landowner. Specifically, after denying her a permit to build her retirement home on a half-acre lot, the agency suggested that she could not bring an inverse condemnation action until she tried to sell a group of transferable development rights in order, supposedly, to determine the value of the affected lot.117 The Supreme Court dis[*PG22]agreed and found that she did not have to try to sell the credits before she could bring her takings claim to court.118
In the case of Mr. Palazzolo, the Supreme Court held that his case was ripe. First, the Court found that based upon:
[T]he unequivocal nature of the wetland regulations at issue and by the Councils application of the regulations to the subject property.
. . . .
. . . [T]he Councils decisions make plain that the agency interpreted its regulations to bar petitioner from engaging in any filling or development activity on the wetlands. . . . On the wetlands there can be no fill . . . for its own sake; no fill for a beach club, either rustic or upscale; no fill for a subdivision; no fill for any likely or foreseeable use. And with no fill there can be no structures and no development on the wetlands. Further permit applications were not necessary to establish this point.119
In essence, the Court has embraced a futility exception to the law of regulatory takings. With respect to the uplands portion of the property, the Court found that since all parties agreed that the uplands could be developed to allow a single $200,000 home, and since the States assertions of ambiguity on this point were improperly raised, there is no genuine ambiguity in the record as the extent of permitted development on petitioners property, either on the wetlands or the uplands.120
Remarkably, it appears that the parties agreement may have been premature. After the United States Supreme Court issued its decision, and before the Rhode Island courts began proceedings on remand, Anthony Palazzolo applied to build a single home on the upland turnaround area, allegedly worth $200,000.121 On August 30, 2001, the Rhode Island Department of Environmental Management [*PG23]denied the permit, claiming the property was unsuitable for a residential septic system.122
What may become the most significant aspect of the ripeness holding in Palazzolo is the suggestion that once a landowner has a meaningful permit application denied, the burden shifts to the government to indicate what, if any, other uses of the property may be available.123 Several times in the opinion the Court implies that the government must explain or give an indication of its potential acceptance of another or a reduced use.124 First, the Court implied that a landowner must first submit an application to provide the agency with an opportunity to explain the reach of its restrictions: [A] landowner may not establish a taking before a land-use authority has the opportunity, using its own reasonable procedures, to decide and explain the reach of a challenged regulation.125 Next, after noting that the 11.4 acre beach club had been rejected under a compelling public purpose standard the Court notes, There is no indication the Council would have accepted the application had petitioners proposed beach club occupied a smaller surface area.126
Finally, the Court put it more directly later in the opinion when it found that the limitations the wetland regulations imposed were clear from the Councils denial of his applications, and there is no indication that any use involving any substantial structures or improvements would have been allowed.127 The lesson here is that once an applicant submits and has rejected a meaningful application to put real property to an economically viable use, an agency must at the very least come forward and suggest other uses that might be available for the property. Such uses must, of course, be economically meaningful. But the agency also must do this in good faith in order to avoid the spectacle of Del Monte Dunes, where the applicant pursued five successive and increasingly restricted applications at the citys suggestion.128
In the context of the regulation of wetlands, the lower state and federal courts have had many opportunities to consider the ripeness question. For example, in Howard W. Heck & Associates, Inc. v. United States,129 a property owner was unable to utilize a wetland in New Jersey because the Army Corps of Engineers could not process his permit. The Corps was unable to process his permit because the owner had not acquired the necessary state water quality certification as part of the wetlands permitting process.130 The State had previously refused to provide the water quality certification because the owner declined to enter into an exhaustive (and he thought futile) discussion of project alternatives.131 The Federal Circuit held that because there was no final agency decision there could be no claim for a taking.132 The court also rejected the argument that the permitting process was futile.133
The Court of Federal Claims found no taking when a wetland permit necessary to build a fifty-nine-acre resort project was denied in Plantation Landing Resort, Inc. v. United States134 because (1) the plaintiff had not proved ownership of land below the mean high water mark; (2) the plaintiff failed to renew a coastal use permit from the State of Louisiana;135 and (3) the plaintiff had not shown a denial of all economically beneficial and productive use. The court found it unnecessary to weigh the factors for a noncategorical taking which were outlined in Penn Central Transportation Co. v. City of New York.136 This is somewhat inexplicable because, as discussed in Part II supra, the most logical reading of Lucas v. South Carolina Coastal Council and [*PG25]Penn Central would be to engage in the multifactor balancing test after finding that there is no categorical taking.
The Court of Federal Claims was initially more sympathetic to the plaintiff in City National Bank of Miami v. United States,137 where the owner of a 1247-acre tract of land applied for a dredge and fill permit necessary to mine limestone located on a 190-acre wetland. Here, the plaintiff survived a summary judgment motion because the court concluded that the Army Corps of Engineers would have denied the project with or without the state certification.138 In other words, the case was ripe. In the first Florida Rock, Inc. v. United States appellate decision,139 the court found that a takings claim could only be litigated on the ninety-eight acres that was the subject of the denied permit, despite the fact that the plaintiff owned a total of nearly 1500 acres. Until permits were applied for on the additional acreage, a takings claim on these additional parcels would not be ripe. However, in a subsequent proceeding the court concluded that it would have been futile to apply for a permit to use the remaining 1462 acres, making the claim ripe.140
In City National Bank the court allowed the question to go to trial of whether all 1247 acres had been taken despite the fact that the permit denial was for only 190 acres.141 The court distinguished the early iteration of Florida Rock (finding the question of the 1462 acres not ripe), because the permit denial in City National Bank expressly referred to all 1247 acres.142 The court did not say that those acres had been taken, but did allow the trial to proceed on all 1247 acres.143 However, in a subsequent decision, the court found that the federal government was not responsible for a taking, because local regulation would have prohibited the limestone mining anyway.144
There are practical limits to the finality requirement, usually put in terms of the one meaningful application standard. If the available permitting process is too burdensome, a futility exception might ap[*PG26]ply.145 For example, in Hage v. United States146 the court stated: [T]he law does not require plaintiffs to apply for a permit if the procedure itself is not a reasonable variance procedure . . . and is so burdensome that it effectively deprives the property of value.147
Likewise, in East Cape May Associates v. New Jersey Department of Environmental Protection,148 the court noted that to require a developer to submit a multiplicity of successive applications in order to attempt to divine, without administrative guidance, what, if any, development of its property will be permitted would be inconsistent with due process of law.149 The one meaningful application rule has been adopted by the Ninth Circuit.150
However, an equivocal permit denial from the Army Corps of Engineers may not be enough to save the Corps from takings liability. A denial of a permit without prejudice is still final agency action that may take property.151 In Cooley v. United States,152 the Corps apparently began to worry about its liability after a takings claim had been filed by a landowner who had been denied a permit. Following the advice of counsel, on the eve of trial, the Corps issued the landowner a scaled-back permit that he had not requested.153 The Court of Federal Claims was unimpressed, ruling that the Corps had no authority to issue the scaled-back permit and thereby attempt to convert the permanent taking into a temporary one.154
However, if the Corps returns a permit application with a reasonable request for more information, the landowner must provide that [*PG27]information and obtain a final decision on the permit application before bringing a takings claim.155
Palazzolo v. Rhode Island should assist landowners arguing takings cases before these and other lower courts. Courts have at least one loadstar against which to judge when enough is enough. Undeniably, it is still necessary to ripen a case, even if the ripening process is inconvenient, time-consuming, and expensive. But it should no longer be necessary to engage in the ripening process once it transforms from utility into ritual.
