Is it a Taking When the Government Floods Your House?

Environmental Law & Property Rights Practice Group Teleforum

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In the aftermath of Hurricane Harvey, the US Army Corps of Engineers deliberately flooded thousands of homes and businesses because they believed it was necessary in order to prevent even worse flooding elsewhere. Many of the affected property owners have filed lawsuits claiming that this deliberate flooding qualifies as a taking that requires the government to pay "just compensation" under the Takings Clause of the Fifth Amendment. The outcome of these cases may well set important precedents for the future and Professor Richard Epstein will join us to discuss them. 

Featuring:

Prof. Richard A. Epstein, Laurence A. Tisch Professor of Law and Director, Classical Liberal Institute, New York University School of Law

 

 

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Event Transcript

Operator:                                 Welcome to The Federalist Society's practice group podcast. The following podcast, hosted by The Federalist Society's Environmental Law and Property Rights Practice Group, was recorded on Friday, June 22, 2018, during a live teleforum conference call.

Laura Flint:                             Welcome to The Federalist Society's teleforum conference call. This afternoon, we will discuss whether it is a taking when the government floods your house. My name is Laura Flint, and I'm the Deputy Director of Practice Groups here at The Federalist Society.

                                                As always, please note that all expressions of opinion are those of the expert on today's call.

                                                Today we are happy to have with us Professor Richard A. Epstein, Laurence A. Tish Professor of Law and Director of the Classical Liberal Institute at New York University School of Law, Senior Fellow at the Hoo-, Hoover Institute, Institute, and a Senior Lecturer at the University of Chicago Law School.

                                                After hearing from our speaker, we'll go to audience Q&A. Thank you for speaking with us, Professor Epstein. The floor is yours.

Prof. Richard Epstein:             Well, thank you so much. Um, uh, I trust everything is on now. The way Laura put the question makes it devilishly easy, at least in connection with the, uh, case that arose out of Houston. The phrase that she said was, uh, "When the government floods your land, is it a taking?" And the answer to that question, uh, for the most part, turns out to be yes, but it's not necessarily dispositive of the kind of messy situation on the facts that one has en oeuvre in the Houston case.

                                                So what I think it's best to do under these circumstances is to back off and to try to figure out how to make some sense of the takings law to begin with. And the way in which I think that this is best done is to proceed by analogies from cases that are clear, uh, the cases that are a little bit more confused, and then to indicate how it is that the confusion on the facts, or the difficulties on the facts, lead to confusions on the document.

                                                Well, the paradigmatic of a case of a taking, um, is the government is no different from any private person. Uh, so if somebody comes up and throws you off the land and sits down on that land, either that counts as a taking of the property in question, or the entire game is over. And what is it that makes this case such an easy one is that you see a combination of several factors. One is a deliberate relationship. The government is not doing something here by inadvertence. Secondly, there's a huge loss with respect to the original owner who's cast off the land. And third, there's a huge game with respect to the government.

                                                And so, under these circumstances, if the government's going to do it, you have to ask a couple of questions. One, is this a taking for a public purpose or a public use? Uh, so you can't simply do it to line the pockets of the government's favorite individuals. And that's not going to be an issue in these cases, but it's one that one always has to remember can create a firestorm. There's been no greater firestorm in the history of Supreme Court takings cases than Kelo, which was itself a public use type case.

                                                And then, there's an issue that's going to come up here very much, the question of whether or not there's a justification. Yes, we did take your land, but we did it for a very good purpose. Uh, we had to essentially close down a, a chlorine factory which was about to poison everybody in the neighborhood. And then, the issue is whether or not you went too far relative to that justification, and that gets you into this messy stuff on the police power. And third, there's always the question of how much compensation is owing, assuming that compensation is itself owing.

                                                And if you look at the case that I just gave you in it's simplest form, if you have all those three elements conjoined together, if it's not a taking, then the takings clause is surely dead. And so the question is what happens when you stop to remove some of these elements and add some of the others in there? And the first one in this particular case that you cannot remove is that, to some extent in these Houston cases, uh, the flooding that resulted was deliberate.

                                                Uh, but on the other hand, these are not pure cases of deliberate floodings, uh, because what you do is you have here a very serious public necessity type of situation created by a hurricane—Hurricane Harvey—uh, which was the responsibility of no one. And there's no question that large amounts of damage would have occurred no matter what the government had done.

                                                And so, now, the takings question requires you to tease out the damages that are attributable to the flood, which essentially are not going to be the source of compensation, uh, from the damages that are attributable to the government's deliberate action. And these things are not nearly as clear as they are in a situation where you can imagine the government has stored water behind a dam, decides it would like to get rid of it, and then simply floods somebody else's property in order to make its life a lot easier.

                                                And then the other thing, of course, in these cases, is the government hasn't taken title to the property. Indeed, it doesn't even claim any ownership of the water after it floods somebody else's land. They said, "Congratulations. Not only do you own the land, but you also own our water on top of it."

                                                Now, this very simple version of the facts took place in an 1871 case called Pumpelly v. Green Bay Company. And what happened in that particular situation was what one said, is the government just flooded somebody else's land and did so permanently. And the United States Supreme Court, in a very emphatic opinion, said, "Look, uh, the Constitution is designed to prevent against various kinds of evasive actions. One of the things you cannot do under these circumstances is destroy somebody else's property and avoid liability by the simple expedient of not taking title or ownership to the property in question."

                                                And so what one saw there was a finding which said that if the land is permanently flooded, then under those circumstances, a compensation is going to be required, just as if you had taken title to the land. And, in fact, you can imagine a certain kind of ironic situation, one which actually arose in the Lucas case in South Carolina, when having flooded the land, the individual says, "Look, uh, de facto you've taken it. We want to make this de jure, so we want to get a situation where the government is forced to take title to the land because we as a private owner don't want to be responsible for any consequences that should happen in virtue of the flooding that the government has created." And so you can see how the legal system has tried to make good in these cases, a, uh, state of affairs which was brought about by the government which refuses to acknowledge what's happening.

                                                Now, the situation's become, in a casuistic sense, a little bit more difficult if we now just change it in one degree of pattern. And this gets us to a very well known 2012 case called Arkansas Game and Fish. And what happened there is the government upstream released a degree or an amount of water in order to ease things, um, in the higher lands. This water travels down 110 miles down the river, and it floods the lands which are owned by the Arkansas, uh, Public Parks Facility. And the water stays there for a while, causes a lot of damage, and then it recedes.

                                                And so one of the questions that you immediately have to ask is, uh, does the rule that I announced from the Pumpelly case about permanent takings apply to this particular kind of situation where the occupation is not permanent, the water has receded, but the damage that was caused by this is not only partial, but actually may well be permanent, although it may heal a little bit over time. So you can assume that the damages are greater in the first five years after flooding and a little bit less in the five years that follow that.

