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The state courts have continued to issue environmental law and property rights cases. Some support private property rights. Others defer to command-and-control regulation. However, the trend seems to favor property rights, with the most dramatic case being the Michigan Supreme Court’s repudiation of its Poletown Doctrine in County of Wayne v. Hathcock, 684 N.W.2d 765 (Mich. 2004). 

In what might prove the most important case flowing from state determinations, the U.S. Supreme Court has granted certiorari in Kelo v. City of New London, cert. granted, 125 S.Ct. 27 (Sept. 28, 2004). There, local redevelopment authorities condemned the homes of longtime residents for a private development project. See, I.B., infra. The Supreme Court will hear oral argument in Kelo on February 22, 2005.

1. Battle Over Eminent Domain for Private Redevelopment Intensifies

Probably the most interesting and important recent state cases concern the battle over the power of state and local governments to take private property for reconveyance to new private owners, ostensibly for “redevelopment” purposes. 

Background: The Fifth Amendment says that “… nor shall private property be taken for public use without just compensation.” The Supreme Court declared in 1798 that “a law that takes property from A and gives it to B … cannot be considered a rightful exercise of legislative authority.” Calder v. Bull, 3 U.S. (3 Dall.) 386, 388 (1798) (opinion of Chase, J.). In recent times, however, the Court has held that “[o]nce the object is within the authority of Congress, the means by which it will be attained is also for Congress to determine.” Berman v. Parker, 348 U.S. 26, 33 (1954). Furthermore, the Public Use Clause is “coterminous” with the police power. Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 240 (1984). Midkiff involved condemnation of freehold interests for transfer to the respective ground lessees. More generally, Berman approved condemnation of even non-blighted parcels in blighted neighborhoods for reconveyance to private redevelopers, so long as private gains were incidental to public purposes.

However, judicial skepticism of condemnation for private redevelopment is increasing. The increasingly aggressive use of eminent domain by localities came to public awareness largely as a result of a 1998 article in the Wall Street Journal. “Local and state governments are now using their awesome powers of condemnation, or eminent domain, in a kind of corporate triage: grabbing property from one private business to give to another. A device used for centuries to smooth the way for public works such as roads, and later to ease urban blight, has become a marketing tool for governments seeking to lure bigger business.”1 A more comprehensive report from the Institute for Justice has documented this practice.2

Recent cases such as Manufactured Housing Communities of Washington v. State of Washington, 13 P.3d 183 (Wash. 2000), Southwestern Illinois Development Authority v. National City Environmental, L.L.C., 768 N.E.2d 1 (Ill. 2002) (SWIDA), and 99 Cents Only Stores v. Lancaster Redevelopment Agency, 237 F. Supp. 2d 1123 (C.D. Cal. 2001) mark a revival of meaningful judicial scrutiny of landowners’ claims that the exercise of eminent domain, supposedly for public benefit, should be invalidated as primarily for private benefit.

A. The Michigan Supreme Court Overturns Poletown Doctrine in County of Wayne v. Hathcock 684 N.W.2d 765 (Mich. 2004).

Background: In Poletown Neighborhood Council v. City of Detroit, 304 N.W.2d 455 (Mich. 1981), the Michigan Supreme Court upheld the condemnation of an entire vibrant and close-knit ethnic neighborhood, replete with 1600 homes, shops and churches, so that the land could be transferred to General Motors Corporation for construction of a Cadillac assembly plant. GM had threatened to build the plant outside the city at a time of high unemployment, which the court said made the public the primary beneficiary of the condemnation. Poletown has been the emblematic case permitting condemnation of non-blighted areas for private redevelopment.

Probably the most important recent state property rights decision was handed down by the Michigan Supreme Court on July 30, 2004. In County of Wayne v. Hathcock, 684 N.W.2d 765 (Mich. 2004), the county sought to condemn land for its planned 1,300-acre “Pinnacle Aeropark Project,” to be located south of Detroit Metropolitan Airport. The project had its roots in the expansion of the airport and concerns about aircraft noise. The Federal Aviation Administration contributed some $21 million for the purchase of nearby parcels, with the provision that the land be put to an economically productive use. The county conceived of constructing a “large business and technology park with a conference center, hotel accommodations, and a recreational facility.” The county claimed that this “cutting-edge development will attract national and international businesses, leading to accelerated economic growth and revenue enhancement.” Its expert testimony “anticipated that the Pinnacle Project will create thirty thousand jobs and add $350 million in tax revenue for the county.” Id. at 770-71.

The court concluded that the condemnation would be legal under applicable state law, and went on to review its constitutionality.

1. Poletown Abrogated as Unconstitutional 

The constitutional analysis in Hathcock was based on the understanding of “public use” as a legal term of art at the time of ratification of the 1963 Michigan Constitution. From this starting point, the court analyzed in some detail what it deemed the flaws in its earlier Poletown opinion. Poletown had incorrectly applied a minimal standard of judicial review in eminent domain cases, supported by no authority except a plurality opinion. “Before Poletown, we had never held that a private entity’s pursuit of profit was a ‘public use’ for constitutional takings purposes simply because one entity’s profit maximization contributed to the health of the general economy.” Id. at 786. The court quoted the eminent Michigan jurist Thomas M. Cooley, who opined that a statute permitting condemnation for private power mills, with no subsequent constraint on the owner, “will in some manner advance the public interest. But incidentally every lawful business does this.” Id. (quoting Ryerson v. Brown, 35 Mich. 333, 339 (1877).

Because Poletown’s conception of a public use – that of ‘alleviating unemployment and revitalizing the economic base of the community’ – has no support in the Court’s eminent domain jurisprudence before the Constitution’s ratification, its interpretation of “public use” in art. 10, § 2 cannot reflect the common understanding of that phrase among those sophisticated in the law at ratification. Consequently, the Poletown analysis provides no legitimate support for the condemnations proposed in this case and, for the reasons stated above, is overruled. Id. at 787 (quoting Poletown, 304 N.W.2d at 459).