One of the decisive issues to the Rhode Island Supreme Court in Palazzolo v. Rhode Island was that Mr. Palazzolo acquired his property in 1978, seven years after the creation of CRMC and several more years after the State began to require permits for the filling of coastal wetlands.156 He could state no claim for a regulatory taking because he had no investment-backed expectations in trying to develop the property,157 and the right to fill was not part of the title that he acquired from Shore Gardens.158 Put bluntly, all subsequent owners take the land subject to the pre-existing limitations and without the compensation owed to the original affected owner.159 On June 28, 2001, the Supreme Court rejected this so-called notice rule exception to the Takings Clause.
As a preliminary matter, it should be asked who was on notice of what? Certainly landowners like Mr. Palazzolo were on notice not only of the permitting requirements affecting the filling of property, but also of the centuries of tradition wherein landowners freely reclaimed [*PG28]tidelands.160 But Mr. Palazzolo was not on notice that there was an outright ban on all filling of wetlands for residential or private recreational development. He was not on notice that the public would forevermore enjoy the benefits of his property in its undeveloped state without payment.161 Likewise, Rhode Island was on notice that a regulation that goes too far is a taking and that, under the Constitution, compensation must be paid when economically beneficial use is denied.162 That Mr. Palazzolo essentially acquired by operation of law the property from himself, or at least from a corporation of which he was the sole shareholder, suggests that an inflexible notice acquisition rule puts form over substance.163
In Nollan v. California Coastal Commission,164 the Court cast doubt on the validity of the notice rule.165 The California Coastal Commission was established by the California Coastal Act of 1972. Pursuant to the Act, stringent regulation of development along the California coast had been in place at least since 1976, and, in particular, a deed restriction granting the public an easement for lateral beach access had been imposed since 1979 on all 43 shoreline new development projects in [the vicinity of the Nollan property].166 The Nollans purchased their property after this time and became subject to the Commissions forced dedication requirement. The Supreme Court found that the restriction violated the Takings Clause because it did not substantially advance legitimate state interests.167
However, in dissent, Justice Brennan criticized the Supreme Courts holding on, among other grounds, the fact that the Nollans were on notice that new developments would be approved only if provisions were made for lateral beach access.168 With such notice, the Nollans could have no reasonable expectation of . . . approval of [*PG29]their permit application without any deed restriction ensuring public access to the ocean.169 A majority of the Supreme Court Justices disagreed, stating:
Nor are the Nollans rights altered because they acquired the land well after the Commission had begun to implement its policy. So long as the Commission could not have deprived the prior owners of the easement without compensating them, the prior owners must be understood to have transferred their full property rights in conveying the lot.170 Whether it be a taking by a physical invasion or by the application of a regulation, there is no logical reason why the existence of a regulatory scheme should put landowners on notice that the right to put their property to an economically viable use has been taken:
The reasons are obvious. A requirement that a person obtain a permit before engaging in a certain use of his or her property does not itself take the property in any sense: after all, the very existence of a permit system implies that permission may be granted, leaving the landowner free to use the property as desired. Moreover, even if the permit is denied, there may be other viable uses available to the owner. Only when a permit is denied and the effect of the denial is to prevent economically viable use of the land in question can it be said that a taking has occurred.171
However, before Palazzolo was decided there had been a number of significant cases where the courts have reached the opposite conclusion including state courts in New York172 and Virginia,173 and the Court of Appeals for the Federal Circuit,174 and for the District of Co[*PG30]lumbia.175 But as one court recently noted when confronted with a theory similar to that adopted by these other courts: [U]nder such logic, [government] could pass a law that stated that no one could build on their property. After all property had passed hands once, the right to build on ones property would be lost to everyone.176 The rule that the purchase of regulated property destroys the right to bring a claim for a regulatory taking caused by the application of the regulation has also been heavily criticized elsewhere as violating the common law meaning of property.177
The Supreme Courts opinion in Palazzolo put to rest once and for all the notion that title to property is altered when it changes hands. The Court first of all rejected the idea that the right to develop property is a right created by the State178 and that the State can redefine the property rights of subsequent owners by prospective legislation because they purchased or took title with notice of the limitation.179 The Court was unimpressed by this argument noting that [t]he State may not put so potent a Hobbesian stick into the Lockean bundle.180 The Court reasoned:
Were [the Court] to accept [that] rule, the postenactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable. A State would be allowed, in effect, to put an expiration date on the Takings Clause. This ought not to be the rule. Future generations, too, have a right to challenge unreasonable limitations on the use and value of land.181
The State and many amici had suggested that a rule allowing purchasers of regulated property to challenge the application of those regulations would give the purchasers a windfall, especially if the value of the property had been depressed by the regulations. The Court did not agree: The States rule also would work a critical alteration to the nature of property, as the newly regulated landowner is stripped of [*PG31]the ability to transfer the interest which was possessed prior to the regulation. The State may not by this means secure a windfall for itself.182 Relying upon the holding in Nollan,183 the Court found that it was imperative that subsequent owners such as Mr. Palazzolo take the same rights as the original owners at the time the regulation is adopted.