                                                And how do you want to treat this? Well, just to make this a little bit more miserable, it turns out that there's a distinction which was eventually obliterated in the Arkansas case, uh, but which had dominated the earlier cases in the law. And this was the distinction between takings on the one hand and tort-ist damage to property on the other. And somebody would say, "Well, why is it that you would even want to draw this distinction?" And the answer is because the doctrine of sovereign immunity, um, may well be thought to have been still in place, uh, with respect to various kinds of torts, even though it may not be in place with respect to government takings, given the Tucker Act.

                                                So what you do is, you have to figure out if it's just a measly old tort situation, and the government is engaged in some kind of a discretionary function. And that means, in effect, that under the Federal Torts Claims Act, you cannot be held responsible. Whereas, if it turns out that this thing is called a takings, uh, the general waiver of sovereign immunity with respect to takings means that you can be fully responsible. And so you then have to ask yourself exactly how do we draw this particular line, and it's a source of very great difficulty because everything you're seeing here is a matter of degree.

                                                And, generally speaking, if you want to have a change in legal regimes, from which -- one in which there's no liability to one in which there's full liability, you'd like to have all this turned on a bright-line rule. And so, standardly, if you're trying to figure out when it is somebody's going to be responsible in a road accident, you have that yellow line down the middle. If I cross over onto your side, I'm responsible. If you cross over onto my side and we crash, then you're responsible. Uh, so that what we do is we have an on-off switch—the yellow line—which matches an on-off outcome—the question about liability. And if you start talking about the permanent-temporary distinction, it turns out that you don't have this.

                                                So then the question is what do you want to do with these questions of degree? And, at this particular point, I think a lot of it depends on how it is that you think about the tort law. And when Justice Ginsburg wrote her opinion, what she did, she took this sort of a standardized version of American tort law, which whenever it doesn't understand a particular problem, announces that the damages themselves may or may not have been foreseeable, and that foreseeability turns out to be the test on which all liability turns. And then she said it also matters whether it was deliberate or accidental, how long it lasted, how far away it was.

                                                And so what you do is you get yourself a list of factors. And then what you have to do is just say, "How do you combine them?" And analytically, there's only one possibility. You have to attach a certain weight to each of these particular factors, then you have to sum all of these factors given their respective weight, and then you have to decide whether or not, uh, the sum of those factors is on the right or the wrong side of some mythical line, which is going to tell you whether or not liability exists.

                                                And as a tort scholar for many, many years, I've always taken exactly the opposite position, uh, which is as follows: That liability is determined by the question of whether or not you did cause the damage in question. A release of water downstream which essentially destroys somebody's root system for their trees would qualify for that. And then the pattern of the damages that you start to see, uh, whether or not they're permanent or sporadic, whether they're great or whether they're small, all of that stuff simply goes to the measure of damages, but not to the question of liability.

                                                So you want an intellectual system which has liability being run by an on-off switch, and at the same time, you want that same system to have a damage rule which is run by a system of continuum. Why the difference between the two of them? Because either you are or you're not liable, but once you're liable, the measure of damages can vary with the severity of the loss.

                                                And so what Justice Ginsburg thinks ought to go, uh, to dealing with the question of whether or not you're liable, it seems to me that if you're using this in a straight tort context, that's clearly wrong. What you do is you say the liability comes by virtue of the physical invasion, and then the measure of damages are going to be influenced by the permanence or not of the particular home is question.

                                                So on this view, if there's no sovereign immunity because the federal torts claim is put to one side, then it turns out that the downstream guys are going to win at the expense of the upstream guys. And when this particular case was actually remanded to a lower court for deliberation, that's exactly what happened. It turned out that the government, uh, was held liable for what's going on.

                                                And so the question is how good a precedent is that for the situation that we have in Houston? And the answer is it's highly imperfect because what happens is Houston is low-lying land. And it turns out that it is prone to being flooded every time there's a hurricane. Uh, sometimes people want to say, "Ah-ha, this is clearly a function of global warming." Uh, the difficulty with that particular theory is that you can show pictures of Houston being under feet of water in 1935 in the same way that you can show those same pictures for 2017.

                                                It turns out that a lot more of this stuff is attributable to the alteration between El Niño on the on hand and La Niña on the other. Essentially, what El Niño does is it takes a strong, cold wind, uh, from the west going east, and that interferes with the hurricanes that are being formed off the west coast of Africa, uh, travelling west. And so, essentially, the one annihilates the other. You get La Niña and you don't get that cold burst. Now the stuff forms off the coast of Africa, and it starts marching, and it marches, and it marches until it lands. Then, when it hits landfall, in the case of Hurricane Harvey at Houston, it decides to take a busman's holiday because there's a high pressure zone coming in from the northwest. And so those torrential rains just sit there for days, essentially wiping out everything. The government called this a one in a thousand year flood. One is not quite sure whether the number is right, but it certainly was a very, very big deal.

                                                And you then have to ask the question how much of the particular injuries in this particular case were attributable to the Act of God for which nobody is going to be held responsible? And I don't think that there are going to be many people who will come up there and say, "Oh, that's going to be zero."

                                                But at the same time, what the, uh, federal authorities and the state authorities have all done is they've built a series of dams and levees in order to try to control the flow of the water in order to minimize the damage. And so what you then do is you see that these dams are in place. It turns out that they may not have been well designed. It turns out that they may not be firm enough to withstand the water. And you get these guys in real time having to make a bunch of decisions as to whether or not they're going to release some of the water from behind the dam, at which point, what will happen is it will flood downstream owners, or whether it will keep the dams in place for a little bit longer. The water will now back up and it will start to flood upstream kind of people. This is a big deal. You're talking about $10,000 of homes -- uh, 10,000 homes, each of them having hundreds of thousands, or even millions of dollars' worth of damages. And the government basically says, "We're caught between a rock and a hard place."

                                                So if you go back to the earlier law on this situation, what you almost always find, uh, is that there is a kind of a real equivocation as to what should be done in these so-called public necessity cases. Uh, so the basic rule is if it's a private necessity, the famous case was Vincent v. Lake Erie, and you dock your particular boat at somebody else's dock in order to escape the storm, you save a boat worth $10,000 in damages, the boat dock for $500. Uh, uh, you have a privilege to go in. The guy can't tell you to stay out at sea, uh, but you now have a duty to compensate for the harm in question.

                                                So the question is what happens when you now have a public necessity? The government is not saving its boats. It's trying to save one set of homes, or maybe another set of homes, and maybe both. And the early view on this was that whereas the private necessity cases carried with it an obligation for compensation by the owner who took somebody else's property for his own, the government is sort of acting as a middle man on these particular cases, doesn't owe compensation to either guy. Because when you're acting purely for the public benefit and you're doing these things one way or another, the argument that you're trying to make is that the government gets a free pass because otherwise, it may not build or do anything at all.