The Michigan Supreme Court concluded that,

“because Poletown itself was such a radical departure from fundamental constitutional principles and over a century of this Court’s eminent domain jurisprudence leading up to the 1963 Constitution, we must overrule Poletown in order to vindicate our Constitution, protect the people’s property rights, and preserve the legitimacy of the judicial branch as the expositor— not creator—of fundamental law.” Id.

Given that Poletown was such a “radical departure” from the court’s constitutional jurisprudence, it was to apply retroactively to all pending cases in which a challenge to it had been made and preserved. Id. at 788.

2. Hathcock Established Three Permissible Bases for Exercises of Eminent Domain to be Followed by Reconveyance to Private Parties

The Court reviewed the history of the term “public use” under the Michigan constitutions, and concluded that “the transfer of condemned property is a ‘pubic use’ when it possesses one of the three characteristics in our pre-1963 case law identified by Justice Ryan” in his Poletown dissent:

First, condemnations in which private land was constitutionally transferred by the condemning authority to a private entity involved “public necessity of the extreme sort otherwise impracticable.” 

* * * 

Second, this Court has found that the transfer of condemned property to a private entity is consistent with the constitution’s “public use” requirement when the private entity remains accountable to the public in its use of that property. 

* * * 

Finally, condemned land may be transferred to a private entity when the selection of the land to be condemned is itself based on public concern. In Justice Ryan’s words, the property must be selected on the basis of “facts of independent public significance,” meaning that the underlying purposes for resorting to condemnation, rather than the subsequent use of condemned land, must satisfy the Constitution’s public use requirement. Id. at 781-783 (quoting Poletown, 304 N.W.2d at 478-480 (Ryan, J. dissenting).

Under the first test, the court found that the nation was “flecked” with “shopping centers, office parks, clusters of hotels, and centers of entertainment and commerce.” Therefore, the Pinnacle Project was “not an enterprise ‘whose very existence depends on the use of land that can be assembled only by the coordination central government alone is capable of achieving.” Id. at 783 (quoting Poletown, 304 N.W.2d at 478 (Ryan, J. dissenting).

This analysis seems unquestionably correct. The “need” for the condemned parcels resulted only from the county’s extensive purchases and commitments to the redevelopment project, which were spurred on by federal funds. The typical uses that border major airports – small fabricating plants, freight consolidation depots, and the like – are compatible with airport noise. In other words, the Pinnacle Project was a bootstraps operation.

Had the county attempted to acquire only those legal rights that were necessary to proper operation of the expanded airport, such as easements for noise, it is likely that the “public necessity” test of Hathcock would have been complied with. 

The second Hathcock test requires that the transferee of the condemned land remain “accountable to the public in its use of that property.” In the case itself, there was no mechanism for accountability, since none had been required under Poletown.

What if the private redevelopers of the Pinnacle Project had entered into formal and recorded covenants requiring them to “broaden[] the County’s tax base [to include] service and technology,” or “enhance the image of the County in the development community,” or “aid[] in its transformation from a high industrial area, to that of an arena ready to meet the needs of the 21st century,” or “attract national and international businesses?” Id. at 770- 771. Such aspirational and gauzy promises might well be adjudicated as too vague to be enforceable, thus not providing meaningful accountability.

Localities might impose more specific requirements, but that would raise their costs. It seems likely that accountability would be better secured through the project’s governance structure than through performance standards. Thus, one might expect post-Hathcock redevelopment agreements to stress the collaborative nature of what would be articulated as a public-private partnership. Under such a structure, the redevelopment agency might have an institutionalized voice in, or veto power over, modifications in the original project. Also, the conveyance to the private redeveloper might be for a limited period rather than in fee, in which case the public agency would gain leverage through the possibility of nonrenewal. The agency and the private redeveloper would have to devise language that would pass the judicial “accountability” standard. At the same time, however, the documentation would have to provide the redeveloper with sufficiently certain rights so as not to discourage prospective lenders or tenants. 

The final Hathcock standard, the establishment that condemnation is appropriate on account of the present state of the parcel, as opposed to its future possibilities, relates to the original goal of urban renewal, slum clearance. It is unlikely that condemnation based on genuine urban blight would be contestable, although the distinction between genuine blight and “pretextual” blight (as noted in 99 Cents Only Stores, 237 F.Supp.2d at 1129) might not always be easy to draw.

3. Conclusion

County of Wayne v. Hathcock 684 N.W.2d 765 (Mich. 2004), marks what might be an important turning point in American condemnation law. By abrogating the iconic Poletown decision, it both abets and calls sharp attention to the trend towards a closer examination of condemnation to further economic development. Also, its delineation of three permissible bases for the use of eminent domain where the parcel is to be reconveyed to another private party seems susceptible of wide adoption. 

Hathcock does not require government to curtail urban renewal efforts. Nor, since it is based on the Michigan constitution, does it invoke authority that might be binding on another jurisdiction. However, the case is persuasive authority for the proposition that the diffused benefits thrown off by successful local business should not be sufficient to justify the use of eminent domain.

B. “Economic Development” as “Public Use” Withstands Facial Attack 

In a case of first impression, the Supreme Court of Connecticut has held that economic development constitutes a public use for eminent domain purposes under the Federal and state constitution. Kelo v. City of New London, 843 A.2d 500 (Conn. 2004). The case involved the condemnation of homes adjacent to the site of a major drug company’s new international research facility for compatible corporate use and for residential redevelopment that would link the site to an existing state park. The court described the New London project, for which residential parcels were condemned, as a “significant economic development plan that is projected to create in excess of 1000 jobs, to increase tax and other revenues, and to revitalize an economically distressed city, including its downtown and waterfront areas.” Id. at 507.

