From Grand Central to the Sierras: What Do We Do With Investment-Backed Expectations in Partial Regulatory Takings?
By Calvert G. Chipchase
INTRODUCTION
Until 1922, the Takings Clause applied only to the physical appropriation of private property. This limitation is hardly surprising as there was little need to consider the impact of conservation zoning, historic districts, or wetland protection in early America. Over time and “with the great increase and concentration of population,” however, “problems . . . developed . . . which require[d] . . . additional restrictions in respect of the use and occupation of private lands in urban communities.” With the arrival of comprehensive planning and land use laws to address those problems, it became clear that takings of property were as likely to occur by excessive regulation as by direct confiscation. After all, private ownership of real property means little without the right to use the land in an economically beneficial way.
The United States Supreme Court embraced that notion in the landmark case of Pennsylvania Coal Co. v. Mahon. Pennsylvania Coal established the potentially powerful, albeit opaque, rule that a restriction on the use of property becomes a taking of property when it “goes too far.” Applying its new rule to a restriction on coal mining operations, the Pennsylvania Coal Court held that the regulation went too far because it rendered legal use “commercially impracticable,” which had “very nearly the same effect for constitutional purposes as appropriating or destroying it.” Predictably, agreement on what is “too far” has proved elusive for lower courts and commentators alike in the time since Pennsylvania Coal was decided. The Court revisited the issue from time to time, however, and eventually provided two relatively comprehensive tests to govern takings law.
The first test comes from the 1978 case of Penn Central Transportation Co. v. New York City. Drawing on the “ad hoc, factual inquiries” made in past takings cases, Penn Central identified three factors that courts should weigh and balance to determine if the regulation at issue requires compensation: (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.” A little more than a decade later, the Supreme Court's decision in Lucas v. South Carolina Coastal Council recognized a second, very different test. Under Lucas, a regulation that “declares ‘off-limits' all economically productive or beneficial uses of land [and] goes beyond what the relevant background principles would dictate” requires compensation to sustain its validity. Courts have come to apply the Penn Central considerations to so-called “partial takings,” regulations that partially restrict development potential, and the Lucas test to total takings, regulations that totally take the economically viable use of land.
When properly applied, these rules work fairly well. Problems arise, however, when lower courts misinterpret, modify, or simply ignore the foregoing pronouncements. The present discussion focuses on partial takings and examines two subtle but powerful analytical missteps: (1) the imposition of a “reasonableness” standard on the claimant's development intentions and (2) the elevation of investment-backed expectations from a factor to a rule. Part II briefly discusses Lucas and total takings to provide a complete background. Part III introduces Penn Central and partial takings. Part IV uses two opinions to illustrate the uncertainty with regard to the law governing partial takings. Finally, Part V argues that because a landowner's distinct, and not reasonable, investment-backed expectations must be examined with the other Penn Central factors to determine if a taking has occurred, even the complete absence of such expectations does not, in itself, defeat a takings claim.
Until 1922, the Takings Clause applied only to the physical appropriation of private property. This limitation is hardly surprising as there was little need to consider the impact of conservation zoning, historic districts, or wetland protection in early America. Over time and “with the great increase and concentration of population,” however, “problems . . . developed . . . which require[d] . . . additional restrictions in respect of the use and occupation of private lands in urban communities.” With the arrival of comprehensive planning and land use laws to address those problems, it became clear that takings of property were as likely to occur by excessive regulation as by direct confiscation. After all, private ownership of real property means little without the right to use the land in an economically beneficial way.
The United States Supreme Court embraced that notion in the landmark case of Pennsylvania Coal Co. v. Mahon. Pennsylvania Coal established the potentially powerful, albeit opaque, rule that a restriction on the use of property becomes a taking of property when it “goes too far.” Applying its new rule to a restriction on coal mining operations, the Pennsylvania Coal Court held that the regulation went too far because it rendered legal use “commercially impracticable,” which had “very nearly the same effect for constitutional purposes as appropriating or destroying it.” Predictably, agreement on what is “too far” has proved elusive for lower courts and commentators alike in the time since Pennsylvania Coal was decided. The Court revisited the issue from time to time, however, and eventually provided two relatively comprehensive tests to govern takings law.
The first test comes from the 1978 case of Penn Central Transportation Co. v. New York City. Drawing on the “ad hoc, factual inquiries” made in past takings cases, Penn Central identified three factors that courts should weigh and balance to determine if the regulation at issue requires compensation: (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.” A little more than a decade later, the Supreme Court's decision in Lucas v. South Carolina Coastal Council recognized a second, very different test. Under Lucas, a regulation that “declares ‘off-limits' all economically productive or beneficial uses of land [and] goes beyond what the relevant background principles would dictate” requires compensation to sustain its validity. Courts have come to apply the Penn Central considerations to so-called “partial takings,” regulations that partially restrict development potential, and the Lucas test to total takings, regulations that totally take the economically viable use of land.
When properly applied, these rules work fairly well. Problems arise, however, when lower courts misinterpret, modify, or simply ignore the foregoing pronouncements. The present discussion focuses on partial takings and examines two subtle but powerful analytical missteps: (1) the imposition of a “reasonableness” standard on the claimant's development intentions and (2) the elevation of investment-backed expectations from a factor to a rule. Part II briefly discusses Lucas and total takings to provide a complete background. Part III introduces Penn Central and partial takings. Part IV uses two opinions to illustrate the uncertainty with regard to the law governing partial takings. Finally, Part V argues that because a landowner's distinct, and not reasonable, investment-backed expectations must be examined with the other Penn Central factors to determine if a taking has occurred, even the complete absence of such expectations does not, in itself, defeat a takings claim.
