Settling the denominator debate: SCOTUS creates objective test for regulatory takings

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Land use attorneys may have some more work headed their way.  With the Supreme Court’s most recent land use decision, straightforward, bright line tests have been cast aside in favor of an “objective” factor-based analysis that considers the reasonable expectations one should have in anticipating whether their property should be considered a single parcel or multiple tracts.  What could possibly be confusing about that?

The United States Supreme Court recently issued its decision of Murr v. Wisconsin on June 23, creating what some critics see as an unnecessary, vague, and confusing rule.  The Supreme Court’s latest addition to its Fifth Amendment takings jurisprudence attempted to resolve the question of how the “parcel as a whole” test of Penn. Central Transp. Co. v. New York City applies to two contiguous parcels of land that have found their way into common ownership by separate occurrences.  The product of this decision is an “objective” factor-balancing test created by Justice Kennedy and the four other justices who joined him.

With the Supreme Court’s most recent land use decision, straightforward, bright line tests have been cast aside in favor of an “objective” factor based analysis…

The St. Croix River is a great attraction.  In an effort to protect the nation’s rivers, Congress passed the Wild and Scenic Rivers Act in 1968 to preserve certain rivers for the enjoyment of present and future generations.  In 1972, the St. Croix was designated for federal protection under the Act.

The law required Wisconsin to develop a conservation plan for the river and areas surrounding the river.  Wisconsin enacted rules and regulations limiting development in the protected areas to comply with the Act.  The development limitation set forth in Wisconsin’s Wild and Scenic Rivers regulations is the source of the issue in this case.

The Wisconsin rules prohibit the use of separate development sites unless they have at least one acre of land suitable for building and development.  The rules also have a merger provision which provides that contiguous lots under common ownership cannot be developed or sold as separate lots if they do not conform to the one-acre-minimum size requirement.  Localities within Wisconsin adopted rules parallel to the ones enacted by the state.

The petitioners in this case are two sisters and two brothers in the Murr family. The petitioners’ parents had purchased two contiguous, but separate, lots in the early 1960s. The lots, referred to as Lots E and F, were transferred to the petitioners in 1994 (Lot F) and 1995 (Lot E).  The lots were mostly undeveloped, except for a lone cabin on Lot F.

While each lot is approximately 1.25 acres in size, they do not conform to the size requirements due to their topography.  Both lots meet the waterline and the steep bluffs on the properties make development difficult.  Combined, the two lots have just under one acre of developable land.

The problem in this case arose when the petitioners wanted to move the cabin on Lot F to another portion on Lot F.  They planned to fund this cabin-moving venture by selling Lot E, but the above-mentioned merger clause had other plans.  With the merger provision preventing the petitioners from selling or developing the lots separately, the petitioners sought a variance to allow the plan to continue.  The St. Croix County Board of Adjustment denied the requests and the state courts affirmed.

Following the denial of their variance requests, the petitioners filed the action at issue in Wisconsin state court, alleging the regulations effected a “regulatory taking” by “depriving them of all, or practically all, of the use of Lot E because the lot cannot be sold or developed as a separate lot.” After both petitioners and the state submitted appraisals of the lots, both separate and together, the Circuit Court of St. Croix County granted summary judgment in favor of the State, explaining the petitioners still had other ways to use and enjoy their property.  The Wisconsin Court of Appeals affirmed the lower court’s decision, rejecting the petitioner’s request to have the takings analysis focus on Lot E as a distinct piece of property.  Rather, the court analyzed the effects of the regulation on the petitioners’ “property as a whole,” with Lot E and Lot F forming a single parcel.

Because a takings analysis requires courts to compare the value taken from a property with the value that remains, the denominator can make or break a regulatory takings claim.

This idea of viewing “property as a whole” began with the Supreme Court’s decision in Penn Central Transportation Co. v. New York City.  In that case, Penn Central owned Grand Central Terminal, which had been designated as an historical landmark.  This landmark status affected Penn Central’s right to modify the structure.  Penn Central entered into a 50-year lease with a third party who planned to erect a multistory building on top of Grand Central.  Plans for the project were submitted, but ultimately denied.  Penn Central filed an action alleging a regulatory taking.  In deciding the case, the Supreme Court considered both the nature of the action complained of and the extent of the interference with the rights in the parcel taken as a whole.

The first step in any takings analysis is to find what, exactly, is the property at issue. This is known as the denominator problem, and since Penn Central, the denominator analysis has focused on the parcel as a whole rather than particularized rights or portions of property.  In Penn Central, the appellants claimed that the regulations had stripped them of all present and future air rights.  The parcel as a whole analysis does not allow for this separation of property rights in a takings analysis. Because a takings analysis requires courts to compare the value taken from a property with the value that remains, the denominator can make or break a regulatory takings claim.

The Supreme Court was presented with several arguments on how this denominator problem should have been solved in the Murrs’ case.  The petitioners argued that the merger clause was a regulatory taking of Lot E.  They argued that in deciding which property is at issue, courts should look at the lot lines of the parcel for which the taking has allegedly occurred.  On the other side, the state of Wisconsin argued that the denominator problem should be solved by looking to state and local laws.  Under this approach, the state’s and county’s merger provisions would find that the two lots formed a single parcel.  Lastly, St. Croix County proposed that courts look to a number of factors to determine the denominator.

The Court used these factors and concluded that the Murrs’ parcels should be considered as a single parcel for the takings analysis.

Ultimately, the Supreme Court ruled against the Murrs, finding that there had not been a regulatory taking.  The Court, however, did not accept Wisconsin’s proposed denominator analysis.  Instead, the Court built its own standard, grabbing some inspiration from the analysis the county presented.  Under the standard set forth by the Court, the denominator inquiry is to be an objective one.  The Court presented three factors which are to be considered.

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“>Miriam Seifter, professor of law at the University of Wisconsin, summed up the new denominator standard:  “The court’s prescribed test includes three factors: [1] the treatment of the land under state and local law; [2] the physical characteristics of the land; and [3] the prospective value of the regulated land. With regard to the third factor, the analysis should give ‘special attention to the effect of burdened land on the value of other holdings.’”

The Court used these factors and concluded that the Murrs’ parcels should be considered as a single parcel for the takings analysis.  According to the Court, when looking at the legitimate state and local merger regulations, the physical characteristics of the properties, and “the prospective value that Lot E brings to Lot F,” it is clear that the two parcels should be seen as one for purposes of determining if there has been a regulatory taking.

Here, all of these factors pointed in favor of the Murrs’ property being most reasonably treated as a single parcel for takings analysis;  however, this factor balancing test is destined to cause confusion when the facts of a case point to some factors leaning in the government’s favor and some in the property owner’s favor.  Justice Kennedy stated in his opinion that no simple test would suffice to determine the proper denominator, but this muddled mess will likely be no better.