The Connecticut Supreme Court emphasized legislative findings “that the economic welfare of the state depends upon the continued growth of industry and business within the state; that the acquisition and improvement of unified land and water areas and vacated commercial plants to meet the needs of industry and business should be in accordance with local, regional and state planning objectives; that such acquisition and improvement often cannot be accomplished through the ordinary operations of private enterprise at competitive rates of progress and economies of cost; that permitting and assisting municipalities to acquire and improve unified land and water areas and to acquire and improve or demolish vacated commercial plants for industrial and business purposes ... are public uses and purposes for which public moneys may be expended.” Id. at 520 (emphasis by court).

The court subsequently concluded that the project was primarily for public, as opposed to private, benefit. The U.S. Supreme Court has granted certiorari , 125 S.Ct. 27 (Sept. 28, 2004). The Supreme Court will hear oral argument in Kelo on February 22, 2005.

C. Some Courts Distinguish “Public Purpose” from “Public Use” . . .

All legitimate government actions must be designed to accomplish a “public purpose.” The criteria for “public purpose” are distinct from those for “public 6 use” under the Takings Clause. The distinction is important—since a valid exercise of eminent domain must satisfy both requirements.

1. Town of Beloit v. County of Rock, 657 N.W.2d 344 (Wis. Mar. 4, 2003) 

This is a “public purpose” case, not directly involving “public use” with respect to eminent domain. The town originally had acquired river-front land from farmers and resold it to the Caterpillar Company for industrial development. When that project did not work out, the town reacquired the land and attempted to sell it to other developers. After that proved unsuccessful, the town itself undertook to develop the residential Heron Bay Subdivision. The court found this exercise of municipal industrial policy legitimate, since land development by municipalities did not violate state law and since it was predicated on the creation of jobs and economic development. Quoting earlier holdings, the Wisconsin Supreme Court declared: “Only if it is ‘clear and palpable’ that there can be no benefit to the public is it possible for a court to conclude that no public purpose exists.” Id. 351 (citations omitted).

Town of Beloit is significant for our purposes because the court very carefully quotes the landmark Illinois SWIDA decision: “While the difference between a public purpose and a public use may appear to be purely semantic, and the line between the two terms has blurred somewhat in recent years, a distinction still exists and is essential to this case.... [The] flexibility [in terminology] does not equate to unfettered ability to exercise takings beyond constitutional boundaries.” 657 N.W.2d at 356 (quoting SWIDA, 768 N.E.2d at 8). In other words, the Supreme Court of Wisconsin is serving notice that its liberal “public purpose” doctrine regarding the expenditure of public funds does not automatically translate into a liberal “public use” doctrine justifying the exercise of eminent domain.

2. Friends of Parks v. Chicago Park Dist., 786 N.E.2d 161 (Ill. Feb. 21, 2003)

This case draws the same distinction between “public purpose” for spending and “public use” for condemnation as did Town of Beloit. Here, the Illinois Supreme Court approved the use of public funds in financing the renovation of Soldier Field, largely for the benefit of the Chicago Bears. The court added that its landmark SWIDA decision was “inapposite,” since it involved eminent domain, and that its “holding is not a retreat from [its SWIDA] analysis.” Id. at 167. 

3. Georgia D.O.T. v. Jasper County, 586 S.E.2d 853 (S.C. Sept. 15, 2003) 

A county attempted to condemn undeveloped land owned by the Georgia Department of Transportation (GDOT) on the South Carolina side of the Savannah River. Since GDOT had no extraterritorial power of eminent domain, it was treated as a private landowner. The county intended to lease part of the parcel after condemnation to a private company that would develop a large maritime terminal, which would operate in conjunction with a business park the county would itself develop on the rest of the condemned parcel. The trial court found that eminent domain would be for “public use,” since the evidence indicated that the majority of the county’s population had low-paying jobs in tourism and service industries and that 25% lived below the poverty line. The proposed project would add about 40% of the county’s current tax base and would diversify its job base. The South Carolina Supreme Court reversed, holding that the cases cited below related to “public purpose” under taxation and bond revenue laws. However, “‘public purpose’ discussed in these cases is not the same as a ‘public use,’ a term that is narrowly defined in the context of condemnation proceedings.” 586 S.E.2d at 638 (citing Edens v. City of Columbia, 91 S.E.2d 280, 283 (1956). The marine terminal would be gated, accessible only to those doing business with the lessee, and “public” only to the extent that different steamship lines would use it. The court emphasized that:

The public use implies possession, occupation, and enjoyment of the land by the public at large or by public agencies; and the due protection of the rights of private property will preclude the government from seizing it in the hands of the owner, and turning it over to another on vague grounds of public benefit to spring from a more profitable use to which the latter will devote it. 586 S.E.2d at 856-857 (quoting Edens, 91 S.E.2d at 283).

The court also “emphasize[d],” however, that “it is the lease arrangement in the context of a condemnation that defeats its validity.” It did not rule out accomplishment of the project in a different manner. Id.

4. Bailey v. Myers, 76 P.3d 898 (Ariz. Ct. App. Oct. 1, 2003) 

The Bailey family had operated Bailey’s Brake Service on the parcel for many years. At the behest of the owner of a nearby Ace Hardware store who desired to relocate to the parcel, it was included within the Mesa Town Center Redevelopment Area. The court ruled that the proposed taking was not for a public use. It noted that “when a proposed taking for a redevelopment project will result in private commercial ownership and operation, the Arizona constitution requires that the anticipated public benefits must substantially outweigh the private character of the end use so that it may truly be said that the taking is for a use that is ‘really public.’” Id. at 904

D. ... But Other Courts Cling to Deference.

1. City of Las Vegas Downtown Redevel. Agency v. Pappas, 76 P.3d 1 (Nev. Sept. 8, 2003), cert. denied, 124 S.Ct. 1603 (Mar. 8, 2004). 

