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Supreme Court Rejects Rule That Would Have Required Compensation For All Temporary Development Bans, Holds That Such Bans Must Be Evaluated Under Penn Central Multi Factor Test

Article

In-Sites

July 31, 2002

In a blow to private property interests, the U.S. Supreme Court has ruled, in a 6-3 decision rendered on April 23, 2002, that temporary development bans are not always regulatory takings that require compensation. Instead, such bans must be analyzed under the multi-factor balancing test set forth in Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978).

In its cases that explore when a land use regulation constitutes a so-called “regulatory taking” under the Takings Clause of the Fifth Amendment, which requires the government to pay “just compensation” whenever it takes property for a public purpose, the Court has almost always rejected clear, “bright-line” rules in favor of an ad hoc balancing approach that mandates the consideration of many separate factors. For example, last year, in a decision hailed by property-rights advocates, the Court rejected a rule that would have barred a takings claim whenever the owner of the parcel in question had acquired it after the regulation was already in place. See Palazzolo v. Rhode Island, 533 U.S. 606 (2001). This year it was regulators’ turn to benefit from the Court’s distaste for bright-line rules. In Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 122 S. Ct. 1465 (2002), the Court ruled that two development moratoria totaling 32 months imposed by the Tahoe Regional Planning Agency (“TRPA”) did not constitute a per se or categorical temporary taking of private property requiring the payment of just compensation. The TRPA had imposed the moratoria in order to maintain the status quo while preparing a comprehensive land use plan for the environmentally sensitive Lake Tahoe basin region pursuant to the 1980 amended Tahoe Regional Planning Compact between the States of California and Nevada (“Compact”).

The notion of a compensable “temporary taking” was first broached by the Court in First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304 (1987), which held that if a temporary taking occurred, e.g., where a court determined that a development restriction that had prevented construction for a time before being struck down was a taking, compensation for that interim period was required. Thus, under First English, it was not enough for the government to decline to apply its regulation to the parcel at issue; it would have to compensate the landowner for its interim damages. Tahoe-Sierra Preservation Council presented the issue that the Court did not have to decide in First English: whether the temporary restriction was in fact a taking. (Indeed, on remand, the California appellate court in First English determined that the regulation at issue did not constitute a taking.)

The Tahoe-Sierra story begins in the 1960s, when development around Lake Tahoe that had begun to cloud the lake’s legendarily pristine waters led regulators in both California and Nevada to consider development restrictions. As development pressures increased and various development controls proved ineffective, the TRPA imposed stricter controls, including two measures that effectively prohibited construction in some areas for total of 32 months during the 1980s.

The first moratorium was adopted to provide more time for the TRPA to develop regional environmental threshold carrying capabilities as mandated by the Compact. It was embodied in Ordinance 81-5, which was in effect for 24 months from August 24, 1981 until August 26, 1983. It essentially prohibited the construction of any new residences on Stream Environmental Zone lands in either state and lands in California considered “high hazard” or “sensitive” by reason of their proximity to streams or wetlands. The second moratorium, embodied in Ordinance 83-21 and in effect for eight months from August 27, 1983 until April 26, 1984, when the new regional plan was adopted, was even more restrictive. It prohibited all construction on high hazard lands in either state.

The petitioners, the Tahoe-Sierra Reservation Council, a nonprofit group representing some 2,000 landowners as well as a class of some 400 individual owners, owned property in the areas that fell under these development moratoria. Their complaints resulted in protracted litigation that produced four opinions by the Ninth Circuit and several published district court opinions. The district court concluded that there had not been a taking by the moratoria under the ad hoc balancing test of Penn Central. To decide whether a governmental regulation constitutes a taking, Penn Central directs a court to consider such factors as the economic impact of the regulation on the landowner, the extent to which the regulation interferes with the owner’s reasonable investment-backed expectations, the character of the governmental action, the importance of the public interest being served, and the reasons for imposing the regulatory restraints. (In this regard, the district court found that the average holding period of a lot in the Lake Tahoe basin area between lot purchase and home construction was about 25 years.) The district court, however, did conclude that there had been a per se or categorical taking under Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), and First English.

The TRPA appealed this second ruling as to a categorical taking, but the plaintiff owners did not appeal the first ruling that there was no taking under the Penn Central. Before the Ninth Circuit, plaintiffs then did not contend that there had been a taking under Penn Central or that the moratoria were not an appropriate means to achieve the purposes of the Compact. The Ninth Circuit reversed the district court on the per se ruling and concluded that a categorical taking had not occurred. The Ninth Circuit rejected what it characterized as plaintiffs’ attempt to focus only on the temporal dimension in analyzing whether a taking had occurred, observing that the nature of property consists of several dimensions, including physical, functional, and temporal. The Ninth Circuit distinguished both Lucas and First English. Thus, when the controversy reached the Supreme Court, however, it presented a single, fundamental issue: whether temporary development bans are always, “categorically,” takings, no matter how brief and regardless of the reasons for the ban.

