Expanding the protections of the Takings Clause.

Expanding the protections of the Takings Clause

There has been speculation for years as to whether the conservative Supreme Court will revive judicial protection of economic rights of the sort that were safeguarded during the first third of the 20th century. From the late 19th century until 1937, the Supreme Court aggressively protected economic liberties such as freedom of contract and property rights.

This period in the history of U.S. constitutional law is often referred to as the "Lochner era," taking its name from the paradigmatic case of Lochner v. New York. In that case, the Court invalidated a state law limiting the hours that bakers could work, holding that it violated employers' due process rights to make contracts and was not a valid exercise of the police power.(1)

During the Lochner era the Supreme Court also greatly limited the scope of Congress's authority under the Commerce Clause. For example, in Carter v. Carter Coal Co., the Court held that certain labor provisions of the Bituminous Coal Conservation Act, including those that allow collective bargaining and setting maximum hours and minimum wages, exceeded the scope of Congress's commerce power.(2)

As the Court has revived limits on the commerce power in the last decade,(3) many have wondered whether the other aspect of Lochner-era jurisprudence--significant judicial protection of economic rights--will also be reborn.

So far, this has not happened. Since 1937, not one economic regulation has been declared unconstitutional as violating the Due Process Clause, and the Court has only twice found that laws are unconstitutional impairments of rights under existing contracts in violation of the Contracts Clause of Article I, [sections] 10.(4)

The Court has, however, broadened the rights of property owners under the Fifth Amendment's Takings Clause, which provides that the government may take private property for public use so long as it provides just compensation. For example, in 1994, the Court ruled that government-imposed conditions on the development of property are a taking if they are not justified by a roughly proportionate benefit to the property owner.(5)

On the last day of its 2000-2001 term, the Court handed down an important decision further expanding Takings Clause protections. Palazzolo v. Rhode Island is significant in two key respects: It makes it easier for property owners to show that a takings claim is ripe for review, and it unequivocally holds that a takings claim may be brought to challenge regulations that were in place when property was purchased.(6)

Wetlands conflict

Anthony Palazzolo, a lifelong resident of Westerly, Rhode Island, decided in 1959 to invest in three undeveloped, adjoining parcels in Westerly. He formed Shore Gardens, Inc. (SGI) with some partners to buy the property, but later purchased his partners' interests and became SGI's sole owner.

During the 1960s, SGI made several proposals to develop the property, but all were rejected for failure to comply with state environmental laws. Most of the property was then, as it is now, salt marsh consisting of permeable soils and subject to tidal flooding, requiring considerable fill--as much as six feet in some places--before any significant structure could be built there.

In 1971, Rhode Island created the Coastal Region Management Council and designated salt marshes, like those on SGI's property, as coastal wetlands subject to significant restrictions on development. In 1978, SGI's corporate charter was revoked for failure to pay corporate income taxes, and by operation of state law, title to the property passed to Palazzolo as the corporation's sole shareholder.

In 1983, the council rejected Palazzolo's proposal to develop the entire property, and in 1986 a more limited development plan was also rejected.

The relevant regulations required a landowner wishing to fill salt marsh to obtain a "special exception" from the council. Such an exception required a showing that the proposed filling and property development would serve "a compelling public purpose which provides benefits to the public as a whole as opposed to individual or private interests."(7)

The council found that Palazzolo's proposal did not meet this test, and its decision was affirmed when Palazzolo sought administrative review in the Rhode Island courts.

Palazzolo then brought an action in state court under the Takings Clause, alleging that the council's action deprived him of "all economically beneficial use" of his property and thus required compensation. He sought damages of $3.15 million, a figure derived from an appraiser's estimate of the value of a 74-lot residential subdivision.(8)

The Rhode Island Supreme Court ultimately ruled against Palazzolo, giving three separate reasons for its holding. First, the court said that Palazzolo's takings claim was not ripe because he never applied for a permit specifically to build a 74-lot residential subdivision. Second, the court held that Palazzolo had no right to challenge regulations enacted before 1978, when he gained legal ownership of the property from SGI. Third, the court said that there was no taking because it was undisputed that the regulations allowed Palazzolo to build a residence on an upland portion of the property. Therefore, the court held, Palazzolo was not deprived of all economically beneficial use of his land.