In order to alleviate what it determined to be the blight of the core of downtown Las Vegas, the redevelopment agency planned a massive project:

Several components comprised the Fremont Street Experience, including a sculpted steel mesh canopy stretching across Fremont Street from Main to Fourth Streets. The canopy would allow light and air flow during daylight hours but would provide shade for tourists. At night, however, the Fremont Street Experience would present a sound and light show. In addition, the Fremont Street Experience would create a pedestrian plaza by closing Fremont Street to vehicular traffic from Main Street to Las Vegas Boulevard. Finally, because of a lack of adequate public parking, plans for the Fremont Street Experience included a five-story public parking structure with some retail and office space. Because the Agency lacked the financial resources to construct the project alone, it entered into an agreement with a consortium of downtown casinos. The consortium would finance and cover any operating losses of the feature attraction as well as the construction of the parking garage. The City would authorize the creation of the pedestrian mall, and the Agency would provide funds to acquire the land needed to construct the garage. In return for the risk taken by the consortium in absorbing all of the construction costs, start- up losses, and possible operating losses, the consortium would control the operation and revenues of the garage as well as the operation of the feature attraction. Id. at 7.

The Nevada Supreme Court upheld the project against a “public use” challenge, essentially deeming it a straight application of Berman v. Parker, 348 U.S. 26, 33 (1954). Of particular interest, the court attempted to differentiate the case from 99 Cents Only Stores and SWIDA: 

In those cases, the courts found that eminent domain proceedings were not instituted to accomplish a public purpose, such as the elimination of blight. Rather, the courts indicated that the sole purpose for acquiring the property through condemnation proceedings was to benefit another private entity. Although, in these cases, the property to be condemned in each case was located in an area designated for redevelopment, the individual projects did not further redevelopment goals. Instead, the projects were simply expansions of existing business concerns. … There was no evidence that the areas in question suffered from high crime, unemployment, vacant business or other components of blight that would be addressed by the proposed projects. In contrast, when a project is intended to attack blight, such as creating a significant increase in jobs in an area suffering from high unemployment, even the relocation of one business through condemnation to make way for a new business is still considered a public purpose. Id. at 12 (citations omitted).

2. Town of Corte Madera v. Yasin, 2002 WL 1723997 (Cal. App. 2002)

Although Yasin is a 2002 case, and neither officially published nor citeable in California courts, it nicely illustrates that state’s approach to property rights. The Yasins operated a delicatessen/liquor store near a tired shopping center that the town desired to spruce up. It condemned the Yasin parcel for shopping center parking. The court distinguished SWIDA on the grounds that the Illinois Supreme Court applied the narrower “more than a mere benefit to the public must flow from the contemplated improvement” standard. 2002 WL 1723997 at 5 (quoting SWIDA, 768 N.W.2d at 10). “In California, a mere benefit is enough. The use need only promote the general interest in relation to any legitimate object of government. Id. (citing City of Oakland v. Oakland Raiders, 646 P.2d 835 (Cal. 1982)).

II. Zoning

A. Open Space Preservation by “Inverse Spot Zoning” 

Background: In the children’s game of “musical chairs,” the last child to scamper for a chair when the music stops has no place to sit. The same principle seems to animate state court holdings that the last property owner in an area to seek to develop land won’t be permitted to do so, for that would use up what is termed the community’s green space. The leading example is Bonnie Briar Syndicate v. Town of Mamaroneck, 721 N.E.2d 971 (N.Y. 1999). The New York Court of Appeals upheld the rezoning of a country club parcel from residential to solely for recreational use. The surrounding area had been built up and the community needed green space. The rezoning was held to substantially advanced legitimate state interests in furthering open space, recreational opportunities, and flood control, and thus did not result in a regulatory taking requiring just compensation.

1. In re Realen Valley Forge Greens Associates, 838 A.2d 718 (Pa. Dec. 18, 2003) 

The Pennsylvania Supreme Court’s Realen Valley Forge decision was a particularly notable case. 

As was the case in Bonnie Briar, the parcel in Realen was a private golf course, “located in the heart of one of the most highly developed areas in the region, entirely surrounded by an urban landscape, and immediately adjacent to what is currently the world’s largest shopping complex at one discrete location... We hold that this agricultural zoning, designed to prevent development of the subject property and to ‘freeze’ its substantially undeveloped state for over four decades in order to serve the public interest as ‘green space’, constitutes unlawful ‘reverse spot zoning’ beyond the municipality’s proper powers.” Id. at 721. “While the size of the zoned tract is a relevant factor in a spot zoning challenge, the most important factor in an analysis of a spot zoning question is whether the rezoned land is being treated unjustifiably different from similar surrounding land.” Id. at 729. 

2. Smith v. Town of Mendon, 771 N.Y.S.2d 781 (App. Div. Feb. 11, 2004) 

Bonnie Briar remains alive and well. In Smith, the New York intermediate appellate court cited it in ruling that conditioning site plan approval on the placement of a conservation restriction on the parcel did not constitute a taking.

III. Penn Central - Diminution In Value 

Background: Prior to Palazzolo v. Rhode Island, 533 U.S. 606 (2001), and Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002), many lower courts erroneously assumed that regulations resulting in less than complete deprivations of value could not be considered compensable takings. In Palazzolo and Tahoe-Sierra, the Supreme Court reiterated that partial regulatory takings may be compensable under the multifactor test outlined in Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978).