An alternative way of expressing the notice theory of regulation is to suggest that the underlying background principles of property must include all existing regulatory constraints at the time of acquisition. In Lucas v. South Carolina Coastal Council, the Court said that a regulatory restriction which simply reflected the application of background principles, such as those in place against nuisances, could not rise to the level of a taking.184 There being no right to commit a nuisance, there can be no taking when the ability to commit a nuisance is denied. In Palazzolo v. Rhode Island, the State and several amici strenuously argued that the background principles rubric of Lucas must include the entire panoply of regulations in place when property is transferred.185 In this respect, they argued, Lucas overruled Nollan v. California Coastal Commission.186
This was an easy argument for the Supreme Court to dispose of:
It suffices to say that a regulation that otherwise would be unconstitutional absent compensation is not transformed into a background principle of the States law by mere virtue of the passage of title. . . . A regulation or common-law rule cannot be a background principle for some owners but not for others. . . . A law does not become a background principle for subsequent owners by enactment itself.187
Nonetheless, this is not necessarily the end of the inquiry. There may be other background principles that apply equally to all landowners, regardless of the date of acquisition. Such background principles may include the doctrines of nuisance or public trust. And [*PG32]some may still argue that long-standing regulations, those that have been in place for generations, have evolved into background principles.
This question of background principles leads to a natural inquiry into exactly what rights a property owner has in the first place. Traditionally, property rights included an array of rights such as the right to sell, give away, hold, and protect a particular thing. As the Supreme Court said, the Constitution protects a group of rights inhering in the citizens relation to the physical thing.188 The Supreme Court has noted that not all economic interests are property rights; only those economic advantages are rights which have the law in back of them.189 Except for the specific property rights created by federal law, such as federal mining claims,190 state law will generally determine whether something is a protected property right.191 As the Court in Keystone Bituminous Coal Assn v. DeBenedictis stated, [W]e are mindful of the basic axiom that [p]roperty interests . . . are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law.192 However, there are instances where federal law can come into play in defining the nature and extent of property rights, such as the navigational servitude or submerged lands boundaries.193 In the 1992 case of Nixon v. United [*PG33]States,194 the United States Court of Appeals for the District of Columbia provided one of the more thorough contemporary judicial discussions on how property rights are created through mutually reinforcing understandings and uniform custom and practice.195 There the court engaged in a lengthy historical discussion of the ownership and treatment of presidential papers, concluding that Richard Nixon had a property interest in his presidential papers, which are now in the possession of the Archivist of the United States.196
Federal law, however, will be relevant when the federal government is involved in an action that may take the property interest. As explained by the Ninth Circuit in Adaman Mutual Water Co. v. United States, [t]he determination of the type of interest taken upon exercise of the federal power of eminent domain is governed by federal law, but will normally be made in accordance with local definitions.197 In Adaman, the court looked to Arizona law in finding that when the government took approximately 8.3% of the farmland in the area of an agricultural development project, it had to pay compensation not only for the land, but also for the pro rata share of an irrigation district assessment.198 Because under Arizona law this assessment was inseparable from the land, it was in fact an equitable servitude which warranted takings compensation.199 Thus, local law is crucial in determining the nature of an aquatic property interest in condemnation cases.200
The clear statements in Lucas that property interests must first be identified before a takings analysis is begun and that an independent source such as state law will help define property rights201 have led to a move to redefine property rights under state law in order to avoid [*PG34]takings arguments.202 But, under any accepted understanding of property, it is clear that property rights have a source so fundamental in our jurisprudence that contemporary regulatory definitions or redefinitions cannot alter the elemental nature of the right.203
[*PG35] Nevertheless, in Stevens v. City of Cannon Beach,204 the Oregon Supreme Court found there was not a taking when a property owner was unable to build on a beach dune area because the ownership rights of the dune did not include the right to exclude the public from its customary use of the dunes.205 Two members of the United States Supreme Court were troubled by what they saw as an abrogation of existing property definitions.206 In Public Access Shoreline Hawaii v. Hawaii County Planning Commission,207 the Hawaiian Supreme Court held that land ownership in Hawaii is burdened by the right of Native Hawaiians to utilize property to gather natural resources in accordance with native custom that may be incompatible with development.208 Both the Cannon Beach and Public Access Shoreline Hawaii holdings have been criticized as an attempt to redefine property rights.209 In the case of Palazzolo, the State suggested in its briefs and at oral argument that background principles of nuisance and the public trust doctrine should insulate the State from liability. The issues of nuisance and the public trust, not part of the Rhode Island Supreme Courts decision, and not part of the questions presented, were not addressed by the Supreme Court, but may be important factual concerns in other cases.
In virtually every instance where a government has suggested that ordinary environmental regulations that prohibit ordinary development activities can be insulated from the Takings Clause because the prohibited activity is alleged to be a nuisance, the government has lost. The Court of Federal Claims and the Federal Circuit Court of Appeals, the courts with the most experience in examining takings [*PG36]claims in the context of federal wetland regulations, have expressly rejected this notion in every case where it has considered the idea.210 Other courts have agreed as well.211 Most importantly, the United States Supreme Court in Lucas was highly skeptical of the idea that building a home in a residential subdivision could constitute a common law nuisance.212
In Just v. Marinette County,213 the Wisconsin Supreme Court held that [a]n owner of land has no absolute and unlimited right to change the essential natural character of his land so as to use it for a purpose for which it was unsuited in its natural state and which injures the rights of others.214 Just was cited with approval by the Washington Supreme Court in Orion Corp. v. Washington: Orion never had the right to dredge and fill its tidelands.215 A similar result was reached by the New Hampshire Supreme Court.216 However, in Florida Rock Industries, Inc. v. United States, the Federal Circuit found housing to be a more valuable use than swampland,217 while the court in Loveladies Harbor, Inc. v. United States expressly rejected the Just formu[*PG37]lation as illogical.218 More significantly, after Lucas was decided, some courts have begun to expressly reject the notion that a prohibition on filling wetlands can constitute a background principle of state law.219 This makes some sense, as for many years it was public policy to fill wetlands.220
When riparian wetlands are at issue, a relevant inquiry is whether the proposed use of the wetland interferes with the public trust doctrine.221 Public trust rights traditionally have included the right to access navigable waterways for fishing and navigation.222 Modern commentators argue that the public trust also includes recreational and ecological values.223 Thus, any regulation that would restrict the ability of an individual to utilize a private property interest in a resource subject to the public trust would not have a cause of action for a taking because in reality the private property interest never really existed in the first place. In fact, some commentators such as Professor Sax posit that all property rights should be redefined to make them more akin to water rights and subject to an analogous ecological public trust.224
[*PG38] The Supreme Courts recognition of the public trust doctrine dates back to 1892 in Illinois Central Railroad Co. v. Illinois.225 Although it was originally utilized only as a mechanism to protect public access to navigable waterways, academics in recent years have argued intensely over whether the public trust doctrine must evolve into an all-encompassing ecological easement on all private property, which would supposedly limit the reach of the takings doctrine.226 The debate over how far the public trust doctrine should be used to abrogate traditional and often centuries old understandings of private property rights in land and water is in large part a reflection of competing legal philosophies.
