Amdt5.9.6 Regulatory Takings and Penn Central Framework

Fifth Amendment:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

In its 1978 decision, Penn Central Transportation Co. v. City of New York,1 the Court, while cautioning that regulatory takings cases require “essentially ad hoc, factual inquiries,” nonetheless provided general guidance for determining whether a regulatory taking had occurred. The Court emphasized that the degree to which a government action interfered with a property owner’s interest in his property—whether the interference amounted to a “physical invasion” or only reflected an “adjusting of benefits and burdens” —indicated whether a taking had occurred. The Court explained:

The economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations are . . . relevant considerations. So too, is the character of the governmental action. A ‘taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.2

Penn Central concerned New York City’s landmarks preservation law, pursuant to which the City denied approval to construct a fifty-three-story office building atop Grand Central Terminal. The Court denied Penn Central’s takings claim by applying the principles set forth above. Considering the economic impact on Penn Central, the Court noted that the company could still make a “reasonable return” on its investment by continuing to use the facility as a rail terminal with office rentals and concessions, and the City specifically permitted owners of landmark sites to transfer to other sites the right to develop those sites beyond the otherwise permissible zoning restrictions, a valuable right that mitigated the burden otherwise to be suffered by the owner. As for the character of the governmental regulation, the Court found the landmarks law to be an economic regulation rather than a governmental appropriation of property, the preservation of historic sites being a permissible goal and one that served the public interest.3 Penn Central's economic impact standard also left room for Justice Oliver Wendell Holmes’s observation in Mahon that “[g]overnment hardly could go on if to some extent values incident to property could not be diminished without paying for every . . . change in the general law.” 4 Thus, the Court has held that a mere permit requirement does not amount to a taking,5 nor does a simple recordation requirement.6

Several times the Court has relied on the concept of “distinct [or, in later cases, ‘reasonable'] investment-backed expectations,” which it introduced in Penn Central, to analyze whether a taking had occurred. In Ruckelshaus v. Monsanto Co.,7 the Court used this concept to determine whether the government’s disclosure of trade secret information submitted with applications for pesticide registrations resulted in a taking. The Court reasoned that disclosing data that had been submitted from 1972 to 1978, a period when the statute guaranteed confidentiality and thus “formed the basis of a distinct investment-backed expectation,” would have destroyed the property value of the trade secret and constituted a taking.8 Following 1978 amendments setting forth conditions of data disclosure, applicants who voluntarily submitted data in exchange for the economic benefits of registration had no reasonable expectation of additional protections of confidentiality.9

Rejecting an assertion that reasonable investment backed-expectations had been upset in Connolly v. Pension Benefit Guaranty Corp.,10 the Court upheld the government’s retroactive imposition of liability for pension plan withdrawals. The Court reasoned that employers had at least constructive notice that Congress might buttress the legislative scheme to accomplish its legislative aim that employees receive promised benefits. However, where a statute imposes severe and “substantially disproportionate” retroactive liability based on conduct several decades earlier, on parties that could not have anticipated the liability, a taking (or violation of due process) may occur. On this rationale, the Court in Eastern Enterprises v. Apfel11 enjoined applying the Coal Miner Retiree Health Benefit Act requirement that companies formerly engaged in mining pay certain miner retiree health benefits to a company that had spun off its mining operation in 1965, before collective bargaining agreements included an express promise of lifetime benefits. In 1998, the Court, however, sustained a federal ban on selling artifacts made from eagle feathers as applied to the existing inventory of a commercial dealer in such artifacts, while not directly addressing the ban’s interference with investment-backed expectations.12 The Court merely noted that the ban served a substantial public purpose in protecting the eagle from extinction, that the owner still had viable economic uses for his holdings, such as displaying them in a museum and charging admission, and that he still had the value of possession.13

The Court has made plain that, in applying the economic impact and investment-backed expectations factors of Penn Central, courts should compare what the property owner has lost through the challenged government action with what the owner retains. Discharging this mandate requires a court to define the extent of plaintiff’s property—the “parcel as a whole” —that sets the scope of analysis.14 In Murr v. Wisconsin, the Court stated that, “[l]ike the ultimate question whether a regulation has gone too far, the question of the proper parcel in regulatory takings cases cannot be solved by any simple test. Courts must instead define the parcel in a manner that reflects reasonable expectations about the property.” 15

