Supreme Court Issues Significant Rulings on Eminent Domain Issues: A Primer on 5th Amendment Takings Jurisprudence

I. INTRODUCTION

Eminent domain is the right of a municipality, a state, or the federal government to acquire private property for public use. A governmental entity may purchase property without the owner's consent by exercising its condemnation authority, more formally known as its power of eminent domain. The government may take property indirectly without instituting formal condemnation proceedings through inverse condemnation. Inverse condemnation may occur through either the physical or regulatory taking of private property. A physical taking, as the name suggests, occurs when the government physically encroaches upon, appropriates, or occupies private property. A regulatory taking occurs when private property is impacted by operation of statute, regulation or administrative action. In virtually all cases, the subject statute, etc. will not explicitly target or even mention the subject property. For example, application of the Endangered Species Act may preclude development on a parcel that is found to be a natural habitat area for a certain species thus giving rise to an inverse condemnation claim even though the Act does not specifically mention or directly regulate the use of the affected parcel.

Whether private property has been condemned directly or indirectly, the takings clause of the Fifth Amendment to the Constitution or state law compels the payment of just compensation.

II. TAKINGS JURISPRUDENCE

The starting point for any challenge to the federal government's taking of private property is the Fifth Amendment of the United States Constitution, which provides "nor shall private property be taken for public use, without just compensation."

A. Physical and Regulatory Takings Generally

1. Physical Takings

The clearest and most commonly understood sort of taking occurs when the government appropriates, encroaches upon, or occupies private land for its own proposed use. Courts have held uniformly that even a minimal "permanent physical occupation of real property" requires compensation under the 5th Amendment. Loretto v. Teleprompter Manhattam CATV Corp., 458 U.S. 419, 427, 102 S. Ct. 3164, 73 L. Ed. 2d (1982); United States v. 564.54 Acres of Land, 441 U.S. 506, 99 S. Ct. 1854, 60 L. Ed. 2d 435 (1979). This is so regardless of the public benefit or interest served. Loretto, 458 U.S. at 436.

2. Regulatory Takings

In Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 43 S. Ct. 158, 67 L. Ed. 322 (1922), the Supreme Court recognized that there will be instances when government actions do not appropriate, encroach upon or occupy property yet still affect and limit its use to such an extent that a taking occurs. "[W]hile property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." 260 U.S. at 415; see also First English Evangelical Lutheran Church of Glendale v. Los Angeles County, 482 U.S. 304, 315, 107 S. Ct. 2378, 96 L. Ed. 2d 250 (1987).

B. No Talismanic Test Exists For Determining Whether There Has Been A Regulatory Taking

There is no talismanic or bright-line test for the courts or landowners to determine whether a particular government action has gone too far and effected a regulatory taking. It is generally understood that, subject to certain qualifications, a regulation that "denies all economically beneficial or productive use of land" will require compensation under the Takings Clause. Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015, 112 S. Ct. 2886, 120 L. Ed. 2d 798 (1992); Agins v. City of Tiburon, 477 U.S. 255, 261, 100 S. Ct. 2138, 65 L. Ed. 2d 106 (1980); see also Nollan v. California Coastal Comm'n, 483 U.S. 825, 834, 107 S. Ct. 3141, 97 L. Ed. 2d 677 (1987), citing Agins, 447 U.S. at 260 (in the case of a facial challenge to a regulation, there will be a taking if a regulation either: (1) fails to substantially advance a legitimate state interest, or (2) denies an owner all economically viable use of his land).