                                                And there's a famous case which involved the, uh, the fire, the Great Fire of London in 1669. And what happened is the local authorities had the option to, uh, destroy a bunch of row houses which happened to be owned by the lawyers at the Inner Temple—never want to be a lawyer in these kinds of case—and they decided that they would be facing liability if they ripped down those houses, so they left them up. And once they left those houses up, sure enough, half the city of London burned. And you really want to say that, you know, you would have been liable for knocking down the 40 houses, and now we're going to hold you liable for the destruction of the city.

                                                Somebody's going to say, "This is not a particularly good deal. Heads, I lose; tails, I lose. It doesn't matter what I do. You're going to have to compensate me to take this job. The compensation's going to be astronomical. The whole system will fall apart. Uh, you just cannot do this." And so there's a lot of that going on in these cases about individual officials, but it's not at all clear that the same thing applies with respect for the government which has large corpus.

                                                So then, you start looking at this thing and saying, "Well, what is it that actually happened?" And the first thing you have is a causal complication. Suppose it is that you did nothing. What's going to happen then? And here's one of the arguments the government may well be able to make: This storm was so big, it turns out that there was water for everybody. Uh, the dam would hold for a certain period of time, the water would back upstream and destroy those homes. The dam would eventually collapse, and then it would go flooding everybody downstream. And so if we do nothing, upstream people are harmed, downstream people are harmed. Why are you basically going to say to us when we're trying to minimize these damages that we're going to have to pay for everything that causes?

                                                And so to put the government's position in absolutely the strongest support, suppose there's a billion dollars of damage to the downstream people, and a billion dollars of damage to the upstream people. And what the government has said, "You know, if we hadn't done anything, there would have been a billion and a half dollars of damage to the downstream people, and a billion and a half dollars of damage to the upstream people. We managed to finagle this a bit so as to save a billion dollars, and for the privilege of saving people a billion dollars in losses, we now have to compensate them for the two billion dollars in losses, uh, that remain."

                                                Now, you have to actually prove this. Is this the case that is going to take place? And nobody is really sure one way or another whether these dams would hold, or whether they would break, or whether or not they would hold and then the water would just rise so high that it would flow on top of it. And so the causal complications before you get to the so-called public necessity question are very, very large.

                                                So then let's just suppose we make -- try to make it easy and say we know absolutely what happened as you saved one group from the flooding and you caused the harm on the other. Well, who ought to pay the damages for that situation if one set of people is enriched and the other set of people are impoverished?

                                                And the government's going to come back and say, "What? You really want to go after us? I don't get that. Uh, we represent people not only downstream and upstream, but throughout the entire 50 United States. And if you start to put the burden on us when we try to act in these cases, uh, the taxpayers are going to have to pay this, uh, people from all around the country, none of whose property has been damaged."

                                                And what makes it even worse, these people will say is when you know that you're building inside a flood zone, uh, and you're taking that kind of systematic risk, there's just going to be a huge moral hazard. If, in fact, people know that they're going to be compensated by folks who live in dry Kansas because they're living in Houston, uh, they'll just build more and it will make it worse. They'll be eager plaintiffs, as it were, and we really ought not to do that. Then somebody else is going to say, "But, okay, maybe the general revenue should not pay, but what should we do for something else?"

                                                And that something else would be, "Oh, what we'll do is if we saved all the downstream properties and damaged all the upstream properties, what we're going to do is treat this the way the old Navy law did called general average contribution. And what it says is if you throw over somebody's property from the boat in order to save somebody else's, and 60% of the cargo was lost and 40% is retained, you'd don't want to care whose property was thrown over and whose was not. What you do is you run a series of side transactions, so if 60% of the property is lost, you lose 60% of the value that you have, whether your property is thrown overboard or whether it's retained on the ship. And the way in which we do that is we say to the people whose cargo is retained, 'You're only entitled to 40% of the value, so we're taxing you 60% of the value and giving it to all those people.' And you could actually try to put a regime like that under these circumstances."

                                                And so, now, instead of the downstream plaintiffs and the upstream plaintiffs both suing the government under these circumstances, what happens is you basically put them into a common pool. And you can say, "What we're going to do is equalize the losses across these two particular groups once we know what the baseline is." But in the boat case it's easy because you know which cargo is gone and which is retained. But in this case, you have no idea what the floods would have done if there had been no government action whatsoever.

                                                And so the government's position is, "You know what, this thing is sufficiently complicated. Are -- the incentive arguments that you're trying to create for us public officials really don't work very well. This is not a case where we're blackening somebody else's land in order to make ours better, and this is what we think. You're living in a crazy zone like this. You know the government's going to have to act. What we recommend you do is turn around and buy yourself some flood insurance. And if you start to buy that flood insurance, what will you discover? It doesn't come cheap. And then what will you do? Well, turns out that some of you won't build at all, which may be all to the good. Or others of you will build, but you'll build a small plot of land, you'll build it higher up, you'll turn out to have greater flood protections built into the structure, into the arrounding (sic) space, because those things will be cheaper than the insurance you're otherwise going to have to pay."

                                                And so the theory is, um, in these particular crazy kinds of cases, what happens is, you know, last man standing. Everybody takes the risk, nobody can do anything. What you tell the government officials are that we want you to make your best efforts. So the moment the government starts to be liable, and I'll end on this note, if you take this particular regime, uh, some people will say the government officials actually have to have absolute immunity, because otherwise everybody's going to turn around and sue them like you've had in this particular case. Uh, the people in Houston who sued them lined up around the courthouse. And other people say no, what we have to do is to make sure that it's only a qualified immunity.

                                                Uh, but what's it going to take to override that immunity? It's not going to be negligence because there's sure to be an argument about negligence because no matter what you did, you always could have done something else. Probably have to be something like malice, and malice here means more than simply a willingness to destroy A's property to protect B's property. It would have to mean a willingness to do that under circumstances where you have a friendship interest in the one guy and the enemy in the other guy, or where you have certain knowledge that you're saving $10 of property, and in order to do that, you're inflicting $1,000 worth of damage. And those are going to be very difficult conditions to do in.

                                                So this case is going to go on a long time. Probably it will settle out. My hope is that they'll put everybody into a big old bag together one way or another, and then they'll try to figure out some modest fraction, and they'll put money into a fund, and people will start to be able to claim because I think it's going to be too difficult to run too many of these kinds of law suits.

                                                And so what happens is, the lesson -- you start off with taking. We have single causes, single consequences, easy just compensation metaphor. The cases where you have multiple causes, multiple justifications, multiple parties, multiple uncertainties, and, you know, it just turns out that the -- you save the worst for last. So the situation that you have in Houston becomes pretty intolerable because of its difficulty and nobody is exactly sure what to do.

                                                So I'm happy to take questions. There's a lot else to talk about. Takings law is essentially an intellectual disaster area in the Supreme Court, and I think you could say with a good deal of confidence, uh, that each time they decide another decision, the map is a little bit klutzier than it was before.

