Property Law Developments—Joseph William Singer

The Supreme Court held in Horne v. Dep’t of Agric., 133 S.Ct. 2053, — U.S. — (2015), that the takings clause applies to physical takings of personal property (like cars) as well as to real property. Thus a government program designed to shore up the price of raisins by requiring farmers to hand over a certain percentage of the raisin crop to the government effected a categorical physical taking of personal property.

The limit on supply of raisins for sale was intended to increase the price farmers receive for the raisins they sell, thus promoting the profitability of their businesses. The expropriated raisins are given away or sold by the government and if any profits remain they are returned to the farmers. The Court held any economic benefits farmers received from increased raisin prices or moneys from sales of the raisins turned over to the government do not affect the question of whether a taking has occurred. When physical property is seized by the government, a taking has occurred even if it is is personal property and just compensation is due.

The Court also held that the government cannot condition participation in a price-support program on the condition that the farmer turn over a portion of the crop to the government.

At the same time, the Court made a sharp distinction between physical taking of personal property and regulation of its use. The takings clause does not prohibit regulation of personal property; nor does it prevent the state from prohibiting creation or possession of certain dangerous forms of property such as drugs like heroin. Thus it would not be a per se or categorical taking to limit the production of raisins (although it might be a regulatory taking). But it is a per se or categorical taking for the government to force the owner to hand the raisins over to the government. Justice Sotomayor dissented on the ground that this is a distinction without a difference.

Justice Thomas concurred on the ground that the taking was not for “public use.”

Justice Breyer concurred along with Justices Ginsburg and Kagan on the ground that a remand should have been ordered to determine if any compensation would have been due had the owner complied with the regulation. Breyer noted that the takings clause does not prohibit takings; it just requires just compensation when property is taken for public use. There was therefore a question of whether compliance with the government’s mandate would have resulted in just compensation being paid and if so it is not clear why a constitutional violation occurred since the obligation is to compensate not to refrain from taking. Part of the complication is that the requirement of handing over some raisins to the government effectively raises the price of those that are kept by the farmer. If that amount is sufficient to compensate for the value of the raisins handed over to the government then no more compensation should be due.

The California Supreme Court has upheld the inclusionary zoning ordinance of the City of San Jose against a challenge that it constitutes an illegal exaction and violates the state constitution’s takings clause or the federal constitution’s takings clause. Cal. Bldg. Indus. Ass’n v. City of San Jose, 2015 Cal. LEXIS 3905 (Cal. 2015). The ordinance required all new development projects containing 20 housing units or more to reserve 15 percent for sale at affordable prices to low- or moderate-income families. San Jose Mun. Code, §§ 5.08.010 to 5.08.730. The Court held that the municipal government had the power to enact reasonable land use regulations designed to increase the amount and dispersion of affordable housing and that this ordinance served those ends. Because it regulated land use, it did not constitute an “exaction” or forced donation of land to public use. The Court held that so long as a land use regulation does not deprive the owner of all economically viable use of the property or mandate a forced physical taking, there is no violation of the takings clause when restrictions govern an owner’s use of property. The Court also interpreted the Supreme Court’s requirements in the cases of Dolan v. City of Tigard, 512 U.S. 374 (1994) & Nollan v. Cal. Coastal Comm’n, 483 U.S> 825 (1987), that mitigation fees must bear a reasonable relationship to externalities caused by the development of land did not apply when the law simply regulates the uses to which land can be put.

The Michigan Supreme Court overturned a lower court ruling that had held it to be unconstitutional for a city to demolish a structure that the city believes is financially unreasonable to repair even if the owner claims to want to make the repairs. The court held that it does not constitute a deprivation of due process of law to require the demolition given the fact that the owner allowed the property to become dilapidated and the city could rationally believe that demolition was the best remedy to remove the public nuisance. Bonner v. City of Brighton, 848 N.W.2d 380 (Mich. 2014).