A. Friedenburg v. New York Dept. of Environmental Conservation, 767 N.Y.S.2d 451 (A.D. Nov. 24, 2003). 

In Friedenburg, the Appellate Division affirmed a trial court ruling that the Department of Environmental Conservation’s denial of a wetlands permit to construct a single-family residence on a 2.5 acre property, almost all of which consisted of tidal wetlands, effected a taking. The court found no per se taking under Lucas. In proceeding with a Penn Central analysis, it held that a 95% reduction in value (the state asserted 92.5%) worked a taking. The court emphasized that the plaintiff acquired the parcel prior to the enactment of the Tidal Wetlands Act of 1973. Had the plaintiff purchased subsequent to the imposition of strict wetlands controls, he would have been subject to the rule in Gazza v. New York State Dept. of Environmental Conservation, 679 N.E.2d 1035 (N.Y. 1997) “[T]he denial of the application of the property owner in Gazza for setback variances was not tantamount to a taking, because that property owner did not lose a development right; it had already been restricted prior to his purchase of the land.” 767 N.Y.S.2d at 460. 

Significantly, the court cited Chase Manhattan Bank, N.A. v. State, 479 N.Y.S.2d 983, 991-992 (App. Div. 1984) for the proposition that the owner deprived of 86 per cent of value would have a “reasonable probability of success in court” on a takings claim. 767 N.Y.S.2d at 460. The court did not address the state’s parcel-as-a-whole and public trust doctrine arguments.

B. Sheffield Development Co., Inc. v. City of Glenn Heights, 140 S.W.3d. 660 (Tex. Mar. 5, 2004). 

Sheffield, an experienced developer, purchased the nascent “Stone Creek” subdivision at an attractive price from an anxious seller. Before closing on the deal, he had extensive talks with various officials of Glenn Heights, a small, but rapidly growing, suburb of Dallas. Sheffield said that he planned to continue development in accordance with the existing zoning, which permitted a density of 5.5 dwell units per acre. He specifically asked about possible zoning changes. After hearing no objections or reservations, Sheffield went through with the purchase. Under what was then Texas law, he could have immediately filed a plat which would have vested the plaintiff’s development rights. According to the Texas Supreme Court, the defendant’s ensuing 15-month moratorium and subsequent downzoning “blindsided Sheffield, just as the City intended.” 140 S.W.3d. at 678. The plaintiff filed suit, alleging that both the moratorium and downzoning constituted takings of its property.

The court discussed Mayhew v. Town of Sunnyvale, 964 S.W.2d 922 (Tex. 1998), under which Sheffield could establish a compensable regulatory taking if the moratorium or downzoning (1) did not substantially advance the City’s legitimate interests, (2) deprived Sheffield of all economically viable use of its property or (3) unreasonably interfered with Sheffield’s use of the property as measured by the severity of the economic impact on Sheffield and the extent to which its investment-backed expectations had been defeated. Since Sheffield conceded that the land still was worth $600 per acre, the second claim was precluded. 

The court then analyzed first the rezoning and subsequently the moratorium. 

With respect to the rezoning, the court found substantial advancement of the legitimate governmental purpose of preserving the city’s “smaller community environment.” Turning to whether the city went too far in restricting Sheffield’s land use, the court began with the three Penn Central factors. It noted that “the rezoning clearly had a severe economic impact,” accepting the 50% diminution in value determined by the jury.

But diminution in value is not the only, or in this case even the principal, element to be considered. It is more important that, according to the jury verdict, the property was still worth four times what it cost, despite the rezoning, because this makes the impact of the rezoning very unlike a taking. Sheffield argues that its business acumen or good fortune in acquiring the property cannot be considered in assessing the economic impact of rezoning, but we think that investment profits, like lost development profits, must be included in the analysis. Id. at 677.

With respect to investment-backed expectations, the court took the “blindsiding” by the city as proof that Sheffield’s expectations were reasonable.

Although no City employee ever promised Sheffield that there would be no change in zoning (nor would any such promise have bound the City), it is fair to say that the moratorium and rezoning blindsided Sheffield, just as the City intended. Evidence of Sheffield’s dealings with the City is not, as the City argues, an improper basis to estop the City, but proof of the reasonableness of Sheffield’s expectations. However, it must also be said that the investment backing Sheffield’s expectations at the time of rezoning—the $600/acre purchase price and the expenses of exploring development with the City— was minimal, a small fraction of the investment that would be required for full development. And as with most development property, Sheffield’s investment was also speculative, as evidenced by the fact that the property Sheffield acquired had not been developed in the ten years since it was first zoned PD 10. Id at 678.

The third Penn Central factor, the character of the regulation, was held to be that of a general rezoning not exclusively directed at Sheffield.

The court continued: 

Beyond the three Penn Central factors, we are concerned, as we have already indicated, about the City’s conduct. The evidence is quite strong that the City attempted to take unfair advantage of Sheffield, and quite lacking in any indication of unfair action on Sheffield’s part. The City, fearful that we might consider the improvident statements of individual officials and employees, argues that the actions and motives of those individuals are not those of the City itself. Of course, we agree. But it is exactly the City’s conduct, not that of its officials and employees, that is so troubling. The City did not rezone or impose a moratorium on development, or indicate that it had the remotest intention of doing so, until Sheffield closed on the purchase of the property. The moratorium it imposed was for the purpose of “study,” which was unquestionably completed within a month. Yet for a year the City Council delayed action on the Planning and Zoning Commission’s decision that PD 10 not be rezoned. According to the City’s own records, a reason for the delay was to muster the votes to reject the Commission’s decision. On the other hand, the City Council continued to consider the zoning of many other PDs during the same time period, suggesting that the delay was lethargic rather than ill-motivated. And while the City’s conduct is troubling, it must also be said that the benefits the City legitimately sought to achieve from rezoning were not thereby diminished.

Taking all of these factors into account, the trial court concluded that the rezoning was not unreasonable, and a divided court of appeals disagreed. We agree with the court of appeals that the downzoning in this case is much different from the refusal to upzone in Mayhew, thereby maintaining the status quo and preventing the landowner from proceeding with an enormous development on land that had long been used solely for agricultural purposes in a small, uniquely rural environment. Nevertheless, we do not agree that the rezoning in this case went too far, approaching a taking. Rather, we think that the City’s zoning decisions, apart from the faulty way they were reached, were not materially different from zoning decisions made by cities every day. On balance, we conclude that the rezoning was not a taking. Id. at 678-79.

