Palazzolo v. Rhode Island

Most land use and condemnation lawyers are familiar with the holding of Palazzolo v. Rhode Island, 533 U.S. 606 (2001).  InPalazzolo, the Supreme Court repudiated the so-called “Notice Rule,” which held that post-enactment purchasers could not state a claim for a regulatory taking arising from restrictions adopted before they took title to the property.  This was the law of New York.  In Basile v. Town of Southampton,[i] 89 NY2d 974 (1997), cert den 522 U.S. 907, the Court of Appeals held:

Enactments which are legitimate exercises of police power, such as wetlands regulations here, do not effect a taking when a purchaser acquires property subject to such regulations. “The relevant property interests owned by (a purchaser) are defined by those State laws enacted and if effect at the time (title is taken) and they are not dependent on the timing of State action pursuant to such laws.” Matter of Gazza v. New York State Dept of Envtl Conservation, 89 NY2d 603, 616 (decided today). Since claimant took title to her property subject to wetlands regulations and the encumbrances of certain covenants, she cannot claim the value of the property without such restrictions.

But Palazzolo changed the holding of Basile that a property owner’s right to make reasonable use of the land does not end simply because the restrictive regulations predate the acquisition of the parcel.  The Supreme Court established a three-factor framework for reviewing regulatory taking claims in Penn Central Trans. Co. v. City of New York, 438 U.S. 104 (1978).  These circumstances include consideration of “the economic impact of the regulation on the claimant and particularly, the extent to which the regulation has interfered with the distinct investment back expectations (and) the character of the governmental action.” Penn Central, 438 U.S. at 124.

The Supreme Court now has before it in a petition to grant certiorari in Guggenheim v. City of Goleta, (No. 10-1125) an appeal from the Ninth Circuit of Appeals. Guggenheim involves the purchase of a mobile home park that was subject to the City of Goleta[ii] preexisting rent control laws. A divided Ninth Circuit en banc majority would not follow Palazzolo concluding that the fact that the Guggenheims purchased their property after the rent control became effective was “fatal” to the regulatory taking claim.[iii]

The case has been noted as important for several reasons. First it is argued that the Supreme Court should provide much needed certainty by reaffirming Palazzolo. It has also been argued that the Ninth Circuit has placed an expiration date on the takings clause which is the date the property is transferred.

We have written before on the subject of regulatory takings.[iv] In that column we commented on Friedenburg v State of New York,[v] we noted that case law indicated that a regulatory taking, as distinct from a physical invasion of the property, results not in a taking in fee but in a temporary taking. Thus, in First English Evangelical Church of Glendale v County of Los Angeles, 482 U.S. 304 (1987), an action for an inverse condemnation alleging a temporary taking by reason of an interim ordinance which prohibited constructing a building on the property involved, the Court held, contrary to the holding by the California courts, that the county had to pay damages for the period the property was, in effect, made sterile. As the Court said: “temporary takings which, as here, deny a landowner all use of his property are not different in kind from permanent takings, for which the construction clearly requires compensation _ _ _. The United States has been required to pay compensation for leasehold interest shorter than this _ _ _. While this burden results from governmental action that amounted to a taking, the just compensation clause of the Fifth Amendment requires that the governmental pay the landowner for the value of the use of the land during this period _ _ _ invalidation of the ordinance or its successor ordinance after that period of time, though converting the taking into a “temporary” one is not a sufficient remedy to meet the demands of the just compensation clause.

Later the Supreme Court went back to the theme of regulatory takings in Lucas v South Carolina Coastal Council, 565 U.S. 1003 (1992) in which Judge Scalia, writing for the majority, described the two instances where the balancing of interest discussed in Penn Central Transportation Co v City of New York, 438 U.S. 104, 98 S. Ct. 2646 (1978) did not apply, thus a per se taking. They are physical invasion of property and “where regulation denies all economically beneficial or productive use of land.” Of interest in the context of what we are discussing here involves the ripeness issue in that case. Subsequent to the initiation of the law suit, which was to declare a per se taking, the offending statute was amended to make it possible for the claimant to secure a building permit. Because the lower court declined to find the case not ripe for disposition on the merits, the Supreme Court also dealt with the case on the merits noting that even if a permit was later granted there still was a right to compensation for the temporary takings between the enactment of the regulation and its amendment.