When a taking of property by eminent domain to build a highway bifurcated a parcel, one part became landlocked but obtained access to a public road by permission over neighboring property. When that permission ended many years later and the parcel became landlocked the owner sought an easement by necessity over the neighbor’s land but the court found the traditional requirements for such an easement to be lacking. Since the parcel had not become landlocked when severed from the neighboring land there was no basis for imposing an obligation on that neighbor to create an easement for access to the roads. Nor did the owner obtain a prescriptive easement because access to the land had been by permission. No claim was made for a constructive trust or easement by estoppel, alternative theories that might have been relevant if the owner of the servient estate had induced the owner of the landlocked parcel to invest in reliance on the easement. The implication of the case may be that the owner should have received a greater amount of just compensation at the time of the exercise of the eminent domain power given the landlocked nature of the property. Clifton v. Wilkinson, 748 S.E.2d 372 (Va. 2013).

The Texas Supreme Court affirmed its ruling that the border between state-owned submerged lands and private lands along the coast is the “mean higher high tide line” or the mean location of the high tide line over the regular tidal cycle of 18.6 years. Porretto v. Tex. Gen. Land Office, 2014 WL 2994436 (Tex. 2014). In various ways, agents of the state of Texas has acted so as to claim public rights in property that is on the “private” or landward side of the line. The Texas General Land Office (GLO) claimed that it owns lands that the Texas Supreme Court says are privately owned; that office also requested that tax records be changed to indicate state ownership of those lands. These statements have made it harder for private owners to sell those lands. However, since the GLO ended its bid to change the tax rolls to claim public ownership of those lands and, “even though the [GLO] lawyers’  statements injured the [landlowners]”, the state did not actually dispossess the owners and therefore did not “take” their property without just compensation in violation of the takings clause.

The court also held that the line separating public and private ownership does not change because of state renourishment of beaches. “The State does not gain the dry beach by dumping sand on it,, nor does it lose what was before the wet beach, even if the renourishment pushes the MHHT [mean higher high tide] line farther seaward, which is usually the purpose of renourishment.”

Kentucky had a law declaring unused traveler’s checks to be abandoned property if they are not used after a period of fifteen years; such property escheated to the state. When the legislature reduced the period from fifteen to seven, the change was challenged as a violation of due process of law. The Sixth Circuit held that the legislation was consistent with the due process clause on the ground that substantive due process requires only that the legislation be rationally related to a legitimate government interest. In this case, the legislation shortening the period from fifteen years to seven was a legitimate revenue-raising measure. American Express Travel Related Services Co. v. Kentucky, 641 F.3d 685 (6th Cir. 2013). The court refused, however, to rule on the question of whether the law effected an unconstitutional taking of property without just compensation, unconstitutionally impaired American Express’s contractual obligations, or was unconstitutionally retroactive in application.

In Arkansas Game & Fish Comm’n v. United States, 133 S.Ct. 511 (2012), the Supreme Court unanimously overruled the Federal Circuit decision in Arkansas Game & Fish Comm’n v. United States, 637 F.3d 1366 (Fed. Cir. 2011), that had held that deviations by the Army Corps of Engineers from a flood management plan that resulted in temporary flooding of riverfront property did not constitute a taking of property without just compensation but might constitute a tort for which compensation could be sought. The Court held that the mere fact that the flooding was temporary did not immunize the government from a takings claim. Justice Ginsburg’s opinion reaffirmed the Court’s preference for “situation-specific factual inquires” in this area, emphasizing that, with only two narrow exceptions, “no magic formula enables a court to judge, in every case, whether a given government interference with property is a taking.” 133 S.Ct. at 518. Because permanent, government-induced flooding is very likely to constitute a taking, Pumpelly v. Green Bay Co., 80 U.S. 166 (1871), it is also possible that intermittent flooding may constitute a taking if it “interferes with private property,” taking into account whether the flooding was the intended or foreseeable result of government action, the owner’s reasonable, investment-backed expectations, the content of state property law, and the character of the land at issue.

In Koontz v. St. Johns River Water Management District, 133 S.Ct. 2586 (2013), the Supreme Court held that the Nollan/Dolan doctrine applied to monetary exactions as well as mandated dedication of property rights. The governmental body in Florida had proposed to allow an owner to dredge his property on the condition that several exactions were met. They included funding offsite mitigation projects on public lands. The Nollan/Dolan rule requires exactions to be substantially related to the reasons for the permit denial; the state cannot condition a land use permit on actions substantially unrelated to the reasons for the land use regulation. Nollan and Dolan both involved governmental proposals to relax regulatory limits on land development in exchange for the owner granting a public easement of access to portions of the owner’s property. In Koontz, the Supreme Court clarified that this rule of law constituted a particular application of the unconstitutional conditions doctrine and that the doctrine equally applied if the permit condition required monetary payments rather than forced dedication of an easement or land. Because the state law required those building on wetlands to offset the resulting environmental damage, the Koontz ruling requires the mitigation demands to be related to the reasons for the wetlands regulation (the “nexus” requirement) and that they be “roughly proportional” to the harm caused by the proposed development. The Court noted that some states have applied this test in the case of monetary exactions and that developing a workable test was not likely to be difficult.