Turning to the 15-month moratorium, the court noted that the landowner did not object to the first month, during which a study was undertaken. Also, the city argued, “candidly but remarkably, that using delay to extract concessions from landowners is a legitimate government function. We disagree, and were we convinced that this was the sole reason for the City’s delay, we would be required to consider whether the moratorium constituted a compensable taking.” Id. at 680.

​​The court went on to find that the city’s resolution of other rezoning problems during the moratorium period evinced an orderly process. “One can wish that the process had hurried along, but we cannot say that the moratorium did not substantially advance a legitimate governmental purpose.” Id. The court also determined that Sheffield showed no evidence of economic impact resulting from the moratorium, as distinguished from the rezoning, nor why the moratorium should not be within the ambit of reasonable investment-backed expectations. “We can easily imagine circumstances in which delay was aimed more at one person, or was more protracted with less justification, and more indicative of a taking. But the evidence in this case does not approach that situation.” Id.

One issue that was not decided by the courts below was Sheffield’s contention that the plat that it attempted during a short gap in the legislative moratorium (more accurately, moratoria) gave it vested rights. The city “rejected the plat on the asserted ground that the City Manager had continued the moratorium in effect without Council action.” Id. at 655. The court ruled remanded the claim for a declaration that its rights were vested by the plat submission. Id. at 681.

C. Diamond B-Y Ranches v. Tooele County, 91 P.3d 841 (Utah App. Apr. 29, 2004), cert. denied, 98 P.3d 1177 (Utah, Aug. 2, 2004)(table).

The Utah appellate court, reversing a trial court ruling in the county’s favor, held that whether the landowner had a property interest in the granting of a conditional use permit for sand and gravel extraction was not dispositive. Rather, the trial court would have to examine whether denial of the permit so reduced the economic uses to which the land could be put as to constitute a taking.

IV. Penn Central - Investment-Backed Expectations

A. Avenal v. State, 886 So.2d 1095 (La. Oct. 15, 2003)

The Louisiana Supreme Court reversed an appellate court determination, 858 So.2d 697 (La. App. Oct. 15, 2003), that had upheld a trial court award of extensive damages based on changes in water salinity levels resulting from joint federalstate coastal restoration. The appellate court had found that the changes made the plaintiffs’ underwater lease area unsuitable for oyster propagation and thus required compensation under the state takings clause. The state supreme court, in reversing, held that the damages were barred by hold-harmless clauses in the plaintiffs’ leases, or, in a few cases, by statute. 886 So.2d at 1095-1100. In a well-known earlier decision involving the same situation and some of the same plaintiffs, Judge Jay Plager of the U.S. Court of Appeals for the Federal Circuit had ruled against the lessees, who he deemed were well aware that government activities were modifying salinity levels. “It is hard for them to claim surprise … that the pre-existing salinity conditions, created at least in part by earlier government activity, were not left alone, but were again tampered with to their (this time) disadvantage.” Avenal v. United States, 100 F.3d 933, 937 (Fed. Cir. 1996).

V. Penn Central - Development Moratoria As Takings.

Background: In Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002), the Supreme Court held that whether development freezes imposed by planning moratoria constituted compensable takings would have to be determined by applying the Penn Central multi-factor criteria.

A. Leon County v. Gluesenkamp, 873 So.2d 460 (Fl. App. May 10, 2004) 

In a decision reversing the trial court’s determination, the Florida Court of Appeals held that a development moratorium extending for almost two years did not constitute a taking under Penn Central. It stressed that the land subsequently was sold for a profit and that the planning efforts that gave rise to the moratorium had been in place when the landowner purchased.

VI. Penn Central – Relevant Parcel

A. Zanghi v. Board of Appeals of Bedford, 807 N.E.2d 221 (Mass. App. May 3, 2004).

The intermediate Massachusetts court rejected a taking claim based on a zoning order requiring that buildable lots be one-half acre minimum in size, with no portion located within a flood plain or a designated wetland. The court asserted that the owner’s lots could be combined for cluster housing and that there also were viable agricultural uses of the land.

B. Milton v. Williamsburg Township. Bd. of Zoning Appeals, 2004 WL 549583 (Ohio App., Mar. 22, 2004) (not reported in N.E.2d)

The Ohio appellate court held that zoning amendments that increased the minimum lot-size requirement for residential development from approximately one-half acre to 1.5 acres did not constitute a taking. Since the plaintiffs could combine and build a house upon three non-conforming lots, they had not been deprived of economically beneficial use of their property

VII. Compelled Speech Trumps Shopping Center Owner’s Right To Exclude

Background: In Lloyd Corp. v. Tanner, 407 U.S. 551 (1972), the Supreme Court ruled that members of the public had no First Amendment right to expressive conduct within privately owned shopping centers. In PruneYard Shopping Center v. Robins, 447 U.S. 74 (1980), however, the Court subsequently held that shopping center owners had no Fifth Amendment right to prevent such expressive activity if it were protected by state law. Since then, several states have decided PruneYard cases, with split results.

  1. Wood v. State, 2003 WL 1955433 (Fla. Cir. Ct. Feb. 26, 2003) (not reported in So.2d.) 

In Wood, a Florida appellate court has adopted the PruneYard approach as a matter of first impression in that state. In overturning a trespass conviction, it declared that the state constitution “prohibits a private owner of a ‘quasi-public’ place from using state trespass laws to exclude peaceful political activity.” With no analysis of cases involving remotely similar facts, it concluded: “This state has long recognized that the exercise of the right to petition is a form of democratic expression at its purest. . . . Citizens of this state should be entitled to no less protection than citizens of other states.” 2003 WL 1955433 at 2. Apparently, “citizens,” in this context, do not include property owners.