                                                If you ask me what the explanation was, it's mainly that when you're dealing with a field like this, unless you have a really firm grasp of the private law of torts, including the law of public and private necessity, you're not going to get these cases right. And if you actually buy into the so-called investment-backed expectations test of Penn Central, uh, which Judge Gins-, Justice Ginsburg relied upon, it's just simply asking for trouble. And it turns out that if you have bad conceptual foundations, uh, these areas don't get cured when you have a factual pattern, which is really very difficult to untangle.

                                                And with that, I'm happy to take any questions from anybody. Thank you.

Laura Flint:                             Let's go to audience questions. In a moment you'll hear a prompt indicating that the floor mode has been turned on. After that, to request the floor, enter star, then the pound key.

                                                Again, to ask a question, please enter star, then the pound key on your telephone keypad.

                                                Let's go to our first audience question.

Prof. Richard Epstein:             Somebody.

Mr. Joel Nolette [sp]:              Yeah, hi, Professor Epstien. This is, uh, Joel Nolette. Uh, I, I had to duck out of that call for a few moments, but I'm just wondering if you mentioned the Ideker Farms case, just, uh, recently decided in the Court of Federal Claims, and, uh, if you think that has any bearing on this question?

Prof. Richard Epstein:             That's a great question since I've never heard of the Farm case. Uh, you give me a one sentence summary of it, and I will opine recklessly as to its significance.

Mr. Joel Nolette:                     I, I, b-b-believe -- uh, d-don't, uh, quote me, you know --

Prof. Richard Epstein:             I certainly won't quote you.

Mr. Joel Nolette:                     -- that the ar-, army, Army Corps of Engineers, uh, caused flooding up and down the Missouri River, and a bunch of, uh, property owners along the -- sort of, essentially, along the riverbank, uh, sued. And they brought, brought takings claims against, uh, the Army Corps of Engineers. And the Court of Federal Claims, at least at this point in litigation, has at least ruled that they have a viable takings claim, uh, hasn't yet ruled on the nature of the liability, however.

Prof. Richard Epstein:             Well, the answer is you, you -- I could give you an absolutely authoritative answer that this is the following way is, as you know, in takings litigation, there are always two questions, like in all other litigation. One is do you pa-, pass summary judgment, and two, do you win at trial?

                                                And one of the things that became very clear after the Arkansas case is that the per se defenses were much eroded so that summary judgement was not likely to take place. Whereas, in the earlier cases dealing with temporary flooding—there were a whole bunch of them from the 20s and 30s—uh, the basic pattern of behavior was the Supreme Court gave, um, essentially, a summary judgement for the defendants in all temporary takings cases. And so if you start looking at the, uh, situation with respect to the Arkansas Game case, when that thing was remanded, it was also remanded, and there was liability found against the government, so it went there.

                                                My guess is if you pass summary judgement in this case, it's going to be very difficult to extract it. The question one has to ask, however, and I don't know the facts of this particular case, is to what extent was there a public necessity case?

                                                I want to turn now to why the water was flooding. If you have a situation which -- where people were flooded because of simple incompetence by the government in the land which they maintained levees, I could see that that would not be much of a precedent here, where, in effect, the argument has been that we did this, we did it deliberately, and we did it to cause a million dollars' worth of damage in order to save two billion dollars' worth of property. And that that's a legitimate function for the government to do. Uh, so unless you can tell me a great deal about how the necessity issues play out, I can't do it.

                                                The other thing, of course, is in this particular case, as in many torts cases under the Rylands v. Fletcher strict liability rule, where you have this huge Act of God, um, behind the levee and then the thing gets overflown, the English rule is that if you look at the amount of water that comes from the storm and the amount of water that was released from the levee, the first number is so big and the second number is so small that what we do is that we conclude that all the liability should be put on the Act of God category so nobody pays anything.

                                                And I can't say from that case what's going on here. And the other thing is this case, if the government defends itself correctly, it -- there's just going to be a huge factual record about, essentially, the residual background nature from the flood. So I'm just going to ask you the simple question: Was there a hurricane in the Mississ-, -- in the Missouri River case that you just mentioned?

Mr. Joel Nolette:                     Uh, n-, no, there was not.

Prof. Richard Epstein:             Well, at that point, you know, uh, you can give the "Other than that, Mrs. Lincoln" argument, uh, that this fact is going to be so large in this particular case, uh, that as best I can tell, um, even if it turns out you passed summary judgement here, which you may, and I think it's, you know, 50/50, um, when it comes to the actual liability in the hand-to-hand combat, you're not going to get anything close to full damages. And the absurdity would be this, um, you know that the hurricane is causing a huge amount of damage, and if it turned out that the government does nothing, everybody's going to bear their own losses, now it does something.

                                                Does it really mean that once the government tries to act to minimize total damages and expectations, it has to pay for all the damages in question? I don't think anybody can really believe that's credible. At the minimum, you want to subtract out all of the harm that's going to be caused to all of these parties, even if the government did the absolute perfect thing under one way or another.

                                                And that's why I suggested the general average contribution formula. What you do is you don't try to figure out which boat should be saved and which ones not. When the government tries to minimize damage, which is what they're trying to do, and you use this formula, then [inaudible 30:07] centers are perfectly aligned socially.

                                                So in the general average contribution case, you have the choice as to which cargo to overthrow. And what happens is if people have a strong incentive to put full value on their cargo, and then the master's job is to figure out, uh, the biggest cargo with the lowest value and throw that over, those guys get compensated, uh, from a larger pie, so they're not going to fight. The other people keep their property. They -- they're not going to fight this either because otherwise their property goes over. And so, within effect, you can manage to minimize the damage from 40 to 20%. Everybody now gets 80% of their value instead of 60% of the value, and since all the property is put into a common pool for the purposes of liability, nobody has a special incentive to try to defend their own.

                                                And it's that kind of situation which I'm suggesting might work in this particular case. And if it did, I would be surprised if the government were liable for more than 10 to 20 cents on the dollar, Uh, which is, by the way, a very big number because you're probably talking, you know, several billion dollars' worth of damages. You're talking several hundred million dollars' worth of damage. I think that's about the maximum they're going to get.

                                                Next question?

Laura Flint:                             Let's go to our next caller.

Prof. Richard Epstein:             Oh, you got two. Great.

Prof. Ilya Somin:                     Hi, uh, this is Ilya Somin, George Mason University --

Prof. Richard Epstein:             Oh, Ilya! Go ahead, guy. I know you're going to make my life miserable.

Prof. Ilya Somin:                     Um, so I have a, a simple question and perhaps a slightly more complicated one, if that's okay.

Prof. Richard Epstein:             Sure.

Prof. Ilya Somin:                     The simple question is what you think of the, uh, government's attempt to distinguish the Game and Fish case on the grounds that that one involved repeated flooding, and therefore --

Prof. Richard Epstein:             -- Oh, I think that's silly.