The Court was divided, however, with four Justices dissenting in an opinion written by Justice Kagan.

The Texas Supreme Court held that a transfer of land to a city with an option to repurchase if the property were ever used for non-park purposes constituted a fee simple subject to condition subsequent and that the right of entry was a property right for purposes of the takings clause and compensable when then city failed to honor the condition. El Dorado Land Co., L.P. v. City of McKinney, 395 S.W.3d 798 (Tex. 2013). The deed provided that the conveyance was “subject to the requirement and restriction that the property shall be used only as a Community Park” and gave the grantor the right to repurchase the property at the price the city paid for it or the current fair market value whichever was less if the property were not used for the designated purpose. Although the repurchase right was called an option to purchase, the Texas Supreme Court interpreted it as a right of entry.  When the city built a library on the property, the grantor sought to exercise the option; when the city did not respond to its demand, the grantor sued claiming the city had taken its right of entry without just compensation, and the high court agreed with its claim. The court remanded to determine whether construction of the library violated the conditions in the grant.

The Supreme Court of New Jersey has ruled that benefits to the property from a partial taking must be counted against the losses in determining just compensation. Borough of Harvey Cedars v. Karan, — A.3d —, 2013 WL 3368225 (N.J. 2013). In this case, the borough government took part of the beachfront owner’s property to construct dunes to protect the property from erosion or loss during storms. The court held that just compensation for the partial taking “must be based on a consideration of all relevant, reasonably calculable, and non-conjectural factors that either decrease or increase the value of the remaining property.  In a partial-takings case, homeowners are entitled to the fair market value of their loss, not to a windfall, not to a pay out that disregards the home’s enhanced value resulting from a public project. To calculate that loss, we must look to the difference between the fair market value of the property before the partial taking and after the taking.”

That meant that, in determining just compensation for the partial taking, the court must take into account the increase in value of the property that remained because of the taking and construction of the dune. The holding overrules a traditional legal rule that distinguished between compensable benefits that were special to the homeowner and noncompensable ones that were general benefits to the whole community. Getting rid of that distinction, the court simply required any benefits to the owner to be reasonably quantifiable to be measured against losses in market value caused by the partial taking.

The Wisconsin Supreme Court ruled that frequent, low-flying aircraft may so interfere with the use and enjoyment of property as to constitute an unconstitutional taking of property by the state. Brenner v. New Richmond Regional Airport Comm’n, 816 N.W.2d 291 (Wis. 2012). Owners located near an airport sued the airport authority when it extended a runway in a manner that created low overflights of their property. The court held that a taking could occur if the flights were “low enough and frequent enough to have a direct and immediate effect on the use and enjoyment of property.” 816 N.W.2d at 294.

When a government took 14 units from a homeowners association by eminent domain, the remaining owners lost the dues and assessments that those owners would have contributed to the homeowners association. However, the Fifth Circuit has ruled that those lost assessments represent mere “contractual rights” that are not compensable under the takings clause as lost property rights even though they ran with the land. United States v. 0.073 Acres of Land, — F.3d —, 2013 WL 322242 (5th Cir. 2013). The court looked to Louisiana law to determine whether the assessments should be considered to be “property” rights and found that they were. However, it interpreted the case of United States v. General Motors Corp., 323 U.S. 373 (1945) to mean that loss of future profits from land is not compensable. The court acknowledged that it was adopting a minority view and that most courts have held that covenants are property within the meaning of the takings clause.

