The Guts Of Takings

THE GUTS OF TAKINGS BY ANTHONY J. FEJFAR, ESQ., COIF © COPYRIGHT 2004 BY ANTHONY J. FEJFAR, ESQ., COIF

In my mind, the most interesting aspect of Land Use is the Takings clause of the United States Constitution. The Fifth Amendment provides that private property shall not be taken by the government except for public use and upon the payment of just compensation. Interestingly, the origin of the Takings clause has been traced to the English Constitution, Magna Charta, of the year 1250, or so. In that document, Warin Fitzgerald, presumably a royal, and his supporters, required that Prince John of England agree to the requirements of Magna Charta. Prince John only agreed after having been defeated in the Battle of Runnymeade. In Magna Charta is found the Freeman’s clause, which states that a Freeman cannot be divested of property without a judgment of his peers sitting as a jury, at law. Both the American Constitution’s due process clause, as well as the taking clause, find their origin in this document.

Now, in the typical case, say where the government wants to build a road, the government brings an eminent domain action against the private property owners whose land they need for the construction of the road. Expert witnesses are called upon to assess the value of the real property in question, and then a judge or a jury decides, in accordance with the United States Constitution, that reasonable compensation must be paid to those giving up their property.

It is possible, however, that in an extraordainary case, the government takes a piece of someone’s real property without paying for it. In such a case, the landowner must bring an action, essentially in quantum meriut, under the takings clause, for the reasonable value of the property taken. In the old days, such an action for damages was typically captioned an “inverse condemnation” proceeding. The idea was that the government had to be forced in a sense to “condemn” the property, and then pay for that taking. However, since the Lucas case, where the term “taking” was used, and the phrase “inverse condemnation” was not, it is my judgment that an action for the reasonable value of property taken, under the United States Constitution, can be denominated a “takings” action, without the older phraseaology.

Interestingly, if the taking action is brought against state or local government, there is some case authority (the Hamilton Bank case) for the proposition that the claimant must exhaust hae local and state remedies first, before bringing an action in Federal Court. It appears that in Federal Court, the claim must be pursued in either the local Federal District Court, or in the Federal Court of Claims, in Washington, D.C.

Given this possibility of not being able to initially pursue a takings claim in Federal Court, initially, I suggest that the takings claimant file simultaneously in both State and Federal Court, and then file a motion for a stay of proceedings in Federal Court until the matter is dealt with one way or another in State court. In this way, if for some reason the statute of limitation was in danger of running, the claimant would have protection from that possibility in Federal Court by the prompt joint filing of the claim.

The standard for a taking is a very interesting one. The early cases only allowed compensation for a taking when there was an actual physical invasion of the real property itself. While in the latter part of the nineteenth century, the early takings cases, Mugler and Hadachek, both seemed to indicate the possibility of a taking based on governmental regulatory action, in fact in both those cases the governments action was upheld as not constituting a taking on the ground that the state had the right to reasonably regulate real property to avoid harmful uses or effects, under its police powers.

In the Mahon coal case, Justice Holmes, however, stated that while the state may regulate real property, when a regulation has gone “too far” then a taking requiring reasonable compensation must be found. In Mahon, the Commonwealth of Pennsylvania through its legislature, had enacted a statute which regulated the tunnel mining of coal with the intent to stop “subsidence,” that is, the caving in of property below ground which then results in the collapse of surface buildings into the chasm created by the subsidence.

Holmes held that a legally seperable interest, the subsidence estate, was completely taken, and therefore compensation had to be paid. Justice Brandeis, dissenting, on the other hand, argued that the entire fee simple estate, including surface, mineral, and other rights, had to be taken into account when looking at the severity of the regulation, not just the subsidence estate.

The law didn’t change all that much until the Lucas case. In Lucas, Justice Scalia wrote that if there was a total deprivation of economic value, and, the regulation in question did not fit into the category of a tradition tort of nuisance, then a taking was present, and reasonable compensation must be paid. Interestingly enough, the Court suggested that the common law of nuisance might possibly develop, or put another way, perhaps be discovered as already existing anew. In this way, state nuisance law or the equivalent thereof, could still be applied in such a way as to provide an exception to a takings claim.

The thing to remember about Lucas, however, is that it only applies in the narrow instance of a complete and total deprivation of economic value. Ironically, I suspect that such an occurrence was not present even in the Lucas case itself.

For some reason the trial court held that a environmentally regulated beach

front lot had a value of zero dollars, period. I, on the other hand, suspect that the lot was worth at least $15,000 to $20,000, for recreational purposes, or, certainly to expand the area available for beach and swimming use by either of the adjoining houses on the beach.

In the absence of a Lucas case, I suspect that the appropriate standard to be applied is that found in the Penn Central case. In Penn Central the Court balanced economic harm and reasonable investment backed expectations of the claimant against the governmental interest to be accomplished. In other words, the greater the government’s need, and the importance of that need, the more likely it is that the government will not have to pay compensation. On the other hand, the greater the harm to the claimant, the more likely that compensation would have to be paid.

Now, keep in mind, consistent with earlier case law, that when a zoning regulation as applied to an undeveloped piece of land, does not completely zone the use of the land out of existence, then there is no taking. As long as the land can be viably used for anything, there is no taking, even if there is a loss in value relative to what was originally paid.

Now, the interesting thing about a taking, is that under the B & O railroad case, the government is only required to pay reasonable compensation. The Court did not specify any particular formula for such a determination. But what about this. Say Joe buys a lot for $1,000,000. Then the government comes along as zones the land for conservation, so that no development is possible. Joe then argues to the court that he was planning to build a house on the lot, and the fair market value of the lot with the house would have been $2,000,000.

Now, Joe says that he is entitled to the full $2,000,000, as a taking, representing the highest and best use of the property.

Joe has an interesting

argument, and I suppose a lot of lawyers make such an argument, and a lot of judges buy into it. It is my position, however, that in this case, Joe has miscalculated his damages for the taking. Keep in mind that the lot in question in empty. Obviously, if the zoning allowed development, the owner of the lot would be paying the price of construction, not the government. Naturally, the situation should be exactly the same in the case of a taking. Thus, if the cost of building the house was $800,000, then the two million dollar final fair market value of the lot with house must be discounted by the cost of construction, therefore leaving a net compensable value for takings purposes of $1, 200,000, not the higher two million dollar amount

Now, more could be said about takings, but I suspect this is enough. Pleasant Dreams.

Bibliography:

Wright and Gitelman, Land Use