Prof. Ilya Somin:                     -- and this one has only one flood, uh, one time. Uh, the other is, I certain—and is the more complicated question—I, I certainly recognize, uh, that, uh, you don't want to prevent the government from doing stuff that, uh, destroys a small amount of property, or a smaller amount of property, to save a larger amount, but I'm not -- I do wonder whether that means you should -- that takings liability should be avoided because if, if it, if it does, then you can say the exact same thing any time the government, say, takes your property for a road that creates much more value than the harm that's inflicted by taking your land, uh, or for a military base or whatnot. You certainly wouldn't want to deter the government from engaging in disvaluable activities, so maybe liability should be…

                                                So maybe we should rule that it's not a taking, and we reject that sort of argument in all these other contexts. So why should we be open to it, if we should, in this context where they're trying to minimize flooding damage?

Prof. Richard Epstein:             Yeah, you're basically asking all the right questions. On the first one, I think it is a much easier question. Um, the reason why this argument has some degree of plausibility is, uh, that Ruth Ginsburg, not figuring out what was going on here, gave us the usual laundry list. And one of the items on this laundry list was the degree of foreseeability and the repetitive nature of the harm. So somebody's going to say a storm like this is not foreseeable and it's a one-off situation, so it's distinguishable from the kind of situation you have in Arkansas Game where there're multiple floodings.

                                                The other case, boy oh boy, are you very much on point at what is one of the most difficult problems that has ever been faced. Essentially, the argument that you're making, which I, I largely accept in virtually every other context, is that you never want to be -- put yourself in to a situation where when the government decides to act, it gets a free choice, uh, so that if it actually causes more harm, uh, than it prevents, uh, they're not going to be liable because they did their best efforts under the circumstances.

                                                At that particular time, if they can stop to say that the road is going to create $10,000 worth of benefits for the public at large even though it wipes one person out, um, this gets very dicey because the fairness argument suggests that what you want to do is to equalize the game and loss across all parties.

                                                So the way in which to think about this is to think a little bit more about my sort of general average contribution suggestion about pooling all of these things. And if you do this, uh, it’s like simply throwing off one person's property, right, um, from the boat, and everybody else gets the benefit. And under those circumstances, the only recipient from the general average contribution situation will be this guy. And so what happens is you tax everybody, himself included. Um, everybody now loses 1% of their value, and he gets $0.99 of compensation. How do we determine that? He gets the full $100 that supports his $100 loss, but he's had to pay, in the form of a tax, pay the $1 loss.

                                                And so the point about the general average contribution situation is it gives you flexibility and action. The last thing you want to do in the general average contribution case is to say, "Hey, the government is really trying to do this thing right, and so, therefore, we'll forget about general average contribution, and the losses will lie where they take place."

                                                And so if you think of the sort of default position in the public necessity cases as the general average contribution model, that carries over very nicely to the ordinary takings case, because, remember, it's the individual as a citizen in the community from which the property is going to be taken. He's going to have to pay, as a taxpayer, his pro rata share, and then you get a much more efficient set of allocations. If the government, when they have all the time in the world to make their judgements, basically, you're told, "Hey, you want to do this, you now have to pay." And that means that you're going to really try to minimize.

                                                And the reason why you're a little bit nervous about that argument in the public necessity determination is you don't have six years to plan where you're going to put this highway. You've got six minutes to figure out whether or not you're going to open this thing up or not. And the overtaking causal arguments are really prominent to the public necessity cases, and they're nonexistent in the ordinary case. And so, what you do is you have difficulty of judgement, joint causation, lots of uncertainty about actually what the patterns would be.

                                                And so, traditionally, everybody is actually -- and historically, has always taken the public necessity argument as an absolute privilege, uh, going back to the 1830s. The Mayor v. Lord was the leading American case. And they say, "We don't care whether there's pestilence, war, famine, fire, and so forth. We want you guys to act, and we don't want any liability there." And these were the same judges who wrote Pumpelly, right? So I think they did understand this kind of distinction.

                                                And I'm closer to you than they were because I don't think that the public necessity immunizes you from liability. I think what it does is it invites the application of the, uh, uh, general average contribution rules, which, if you've never studied them, I'm saying to everybody else, they're really a remarkable exercise in sophistication.

                                                Uh, how these guys did it and why did it take place? Because if you're in a closed seafaring community in which the perils of the seas are very large, either you develop a mechanism to deal with these things or you're going to face a serious downward drag on the entire shipping industry.

                                                Okay, Ilya, so we're friends?

Prof. Ilya Somin:                     Uh, we're friends. Still, I'm not sure I'm fully persuaded by --

Prof. Richard Epstein:             -- Neither am I. That's why it's so hard. If I were fully pers-, -- I mean, I'm just telling you what I think the best guess is. I'm not telling you that it's kind of -- it's right. If, if this were an easy case, we would not have this teleforum conversation. All right, well, thank you. Anybody else?

Laura Flint:                             Um, no one yet. Again, to ask a question, please enter star, then the pound key on your telephone keypad.

                                                Um, while we wait for our next caller, I'll make a brief announcement. Our next teleforum conference call is scheduled for later today at 2 p.m. Eastern, and that will be a Courthouse Steps decision call on Lucia v. SEC, which was decided today.

Prof. Richard Epstein:             Oh, God, I could talk about that case. Ugh.

Laura Flint:                             Um, so I have a question for you, Professor Epstein.

Prof. Richard Epstein:             Yes?

Laura Flint:                             Um, can you talk a little bit more about physical taking versus regulatory taking?

Prof. Richard Epstein:             Yeah, because I think -- yes, I can. I think that's actually an issue which I suppressed a little bit in the basic conversation, but it indicates yet another form of ricketiness with respect to this entire body of law.

                                                Um, the two polar cases on this, well, it depends on which one, are -- there's a case called Armstrong v. The United States. And then there's the much more famous and more notorious case of Penn Central v. The City of New York. And, uh, the physical takings cases essentially involve situations where the government sort of takes your particular property and puts it to its own use.

                                                And the Armstrong case was kind of tricky because it didn't involve the government taking occupation of the particular property in question. What it did is it involved the government taking a boat which it owned, sailing it out to sea so as to dissolve a lien which was placed on the boat by a subcontractor who had not been paid. And the point is the lien is an intermediate step between the, um, ownership of the debtor and the ownership of the creditor. You put the lien on there, they're not allowed to walk away from it, and once it's in place, you can then foreclose the lien if it is not paid and get possession of the boat.

                                                And so Justice Black, in a very close decision where, uh, the defense argued sovereign immunity excused all the liability, said, "Hey, um, this is a boat which is designed to protect the entire United States." And what happened is this guy puts a lien on the boat, uh, for the $100,000 worth of labor he does.

                                                If, in fact, he can -- the government can sail the boat into international waters, or out of state waters and dissolve the lien, what they're saying, in effect, the distribution of benefits on the boat is such, uh, that this one guy is paying for 30% of the boat when he's one out of 100 million citizens or fewer. That's just crazy. And so in order to make sure that this happens, that the government gets -- has to pay the loan out of the public trust said, "You can sail this boat into international waters and dissolve the lien, but this guy now becomes the general creditor instead of being a liens creditor, and since you guys are solvent, you have to pay him the full dollar anyhow."

