Regulatory Takings
By M. Robert Goldstein & Michael J. Goldstein
Justice Oliver Wendell Homes, in the case of Pennsylvania Coal Co. V. Mahon, 260 U.S. 393, 43 S. Ct. 158, the first of the regulatory taking cases, said:
Government could hardly go on if, to some extent, values incident to property could not be diminished without paying for every such change in the general law. As long recognized, some values are enjoyed under an implied limitation and must yield to the police power. But obviously the implied limitation must have its limits or the contract and due process clauses age gone. One fact of consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most if not all cases, there must be an exercise of eminent domain and compensation to sustain the act...
... The protection of private property in the Fifth Amendment presupposes that it is wanted for public use, but provides that it shall not be taken for such use without compensation... When this seemingly absolute protection is found to be qualified by the police power, the natural tendency of human nature is to extend the qualification more and more until at last private property disappears. But that cannot be accomplished in this way under the Constitution of the United States.
The general rule at least is that while property may be regulated to a certain extent, if regulation goes too fat it will be recognized as a taking... We are in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change... We assume, of course, that the statute was passed upon the conviction that an exigency existed that would warrant it and we assume that an exigency existed that would warrant the exercise of eminent domain.
Justice Holmes was apparently a student of human nature for, as the cases we discuss below will show, government agencies and legislatures have, historically, tried to do by regulation, without making payment, what they would have to pay for should they do it by exercising the power of eminent domain. Bear in mind what was said by the New York State Court of Appeals in Foster v. Scott, 136 N.Y. 577, 584 (1893); "All that is beneficial in property arises from its use, and the fruits of that use and whatever deprives a person of them, deprives him of all that is desirable or valuable in the title or possession."
Invalidating the Statute
For the most part, when a regulation or statute has been found to deprive the owner of its use and, thereby, amounts to confiscation without just compensation, the tendency has been not to declare a taking and order compensation but to invalidate the regulation or statute as unconstitutional See: Fred F. French Investing Co. V. City of New York, 39 NY2d 587, 385 NYS2d 5. An exception was spelled out in First English Evangelical Church of Glendale v. County of Los Angeles, 482, U.S. 304, 107 S. Ct. 2378 (1987), which was discussed in our column Sept. 24, 1992.
Unfortunately, in virtually all of the recent decisions on regulatory takings, the courts have declined to give us a real standard preferring, as they have often said, that each case must be decided on an ad hoc basis. It is necessary therefore, when discussing the law of regulatory takings, to discuss them in terms of each decision and to show how, in each case, the courts have dealt with it. It is hoped that some pattern will emerge.
There are three outstanding recent examples of regulatory taking decisions, and we will address them in chronological order. They are Kaiser Aetna v. United States, 444 U.S. 164, 100 S. Ct. 383 (1979), Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102 S. Ct. 3164 (1982) and Seawall Associates v. City of New York 74 NY2d 92, 544 NYS2d 542 (1989).
The first case, Kaiser Aetna v. United States (supra), uncharacteristically pitted the Fifth Amendment to the U. S. Constitution against the Commerce Clause, rather than the police powers. The property owners, in that case, owned a pond in Hawaii, originally two feet in depth and separated from the bay and the ocean by a barrier beach. Their lessees developed the land around the pond and, for the purposes of the development, dredged it, increasing the depth to six feet, erected retaining walls built bridges and dredged an eight-foot channel to the bay, thereby creating a marina, which it intended to use for the exclusive purposes of the residents of the development who paid fees for the use of the marina. The government, taking the position that this was now a navigable waterway and, therefore, subject to its jurisdiction under the Commerce Clause, brought a lawsuit to require the lessees to give access to the public. The U. S. District Court agreed that the pond was now a navigable waterway but held that the government could not open it to the public without payment of compensation. The Court of Appeals agreed that it was now a navigable waterway but reversed on the question of access.
'Navigational Servitude'
The government's brief to the Supreme Court contained an interesting study in hubris. It said, "The fact that the conversion was accomplished at private expense does not exempt Kuapa Pond from the navigable waters of the United States. To allow landowners to dredge their fast lands and reshape the navigable waters of the United States to more conveniently serve their land and then to exclude the public from the navigable portions flowing over the site of former fast lands would unduly burden navigation and commerce... " (Brief for United States, 14-15)
The Supreme Court answered this, we believe, appropriately:
Although the government is clearly correct in maintaining that the now dredged Kuapa Pond falls within the definition of "navigable waters" as this Court has used that term in delimiting the boundaries of Congress' regulatory authority under the Commerce Clause (Citing cases), this Court has never held that the navigational servitude creates a blanket exemption to the Taking Clause whenever Congress exercises its Commere Clause authority to promote navigation...
We thing... that when the Government makes the naked assertion it does here, that assertion collides with not merely and "economic advantage" but an "economic advantage" that has the law back of it to such an extent that courts may "compel others from interfering with [it] or to compensate for [its] invasion (citing case)."
Here, the Government's attempt to create a public right of access to the improved pond goes so far beyond ordinary regulation or improvement for navigation as to amount to a taking under the logic of Pennsylvania Coal Co. V. Mahon...
... the Government must condemn and pay for, before it takes over, the management of the landowner's property. In this case, we hold that the "right to exclude," so universally held to be a fundamental element of the property right, falls within this category of interest that the Government cannot take without compensation. This is not a case in which the Government is exercising its regulatory power in a manner that will cause an insubstantial devaluation of petitioner's private property; rather the position of the navigational servitude in this context will result in an actual physical invasion of the privately owned marina.