Adherents to more traditional doctrines of free enterprise and private property rights see the creation of, and strong protection for, private rights in aquatic resources as more efficient and more just than a system that would leave the power of redistributing the wealth in riparian property to a few judges decreeing the latest expansion of the public trust doctrine.227 Professor Cohen cogently argues that there is no basis in economics or legal theory for expanding the public trust doctrine. In fact, to do so would only destroy our best chances of protecting ecological integrity. This is because the notion of an [*PG39]evolving unbounded set of communal rights strips clarity, certainty, and predictability from the very core of the public trust doctrine.228
The definition of private property rights depends on existing rules and understandings,229 and when we actually rely upon such rules and understandings, there is no place for such a transformation of property rights. The public trust doctrine should logically have no ability to negate the existence of a regulatory taking. As Justice Stewart once opined, if a court redefines such existing rules and understandings, then a judicial taking may occur.230
In short, if a property right was initially created without being subject to the modern notions of an expanded public trust, then any later imposition of the newly defined public trust carries with it significant takings implications. Once a government sees fit to create a property right, that right cannot later be abrogated or taken away at whimunless just compensation is paid and there is due process. As the United States Supreme Court held over a century ago:
Under every established government, the tenure of property is derived mediately or immediately from the sovereign power of the political body, organized in such mode or exerted in such way as the community or State may have thought proper to ordain. . . . It is owing to these characteristics only . . . that appeals can be made to the laws either for the protection or assertion of the rights of property. Upon any other hypothesis, the law of property would be simply the law of force. Now it is undeniable, that the investment of property in the citizen by the government, whether made for a pecuniary consideration or founded on conditions of civil or political duty, is a contract between the State . . . and the [*PG40]grantee; and both the parties thereto are bound in good faith to fulfil it.231
For most property, the issue is even more basic because the origin of property is usually more fundamental than a contract with government; under Lockean principles, it predates the very existence of government.
Thus, even though a government may someday regret that it created or recognized the existence of property rights in the past, and even though those property rights have become inconvenient to the government today, the government is still bound by its prior action of creating and divesting property rights. The future, no doubt, will see much litigation over the extent of the property interests that were originally acquired by individuals and the extent to which they were reserved to the public trust.
A second rationale given by the Rhode Island Supreme Court for denying Mr. Palazzolos claims is that he had no investment-backed expectations to utilize his property in a manner that was governed by the CRMC regulations.232 In Penn Central Transportation Co. v. City of New York,233 a landowners distinct investment-backed expectation was listed as a factor to consider in determining whether liability attaches for a regulatory taking. But it is questionable that Penn Central anticipated that notice of a regulatory scheme would eliminate all expectations of obtaining a permit in the context of a takings challenge.234 Furthermore, where there is a categorical taking, the role of investment-backed expectations should be limited or nonexistent.235 One need look no further than Penn Central itself, where one of the appellants, Union General Properties (UGP), acquired its leasehold [*PG41]interest in the Penn Central property after it was designated as a landmark.236 Despite the fact that UGP was on notice, that fact was not dispositive.
Assuming that the Takings Clause is designed to bar 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, the prospect that any landowner (either the original or the new owner) can suffer a wipeout of use and value of the property without the prospect of the government paying compensation to someone should be unsettling.237 When that wipeout rises to the level of taking, compensation must be due. Otherwise the State would have acquired the development interests at no cost. Government agencies rationalize that the owner knows the rules when regulated property is acquired. But if the original owner cannot bring a takings claim (because of an unwillingness or inability to ripen that claim), and if the new owner cannot, then who can? Nevertheless, despite the illogic, or at least the unfairness, of a rigid application of the notice rule to investment-backed expectations, the Rhode Island Supreme Court has not been alone. While some courts have focused more on the title theory of notice, as described in Part VI.A supra, others have focused more on the relationship between notice and investment-backed expectations.
In 1999, the Federal Circuit added a new twist: What matters is not the state of the regulatory scheme at the time property is purchased, but what the developer should have anticipated the future regulatory regime to be. In Good v. United States,238 Lloyd Good purchased property in the Florida Keys in 1973, several months before the adoption of the Endangered Species Act. Good began the odyssey of trying to develop his property in 1980.239 At first, Good had no trouble, having obtained a dredge and fill permit in 1983.240 This permit was replaced with a new but substantially similar permit in 1988.241 He obtained all of his required state permits by 1984,242 and would have been able to develop his land at that time but for an appeal brought [*PG42]by the Florida Department of Community Affairs. One thing led to another, and Good embarked upon a Byzantine series of procedures before the state and federal agencies. While trying to renew his wetlands permits issued by the Army Corps of Engineers, the Lower Keys Marsh Rabbit was listed as endangered in 1990, as was the Silver Rice Rat in 1991.243 Although the United States Fish and Wildlife Service recommended alternatives, neither the Corps nor Good acted upon the recommendations.244 Instead, Goods permit expired and the Corps refused to approve a scaled back permit that Good thought would meet with the approval of state regulators.245 Good sued for inverse condemnation.246
After losing before the Court of Federal Claims, the Federal Circuit upheld the judgment.247 It was persuaded that regardless of whether Good had been denied economically viable use of his property, he could not have had a reasonable expectation that he would obtain approval to fill ten acres of wetlands in order to develop the land.248 That is because the court concluded that Good was [s]urely . . . not oblivious to the trend of rising environmental awareness translated into ever-tightening land use regulations.249 Another recent federal circuit decision has also ruled that landowners on notice of existing regulations may be precluded from bringing regulatory takings claims based on the application of those regulations.250
Unbowed by the United States Supreme Courts opinion in Lucas v. South Carolina Coastal Council, the South Carolina Supreme Court extended the Good rationale to a landowner who had bought two parcels in 1961 and 1963. In McQueen v. South Carolina Coastal Council,251 the court found that even though it was undisputed that a denial of a [*PG43]permit to put in a bulkhead and fill property deprives respondent of all economically viable use of his property,252 and that there were no background principles depriving the owner the right to fill, there was no taking.253 Unlike Good, the court did not find that the owner was not oblivious to the rising tide of environmental regulations in the early 1960s.254 Instead, the court did not find a taking because the landowner had no investment-backed expectations to develop the propertyas evidenced by the fact that the owner waited several decades before attempting to navigate the permitting process, during which time there had been some erosion of the property.255 That the United States Supreme Court granted certiorari and vacated the decision in light of Palazzolo v. Rhode Island casts a long shadow on the validity of the state courts holding.256
However, there have been a number of significant cases where courts have reached the opposite conclusion. On February 18, 1997, the New York Court of Appeals issued four opinions finding that property owners are not entitled to condemnation damages when a regulation that results in a taking is adopted prior to the purchase of property.257 This holding was applied even to instances where the regulation as applied destroyed all use of the property,258 or when the City of New York physically invaded private property by dumping landfill on a 2400-square foot area.259 Two owners were found to have no right to compensation when they were unable to use their land because of wetlands restrictions.260 Ironically, while these New York [*PG44]decisions excised from use a segment of the owners property based on the scope of the regulations in place at the time of transfer, the United States Supreme Court did the opposite in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency.261 In rejecting the segmentation of property according to the scope of the regulations, the Court found that defining the property interest taken in terms of the very regulation being challenged is circular.262 In other words, while the New York courts removed the regulated segments from the owners bundle of sticks, the Supreme Court in Tahoe-Sierra insisted that the regulated parcel be considered part of the whole parcel. Either way, the landowner loses. While Palazzolo may have eliminated the ability of government to segment property by accident of post-regulation acquisition, it is worth noting that the embrace of such a rule would have adverse consequences.