Mixed decision

In a 5-4 decision written by Justice Anthony Kennedy, the U.S. Supreme Court reversed the state court's rulings on ripeness and the ability of a property owner to challenge regulations in place when the property was purchased, but it also held that Palazzolo had not established a regulatory taking. The Court remanded the case to give him the opportunity to do so. Kennedy was joined by Chief Justice William Rehnquist and Justices Sandra Day O'Connor, Antonin Scalia, and Clarence Thomas.(9)

Ripeness. The Court held that Palazzolo's claim was ripe for review because even though he had not applied for a permit for 74 lots, it was clear that this proposal would have been rejected by the Coastal Region Management Council.

In 1985, the Court ruled that a takings claim challenging the application of land-use regulations is not ripe unless "the government entity charged with implementing the regulations has reached a final decision regarding the application of the regulations to the property at issue."(10) While the Rhode Island court found that Palazzolo's takings claim was not ripe because he had not applied for a permit for this specific development, the Supreme Court found no doubt as to the likely outcome of such a request. Kennedy explained that any claim of uncertainty in the administrative process was

   belied by the unequivocal nature of the wetland regulations at issue and by
   the council's application of the regulations to the subject property....
   There is no indication the council would have accepted the application had
   petitioner's proposed beach club occupied a smaller surface area. To the
   contrary, it ruled that the proposed activity was not a 'compelling public
   purpose.'(11)

In other words, Palazzolo holds that a takings claim is ripe if similar development proposals have been rejected and it is clear that additional proposals would also be denied. The Court emphasized that federal ripeness requirements do not "require a landowner to submit applications for their own sake."(12)

Preexisting regulations. The Court also held that a property owner may bring a takings claim based on regulations in place when property was purchased.

In 1992, in Lucas v. South Carolina Coastal Council, the Supreme Court indicated that a takings challenge could be brought only as to development rights that were part of the title purchased; no takings claim would be available when regulations preceded purchase.(13) The Lucas Court reasoned, as Justice John Paul Stevens later argued in his dissent in Palazzolo, that the purchase price of regulated property probably reflects any decrease in value due to limits imposed on development.(14)

But the majority in Palazzolo expressly rejected this reasoning. Kennedy wrote that if such an argument were accepted,

   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.(15)

No regulatory taking. Finally, the Supreme Court ruled that even though Palazzolo's claim was ripe for review and could be based on preexisting regulations, he had not shown that there was a regulatory taking. The Court explained that because it was undisputed that Palazzolo could build a residence on an 18-acre portion of his property, a $200,000 development value, his claim for deprivation of all economically viable use was precluded.(16)

The Court held that Palazzolo might have another basis for claiming a regulatory taking, such as arguing that the upland section of the property is distinct from the wetlands and should not affect a takings claim for the latter. But the Court found that such an argument was not presented to the lower court and thus was not properly before it.

What does the future hold?

It is too soon to know whether Palazzolo is the start of a major revival of judicial protection of economic liberties. But even by itself, the decision is an important victory for plaintiffs bringing takings claims, and it will make it easier to challenge zoning laws and environmental regulations. Palazzolo will allow people to purchase property with knowledge of regulations, yet with the specific goal of challenging those regulations under the Takings Clause, even when the regulations long preceded their acquisition of the property.

Notes

(1.) 198 U.S. 45 (1905).

(2.) 298 U.S. 238 (1936).

(3.) See, e.g., United States v. Morrison, 529 U.S. 598 (2000); United States v. Lopez, 514 U.S. 549 (1995).

(4.) See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978); United States Trust Co. v. New Jersey, 431 U.S. 1 (1977).

(5.) Dolan v. City of Tigard, 512 U.S. 374 (1994).

(6.) 121 S. Ct. 2448 (2001).

(7.) Id. at 2456.

(8.) Id.

(9.) Justice John Paul Stevens joined the majority opinion as to the ripeness issue, but not as to the ability of a property owner to challenge regulations that were in place when property was purchased.

(10.) Williamson County Reg'l Planning Comm'n v. Hamilton Bank of Johnson City, 473 U.S. 172, 186 (1985).

(11.) Palazzolo, 121 S. Ct. 2448, 2458.

(12.) Id. at 2460.

(13.) 505 U.S. 1003 (1992).

(14.) Palazzolo, 121 S. Ct. 2448, 2470 (Stevens, J., concurring in part and dissenting in part).

(15.) Id. at 2462-63.

(16.) Id. at 2460.

Erwin Chemerinsky is Syndey M. Irmas Professor of Public Interest Law, Legal Ethics, and Political Science at the University of Southern California Law School.