VIII. Dolan - Individual Determination And Proportional Impact

Background: In Dolan v. City of Tigard, 512 U.S. 374 (1994), the Supreme Court held that, in order to condition issuance of a development permit on the exaction of a property interest, the city had to show that its administrative determination was based on an individualized determination and roughly proportional to the burden created by the proposed development. Several recent cases help elucidate the requirements of Dolan.

A. City of Olympia v. Drebick, 83 P.3d 443 (Wash. App., Jan. 22, 2004)

Invoking the Dolan decision, the Washington Court of Appeals ruled that a state statute should be interpreted as providing that a municipality could not impose a traffic impact fee based on citywide average figures. Instead, it had to base the assessment on a property-specific calculation.

B. Town of Flower Mound v. Stafford Estates Limited Partnership, 135 S.W.3d 620 (Tex., May 7, 2004)

The Texas Supreme Court held that the town failed to carry its burden of demonstrating that the conditioning of development approval for a 247-unit residential project upon the owner rebuild a public roadway abutting the development was roughly proportional to the impact of the development. It therefore found the requirement a taking under the state constitution. The court also rejected the argument that exactions covered by the Dolan test are limited to those requiring an actual transfer of real property to the locality, i.e., “dedicatory” exactions.”

C. Hallmark Inns & Resorts, Inc. v. City of Lake Oswego, 88 P.3d 284 (Ore. App. Apr. 14, 2004)

The Oregon Court of Appeals affirmed the decision of the state Land Use Board of Appeals that the city could require the developer of a major commercial development to provide a pedestrian pathway across the property, connecting a residential area on one side to a shopping center on the other. The court held that, for purposes of Dolan, the city’s attempts to quantify the impact of the development on the city’s traffic circulation pattern correctly took into account not only the immediately projected uses of the property, but also potential uses in the future that were permitted under the city’s property development authorization.

IX. State “Ripeness” Requirements

A. Miller v. Town of Westport, 842 A.2d 558 (Conn. Mar. 16, 2004)

The state trial court had ruled that the former owner of a parcel could not prevail on a temporary takings claim, because the validity of the zoning board of appeal’s denial of a variance never had been decided due to the withdrawal of the administrative appeal. The state supreme court reversed. It ruled that “the denial of a variance by a zoning board of appeals is considered a final decision by an initial decision maker, which is all that is required to establish finality in order to bring a takings claim, and that once the zoning board of appeals makes its decision, the regulatory activity is final for purposes of an inverse condemnation claim,” and that an administrative appeal is not necessary in order to bring an inverse condemnation action. Id. at 563-564 (citing Cumberland Farms, Inc. v. Town of Groton, 719 A.2d 465 (1998)). Moreover, the doctrine of collateral estoppel did not preclude the landowner from litigating all relevant factual issues in an inverse condemnation claim, regardless of whether those issues had been decided by a zoning board of appeals in ruling on the plaintiff’s variance applications. Cumberland Farms, Inc. v. Town of Groton, 808 A.2d 1107 (2002). “Simply put, our decisions in Cumberland Farms I and Cumberland Farms II clearly recognize that a plaintiff is not required to appeal a decision of the zoning board of appeals denying a variance in order to bring an inverse condemnation claim, and also that the plaintiff is entitled to de novo review of the factual issues underlying its inverse condemnation claim regardless of the prior determinations of those issues by the zoning board of appeals.” Miller at 564.

X. Calling “Zoning” And “Easements” By Their Proper Names

Background: Confucius taught that if we don’t call things by their proper names we can’t understand them and, hence, cannot deal with them correctly.

A. Greater Atlanta Homebuilders Association v. DeKalb County, 588 S.E.2d 694 (Ga. Nov. 10, 2003)

A county ordinance conditioned the issuance of all new building or land development permits in the county upon the submission of a tree survey and tree protection plan by the applicant and its approval by the County Arborist. The Homebuilders Association challenged the validity of the law, asserting that it was not enacted in accordance with the state Zoning Procedures Act, which provided minimum due process standards. The court noted that a zoning ordinance “is one that establishes ‘procedures and zones or districts ... which regulate the uses and development standards of property within such zones or districts.’” Id. at 696 (citation omitted). The court upheld the ordinance, asserting that “[t]he Tree Ordinance applies to every building and development permit that allows land disturbance, regardless of the zoning district. The Tree Ordinance contains only three references to zones or districts.” Id.

The ordinance contained extensive specifications of the size, type, and number of trees required. The dissent emphasized that “the primary substantive provisions of the ordinance, which specify where trees are to be saved and what densities are required upon completion of a project, depend on several different combinations of existing zoning classifications.” Id. at 700.

B. Dudek v. Umatilla County, 69 P.3d 751 (Or.App. May 15, 2003)

Neighbors challenged a county decision to permit the partitioning of land without requiring a recorded road easement meeting county standards. The court found that the county’s decision apparently was made in part to avoid violating the requirements of Dolan v. City of Tigard, 512 U.S. 374 (1994). The Oregon appellate court held that, despite the general nature of the county ordinance, the decision as to whether to require an easement in a given case involved considerable administrative discretion, thus triggering Dolan’s requirement of “rough proportionality” between burdens placed on the community and corresponding governmental exactions. The neighbors claimed that the requirement here was not an exaction of “property,” but rather an exaction of money, since the partitioning landowner could be forced to purchase land for reconveyance to the county. The Oregon courts have interpreted Dolan as not applicable to the payment of a “fee.” The court rejected this analysis. “An applicant who is required to purchase and then dedicate property is in a very similar position to an applicant who is required to dedicate a possessory interest in property that is owned at the time of the application. That condition effectively is a requirement to dedicate a property interest … and is therefore subject to heightened scrutiny under Dolan. Id. at 758.