Cable TV Facilities
The second case, Loretto v. Teleprompter Manhattan CATV Corp., (supra) is a little closer to home. This involved a New York State statute (8828, Executive Law), which provided that a landlord may not "interfere with the installation of cable television facilities upon his/her property or premises, " and may not demand payment from any tenant or CATV company for permitting the installation in an amount in excess of what the cable television commission determined to be reasonable and, pursuant to 8828 (1) (b), the commission ruled that a one-time fee of $1 is the normal fee to which a landlord is entitled. Before this, it was normal for the CATV companies to pay landlords 5 percent of the gross revenues.
Justice Thurgood Marshall wrote the majority opinion, which held the regulation to be an unconstitutional taking of private property without just compensation. He said:
.. We conclude that a permanent physical occupation authorized by government is a taking without regard to the public interests that it may serve.
... 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"
... Property rights in a physical thing have ben described as the rights "to possess, use and dispose of it" (citing case). To the extent that the government permanently occupies physical property, it effectively destroys each of these rights. First, the owner has no right to access the occupied space himself, and also has no power to exclude the occupier from possession and use of the space. The power to exclude has traditionally been considered one of the most treasured strands in an owner's bundle of property rights...
... such and occupation is qualitatively more severe than a regulation of the use of property.
The distinction between regulation and occupation makes us somewhat uneasy but, as the next case illustrates, the gap between the two, when the courts want to, is easily bridged. That case, Seawall Associates v. City of New York, (supra) surprised us. When the courts want to, is easily bridged. That case, Seawall Associates v. City of New York, (supra) surprised us. When the case was first coming up, we were sitting on a committee of a large organization and discussed whether that organization should seek to submit a brief, amicus curiae. Stephen Seldin, one of the more astute real estate lawyers in New York City, also a member of that committee, suggested that the situation smacked of a regulatory taking. Based on previous decisions upholding rent control, we took the position that, that would be an unfruitful approach. As it turned out, he was more prescient than we.
Seawall Associates (supra) involved New York City Local Law #9, which prohibited the demolition, alteration or conversion of properties that contained single-room occupancy (SRO) dwellings, In fact, 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 and there was a presumption of a violation. If a unit remained vacant for 30 days. The penalty was $150,000 plus $45,000 per unit for reducing the total number of units. An owner, however, could, by paying $45,000 per unit, or whatever the Department of Housing Preservation and Development believed would equal the cost of a replacement, get an exemption. He or she could, instead, supply the replacement. There was a hardship provision allowing the owner an 8.5 percent return on the assessed value.
Apparently, the City went too far, and the real estate community was pleasantly surprised to see the New York State Court of Appeals, albeit by a split decision (5-2), find that this was an unconstitutional taking of property without just compensation. Judge Hancock, writing for the majority, said:
"The Fifth Amendment's guarantee that private property shall not be taken for a 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)..."
In our opinion, the provisions of Local Law No. 9, which not only prevent the SRO property owners from developing their properties by replacing the existing structures, but also compel them to refurbish the structures and keep them fully rented, impose on the property owners more then their just share of societal obligations...
Plaintiffs contend that Local Law No. 9 has resulted in a physical occupation of their properties and is, therefore, a per se compensable taking (citing Loretto v. Teleprompter etc)
We agreed
At this point, Seawall, citing Loretto, seemed to hang its hat on the "physical occupation" versus "regulation from without" distinction but, in Seawall, there was not even the minor but literal occupying of a portion, of the property as there was in Loretto. This was resolved, conveniently, by the following:
Whether the mandatory "rent-up" obligation of the antiwar-housing prevision effect a physical taking depends upon the nature and extent of their interference with certain essential property rights. 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 on of the most treasured strands in an owners bundle of property rights."
How then, it occurred to us, could the Court reason this way and still uphold the rent control laws? But they did. Distinguishing this situation from rent control, the Court said:
... the decision of the Supreme Court and this court upholding rent control and similar regulations of housing conditions and other aspects of the landlord-tenant relationship... do not undermine plaintiff's claims of per se physical takings. Indeed, those decisions have no bearing on the question here -- whether forcing plaintiffs to rent their properties to strangers constitutes a physical taking. It is the nature of the intrusion which is determinative -- i.e., that it deprives the owners of their rights to possession and exclusion -- not the beneficial purpose of the regulation or the extent of the police power which authorizes it...
The rent-control ... regulations that have been upheld by the Supreme Court and this court merely involved restrictions imposed on existing tenancies where the landlords had voluntarily put their properties to use for residential housing. Unlike Local Law No. 9, however, those regulations did not force the owners, in the first instance, to subject their properties to a use which they neither planned nor desired.
Frankly, we see a distinction without difference. But all of that, we believe, is not what this case turned on. The court went on to hold that the standard is what was enunciated in cases such as Penn Central Transportation Co. V. City of New York, 438 U.S. 104, 98 S. Ct. 2646, First English Evangelle Church of Glendale v. County of Los Angeles, 482 U.S. 304, 107 S. Ct. 2378, Lucas v. South Carolina Costal Council -- U.S. --, 112 S. Ct. 2886, etc., that it is a taking if it shifts the burden of a public good from the public to an owner to the extent that it denies the owner economically viable use of his property or it does not advance a legitimate state interest.
In this case, as opposed to the other cases cited, there did not have to be a total deprivation of an economically viable use. One thing all of these cases have in common is they all said they would decide the cases on their own facts. Let the regulations be passed and the courts will tell you afterward if it was a taking. We repeat our reservations stated in a previous column. Law is a learned profession and lawyers, learning from precedent, must advise their clients accordingly. The courts owe this to a country based on the rule of law. Ad hoc decisions do not help.
Reprinted with permission from the June 24, 1993 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.