Where a regulation places limitations on land that fall short of eliminating all economically beneficial use, the Court has stated there is no "set formula" for determining when governmental regulation becomes a taking - - the determination must be made on a case-by-case basis. Goldblatt v. Town of Hempstead, 369 U.S. 590, 594, 82 S. Ct. 987, 8 L. Ed. 2d 130 (1962); Ciampitti v. United States, 22 Cl. Ct. 310, 318 (1991); Accord, Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S.470, 495, 107 S. Ct. 1232, 94 L. Ed. 2d 472 (1987) (citations omitted). As the Court stated in Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 224-25, 106 S. Ct. 1018, 89 L. Ed. 2d 166 (citing among other cases, Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978)):

[W]e have eschewed the development of any set formula for identifying a "taking" ... and have relied instead on ad hoc, factual inquiries into the circumstances of each particularcase. * * * To aid in this determination, however, we have identified three factors which have "particular significance:" (1) "the economic impact of the regulation on the claimant"; (2) "the extent to which the regulation has interfered with distinct investmentbacked expectations"; and (3) "the character of the governmental action."

These inquiries are informed by the purpose of the Takings Clause, which is to prevent the government from "forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Armstrong v. United States, 364 U.S. 40, 49, 80 S. Ct. 156, 4 L. Ed. 2d 1554 (1960).

C. The Penn Central Three Part Analysis

In Penn Central, the Supreme Court identified three factors to be considered in assessing whether a regulation's effect on property has triggered a taking. Those factors are: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action.

"The economic impact of the regulation on the claimant" is generally considered to be one of the more important factors. Generally, a plaintiff must demonstrate that it has been denied all economically viable use of its property. Lucas, 505 U.S. at 1015; Loveladies Harbor, Inc. v. United States, 21 Cl. Ct. 153, 155 (1990), aff'd, 28 F.3d 1171 (Fed. Cir. 1994); United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 126-27, 106 S. Ct. 455, 88 L. Ed. 2d 419 (1985); Agins, 447 U.S. at 260.

The Supreme Court has cautioned, however, that "[g]overnment hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law." Pennsylvania Coal, 260 U.S. at 413. Thus, where land use regulations "are reasonably related to the promotion of the general welfare," the government routinely argues that courts have "uniformly reject[ed] the proposition that the diminution in property value, standing alone, can establish a 'taking.'1 Penn Central, 438 U.S. at 131 (citations omitted). Rather, the focus must be on the remaining uses of the property that the particular regulatory action would permit. Id. That being said, as noted by the Supreme Court in Palazzolo v. Rhode Island, 533 U.S. 606, 121 S. Ct. 2448, 150 L. Ed. 2d 592 (2001) "[a]ssuming 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. 533 U.S. at 609.

Mere denial of a property's highest and best use, or the most profitable use, does not constitute a taking. Concrete Pipe & Products of California, Inc. v. Construction Laborers Pension Trust, 508 U.S. 602, 644-45, 113 S.Ct. 2264, 124 L. Ed. 2d 539 (1993); Florida Rock Indus., Inc. v. United States, 791 F.2d 893, 901 (Fed. Cir. 1986); Deltona Corp. v. United States, 228 Ct. Cl. 476, 491, 657 F.2d 1184, 1193 (1981), cert. denied, 455 U.S. 1017, 102 S. Ct. 1712, 72 L. Ed. 2d 135 (1982); Jentgen v. United States, 228 Ct. Cl. 527, 533-34, 657 F.2d 1210, 1213 (1981), cert. denied, 455 U.S. 1017, 102 S. Ct. 1711, 72 L.Ed. 2d 134 (1982). Such has been found to be the equivalent of a reduction in market value of the property, which, standing alone, has been found not to constitute a taking. Deltona Corp. v. United States, 228 Ct. Cl. at 488, 657 F.2d at 1191, citing Penn Central, 438 U.S. at 131. Merely because a property owner is not permitted to reap as great a financial return from his property as he might have hoped, does not establish a taking. MacDonald, Sommer & Frates v. Yolo County, 477 U.S. 340, 353 n.9, 106 S. Ct. 2561, 91 L. Ed. 2d 285 reh'g denied, 478 U.S. 1035, 107 S. Ct. 22, 92 L. Ed. 2d 773 (1986).

The Supreme Court's Palazzolo decision has focused considerable attention on the second prong of the Penn Central test: the extent to which the challenged governmental action has interfered with the reasonable investment-backed expectations of the property owner. Palazzolo v. Rhode Island, 533 U.S. 606; Keystone Bituminous Coal...