Changing Course — US Superme Court Rules in Takings Case

May 22, 2002

In recent years, the U.S. Supreme Court has issued a number of important decisions favoring property owners in zoning and other land use battles with local governments.

That trend took a sharp and sudden turn several weeks ago when the Court, in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, /1 rejected contentions that a moratorium on development imposed during the process of devising a comprehensive land-use plan for Lake Tahoe constituted a per se taking of property requiring compensation under the Takings Clause of the Fifth Amendment to the United States Constitution./2 In so doing, the Court relied on the district court’s finding that the moratorium was “not unreasonable,” a finding that the U.S. Court of Appeals for the Ninth Circuit had approved and that, accordingly, was a given in the Supreme Court’s decision.

The Court’s ruling would seem to allow government to do by regulation what it cannot do through eminent domain — i.e., freeze the use of private property without paying for it. Simply put, this opinion ignores the admonition put forth by Justice Holmes 80 years ago that “a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.”/3

32 Months
The case involved two moratoria ordered by the Tahoe Regional Planning Agency (TRPA) to maintain the status quo while studying the impact of development on a deteriorating, formerly pristine, Lake Tahoe and designing a strategy for environmentally sound growth. These moratoria effectively prohibited all construction on various property in the Lake Tahoe Basin for 32 months.

Owners of land in the Basin filed suits against TRPA and other defendants in federal courts in Nevada and California that were ultimately consolidated for trial in the District of Nevada. The district court found that although the property retained some value during the moratoria, the property owners had been temporarily deprived of “all economically viable use of their land” and this constituted “categorical” takings under Lucas v. South Carolina Coastal Council ./4 Accordingly, it ordered TRPA to pay damages.

The Ninth Circuit reversed, holding that, because the regulations only had a temporary impact on the property owners’ fee interest in the properties, a categorical taking had not occurred. The Court of Appeals distinguished Lucas as applying to the “relatively rare” case in which a regulation denies all productive use of an entire parcel, whereas the TRPA moratoria involved only a “temporal ‘slice'” of the fee interest and a form of regulation that it said was widespread and well established. The case reached the Supreme Court.

Physical vs. Regulatory Takings
In its decision, the Court first drew a distinction between physical takings and regulatory takings. When the government physically takes possession of an interest in property for some public purpose, the Court said, it has a categorical duty to compensate the former owner./5 By contrast, it continued, a government regulation that affects certain private uses of property does not constitute a categorical taking but rather entails complex factual assessments of the purposes and economic effects of the government’s action.

With this statement, the Court swept away all cases involving physical takings as controlling precedents in the analysis of a claim of a regulatory taking (and vice versa).

Having done so, the Court had to explain why Lucas — a regulatory takings case that applied a categorical rule — was inapplicable here. Justice John Paul Stevens, writing for the Court, noted that the categorical rule that it applied in Lucas was that compensation was required when a regulation permanently deprived an owner of “all economically beneficial uses” of his or her land. In this case, however, the 32 month moratoria were not permanent.

Moreover, the Court rejected the property owners’ contentions that it should sever a 32-month segment from the remainder of each landowner’s fee simple estate, and then ask whether that segment had been taken in its entirety by the moratoria. With property so divided, the Court emphasized, “every delay would become a total ban; the moratorium and the normal permit process alike would constitute categorical takings.” The Court stated that it had to focus in regulatory takings cases on “the parcel as a whole.”

In other words, the starting point is to ask whether there had been a total taking of the entire parcel; because that had not occurred here (i.e., the owners could enter on their property but not develop it), the proper framework, the Court stated, was its analysis in Penn Central Transp. Co. v. New York City ./6

Under this standard, a claim that a regulation has effected a temporary taking requires careful examination and weighing “of all the relevant circumstances,” according to the Court, which include the regulation’s economic effect on the landowner, the extent to which the regulation interferes with reasonable investment-backed expectations and the character of the government action./7 No one factor — not even a 32 month moratorium — may be given controlling significance one way or the other.

The Court observed that it “may well be true” that any moratorium that lasts for more than one year should be viewed with “special skepticism.” However, it emphasized, given the fact that the district court had ruled that the 32 months required by TRPA was “not unreasonable,” it could “not possibly conclude” that every delay of over one year is constitutionally unacceptable. The duration of the restriction is one of the important factors that a court must consider in the appraisal of a regulatory takings claim, it said, but even a moratorium of greater than one year did not allow a per se rule.