In Murr, the owners of two small adjoining lots, previously owned separately, wished to sell one of their lots and build on the other. The landowners were prevented from doing so by state and local regulations, enacted to implement a federal Act, which effectively merged the lots when they came under common ownership prior to their purchase by the plaintiffs, thereby barring the separate sale or improvement of the lots. The plaintiff landowners therefore sought just compensation, alleging a regulatory taking of their property. In ruling against the landowners, the Supreme Court set forth a flexible multi-factor test for defining “the proper unit of property” to analyze whether a regulatory taking has occurred,16 whereby the boundaries of the parcel determine the “denominator of the fraction” of value taken from a property by a governmental regulation, which in turn can determine whether the government has “taken” private property.17 Under this formula, regulators have an interest in a larger denominator—in the Murr case, combining the two adjoining lots—to reduce the likelihood of having to provide compensation, while property owners seeking to show that their property has been taken have an interest in the denominator being as small as possible. The Murr Court instructed that, in determining the parcel at issue in a regulatory takings case, “no single consideration can supply the exclusive test for determining the denominator. Instead, courts must consider a number of factors,” including (1) “the treatment of the land under state and local law” 18 ; (2) “the physical characteristics of the land” 19 ; and (3) “the prospective value of the regulated land.” 20

In Penn Central, the Court rejected the principle that no compensation is required when regulation bans a noxious or harmful effect of land use. The principle, the City contended, followed from several earlier cases, including Goldblatt v. Town of Hempstead.21 In that case, the town enacted an ordinance that in effect terminated further mining at a site owned by the plaintiff. Declaring that no compensation was owed, the Court stated that “[a] prohibition simply upon the use of property for purposes that are declared, by valid legislation, to be injurious to the health, morals, or safety of the community, cannot, in any just sense, be deemed a taking or an appropriation of property for the public benefit. Such legislation does not disturb the owner in the control or use of his property for lawful purposes, nor restrict his right to dispose of it, but is only a declaration by the State that its use by anyone, for certain forbidden purposes, is prejudicial to the public interests.” 22 In Penn Central, however, the Court clarified the test on which prior cases had turned, stating “These cases are better understood as resting not on any supposed ‘noxious’ quality of the prohibited uses but rather on the ground that the restrictions were reasonably related to the implementation of a policy—not unlike historic preservation—expected to produce a widespread public benefit and applicable to all similarly situated property.” 23 In Lucas v. South Carolina Coastal Council,24 the Court further explained “noxious use” analysis as merely an early characterization of police power measures that do not require compensation. The Court noted, “[N]oxious use logic cannot serve as a touchstone to distinguish regulatory ‘takings'—which require compensation—from regulatory deprivations that do not require compensation.” 25

