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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.
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