The practical implications of such a rule will be that landowners will have a compelling incentive to challenge regulations whenever they are passed and that regulated property will become increasingly difficult to sell.263 In addition, property interests will be balkanized to the extent that neighboring landowners will own potentially very different property interests, depending on when each neighbor purchased property in relation to the regulations. In time, as regulations ratchet down on the rights to use property, and as owners are unable to bring ripe challenges to the regulations and must sell their land, the State will acquire an ever enlarging regulatory servitude over private property.
In City of Virginia Beach v. Bell,264 a residential lot was acquired from a corporation by a fifty percent shareholder in the corporation. Like the Rhode Island court in Palazzolo, the Virginia Supreme Court held there was no taking, because the acquisition occurred after the adoption of a local dune protection ordinance, and therefore the new owner did not acquire any right to develop the property in a manner contrary to the ordinance.265
[*PG45] But other states and the Ninth Circuit have rejected, years before Palazzolo, this application of the notice ruleoften without specific reference to either the title theory or the investment-backed expectations theory.266 For example, New Jersey recently held in Karam v. State267 that the right of a property owner to fair compensation when his property is zoned into inutility by changes in the zoning law passes to the next owner despite the latters knowledge.268 The Ninth Circuit in Carson Harbor Village Ltd. v. City of Carson found that an as-applied but not a facial takings challenge can be brought by a purchaser of regulated property.269 Likewise, in Del Monte Dunes at Monterey, Ltd. v. City of Monterey,270 the Ninth Circuit allowed a landowners takings claims to proceed despite the fact that land was purchased with knowledge of permitting requirements.271 In Florida, the court in Vatalaro v. Department of Environmental Regulation272 held that even though a property owner acquired land after a regulatory scheme was adopted, she could still pursue an as-applied takings claim.273 The court reasoned that no taking occurred until after the State denied the landowners permit application when the State determined the property was suitable only for limited passive recreational use.274
Finally, the Supreme Courts treatment of the relationship between the notice rule and the investment-backed expectations prong of Penn Central is a bit inconclusive. As discussed previously, the Court rejected outright the idea that the existence of a regulation [*PG46]affects the background principles of property.275 It also noted that on remand the court need not discuss the notice rule and background principles in connection with the claim that all economic use was deprived; it must address, however, the merits of petitioners claim under Penn Central.276
But the concurring opinion of Justice OConnor, in this five to four decision, states that Palazzolos holding does not mean that the timing of the regulations enactment relative to the acquisition of title is immaterial to the Penn Central analysis277 and that the regulatory regime in place at the time the claimant acquires the property at issue helps to shape the reasonableness of . . . expectations.278 Justice OConnor did, however, criticize the Rhode Island court for elevating such expectations to dispositive status because then the State wields far too much power to redefine property rights upon passage of title.279 Justice Scalia, however, in his concurrence, was emphatic that notice of preexisting regulations should play no part in a Penn Central analysis:
[T]he fact that a restriction existed at the time the purchaser took title . . . should have no bearing upon the determination of whether the restriction is so substantial as to constitute a taking. The investment-backed expectations that the law will take into account do not include the assumed validity of a restriction that in fact deprives property of so much of its value as to be unconstitutional. Which is to say that a Penn Central taking . . . no less than a total taking, is not absolved by the transfer of title.280
Thus, while there is still some room for debate over the extent to which notice of a preexisting regulation informs investment-backed expectations, there is no debate over whether such notice affects underlying title to the extent that a new landowner cannot pursue a challenge to the application of a regulation.
In Palazzolo v. Rhode Island, Mr. Palazzolo alleged his property would have been worth $3.1 million had he been allowed to fill in the wetlands.281 While the government disputed that figure, it further claimed that because the property had a value of $200,000 if a small upland portion could be developed, or a value of $157,000 as an open space gift, then there could be no taking.282 The question of how far is too far remains one of the more vexing issues in the law of regulatory takings. It had been hoped that the Supreme Court would provide some guidance in answering the question: Whether the remaining permissible uses of regulated property are economically viable merely because the property retains a value greater than zero. Unfortunately, other than holding that the remaining $200,000 value was too much to be considered a categorical taking, the Court did not reach the issue of partial takings.