                                                And so, what happens is the argument here is one of distributional fairness, which is you never want some guy who puts in a huge amount of the cost for a public benefit to bear a disproportionate amount of the cost. And so by paying him off, it's like the general average contribution formula that I talked before.

                                                And so, there is a very categorical rule that's announced in this particular case. If you're doing something for the benefit of the public at large, then in fairness and justice, the public has to pay you off. So this guy just pays as much as any other citizen because he gets his lien satisfied in full.

                                                In New York Times -- rather, in the Penn Central case, we no longer have a lien. What we do is we have air rights. And air rights, under New York State law, are property rights. Uh, you can buy them, you can sell them, you can mortgage them, you can divide them, you can lease them, you can do anything you want with them. And these are the air rights over the Penn Central. And what makes these air rights work, of course, is they have support rights down below because there's a unified owner who owns both the top and the bottom. If he wants to basically build high, he's going to have to make sure that the bottom portion of his property is going to be devoted, at least in part, for making sure that it goes.

                                                And so what New York City does is it comes along and it says, "We're not going to allow you to build on top of the base. And we're just going to make sure that that land remains vacant." And the question is, has it taken your property? And if you use the argument that you had from the, uh, Armstrong case, the answer is perfectly clear. You want to make sure that that is not built upon in order to improve the views and the light of everybody else in New York City.

                                                Well, in fairness and justice, why do you want that particular benefit to be paid for, uh, by the Penn Central terminal instead of by the public at large, which is getting the benefit of the view, which is a direct analogy to the benefit of the use of the military boat? And so if you applied the old case, um, to a partial taking of land, it would be a full compensation.

                                                But the ingenious Justice Brennan liked landmark preservation laws, and so he said, "Well, we're doing -- calling this a regulatory taking, and then we're going into some kind of balancing test." The balancing test was kind of like the balancing test that you had in the Arkansas Game case. And you're looking at the nature of the intrusion, and the nature of the benefit in the question, and whether it's a physical or non-physical taking.

                                                And at that point, American takings law entered into a conceptual abyss from which it has never escaped. Why is it that if the removal of the entire part of land is a physical taking is the removal of the air rights a non-physical taking? And why is it subject to a different set?

                                                And so what Justice Brennan then did was to make this ridiculous ad hoc assumption. He said, "You're running the terminal below, and you're making a decent rate of return on the terminal, and so, therefore, your expectations were only to get money from the terminal, and you did not have an investment-backed expectation in the use of the air rights." And, uh, what he manages to do to mangle the law of valuation is such because everybody in the business knows that if you own a series of air rights and you don't develop it, you can sell those air rights and they're worth something to you. So when you value the property, you sum up the value of all its components to get the residual value. And he's saying, take the big thing of value at its fair market value, take everything else and value it at zero is what he's doing.

                                                And so from that day forward, it has always been the case that the government can connive in one fashion or another to compromise various kinds of property rights at zero cost to itself, which means, in effect, since it's not paying the value to the loser, it will systematically over-condemn one way or another.

                                                And when you go back and you look at the Arkansas Game case, what happens is since Justice Ginsburg has no idea what she's doing or why she's doing it, sure enough, she throws in the kitchen sink. And one of the items in the sink turns out to be investment-backed expectation as one of the factors to be taken into account in the same imponderable and useless fashion that is was in the other case.

                                                So what's the correct answer? The same answer that I gave earlier. If you start looking, as Ilya Somin said and so forth, about the question of the one time taking versus the multiple small takings, which one is more important? All of that's irrelevant. It just goes to damages. And so in the Penn Central case, it's the same thing that happened. So if you tell the guy, uh, we're basically going to take your land and not allow you to build on it, but we're not going to build on it itself, then they've taken the covenant but they haven’t taken the fee simple. And so you get the value of the loss covenant, which means, in effect, that since your views are preserved, you're going to get less money than if the government had taken the land so it could've built something on top of the thing itself.

                                                And so, in all of these cases, what the Penn Central case does is it takes matters that should go to the level of compensation—justice was done in the Arkansas Game and Fish case—and it treats them as going to the question of whether you recover. And so you miss the yellow line in the middle of the road. And the number of terrible decisions that have been made in the wake of Penn Central is essentially every case which has relied upon it.

                                                This is not just a simple mistake. This is a kind of a colossal intellectual blunder. And I think the most important thing to recognize intellectually is that if somebody says, "Gee, we've got to weigh and balance all of these factors," they want to make it sound as though it's a plus.

                                                But the truth of the matter is, unless you have simple rules with relative clarity in them, essentially all of that misplaced erudition is just a sign of intellectual breakdown. And so, you have to change the realist tradition, uh, which essentially says the more complexity we can build into the legal rules, it means that we understand more factors so we're really very sophisticated. And the correct answer is they understand all the factors are relevant, but they don't know to what, and they're just making a royal mess out of the law. So, uh, what really needs to be done is to get rid of that distinction, and then the government can justify what it does on the grounds, for example, that you're polluting, or raise the public necessity cases.

                                                But to go back to Somin's last question, nobody's going to start to say, "Well, we're benefitting this group or that group. We're going to treat this like these public necessity cases because you don't have any overtaking causation questions, and you certainly don't have any sort of instantaneous decisions to be made in the moment." So Penn Central should disappear.

                                                My own view is I don't like sovereign immunity in most of these cases. I do think that the public necessity defense is a much more difficult to get with, and I think that's what's going to come to the fore in the Houston cases.

Laura Flint:                             We have another question from the audience, so let's go to that question.

Prof. Richard Epstein:             Great.

Man 3:                                     Hello. Thank you. If, um, in the future when computer modeling becomes more accurate, do you think that these questions might just go away and it would be easier to [inaudible 47:43] on exactly who was liable for what, exactly what, what, what was the result of, of everything --

Prof. Richard Epstein:             -- I think you're right --

Man 3:                                     -- and, like, even -- I'm sorry.

Prof. Richard Epstein:             Yeah, I think it's a great question. I mean, the, the, the question essentially is, um, you pointed—the question comes to me—to all the residual uncertainties as to what would happen here, there, and the other place depending upon whether you did or did not release this amount of water in that particular location.

                                                And the theory is if we had computer modelling which would essentially tell us what all of these things were, I think this would be the answer. If the government could take access to this model and instantaneously do it, and when it does it, it says, "You know, uh, 85,000 cubic feet per second is what we have to release over this dam," and does exactly that, the model is correct, I think people are going to be very hard to say that what we now need is the compensation formula to regulate government behavior because we have this perfect monitor.

                                                On the other hand, uh, there is something on this chaos theory. And for those of you who don't know what it is, when you say something is chaotic, it doesn't mean that it's indeterminate. What it means is that the standard determinate laws take over. Uh, but if you understand how they work, it's virtually impossible to predict what's going on because very tiny changes in initial conditions could lead to vast changes in the consequences.

