8 Inverse Condemnation

• Library: Eminent Domain: A Handbook on Condemnation Law (ABA) (2011 Ed.)

James G. Greilsheimer and Cynthia Lovinger Siderman

In inverse condemnation the property owner, not the government, institutes the proceeding, seeking to recover under the Fifth Amendment just compensation for the taking or reduced value of its property that the government has not formally condemned.¹ An inverse condemnation sometimes is termed a de facto taking or a regulatory taking. The standard defense is that the government action was a proper exercise of the police power for which no compensation is due. Over 80 years ago Justice Holmes provided the theoretical framework for that defense: "Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law," but "[t]he general rule, at least, is that while property may be regulated to a certain extent, if regulation goes too far, it will be recognized as a taking."²

To this day inverse condemnation is decided on an ad hoc basis other than when there is a per se taking through an actual physical occupation or where the government action results in a total deprivation of the use of the property. In reviewing the government's action, the courts consider whether the action would "forc[e] some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."³

Police Power

To place the issue in context, we briefly review the concept of police power. Over 100 years ago, the United States Supreme Court explained:

It belongs to [the legislative] department to exert what are known as the police powers of the state, and to determine, primarily, what measures are appropriate or needful for the protection of the public morals, the public health, or the public safety.⁴

A court may look to the economic impact on property as to whether a taking has occurred. It should consider whether the public interest outweighs the individual property interest in deciding whether there has been a proper exercise of the police power.⁵ Examples of valid use of the police power include regulations requiring the cut-down of red cedar trees to prevent the spread of rush or plant disease,⁶ regulations controlling dredging and pit excavating,⁷ and occupancy of buildings to protect from destruction by rioters.⁸ A regulation to prevent a noxious use cannot by itself determine whether a regulatory action amounts to a taking because "regulation that 'prevents harmful use' and that which 'confers benefits' is difficult, if not impossible, to discern on an objective, value-free basis."⁹

DEFINITION OF AN INVERSE CONDEMNATION

Assuming standing and justiciability, the first and most difficult step in an action for an inverse condemnation, or de facto taking, is to show a "taking." The Supreme Court in Lingle v. Chevron U.S.A. Inc. found four types of regulatory takings: (1) government's "physical" occupation or invasion of an owner's property; (2) government action that deprives the owner of all economically beneficial use of the property; (3) government action that, under the fact-based inquiry of Penn Central Transportation Company v. City of New York,¹⁰ otherwise economically burdens the property owner including investment-backed expectations and the nature of the government action effects a taking; and (4) "land use exactions," whereby the government conditions a permit or other approval on the owner's agreement to dedicate all or part of its property to a public use.¹¹ Lingle deems the first two categories per se or categorical takings.¹² The Lingle Court declared that whether a taking has occurred does not depend on whether the government action substantially advances a legitimate state interest and does not analyze what the burden of the taking on the landowner would be.¹³ The "substantially advances test" still has relevance in due process claims.¹⁴

Physical Occupation or Invasion

A permanent physical occupation of an owner's property is a taking, without regard to public benefit or economic impact on the owner.¹⁵ A government permanently occupies an owner's property where it deprives the owner of the rights to possess the property, to exclude anyone from the property, to use the property, and to transfer the property.¹⁶ The size of the occupation, no matter how small, is not determinative.¹⁷ For example, in Loretto v. Teleprompter Manhattan CATV Corporation,¹⁸ the Supreme Court found a physical taking where the appellee cable television company installed a "'cable slightly less than one-half inch in diameter and of approximately 30 feet in length along the length of the building'" as well as "two large silver boxes along the roof cables."¹⁹ It is interesting to note, however, that the Second Circuit Court of Appeals recently decided not to extend the Loretto rule to cover an order by the Federal Communications Commission directing cable operators to carry signals of certain broadcast stations. The Second Circuit held such an order was not a physical taking under Loretto because "transmission of [the station's] signal does not involve a physical occupation of Cablevision's equipment or property."²⁰