An owner of multiple parcels who has fewer than the total number taken by regulation, or an owner of one large tract who has only a portion taken by a permit denial, naturally wants to be compensated for a taking, just as the owner of a tract where only a portion has been physically invaded wants compensation. The government, on the other hand, wants to claim that since the owner still has something of value left, there has been no taking in the constitutional sense. Such considerations are squarely addressed in the Supreme Courts discussion of the relevant parcel in Lucas:
When, for example, a regulation requires a developer to leave 90% of a rural tract in its natural state, it is unclear whether we would analyze the situation as one in which the owner has been deprived of all economically beneficial use of the burdened portion of the tract, or as one in which the [*PG48]owner has suffered a mere diminution in value of the tract as a whole.283
Similarly, in Palazzolo, Mr. Palazzolo is unable to utilize eighteen acres of wetlands. He may, however, be able to use a few additional acres of uplands.284 This presents the question: Have the wetlands been taken, or is there enough remaining upland to absolve the government of liability? This has been referred to as the denominator problem.285 In Loveladies Harbor, Inc. v. United States,286 the federal circuit upheld an award of $2.6 million in compensation for the denial of a Army Corps of Engineers dredge and fill permit to develop 12.5 acres of wetland.287 Among other arguments, the government asserted that because the owner of the property had successfully developed a substantial portion of the 250 acres he originally owned, no taking should be found.288 The government reasoned that the owner recouped a substantial portion of his original investment-backed expectations from when he first purchased the property in the late 1950s.289 The court did not agree.290 Instead, it examined the actual property owned at the time of the alleged taking and declined to reach back in time to look at property that once might have been owned by the same owner, even if contiguous to the taken property.291
[*PG49] Earlier, however, in Ciampitti v. United States,292 the Claims Court declined to find a taking because the property owner had already developed some of his land, and he also retained some property that was not impacted by wetlands regulations.293 Furthermore, the court found that the property owners argument that he could rely on a loophole in property law to allow him to develop land without a permit was not a reasonable investment-backed expectation.294
In Palm Beach Isles Associates v. United States, the trial court found some significance to the fact that the property was purchased in the 1950s and partially sold off in 1968.295 On appeal, however, the court found that the trial court erred by focusing on only the history of the purchase and sale in relation to the relevant statutory scheme.296 Instead, it found that other factual nuances should be analyzed, including the developers plans and the geographic connection between the lots.297 The Federal Circuit has also considered the issue in [*PG50]Tabb Lakes, Ltd. v. United States298 and Forest Properties, Inc. v. United States.299
In East Cape May Associates v. New Jersey Department of Environmental Protection, the appellate division of the New Jersey Superior Court recently discussed at length the ways that various states have determined the relevant parcel in takings analyses.300 The State argued that separate large parcels owned by the same principals who owned the affected wetland parcel should be considered together for the purpose of a takings analysis.301 The court remanded for further analysis of the nature of the ownership interests, the zoning of the various parcels, and when the other parcels had been built on and disposed of.302
The United States Supreme Court has cautioned against segmentation of larger units of property for takings purposes.303 However, as the Court pointed out in Lucas v. South Carolina Coastal Council, there may be circumstances where the total holdings of the landowner may not be the relevant parcel304 Some commentators have lumped various manifestations of the segmentation of property under the rubric of conceptual severance.305 Such severance can occur by parcel or [*PG51]lot (horizontal segmentation), by time (temporal segmentation), or by height (vertical segmentation).306 In Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, however, the Court emphasized the need to look to the parcel as a whole, and rejected such conceptual severance, at least for temporal severance.307 This ideathat landowners receive compensation when property interests are taken through regulationis inimical to these commentators. Therefore, they suggest, instead, that courts lump every conceivable interest in a property together, horizontally, vertically, and across time, thereby making the taking of any economically viable use less than likely.308 Professor Eagle, in turn, criticizes this notion of lumping, deriding it as conceptual agglomeration.309 Indeed, fears of conceptual severance are little more valid than a childs fear of the bogeyman. For centuries the common law has promoted carving out discrete interests in property to maximize its utility. Whether it be the subdivision of large estates, the creation of leasehold interests for a limited duration of time, or the independent sale of mineral rights, severance is an essential core of Anglo-American conceptions of property. From Lockes application of his labor theory, to the creation of interests in property, to more recent utilitarian approaches to the theory of property, a hallmark of every such theoretical conception is that property is divisible, with discrete interests controlled by discrete entities. There is little to fear if courts were to recognize this tradition in modern times. In other words, there is no reason in law or logic for the courts to treat property any differently in the context of regulatory takings.
Happily for litigators and law review authors the treatment of this issue in the state and lower federal courts has been mixed, hopelessly contradictory, and defiant of synthesis. The inconsistency of the lower courts may be a function of some courts predilection towards favoring government over landowners, or vice versa, a predilection that some would equate to fairness.310 In the array of cases listed below, [*PG52]an advocate for either the government or the private landowner will have plenty of case law for support. What practitioners will lack is any sort of consistent treatment in the lower courts that they can point to in arguing what the relevant parcel should be in any particular case.
Recently, the court in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency refused to find a temporary taking where a large number of properties had been subject to several moratoria, which denied all use and value to the properties for over twenty years.311 Previously, the trial court found that one particular moratorium took all economically viable use for that period of time.312 Other courts have also declined to treat separately those portions of a single parcel that are regulated differently. For instance, in Zealy v. City of Waukesha,313 the Wisconsin Supreme Court determined that all the property owned by landowners would be considered for takings purposes; it declined to look only at the portion allegedly zoned into inutility by the citys actions.314
In K & K Construction, Inc. v. Department of Natural Resources, the Michigan Supreme Court combined both separate parcels and differently regulated portions of the same parcel.315 The court combined a fifty-five acre parcel, of which between twenty-seven and twenty-eight acres were untouchable because of wetlands, with two other parcels of sixteen and 3.4 acres, for purposes of determining whether there was a taking.316 The court reasoned that the parcels were owned in whole or in part by the same owner of the fifty-five-acre parcel.317 The Michigan example was followed in Karam v. State,318 where the appellate court examined the title history of a lot comprised upland and wet[*PG53]land sections and found the two portions to be a single unit for takings analysis purposes.