                                                And so that in the famous example, if you have a closed system which is stable, and somebody flips a butterfly wing a thousand miles away, and it's the only force that's exerting, it could essentially send the whole thing, which was stable, into a state of complete disequilibrium. And things go up and down, up and down, up and down.

                                                So if you want to figure out how that could happen, just imagine what you do is you have a rod sticking straight up on a point, and it's 90% to the vertical, so it's not going to tilt to the left or to the right. Then what you just do is take a puff of wind as small as you make it, and no longer is the thing going to be on top. Now it's going to start to swing down one way or another, and you're going to have to figure out how far it goes.

                                                Well, if it's a single pendulum going back and forth, it's going to be in an arc and you could probably do it. But if you want to make it really crazy, all you have to do is to assume that that rod which was standing straight vertical is divided into two parts at a point right in the middle of that thing, and then when you drop the thing, they go at different rates and the movement is absolutely determinate. If you knew all the physics in the world, you could figure out at any given point where the tip of that particular thing would be in the space below it, but if you use conventional knowledge, uh, your ability to do this would be virtually zero. And if the force were 0.001 instead of 0.00011, it turns out that the courses of the two things will follow are completely different.

                                                And so, my own sense is, given what we know about chaos theory, and given what we know about the necessity for action in a very short run, um, we'll never get the kind of data that is going to be necessary to make this thing go. I think what is really happening—this is true about hurricanes—is that that ability to predict where landfall is and expected dangers are so much better than they were before, uh, that people can now batten up the hatches, quite literally get out of town, and so on. So that if you go back to the Galveston flood of 1900, it was relatively little property damage because there wasn't that much property around to damage, uh, but there was a loss of 5,000 lives or something like this. In Houston, you lost very, very few people, but since people overbuild in flood areas, you lost a lot of property.

                                                And it seems to me that one of the arguments against giving compensation, and we didn't mention this before, is there's a real moral hazard. If you start compensating people, um, for losses that they get when they build property in very precarious locations—and you certainly don't want to compensate them for losses attributable to Act of God—and, therefore, if, in fact, what you do is you substitute a human action which for an Act of God—the Act of God having a severity of ten and the human action having an severity of five—since you saved five and cost five, the thing that you pay for is zero because the net is the government action has actually reduced your exposure, and they should not be responsible for the residual harm that they caused. They should be given compensation in the form of the harm that they averted.

                                                So I think, in, in principle, you're right, but I think in practice, you're going to be wrong for a long time. I just don't think, given what we know about how these complicated systems work, that you're ever going to be able to get that information to the point where it's going to become credible, and that the really important thing to do now is to have advanced warning systems so that people can essentially take precautions long before the storms take place in order to reduce their damages, not only to their persons, but also to their property. Okay? Thank you.

Man 3:                                     Thank you.

Laura Flint:                             We have two questions pending, so let's go to that next question.

Prof. Richard Epstein:             Oh, my God, we got a boom. Go ahead.

Man 4:                                     Uh, I had one question about, uh, investment-backed expectations and something you were talking about earlier, Professor Epstein.

Prof. Richard Epstein:             Sure.

Man 4:                                     Uh, there's this -- the ar-, the, you know, it's, it's interesting to me, and it's very complicated to understand exactly how, uh, it fits into the analysis of, uh, when the government is talking about that, uh, you have to go back historically and, ever -- you have to look at everything that the government did positively or negatively, uh, going back to when like a dam was built or something like, like that to figure out whether there was actually a taking of some sort. I'm trying to figure out exactly --

Prof. Richard Epstein:             -- Yeah, that's a great question.

Man 4:                                     I'm trying to figure out exactly how that analysis fits into the, you know, the Sponenbarger doctrine or the, uh, or the necessity doctrine, 'cause it's, uh, it's very complex to understand exactly what the analysis needs to be in that regard, 'cause does it include, for example, like a, missed opportunities that the government didn't do? Does it include, say for example, like they allowed a dam to be built and then, uh, initially they, they kept the, the land sacred around it, but then they opened it up to development or something? And I'm just trying to fig-, figure out how far the analysis goes.

Prof. Richard Epstein:             Well, you've got a way of asking one of the hardest questions in the world. And, and to give you the version that has been put to me in the simplest case is what happens is the government decides to regulate your land today and reduce its value in half. But ten years ago, it built a public highway, and that had doubled the value of their land. And the question, in one way, is whether or not the benefit they conferred upon your property at time one is a set off at the loss at time two. And I think the answer is in no case should you ever take this stuff into account.

                                                What you need to do is to avoid the bundling of separate issues. So when you start dealing with the highway that's being constructed, uh, the correct rule is to say, "We would like this thing to create a social improvement, so we're going to try to figure out a way to fund it such that all the people who put in something by way of taxes essentially get back from that expenditure something greater than what they have put in." And if you've done that, then this then becomes a closed transaction. And so, that the land owner whose value has gone up by X dollars because of the highway has already paid his share of the increment in the form of the taxes that he has been subject to, either in the form of gasoline taxes or property taxes in one form or another.

                                                So if, in fact, that thing has already been paid for, uh, then it should never be to say, "Ah, look at this benefit that you've got over here. It's an offset."

                                                There's a second reason why that's the case. All of the benefits from the highway are gotten by two classes of individuals. One, those people whose property is regulated, and two, those people whose property is not regulated. So if you're going to start to say, "Ah-ha, what we do when the, uh, zoning comes in is we give the offset, uh, the person who is subject to the offset gets a much smaller rate of return on his investment than somebody else who got the benefit of the same road for the same original contribution, but his property is no longer going to be zoned."

                                                So if you put it in that fashion that you do it, now, understand what's going to happen is the government, knowing that it's got the offset against both of these guys because of the previous highway, can choose completely arbitrarily which one of these individuals it wants to regulate and which one not.

                                                This is absolute madness from a land point of view because now assume that the one piece of property is worth five times as much as the other, and they're both going to give you identical public benefits for whatever project that you want. You certainly don't want to have a rule which gives them no incentive to pick the cheaper property, which is exactly what this free pass prior compensation doctrine would do.

                                                So in order to make sure that today you get the right marginal incentives on the government, you require them in this separate and discreet transaction to pay full value for the thing that it takes. And once you start to do that, and you unbundle the transaction, then it's clear that the government is not going to take fivefold to get property where they could get the same thing for onefold.

                                                To put it another way, this is -- the reason why Lucas -- not Lucas, um, Nolan was such a complete intellectual mess when it was decided by Justice Scalia is he had no idea that this was a bundling question. And so, if you recall in that particular case, what he said was, "Hey, we're not going to let the city tell this guy, 'Either you give us a lateral easement worth $100, or we're not going to give you a building permit which is going to allow you to increase the value of your property by $1,000.'" And he said that's wrong. And he was right about it, but what he didn't understand is why it was right. And it didn't have anything to do with nexus and so forth.