Arkansas Game & Fish Comm’n v. United States, 637 F.3d 1366 (Fed. Cir. 2011), held that deviations by the Army Corps of Engineers from a flood management plan that resulted in temporary flooding of riverfront property did not constitute a taking of property without just compensation but might constitute a tort for which compensation could be sought. The flood management plan exists because the riverfront property is subject to flooding in the first place and it is intended to alleviate that. The doctrinal issue likely to be the focus of the Supreme Court’s ruling is whether temporary flooding constitutes a taking of property.

Koontz v. St. Johns River Water Management District, 77 So. 3d 1220 (Fla. 2011), held that the state of Florida did not take the landowner’s property when it proposed to allow the owner to dredge the property on condition that several exactions were met. The owner refused the exactions and the permit was ultimately denied. The core question is whether the Nollan/Dolan rule requiring exactions to be substantially related to the reasons for the permit denial apply to exactions that do not involve a dedication of the owner’s property to the public. Nollan and Dolan both involved governmental proposals to relax regulatory limits on land development in exchange for the owner granting a public easement of access to portions of the owner’s property. The Supreme Court in Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 547-548 (2005), explained that this constituted a particular application of the unconstitutional conditions doctrine. The Supreme Court may finally resolve the question of whether Nollan/Dolan doctrine applies, for example, to municipal rules that relax zoning limits if developers contribute money to a fund to promote low-income housing. Or the court may find the case moot and the doctrine inapplicable given the ultimate denial of the permit in this case.

The Federal Circuit ruled in Kam-Almaz v. U.S. 2012 U.S. App. LEXIS 12581 (Fed. Cir. 2012), that there was no unconstitutional taking of property when an individual’s computer was seized and examined at an airport immigration and customs station and returned with the hard drive damaged, resulting in the loss of irretrievable business records.The court held that property seized “pursuant to the police power” is not taken “for public use” within the meaning of the takings clause. Government can seize property for law enforcement purposes without implicating the takings clause, even if the property is thereby destroyed.

The Texas Supreme Court has issued a somewhat confusing opinion holding that landowners own the groundwater beneath the surface of their land. In Edwards Aquifer Auth. v. Day, No. 08-0964 (Feb.24, 2012), the Texas Supreme Court held that a water regulation commission may have taken an owner’s groundwater rights without just compensation under the Penn Central test when it limited an owner’s groundwater rights to the amounts of water he had historically taken from the land. The court found a state law that defined the amount of groundwater one can withdraw based on historical uses to be a potential taking of property because it believed an owner should not lose the right to withdraw vested rights in groundwater just because the landowner had failed to exercise his right to withdraw it in the past. The court did not overturn the state’s free use or absolute ownership rule for groundwater that allows owners to withdraw water without liability to neighboring owners whose wells are dried up or whose water amounts are reduced. It did hold that the landowner “owns” the groundwater beneath the surface and that use of several factors, including but not limited to historical uses, might constitute a legitimate regulatory measure. The court remanded for a determination of whether the state statutes, as applied to this owner, constituted a taking of property under the multi-factor Penn Central test. The case leaves groundwater regulation in Texas in a state of great uncertainty since the allowable parameters of regulation of groundwater are now in doubt. The Court cautioned that it did not believe its ruling would be disruptive and the legislature remained empowered to enforce environmental laws regulating water withdrawal without violating the takings clause. At the same time, it suggested that environmental regulation of water might require compensation of owners whose rights to withdraw water are restricted.

The Nebraska Supreme Court ruled that a potential buyer who had an oral contract to buy real estate did not have a right to just compensation when the property was condemned by public authorities. American Central City, Inc. v. Joint Antelope Valley Auth., 2011 WL 2420787 (Neb. 2011). Although oral agreements to buy property are enforceable despite the statute of frauds in cases of part performance, the Nebraska Supreme Court ruled that the potential buyer’s sole remedy was against the seller of the property rather than the public authorities that took the property by eminent domain.

In conformity with the rule prevailing in most states, a New Jersey trial court held that an innocent owner whose property was damaged as a result of a lawful police search has no right to compensation under the takings clause. Simmons v. Loose, 2011 N.J. Super. LEXIS 16 (2011).