A physical invasion of property can constitute a taking of property even if not a permanent physical occupation. In United States v. Causby,²¹ the frequent and regular flights of the government's low-flying aircraft over the property owner's land destroyed the property's use as a chicken farm and was a taking within the meaning of the Fifth Amendment.²²

In Air Pegasus of D.C., Inc. v. United States,²³ the Federal Aviation Administration banned all commercial air traffic nationally in the days following the terrorist attacks of September 11, 2001.²⁴ The FAA extended that ban permanently to much of the airspace above Washington, D.C., including the area above Air Pegasus' heliport, forcing Air Pegasus to shut down temporarily and then permanently. Air Pegasus lost its claim alleging a regulatory taking of its property.²⁵ The United States Court of Appeals for the Federal Circuit held that because navigable airspace is part of the public domain and that Air Pegasus had no property interest in that airspace, there was no taking of private property requiring just compensation.²⁶ The difference between Air Pegasus and Causby is that the landowner in Causby was not claiming an interest in the navigable airspace, as the court found in Air Pegasus, but rather its interest in the land. In Causby, airplanes were flying at such a "low altitude" that "continuous invasions of [the land] affect the use of the surface of the land itself."²⁷ The Causby Court stated that the landowner "must have exclusive control of the immediate reaches of the enveloping atmosphere."²⁸

A property's physical invasion by water can be a taking.²⁹ The invasion of noise upon a property may also be compensable as a taking.³⁰

Deprivation of All Economically Viable Use

While earlier decisions spoke of a "'direct appropriation'" of property or the "functional equivalent of a 'practical ouster of [the owner's] possession,'" the law now includes less physically obtrusive regulations of property as compensable takings.³¹ The seminal case of Lucas v. South Carolina Coastal Council³² holds that the deprivation of all economically viable uses of an owner's property is a de facto taking. Lucas purchased two lots in 1986 on the Isle of Palms in Charleston County, South Carolina, to build single-family residences.³³ South Carolina thereafter passed a Beachfront Management Act prohibiting "any permanent habitable structures" on the property.³⁴ Lucas brought suit alleging an unconstitutional taking without just compensation.³⁵ The Court ruled that the deprivation of all economically viable uses of the property would be a taking and remanded for findings whether the regulation would "do no more than duplicate the result that could have been achieved in the courts—by adjacent landowners (or other uniquely affected persons) under the State's law of private nuisance, or by the State under its complementary power to abate nuisances that affect the public generally, or otherwise."³⁶

On remand, the Supreme Court of South Carolina held that the Coastal Council had shown no common law basis to restrict Lucas from constructing a habitable structure on his land, and thus Lucas was entitled to damages.³⁷ As the Act was amended during the pendency of Lucas's appeal to allow "special permits" for the construction of habitable structures, the Supreme Court of South Carolina found only a temporary taking, commencing from enactment of the 1988 Act to the entry of that court's order.³⁸ The Court remanded the case to the trial court to make findings of fact necessary to calculate the damages owed to Lucas for a temporary taking.

Lucas leaves open the question of what percentage of the property's value must be lost to constitute a taking. Justice Stevens criticized the majority opinion because it would not allow recovery for a landowner whose property was 95 percent decreased in value.³⁹ The majority opinion responded, however, that only "some" of those 95-percent cases will not succeed in proving a taking, and that the owner's investment-backed expectations "are keenly relevant to takings analysis generally."⁴⁰

Penn Central Takings

Governmental regulations or actions that do not amount to a physical occupation or invasion of an owner's property or a deprivation of all economically viable use of property (categorical takings) fall into a third category described in Penn Central Transportation Company v. City of New York.⁴¹ The city enacted a legislative scheme to designate certain buildings as landmarks, restricting owners' use of such prop-erty.⁴² City zoning law allowed the owners to transfer developmental rights to contiguous parcels on the same city block.⁴³ Penn Central owned Grand Central Terminal, designated a landmark in 1967.⁴⁴ Penn Central then applied under the legislative scheme to build either a 55-story building or a...