New York has had its fair share of litigation involving regulatory takings which arose from legislation controlling rents and alteration of income producing properties. One such case is Seawall Associates v City of New York.[vi]

Seawall Associates (supra) involved a New York City Local Law, which prohibited the demolition, alteration or conversion of properties that contained single-room occupancy (SRO) dwellings. The law itself was quite draconian. It provided, by five year moratorium, extendable by potentially infinite five year renewals, that SRO property owners must rehabilitate and make habitable every SRO unit in their buildings and lease every unit to a “bona fide” tenant at controlled rents. The New York State Court of Appeals, found that this was an unconstitutional taking of property without just compensation. Judge Hancock, writing for the majority, said:

“Public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which in all fairness and justice, should be borne by the public as a whole (citing case)…”

Here, the claimed physical taking is the City’s forced control over the owners’ possessory interests in the properties, including the denial of the owners’ rights, to exclude others…Where. As here, owners are forced to accept the occupation of their properties by persons not already in residence, the resulting deprivation of rights in those properties is sufficient to constitute a physical taking of which compensation is required.

Under the traditional conception of property, the most important of the various rights of an owner is the right of possession which includes the right to exclude others from occupying or using the space…This right to exclude “has traditionally been considered one of the most treasured strands in an owner’s bundle of property rights.”

Regulatory Takings

In an amicus brief filed in the Guggenheim case, Robert H. Thomas, member of the Hawaiian Bar, one of the leading experts in the law of inverse condemnation,[vii] sets forth the subject of regulatory takings on a historical basis, starting with Pennsylvania Coal Co. v Mahon,[viii] while property may be regulated to a certain extent, “if regulation goes too far it will be recognized as a taking.”

Mr. Thomas explains that the Supreme Court has established two categories of regulations that are per se takings.  First “where government requires an owner to suffer a permanent physical invasion of its property – however minor – it must provide just compensation.”[ix] Second, a per se taking also occurs when a regulation deprives an owner of “economically beneficial use of her property.”[x]

The argument is that the right to make reasonable use of property is a personal right.  Quoting from Mr. Thomas’ amicus brief:

The right to make reasonable use of property is a fundamental constitutional right:

[T]he dichotomy between personal liberties and property rights is a false one. Property does not have rights.  People have rights.  The right to enjoy property without unlawful deprivation, no less than the right to speak or the right to travel, is in truth a “personal” right…In fact, a fundamental interdependence exists between the personal right to liberty and the personal right in property.[xi]

The Ninth Circuit’s fundamental flaw was its treatment of a property owner’s takings claim as something other than a personal right.  Instead, the Ninth Circuit treated the right as one that insures to the property, and not its owner.  However, it is the Guggenheim’s rights to make use of their property – not their predecessor-in-title’s – that is at issue in this case.  Even if the takings claim here was only the prior owner’s, the Ninth Circuit wrongly assumed it could not be transferred to the Guggenheims.[xii]

Because of the split in the Ninth Circuit, the number of cases which have been decided at variance with Palazzolo, and the fragmentation of the circuits, it is anticipated that the Supreme Court will grant the petition for certiorari.

Albany Government Law Review

The latest issue of the Albany Government Law Review is devoted to eminent domain.  The issue, volume 4, Issue 1 is titled “Eminent Domain: Public Use, Just Compensation & the Social Compact.”  Both writers of this column wrote articles.  M. Robert Goldstein wrote an article titled “The EDPL Revised.”  The article discussed the lack of any substantive effort by New York’s legislature to amend the law, “New York is a state which is not inclined to limit condemnation, at least so far.” But the article is a call for a much needed total revision of the Eminent Domain Procedure Law.  Michael Rikon’s article, “Moving the Cat into the Hat: The Pursuit of Fairness in Condemnation, or, Whatever Happened to Creating a Partnership of Planning,” is a critical review of Article 2 of the EDPL, the procedure used to approve and challenge condemnation.  The article comments on the fact that New York is somewhat oblivious to property rights in an eminent domain context.  It also notes that condemnation is used so aggressively to condemn private property to transfer to private owners that it can fairly be said that in New York, a condemnor can condemn a kasha knish.

The issue contains articles by well known experts on the subject.  The entire law review issue can be read online at www.albanygovernmentlawreview.org and click issues on the toolbar.

[i] The Basile case was argued by Michael Goldstein.
[ii] The City of Goleta is located adjacent to the University of California at Santa Barbara.
[iii] Guggenheim v City of Goleta, 2010 U.S. App Lexis 25981 (9th Circuit, Dec. 22, 2010).
[iv] See Temporary Regulatory Takings, N.Y.L.J., August 14, 2008.
[v] 52 AD3d 774 (2d Dept, 2008).
[vi] 74 NY2d 92 (1989).
[vii] His blog inversecondemnation.com is a must read.
[viii] 260 U.S. 393, 415 (1922).
[ix] See Loretto v Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982).
[x] Lucas v South Carolina Coastal Council, 505 U.S. 1003, 1019 (1992).
[xi] Lynch v Household Finance Corp., 405 U.S. 538, 552 (1972).
[xii] Amicus Brief, p. 21-22.

Reprinted with permission from the May 2, 2011 edition of the New York Law Journal © 2011 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.