C. Insist on a Factual Record (But Don’t Shout)

Background: “Whether a taking compensable under the Fifth Amendment has occurred is a question of law based on factual underpinnings.” Bass Enterprises Products Co. v. United States, 133 F.3d 893, 895 (Fed. Cir. 1998) (citing Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978).

1. B.A.M. v. Salt Lake County, 87 P.3d 710 (Utah App. Feb 20, 2004). 

The county Planning and Zoning Commission had given preliminary approval for a proposed subdivision, conditioned upon the developer dedicating a wider strip of land than it had agreed, based on the anticipated future road widening. The developer said this would require reconfiguration of building lots and would result in substantial loss. Without holding a hearing, the Commission then denied the development application. The developer appealed to the county Board of Commissioners, which upheld the PZC without conducting a hearing. The developer brought suit in district court. Under state law, the district court “shall ‘presume that land use decisions and regulations are valid; and ... determine only whether or not the decision is arbitrary, capricious, or illegal’” Id. at 712 (emphasis supplied by appellate court). The trial court undertook its own factual determination and concluded that there had been an unconstitutional taking. The appellate court reversed on the grounds that state law did not permit the trial court to develop its own record, but, rather, that the trial court should have found the lack of an evidentiary record to indicate that the county’s initial determination was arbitrary and capricious. The appellate court then remanded for a rehearing by the PZC. The dissent admonished the prevailing attorney:

To the extent BAM has successfully persuaded me of the fundamental soundness of its position, that success should not be attributed, in any degree, to its counsel’s unrestrained and unnecessary use of the bold, underline, and “all caps” functions of word processing or his repeated use of exclamation marks to emphasize points in his briefs. Nor are the briefs he filed in this case unique. Rather, BAM’s counsel has regularly employed these devices in prior appeals to this court. While I appreciate a zealous advocate as much as anyone, such techniques, which really amount to a written form of shouting, are simply inappropriate in an appellate brief. It is counterproductive for counsel to litter his brief with burdensome material such as “WRONG! WRONG ANALYSIS! WRONG RESULT! WRONG! WRONG! WRONG!” It is also at odds with [the state] Rules of Appellate Procedure.” Id. at 734 n.30 (Orme, J., dissenting).

XI. Other Issues

A. Schoene Rides Again

Background: In Miller v. Schoene, 276 U.S. 272 (1928), the Supreme Court upheld the uncompensated destruction by Virginia of cedar trees that might harbor the communicable plant disease “cedar rust.” While not harmful to the cedars, the rust was destructive to apple trees, which were much more commercially important in the state.

1. In re Property Located at 14255 53rd Avenue, 86 P.3d 222 (Wash.App. Mar. 22, 2004)

The Washington Court of Appeals held that the state Department of Agriculture’s destruction of healthy trees on private land within a one-eighth mile radius of the site of the escape of citrus long-horned beetles did not effect a taking. It noted that the insect was a “dangerous pest.”

The court rejected the contention that entering upon private land and destroying valuable trees constituted a per se taking under Loretto v. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982). Rather, the court invoked the “line of cases applying what is known as the law of necessity or the conflagration doctrine.” Id. at 225. “When immediate action is necessary in order to avert a great public calamity, private property may be controlled, damaged or even destroyed without compensation. . . . If the individual who thus enters and destroys private property happens to be a public officer whose duty it is to avert the impending calamity, the rights of the owner of the property to compensation are no greater.” Id. at 226 (quoting 1 Nichols on Eminent Domain, 2d Ed. 263 Sec. 96, quoted in Short v. Pierce Co., 78 P.2d 610, 615 (Wash. 1938).)

B. Mineral Rights “Cover-Up” is a Taking

1. Alabama Department of Transportation v. Land Energy Limited, 886 So.2d 787 (Ala. Feb. 6, 2004)

The Alabama Department of Transportation (ADOT) purchased the surface rights over some 34 acres of a 120-acre parcel for use as a highway right of way. ADOT then denied Land Energy, which owned sub-surface mineral rights in coal, the right to access them. The court found that there was sufficient bases for the jury to determine that there had been a regulatory taking and to award $650,000 in compensation.

XII. Wetlands Ripeness

A. Commonwealth v. Blair, 805 N.E.2d 1011 (Mass. App., Apr. 2, 2004) 

The Massachusetts Appeals Court upheld a trial court determination that the owners of waterfront property had violated the state Watershed Protection Act by altering their beach and lawn without first obtaining a state permit. The court rejected the landowner’s federal and state takings challenges to this enforcement action on ripeness grounds, since the owners had not sought a variance, as provided by the Act.

XIII. Condemnation Blight

A. Merkur Steel Supply, Inc. v. City of Detroit, 680 N.W.2d 485 (Mich. App. Mar. 9, 2004)

The Michigan Court of Appeals affirmed a trial court’s award of some $ 7 million based on a jury determination of “condemnation blight.” The court declared:

[T]he city appears to minimize and mischaracterize plaintiff’s claims …. This is not simply a case where a company’s attempt to expand its business interferes with the city’s management of its airport. Instead, this is essentially a case of blight by planning. In this case, the city of Detroit wanted to expand Detroit City Airport and it needed to condemn the properties around the airport. However, the city’s plans were not concrete and, for over a decade, the city has failed to actually expand the airport. While the city has condemned some of the surrounding area and has viewed it as practically uninhabited or vacant, the city has failed to formally condemn plaintiff’s property. However, although the city has never formally condemned plaintiff’s property, it has made it virtually impossible for plaintiff to expand its own business. Essentially, the city, in over ten years, has thrown “roadblock” after barrier to discourage the expansion of plaintiff’s business. Id. at 492.

 

Endnotes

1 Dean Starkman, Condemnation Is Used to Hand One Business Property of Another, WALL ST. J., Dec. 2, 1998, at A1. 

2 Dana Berliner, Public Power, Private Gain (Washington D.C.: Institute for Justice, 2003). The text may be downloaded from http:// ij.org/publications/castle/.

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