The categorical rule advocated by the petitioners would have combined the assumption of First English with the reasoning of Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). In Lucas, the Court had adopted the only categorical rule in its regulatory takings jurisprudence: if a regulation eliminates all economically beneficial uses of the land, it is a compensable taking (unless the prohibited use would have been barred under background principles of tort or property law). Wherever the claimed diminution in the value of the land is less than 100%, the controlling test is the one set forth in Penn Central, which requires the court to examine all relevant factors, including the extent of the diminution, the nature of the government action, and the regulation’s interference with the landowner’s distinct investment-backed expectations.

The petitioners’ tack was to argue that during the 32-month development ban, there had been a “total taking” within the meaning of Lucas, and that the logic of Lucas mandated the creation of another categorical rule that requires compensation whenever a development restriction temporarily bans all development. Justice Stevens, writing for the 6-3 majority, rejected this reasoning, pointing to precedent that requires that the court consider “the parcel as a whole” when it analyzes takings claims, not just slices of the parcel. Just as a claimant cannot divide his or her parcel into small pieces and ask the court to consider the diminution in the value of individual pieces, so is the landowner barred from temporally dividing his or her interest in the property and asking the court to consider just one slice in time. Such reasoning, said the majority, is improper and circular.

In reaching its decision, the majority distinguished the 32 month moratorium from an actual physical taking of a leasehold interest (an actual temporary acquisition of property for a public use) for which just compensation is due. A leasehold affords the rights of possession and exclusion whereas a moratorium does not give the government any right to possession or exclusion. The Court distinguished its opinion in as a narrow exception that had found a categorical taking as a result of what the majority described as a permanent regulation which deprived the owner of all economically beneficial uses of the property. The majority also distinguished First English, noting that First English did not address the issue presented in Tahoe-Sierra of whether a temporary regulation had in fact constituted a taking.

After rejecting the petitioners’ theory based on an extension of Lucas, the Court considered whether general considerations of fairness and justice might support their takings claim. Considering – and rejecting – several alternative categorical rules, the Court decided that the better approach to “temporary taking” claims is to examine all relevant circumstances rather than the articulation of bright-line rules. Even a narrowly tailored categorical rule would severely hamper the work of land-use planners, for whom development moratoria are “an essential tool of successful development.” For the majority. the plaintiffs’ position would unacceptably subject to claims of temporary takings the normal delays attendant with obtaining zoning changes or building permits. Such exposure to takings liability would undermine the ability of government to maintain the status quo while engaging in legitimate and informed regional planning and decision making with respect to land use and development issues.

While expressly stating that the issue was not before it as it was not raised, the majority did indicate that some of the plaintiffs might have prevailed in their taking claims under Penn Central. This is significant as the majority decision does not hold that a temporary regulation can never constitute a taking; rather the decision stands for the proposition that a temporary government regulation that denies all economic use does not constitute a per se or categorical taking in all circumstances.

Chief Justice Rehnquist dissented, joined by Justices Scalia and Thomas. He disagreed with Justice Stevens’s characterization of the ban, finding that it had, in effect, lasted almost six years rather than thirty-two months. (Justice Stevens attributed the balance of the moratorium period to other factors, including the lower court’s injunction prohibiting approvals of any building permits after the adoption of the regional plan, which injunction the dissent attributed to the TRPA.) Chief Justice Rehnquist also saw no meaningful distinction between Lucas and the temporary ban in Tahoe-Sierra, likening the latter to a leasehold taken by the government, which certainly would require compensation, and answered emphatically in the affirmative the question of whether a ban on all development for six years constituted a per se taking.

The dissent also disagreed with the majority’s characterization of Lucas as being applicable only to permanent regulations, by pointing out that the ban in Lucas had been in effect for only two years and was later changed. According to the dissent, First English recognized temporary takings and Lucas recognized categorical takings, which recognition was not limited to permanent takings. The dissent rejected the majority’s distinction between permanent and temporary prohibitions as tenuous, and characterized the regulation in Lucas as the “practical equivalent” of a long term physical appropriation. The dissent considered any distinction between regulatory restraint and physical appropriation to be meaningless when the regulation deprives an owner of all economically beneficial use of the property during the temporary period.

Finally, the dissent distinguished development bans from traditional zoning, finding that the ban at issue did not resemble any traditional land-use planning device. According to the dissent, the temporary denial of all viable use of land for six years is a taking and is the functional equivalent of a taking of a leasehold interest, for which just compensation is due. The dissent saw no incompatibility between its position and typical short-term delays associated with obtaining land use permits for development. As a land use planning device, moratoria generally limit particular uses for a limited duration, and do not deprive landowners of all economically beneficial use of the land for six years. The ban at issue did not constitute any traditional or legitimate land use tool.

Justice Thomas also wrote separately in dissent, joined by Justice Scalia, asserting that the meaning of the “parcel as a whole” rule is far from settled, and arguing that a complete development ban, even a temporary one, always requires compensation.

Tahoe-Sierra is a win for planning agencies that use moratoria as a device to maintain the status quo while undertaking planning activities. The Court has determined that such a ban does not constitute a temporary taking per se, but may be found to constitute a temporary taking under the ad hoc balancing test set forth in Penn Central. The dissent, on the other hand, would recognize that temporary regulations banning all economically beneficial use of the property (for a period of six years) constitute a per se taking for which the owner is entitled to just compensation for the period in which the ban is in effect.