The New York Court of Appeals affirmed the usual rule that an owner may have a “vested right” to engage in activity on land if the owner invests substantially in reliance on existing law even if the use has not commenced before the zoning law is changed to prohibit the previously lawful use. In this case, Glacial Aggregates LLC v. Town of Yorkshire, 924 N.E. 2d 127 (N.Y. 2010), the owner had invested $500,000 in mitigation measures to secure a mining permit and had received the permit; when the town amended its zoning law to classify mining as a use needing a special permit and then refused to issue the permit, the Court of Appeals had little trouble in finding the $500,000 investment, when coupled with the permit grant, to be sufficient to give the owner a vested right to engage in the mining activity. The case is interesting because no mining had yet occurred and all expenditures were undertaken to get the permit itself; in the usual case, a vested right is not found until the owner begins investing in creating the use–for example by beginning to build a structure. Here the initial expenditures were both necessary and expected and of such a magnitude that the new prohibitory law could not be imposed retroactively.

A court in Massachusetts has held that no compensation is due when a city takes a private sewer system. North Adams Apartments, L.P. v. City of North Adams, 2011 Mass. App. LEXIS 41 (App. Ct. 2011). The court held that the transfer of title from the private owner to the city caused the owner no pecuniary loss; indeed, it benefited the owner by transferring maintenance obligations from the owner to the city. The court also noted that developers frequently created sewer hook-ups and then voluntarily (and without compensation) sought to transfer title to the municipality. Although one might think that loss of control of the sewer connections would constitute a property loss, the court’s factual finding was that there was no reduction in fair market value of the property and no economic value to the land owner in retaining ownership of the sewer connections.

The Pennsylvania Supreme Court ruled, in In re Opening Private Road ex rel. O’Reilly, 5 A.3d 246 (Pa. 2010), that a statute authorizing an owner to construct a road across neighboring property to get to a public road effected an unconstitutional taking of property. Read minority opinion. The court distinguished the common law doctrine of easement by necessity that grants owners rights of way by necessity over remaining land of a common grantor, finding that doctrine to be constitutional. The court further ruled that such a taking was for a private purpose unless the predominant beneficiary of the taking would be the public.

In Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection, 130 S.Ct. 483, 175 L.Ed.2d 305, 2009 U.S. LEXIS 7593, 2010 WL 2400086 (June 17, 2010), the Supreme Court held that the Florida Supreme Court did not effect an unconstitutional taking of property when it held that a state-funded beach renewal project did not take property rights in violation of the state constitution’s takings clause. The state had funded beach renewal projects to deposit new sand on eroded beaches; once that occurred, the statute set a fixed boundary between public rights in the restored lands and private property rights in the upland; that fixed line was placed where the mean-high tide line had been prior to the restoration project.

The Court unanimously held (8-0, with Justice Stevens not participating) that the Florida statutory program as interpreted by the Florida Supreme Court did not constitute a taking of of any property rights of littoral (beach-front) owners. Prior Florida case law affirmed the power of the state to fill in the seabed that it owned; it also provided for no change in the boundary between private property rights of littoral owners and public rights in the seabed when littoral land increased suddenly because of a natural event (called avulsion). Florida common law did allow the boundary to change if the mean high-water line shifted gradually by accretion (slow addition to littoral land by deposit of new natural material) or reliction (slow addition to littoral  land by natural receding of the water).

The Supreme Court held that the Florida beach replenishment program was merely an enactment of these principles. There was no precedent for the proposition that avulsion does not change the boundary line merely because the state was responsible for the avulsion through a publicly-administered beach restoration project. Nor did the statute take away littoral owners’ rights to accretion since any slow accretions to land created by avulsion would belong to the state as owner of the avulsive land.

Four Justices (Alito, Roberts, Scalia, Thomas) would have held that state courts can effect takings of property through interpretation of state common law or statutes while four Justices (Breyer, Ginsburg, Kennedy, and Sotomayor) found it unnecessary to reach that issue because under any version of a test that might be adopted, no such taking occurred in this case. Justice Scalia responded, in the plurality opinion, that one could not find that no taking occurred without identifying some test for what constitutes a judicial taking. Justice Kennedy wrote a separate opinion, joined by Justice Sotomayor, arguing that any judicial deprivations of property rights should be handled by the due process clause rather than the takings clause.

In a split 3-2 decision, Kaur v. N. Y. State Urb. Dev. Corp., 2009 WL 4348472, (N.Y. App. Div. Dec. 3, 2009), an appellate court in New York found a defective process of determining that a neighborhood was blighted and thus the taking was for the private purpose of helping Columbia University rather than the public purpose of redeveloping a blighted neighborhood. read article.