                                                Uh, the correct question is in all of these cases, uh, should you be able to get a building permit which will give you a $1,000 increase in the value of your property? And unless there's some really systematic negative externality, the answer is, of course, yes. And the government wins by getting a larger tax base.

                                                But then, the separate question is whether or not it's actually worth $100 in private losses to build this road across the front of the land. If it is, you need to pay compensation for it, not too hard to value. And if it's not, you should never do it. Well, the moment you bundle the things and say either you toss in the property right, uh, to the road in order to get the permit, you'll never get an independent valuation as to whether or not, uh, that road is built. So there's a complete allocative loss. And that's the reason why, uh, the Nolan case was rightly decided.

                                                And that's exactly what happened, uh, in the situation that you talked about. When you start taking into account prior benefits that have been paid for in a well-ordered society by prior taxation, they're just off the table. And so you're always trying to figure out how to incentivize what people do today, and you'd never go back under those particular kinds of circumstances.

                                                Uh, is there an exception to this? Well, it's very tricky, but if you'll note, in many cases there's a doctrine of antecedent negligence. Uh, so what happens is it's not that I hit you, but what I do is I put something on the edge of a table so precariously perched that if somebody just takes an ordinary footstep, the whole thing will fall down and break. And then the question is whether or not my antecedent negligence is the situation for which it's responsible, and the answer to that question is yes.

                                                But we can see what's going on here. The rule is you can hold people in the government liable to compensate when there's a tort that would be committed by a private person, but not under the circumstances where we previously measured where there's no tort-like behavior that's involved at all in the funding of the initial public project. And so we don't want to get that element of compensation into these things. What we want to do is, essentially, to have discreet transactions. And the only time you link two transactions that are separate together is when the government links them together, as in the Nolan case where they say, "Well, we'll give you this particular permit if you'll give us this particular lateral easement." Okay?

Man 4:                                     Thank you.

Prof. Richard Epstein:             Sure, my pleasure.

Laura Flint:                             Um, it looks like we are up on the hour. We have one question pending. Professor Epstein, do you have a little bit of time left?

Prof. Richard Epstein:             Oh, I'm such a generous soul. Yes, I'd love to take the question.

Laura Flint:                             Let's go to our final question.

Prof. Richard Epstein:             And then I’ll thank you all for listening.

Mr. Don:                                 Uh, hi, Professor Epstein. This is, uh, Don (inaudible 1:00:35), and we actually touched on my point a little bit when you mentioned the building permits. I agree with your argument about the moral hazard, but it seems to me that it would be an equally 50/50 split because you have people that are living in known flood zones and living under government levees, where they can anticipate that one day if the levee was, uh, let off in a catastrophic flood, which is the whole point of the system, and they would get flooded, they're also taking responsibility in that area.

                                                But the government is also issuing building permits telling people, "Your house is safe. Your house meets code," in these flood zones where they can be reasonably sure, at some point, that they will be flooded. You talk about like an advanced warning system, but to me that's no better advance warning system than knowing you live right in a flood zone or right behind where a levee could release water upon you. So the government and the, uh, private -- the homeowners are taking equal responsibility and irresponsibly building and issuing these permits in these areas.

Prof. Richard Epstein:             Well, this is -- these are very hard questions about the responsibility of the two parties, but let's just take the following case, and then we can sort of disentangle it. I've built on an ordinary piece of land, and there's a river nearby. And then what the government does is comes along and it puts a levee in front of the river so it now backs up such that if the levee breaks, under those particular circumstances, my land will be flooded.

                                                My view is under those cases, the government is fully responsible for the damage that it's going to cause because it created the dangerous condition by putting this dam up such that when nature took its place, everything came over. The exception would be if they hadn't built the levee and the floods came, you would have been wiped out anyhow, then I think the risk would be yours. And that's what we talked about -- what I talked about with the Ilya Somin question.

                                                Now, suppose what we do is we kind of reverse the situation, and this is much harder. Suppose you've got a piece of flat land which is perfectly safe, but it's unbuilt on. And then what happens is the government puts up this levee, and once it puts up this levee you know that there's this catastrophic failure that could possibly take place. And the value of the land which is beneath this particular area is, in fact, goes down by half. Perfectly sensible assumption, given everything that you've said.

                                                What ought to be done under those cases? Well, the government's going to start to say, "Hey, you know, as far as we're concerned, there's no actual damage because there's been no flooding." And the landowner's going to say, "But wait a second, this land has lost 50% in value." Then the government's going to turn around and say, "Oh, and now when you build this thing, you knew about the levee, so when the property is destroyed, you don't get any compensation either way."

                                                What do I think is the correct solution on this? I think once the government decides it's going to build this levee and create the persistent hazard and the value of the land goes down, the government has the following choice: Either it compensates you immediately for the loss which is exclusively attributable to the increase in the size of the levee, or it says, "I don't want to compensate you now, uh, but what I agree to do is to compensate you later if this thing should start to fail."

                                                Then the question is going to be just how much can you build on this for the compensation? And it would obviously be a little bit crazy to have a situation where you could get full compensation if you put up a $10,000 house or a $100 million house.

                                                And so I think what the government should do is face with that particular risk. It could take the following intermediate position. It can say, "Here, what we're going to do is we're going to make you whole. That is, your land was previously worth $100, now it's worth $50. What we're going to do is we're going to give you $80 of [inaudible 1:04:05], $30 of compensation now, so you're down $20. And then we're going to let you build up to a certain height, and if the damages occur, we’ll give you the extra 20 bucks in compensation down the road with suitable adjustments for uncertainty and time delay and so forth."

                                                It's a pretty complicated thing, but the one rule you never want to rule out is for the government to come along and to say, "You know, we might take this land at some point. Or we might flood this land at some point. You're on notice now, and if you build anything, it's at your own risk," because that's like my saying to you, "You know, I may murder you tomorrow when you walk on the public street." If you go out on the public streets since you've been warned, and you could mitigate, you go to the risk.

                                                The correct answer is if the government gives you a choice between A and B, you're under a duty to mitigate, but you get the full amount of damage that is necessary in order to make that mitigation good because you don't want the government to essentially occupy the space, uh, by doing unilateral actions that you can't stop, and then finding out that your land is rendered worthless.

                                                And this is only for physical risks to the extent that the government is going to go into business and competition with you or allow private people to do it. Competitive loss is completely different from physical damages, but that's another very long discussion.

                                                Uh, so anyhow, thank you all for asking the questions. I hope there a few hardy people in the audience who managed to stay for the whole time, and I appreciate the, the very excellent questions that were put to me.

Laura Flint:                             On behalf of The Federalist Society, I would like to thank our expert for the benefit of his valuable time and expertise today. We welcome listener feedback by email at info@fedsoc.org. Thank you all for joining us. We are adjourned.

Operator:                                 Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.