438 U.S. 104 (1978). Justices William Rehnquist and John Paul Stevens and Chief Justice Warren Burger dissented. Id. at 138. back
Id. at 124 (citations omitted). back
Id. at 124–28, 135–38. back
Pa. Coal Co. v. Mahon, 260 U.S. 393, 413 (1922). back
United States v. Riverside Bayview Homes, 474 U.S. 121 (1985) (requirement that permit be obtained for filling privately-owned wetlands is not a taking, although permit denial resulting in prevention of economically viable use of land may be). back
Texaco v. Short, 454 U.S. 516 (1982) (state statute deeming mineral claims lapsed upon failure of putative owners to take prescribed steps is not a taking); United States v. Locke, 471 U.S. 84 (1985) (reasonable regulation of recordation of mining claim is not a taking). back
467 U.S. 986 (1984). back
Id. at 1011. back
Id. at 1006–07. Similarly, disclosure of data submitted before the confidentiality guarantee was placed in the law did not frustrate reasonable expectations, the Trade Secrets Act merely protecting against “unauthorized” disclosure. Id. at 1008–10. back
475 U.S. 211 (1986). Accord Concrete Pipe & Products v. Constr. Laborers Pension Tr., 508 U.S. 602, 645–46 (1993). See also Kaiser Aetna v. United States, 444 U.S. 164, 179 (1979) (involving frustration of “expectancies” developed through improvements to private land and governmental approval of permits); PruneYard Shopping Ctr. v. Robins, 447 U.S. 74, 84 (1980) (characterizing and distinguishing Kaiser Aetna as involving interference with “reasonable investment backed expectations” ). back
524 U.S. 498 (1998). Although the plurality opinion announcing the judgment in Eastern Enterprises analyzed the case as a takings issue, five Justices in that case (one supporting the judgment and four dissenters) found substantive due process, not takings law, to provide the analytical framework where, as in Eastern Enterprises, the gravamen of the complaint is the unfairness and irrationality of the statute rather than its economic impact. back
Andrus v. Allard, 444 U.S. 51 (1979). back
The Court in Goldblatt had pointed out that the record contained no indication that the mining prohibition would reduce the value of the property in question. 369 U.S. 590, 594 (1962). Contrast Hodel v. Irving, 481 U.S. 704 (1987) (finding insufficient justification for a complete abrogation of the right to pass on to heirs interests in certain fractionated property). Note as well the differing views expressed in Irving as to whether that case limits Andrus v. Allard to its facts. Id. at 718 (Brennan, J., concurring), 719 (Scalia, J., concurring). See also Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1027–28 (1992) (suggesting that Allard may rest on a distinction between permissible regulation of personal property, on the one hand, and real property, on the other). back
The “parcel as a whole” analysis refers to the precept that takings law “does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated.” Penn Cent. Transp. Co. v. City of N.Y., 438 U.S. 104, 130 (1978); see also Concrete Pipe, 508 U.S. at 644; Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 497 (1987). In Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency, the Court affirmed the established spatial dimension of the doctrine, under which the court must consider the entire relevant tract, as well as the functional dimension, under which the court must consider plaintiff’s full bundle of rights. See 535 U.S. 302, 327 (2002). The spatial dimension is perhaps best illustrated by the analysis in Penn Central, wherein the Court declined to segment Grand Central Terminal from the air rights above it. 438 U.S. at 130. And the functional dimension of the parcel as a whole is demonstrated by the Court’s refusal in Andrus v. Allard to segment one “stick” in the plaintiff’s “bundle” of property rights in holding that denial of the right to sell Indian artifacts was not a taking in light of rights in the artifacts that were retained. 444 U.S. 51, 65–66 (1979). In Tahoe-Sierra, the Court also added a temporal dimension to the “parcel as a whole” analysis, under which a court considers the entire time span of plaintiff’s property interest. Invoking this temporal dimension, the Court held that temporary land-use development moratoria do not effect a total elimination of use because use and value return in the period following the moratorium’s expiration. Tahoe-Sierra, 535 U.S. at 327. Thus, such moratoria are to be analyzed under the ad hoc, multifactor Penn Central test, rather than a per se “total takings” approach. back
Murr v. Wisconsin, 137 S. Ct. 1933, 1950 (2017) (internal citation omitted) (emphasis added). back
Id. at 1943–46. In doing so, the Court rejected arguments for the adoption of “a formalistic rule to guide the parcel inquiry,” one that would “tie the definition of the parcel to state law.” See id. at 1946. back
Id. at 1944 ( “[B]ecause our test for regulatory taking requires us to compare the value that has been taken from the property with the value that remains in the property, one of the critical questions is determining how to define the unit of property ‘whose value is to furnish the denominator of the fraction.’ As commentators have noted, the answer to this question may be outcome determinative.” (quoting Keystone, 480 U.S. at 497)). back
Id. at 1945 ( “[C]ourts should give substantial weight to the treatment of the land, in particular how it is bounded or divided, under state and local law.” ). back
Id. ( “[C]ourts must look to the physical characteristics of the landowner’s property. These include the physical relationship of any distinguishable tracts, the parcel’s topography, and the surrounding human and ecological environment. In particular, it may be relevant that the property is located in an area that is subject to, or likely to become subject to, environmental or other regulation.” ). back
Id. at 1945, 1946 ( “[C]ourts should assess the value of the property under the challenged regulation, with special attention to the effect of burdened land on the value of other holdings.” ). back
369 U.S. 590 (1962). Hadacheck v. Sebastian, 239 U.S. 394 (1915), and, perhaps, Miller v. Schoene, 276 U.S. 272 (1928), also fall under this heading, although Schoene may also be assigned to the public peril line of cases. back
369 U.S. at 593 (quoting Mugler v. Kansas, 123 U.S. 623, 668–69 (1887)). The Court posited a two-part test. First, the interests of the public required the interference, and, second, the means were reasonably necessary for the accomplishment of the purpose and were not unduly oppressive of the individual. Id. at 595. The test was derived from Lawton v. Steele, 152 U.S. 133, 137 (1894), which held that state officers properly destroyed fish nets that were banned by state law in order to preserve certain fisheries from extinction. back
Penn Cent. Transp. Co. v. City of N.Y., 438 U.S. 104, 133–34 n.30 (1978). back
505 U.S. 1003 (1992). back
Id. at 1026. The Penn Central majority also rejected the dissent’s contention, 438 U.S. at 147–50, that regulation of property use constitutes a taking unless it spreads its distribution of benefits and burdens broadly so that each person burdened has at the same time the enjoyment of the benefit of the restraint upon his neighbors. The Court deemed it immaterial that the landmarks law has a more severe impact on some landowners than on others: “Legislation designed to promote the general welfare commonly burdens some more than others.” Id. at 133–34. back