This occurred only a couple of weeks after New York’s high court, the Court of Appeals, held in Goldstein v. N.Y. State Urb. Dev. Corp., 2009 WL 4030939 (N.Y. Nov. 24, 2009), strongly reaffirmed (in a 6-1 decision) that property can be taken for economic development purposes under the state constitution to remove urban blight and that courts should generally defer to legislative determinations of when blight exists. read article

The Ninth Circuit ruled in Guggenheim v. Goleta that a rent control law covering mobile homes violated the takings clause because it transferred 90% of the market value of the tenancy from the landlord to the tenants. The court distinguish Yee v. City of Escondido, 503 U.S. 519 (1992) on the ground that Yee held that such a law did not effectuate a “physical taking” but left open the question of whether the law constituted a regulatory taking under the Penn Central ad hoc test.

On remand, the Rhode Island trial court found that development of Palazzolo’s salt marsh land south of a shallow, tidal pond would constitute a public nuisance because it would inhibit the “valuable filtering system regarding water runoff containing pollutants and nitrogen from adjacent land.”  Palazzolo v. State, 2005 WL 1645974, at*3 (R.I. Super. Ct. 2005). The court also found that half of theproperty was below the mean high water line, making it tidal land subject to the public trust doctrine which defines such lands as owned by the public and not subject to private development at all. Finally,the court found that, although one upland site could be developed,almost none lower lots could ever have been profitably developed because of the extraordinary engineering costs involved in draining thesite and preparing the site to support structures. Thus, there was notaking of property.

The Supreme Judicial Court of the Commonwealth of Massachusetts held that it was not a taking to prevent an owner from building a house on a floodplain when construction would exacerbate flooding to neighboring property. Gove v. Zoning Bd. of Appeals of Chatham, 831 N.E.2d 865 (Mass. 2005).

In response to the Kelo decision, almost all states have passed legislation or constitutional amendments that limit the power of municipalities to take property for economic development purposes. Elisabeth Sperow, The Kelo Legacy: Political Accountability, Not Legislation, Is the Cure, 38 McGeorge L. Rev. 405, 418-422 (2007). The legislation limiting eminent domain powers falls into several categories; some states passed laws in just one of these categories and others passed more than one type of limitation. First, some states repudiated Kelo by prohibiting the use of eminent domain to take property from one person to transfer it to another person if the taking is for economic development purposes, such as increased tax revenue or additional jobs. See, e.g., Alaska Stat. §§09.55.240(d), 29.35.030; 735 Ill. Comp. Stat. 30/5-5-5(c); Me. Rev. Stat. tit. 1, § 816; N.H. Rev. Stat. § 162-K:2(IX-a)(b); Vt. Stat. tit. 12, § 1040(a). Second, some states adopted Justice Thomas’s literal approach by prohibiting all takings of property from one private owner for transfer to another unless the property is open for public “use,” meaning public ownership or access. See Fla. Stat. § 73.013; Iowa Code §§6A.21 to 6A.22; N.H. Rev. Stat. § 162-K:2(IX-a)(a); Tenn. Code § 29-17-102(2). Third, many states passed laws prohibiting takings unless the property being taken is “blighted,” raising health or safety concerns. Ala. Code §§ 24-2-2, 24-3-2; Cal. Health & Safety §33030; Iowa Code §§6A.22; Mo. Rev. Stat. § 523.271; Wis. Stat. § 32.03(6). See Centene Plaza Redevelopment Corp. v. Mint Properties, 225 S.W.d3 431 (Mo. 2007) (finding insufficient evidence of blight to justify the taking). Fourth, some states regulate takings by procedural measures designed to increase public participation in the process through more hearings or better public notice or through requirements that the taking authority present evidence sufficient to justify the taking. See 735 Ill. Comp. Stat. 30/5-5-5(d); W. Va. Code § 16-18-6. Fifth, some states require higher compensation than the usual “fair market value” if a person’s home is taken. Ind. Code § 32-24-4.5-8(2)(A)(owner of a residence entitled to 150% of fair market value; owner of a business entitled to “any loss incurred in a trade or business that is attributable to the exercise of eminent domain”).