In District Intown Properties Ltd v. District of Columbia,319 the District of Columbia Circuit found that nine lots would be considered together because the units were originally held together and the developer planned to develop them as a single project.320 A concurring opinion objected, calling for, among other things, the type of test described by a lower court in Machipongo Land & Coal Co. v. Commonwealth, Department of Natural Resources.321 However, reference to Machipongo is unavailing as the Pennsylvania Supreme Court reversed, finding that the entirety of a coal deposit must be considered in a takings analysis, not just the coal within a protected watershed. In doing so the court cited to Keystone Bituminous Coal Assn v. DeBenedictis for its rejection of vertical severance (of the mineral estate)322 and to Tahoe-Sierra for the rejection of temporal severance.323 The court remanded the case on the issue of horizontal severance, instructing the trial court to examine various factors dealing with the propertys history, as set forth in Loveladies Harbor.324
However, other courts have been more willing to look at just those parcels or portions of a single parcel that are affected by the regulation. In Boise Cascade Corp. v. Board of Forestry,325 the Oregon Supreme Court found that a timber company stated a claim for inverse condemnation when fifty-six acres of old-growth redwood timber were set aside within a sixty-four-acre parcel in order to protect the habitat [*PG54]of the Northern Spotted Owl.326 Similarly, in Twain Harte Associates, Ltd. v. County of Tuolumne,327 a California Court of Appeal looked only to property subject to the same zoning constraints in a takings analysis.328 Likewise, in American Savings & Loan Assn v. County of Marin,329 the Ninth Circuit broke property into two segments for a takings analysis because the county had zoned and regulated each portion differently.330 The New York Court of Appeals applied conceptual severance to the regulation of single room occupancy hotel rooms in Seawall Associates v. City of New York.331 Finally, in Mekuria v. Washington Metropolitan Area Transit Authority,332 the trial court had no trouble segmenting separate developed parcels where they were subject to separate leases and were not physically contiguous.333
Perhaps the most elegant model for analyzing the takings denominator was proposed by John Fee who suggested that any identifiable segment of land is a parcel for purposes of regulatory takings analysis if prior to regulation it could have been put to at least one economically viable use, independent of the surrounding land segments.334 In other words, if government imposes a small setback requirement on a property, it would not likely be a taking so long as the setback could not be used in a manner economically independent of the larger parcel. However, if the setback is large enough, then there may very well be takings implications. This test was adopted by a Pennsylvania appellate court in Machipongo,335 but on appeal the Pennsylvania Supreme Court remanded the case for more factual analysis concerning whether the history of the parcel supported treating land declared unsuitable for mining as a separate parcel.336
As noted, in both Penn Central Transportation Co. v. City of New York and Concrete Pipe & Products of California, Inc. v. Construction Laborers Pension Trust the Court warned against the segmentation of property in a takings analysis.337 However, Concrete Pipe did not involve real property, and Penn Central dealt with a rather unique fact situation where the landowner had already conceded the viability of transferring the development rights in the air rights.338 Furthermore, too much should not be read into Penn Centrals warning about segmentation because the Lucas Court expressly rejected as extreme and unsupportable the notion advocated by the New York Court of Appeals in Penn Central,339 namely examining the diminution in a particular parcels value . . . in light of total value of the taking claimants other holdings in the vicinity.340
Significantly, in Palazzolo v. Rhode Island, the Supreme Court expressed a great deal of interest in this question. At oral argument, the Court repeatedly asked counsel about whether Mr. Palazzolos eighteen acres of wetlands should be treated separately from the small upland portion of his property.341 However, finding that the issue had [*PG56]not been squarely presented to it, it declined to reach it.342 Nor did the Court address the segmentation issue that arose from the fact that there were already seventy-four subdivided lots on Mr. Palazzolos eighteen-plus acres.343
The Court in Palazzolo expressed discomfort with the logic of this rule and cited to the analysis by Fee discussed in the preceding section.344 The Court in Tahoe-Sierra seemingly embraced the parcel as a whole rule, at least with respect to temporal severance. The question remains open as to whether the government can take eighteen acres of Mr. Palazzolos property without compensation because he can use one-tenth of an acre, why not take 999 acres of 1000-acre plot, and so on? One would hope that the takings clause is not so fickle as to be transformed into a rule that the more one owns the more the government can take without paying compensation.
In footnote eight of the Supreme Courts opinion in Lucas,345 Justice Scalia suggests that even if some use and value remained in a [*PG57]regulated parcel there might still be a taking. In his dissent, Justice Stevens criticized the Lucas categorical rule, wherein a total deprivation of use and value is a taking, because, he felt, landowners who were just a few steps short of a total deprivation would not recover under the rule.346 The majority, however, countered that [t]his analysis errs in its assumption that the landowner whose deprivation is one step short of complete is not entitled to compensation.347 In other words, if the use and value of the property has been completely destroyed, there has been a compensable taking. If there is some residual use or value, however, the landowner is left with a opportunity to utilize a Penn Central analysis to determine whether there has been a partial taking.348
The idea that a taking can occur even when there is some value remaining in the property has a certain equitable appeal. As the Court of Federal Claims put it:
The notion that the government can take two thirds of your property and not compensate you but must compensate you if it takes 100% has a ring of irrationality, if not unfairness, about it. If the law said that those injured by tortious conduct could only have their estates compensated if they were killed, but not themselves if they could still breathe, no matter how seriously injured, we would certainly think it odd, if not barbaric. Yet in takings trials, we have the government trying to prove that the patient has a few breaths left, while the plaintiffs seek to prove, often at great expense, that the patient is dead. This all-or-nothing approach seems to ignore the point of the Takings Clause.349
This issue was brought to the forefront in Florida Rock Industries, Inc. v. United States.350 In that case, a mining company was awarded $1.02 million after it could not obtain a permit needed to mine ninety-eight acres of limestone in a wetland.351 On appeal, however, the government argued that there was no taking because it alleged the property [*PG58]retained significant value despite the wetlands regulations.352 This was based on an allegation that a speculator in Arizona made an offer to buy the property shortly after the permit was denied.353 This sort of argument, of course, is contrary to the governments usual position in condemnation cases, because the government now appears to be arguing that speculative value of property should be considered in a takings case.354
In 1994, the Federal Circuit Court of Appeals issued its decision in the appeal of Florida Rock.355 It is recommended reading for anyone dealing with the issue of the valuation of a regulated wetland and the existence of a partial taking. The court ruled that the trial court had improperly dismissed the relevance of an offer to buy the property, despite the fact that the offer may have been made without a proper appreciation of the impact of the regulatory impediments on developing the property.356 The court, however, continued that even if the property retained some valuebased in part on speculationthere still might be a partial taking.357 It instructed the trial court to weigh the various factors articulated in Penn Central358 in order to determine whether there was a taking.359 This decision represents an unequivocal embrace of the doctrine of partial takings.360 On remand to the Court of Federal Claims, Chief Judge Smith found that a seventy-three percent diminution in value of the property, when analyzed in light of other Penn Central factors such as the inflation-adjusted investment, constituted a taking of the ninety-eight acres.361 In Walcek v. United States,362 the Court of Federal Claims found that a diminution in value of 59.7% did not constitute a taking, categorical or otherwise. It also suggested that Chief Judge Smiths Florida Rock opinion, in that it analyzed other investment related factors, was disharmonious with the Supreme Court precedent.363 In a subsequent decision in the Florida [*PG59]Rock line of cases, Chief Judge Smith held that the entire 1500-acre parcel had been taken, finding it pointless to require the landowner to go through the permitting process on the remainder.364