Impact Of The Decision
The Court’s decision is a giant step backward. The “permanent” prohibition that the Court held to be a taking in Lucas lasted less than two years,/8 yet the “temporary” prohibition in this case was longer — and not deemed a taking. Does that mean that the takings question turns on the initial label given a regulation? Indeed, this decision might provide an incentive for government to simply label any prohibition on development “temporary,” or to fix a set number of years. Even then, the initial designation apparently does not preclude a government from repeatedly extending the “temporary” prohibition into a long-term ban on all development.

Moreover, it is not certain what life remains in the Court’s opinion in First English Evangelical Lutheran Church of Glendale v. County of Los Angeles ./9 There, the Court expressly rejected any distinction between temporary and permanent takings when a landowner was deprived of all economically beneficial use of his or her land. The Court in First English stated that “temporary takings which, as here, deny a landowner all use of his property, are not different in kind from permanent takings, for which the Constitution clearly requires compensation.”/10

More fundamentally, even if a practical distinction between temporary and permanent deprivations were plausible, to treat the two differently in terms of takings law would be contrary to the justification for the Lucas rule, which was derived from the fact that a “total deprivation of use is, from the landowner’s point of view, the equivalent of a physical appropriation.”/11

In other words, Lucas is implicated when the government deprives a landowner of “all economically beneficial or productive use of land.” In this case, the district court found that the moratorium “temporarily” deprived the property owners of “all economically viable use of their land.” It is not clear how that “temporary” denial of all viable use of land for more than two years could not be a taking, in light of the First English Court’s equating temporary and permanent takings.

Certainly, not every delay or regulation would entitle a property owner to compensation. Normal delays in obtaining building permits, changes in zoning ordinances, variances, and the like, would not be compensable. But a moratorium prohibiting all economic use for years is different, and clearly would seem to require compensation. The TRPA (an appointed board) very well may have acted in good faith in an effort to protect one of the most beautiful lakes in the world from pollution, but the costs and burdens should have been borne by the public at large, not by a few targeted citizens.

Perhaps the Court or a legislature could balance the interests involved by shifting to government the burden of proof on restrictions that deny all “economically viable use of the land” beyond one year. This shifting could be triggered by the “special skepticism” of keeping a moratorium in place for more than one year, i.e., after a year, a moratorium would be presumed invalid unless the government proved the need to continue it and sustained a heightened burden of proof.

The damage to property rights advocates from the Court’s decision may be especially severe in New York, where a moratorium is an exempt action under the State Environmental Quality Review Act and does not have to go through the SEQRA process. Accordingly, there now is little that property owners can do to contest a moratorium.

No Free Reign
On the other hand, the Tahoe decision does not necessarily give municipalities free reign. The district court found the moratoria to be “not unreasonable”; in other situations, similar moratoria may be found unreasonable. To limit the risk of challenges, local governments therefore may want to consider limiting moratoria to six months at a time, and holding hearings before they can be extended. In addition, it might be appropriate to include a safety valve that would permit a local board to relieve an applicant from the strictures of the moratorium upon a showing of unique economic hardship.

Significantly, the Court placed great emphasis on the “decisional process” that had to be protected — and not rushed — by the moratorium. The need for this process should form part of any record establishing or extending a moratorium, and a planner or other consultant should testify as to what has been accomplished, what is still to be done, and why more time is needed.

NOTES:

1. No. 00-1167 (Apr. 23, 2002).

2. This clause provides: “. . . nor shall private property be taken for public use without just compensation.”

3. Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 416 (1922).

4. 505 U.S. 1003 (1992).

5. See, e.g., Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982).

6. 438 U.S. 104 (1978).

7. See Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001).

8. See 505 U.S., at 1011-12.

9. 482 U.S. 304 (1987).

10. Id., at 318.

11. 505 U.S., at 1017.

John M. Armentano, a partner with the Long Island law firm of Farrell Fritz, P.C., represents local governments and developers in zoning, land use, and environmental matters, including litigation. He may be reached at jarmentano@farrellfritz.com.

This article is reprinted with permission from the May 22, 2002 edition of the New York Law Journal.

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