There was a substantial takings award in Formanek v. United States,365 a case involving a calcareous fen bog wetlands, where the Court of Federal Claims found that a taking occurred when the Army Corps of Engineers denied a dredge and fill permit.366 The Court of Federal Claims rejected the governments arguments that the property could not be developed under state or local law.367 It also rejected the argument that the development would constitute a nuisance because there was no extreme threat to public health.368 Because the permit denial reduced the fair market value from $933,921 to $112,000, the government was ordered to pay compensation of $933,921, plus interest.369 This is notable because the court found a taking in spite of the fact that some value, albeit a dramatically reduced value, remained in the property.370
In a somewhat odd decision, OConnor v. Corps of Engineer371 the court was asked to decide whether the denial of a permit to place fill on a wetland for a tennis court was a taking.372 After noting that it probably did not have jurisdiction to rule on the takings issue (which it did not), the court went on to speculate that the action was not a taking.373 The court crafted its own formulation of a regulatory taking, finding that a taking occurs when a consideration of fairness and justice dictates that the economic impact of the regulation on the owner and the owners distinct investment backed expectations far outweigh any benefit to the public that the regulation is designed to promote.374 However, the court found no taking because the loss of the tennis court was not a denial of all use of the property and did not outweigh the benefit to the public from protecting the wetlands.375
[*PG60] More recently, in Karam v. State,376 a New Jersey appellate court found that the denial of a permit to develop riparian property was not a taking because, when considered as a whole, some value remained in an upland section of the property.377
A few cases have found that landowners have not proved a taking when the land retains some residual recreational value, reasoning that the owners never had any reasonable investment-backed expectations to further develop the property. In a cursory opinion, the Maine Supreme Court held in Wyer v. Board of Environmental Protection,378 that the existence of potential recreational uses such as parking, picnics, and barbecues, were enough value to obviate a taking claim.379 Similarly, in State, Department of Environmental Protection v. Burgess,380 a Florida appellate court found no taking because, although the owner could not erect a tent platform, he could still use the property for recreational purposes, namely nature walks and fishing.381
While footnote eight of Lucas and the experience of some lower courts would seem to have taken care of Justice Stevens argument that the existence of some small value will always obviate a takings claim, some commentators continue to suggest that Lucas makes it harder for a court to find a taking.382 Such arguments usually note the unique factual setting of Lucas, where the South Carolina Court of Common Pleas found that there was no value to Mr. Lucas property.383 From this fact the thesis is propounded that a taking was found in that case only because there was no value remaining in the property. Furthermore, because all land must have some value, it will be next to impossible for a court to find any regulatory taking in the future. Taking this syllogism one step further, critics continue by suggesting that except for those no-value cases, that leaves only a negative implication wherein courts will presume no taking if some value [*PG61]remains.384 But this argument ignores the emphasis the Lucas court placed on the use of property, as the opinion repeatedly uses language such as beneficial use or productive use.385 The only time it discusses value is in the context of the facts of the case and not as an indispensable element of a takings claim.386
Whatever doubts about the existence of residual value that may have remained after Lucas should have been dispelled in Palazzolo. [*PG62]One of the grounds for the Rhode Island Supreme Courts decision was that because there was $200,000 in value left in the property, if one-tenth of an acre of upland could be used for a residential lot, there was no categorical taking under Lucas and therefore no taking at all.387 The United States Supreme Court agreed with the Rhode Island Supreme Court that the remainder value of $200,000 was not insignificant and that there was no categorical taking under Lucas:
Assuming a taking is otherwise established, a State may not evade the duty to compensate on the premise that the landowner is left with a token interest. This is not the situation of the landowner in this case, however. A regulation permitting a landowner to build a substantial residence on an 18-acre parcel does not leave the property economically idle.388
Importantly, however, the Court found that the existence of this value in the property did not eliminate the possibility that there had been a taking.389 Instead, the Court remanded the case to the state court to determine whether there had been a taking under the factors articulated in Penn Central,390 stating that
[t]he [lower] court did not err in finding that petitioner failed to establish a deprivation of all economic value, for it is undisputed that the parcel retains significant worth for construction of a residence. The claims under the Penn Central analysis were not examined, and for this purpose the case should be remanded.391
With the Courts affirmation of Lockean principles, one would think that it would redouble its focus on the loss of use, rather than mere value. As the Court noted in Lucas, Lord Coke once wrote: [F]or what is the land but the profits thereof[?]392 While some have [*PG63]interpreted profits to mean only raw value,393 this is not what Coke meant. The full citation of Cokes statement is:
But if a man seized of land in fee by his deed granteth to another the profits of those lands, to have and to hold to him and his heires, and maketh livery secundum formam chartae, the whole land itself doth pass; for what is the land but the profits thereof; for thereby vesture, herbage, trees, mines, all whatsoever parcel of that land, doth passe.394
The reference to mines, herbage, and so forth clearly implies more than the residual value that might be left in property; it involves the fruits of the use of property. It would be hard to reconcile this common law tradition with the notion that the government can take the vesture, the mines, the herbage, and most of the trees without paying compensation to the owner.395
The implications to the practitioner should be an emphasis on the uses of the property. If a landowner can make a strong case that there is no economically beneficial use remaining in the property, the landowner should be able to maintain an allegation that the categorical per se rule of Lucas applies, whether or not some residual value remains. To the extent that this value actually reflects a remaining use, the landowner should be prepared to make an argument for a partial taking, using perhaps the template of Chief Judge Smiths decision in Florida Rock Industries, Inc. v. United States.396
If there are some significant uses remaining, but those uses are severely reduced, then a landowner should be prepared to demonstrate the ways in which the use has been diminished through a comparison of the before-and-after conditions of the property. The Court in Palazzolo would place such an analysis under the umbrella of Penn Central.397 Such considerations may include a before and after comparison of: (1) the various uses allowed on the property; (2) the real [*PG64]extent to which the land can be used; (3) the time horizons of the development; (4) the changes in the market risk of development caused by the restrictions; and (5) any changes in fair market value.
There is no doubt that ordinary market forces can effect each one of these factors. However, when a landowner can show that the regulatory restriction has caused a severe reduction in use and value, a reduction that is not caused by mere changes in the market, then considerations of fairness militate compensation. In other words, when a landowner is forced to bear burdens, which in all justice and fairness, should be borne by the public as a whole, the landowner is owed compensation.398 The fact that some small value remains in the property is simply not a dispositive factor, if it is properly weighed in light of the overarching concerns that attach to rights in property. In other words, the loss of use, not the remainder of token value, should be the primary consideration.
Property rights and aquatic resources are not mutually exclusive terms. As never before, however, there is a debate between those favoring an ever-increasing level of uncompensated regulation of private property and those in favor of the protection of private property rights. The issue is not whether government can decree that aquatic resources be left in their natural state, but instead who will pay the costs of dedicating real property to conservation uses. In recent years, private property owners have been winning the debate before the United States Supreme Court and some federal courts. As a result, the advocates of the regulatory state are urging stricter ripeness standards, for a rule that notice of preexisting regulations eliminates the ability to bring a takings challenge when the regulation is applied, and that there can be no taking whenever there is any value left to the allegedly taken property. By taking away some of the more pernicious governmental defenses to regulatory takings claims in Palazzolo v. Rhode Island, the United States Supreme Court has injected new life in the doctrine of regulatory takings.