Stealth Takings: Inverse Condemnation

JurisdictionUnited States,Federal
CitationVol. 84 No. 1 Pg. 32
Pages32
Publication year2015
Stealth Takings: Inverse Condemnation
No. 84 J. Kan. Bar Assn 1, 32 (2015)
Kansas Bar Journal
January, 2015

By Mary Feighny

Eager to cash in on the surfeit of aging Boomers looking to downsize but not ready for a shuffleboard and scooter community, your client is developing "Heaven's Door," an upscale gated community with a Whole Foods, Starbucks, and a Dr. Oz Low T clinic.

The problem is that the city's planning department is insisting that the property earmarked for the organic cowpea garden be dedicated and used by the developer for Tough Mudder events[1] as part of the city's strategic plan to retain the young and healthy.

Developer: "Can they do this?"

You: "Hmm." (Having no clue, but content in the knowledge that your law clerk will Google it and come up with a 50-page memo to be billed at partner rate).

You: "This will require considerable thought and analysis. Sign here."

Later, after checking your firm's Facebook "likes," you recall a KBA Journal article[2] about eminent domain. You know that the government cannot take private property for a public use unless the owner is compensated. Yet, the city hasn't approached your client with an offer of compensation or filed an eminent domain action. What is the city waiting for?

This article will address inverse condemnation actions and provide guidance in evaluating claims in which private property is the subject of regulation or restriction that impairs the owner's ability to use her property or in which property damage results as a consequence of a public improvement project.

An inverse condemnation action is available when a state or local government has "taken" private property for public use without going through the formality of an eminent domain proceeding. If a taking is established, the property owner is entitled to the same compensation the owner would have received if an eminent domain proceeding had been filed.[3]

Inverse condemnation is grounded in the Takings Clause of the Fifth Amendment to the U.S. Constitution that prohibits the taking of private property for public use without "just compensation."[4] The premise is that the government should not force some people to bear a public burden which should, in all fairness, be shared by the public as a whole.[5]

However, determining whether a "taking" has occurred is often difficult because of the government's authority to exercise its police power to regulate and restrict property use with no obligation to compensate the owner.[6]

Property Interest

In order to succeed in an inverse condemnation action, the plaintiff must establish that the property in question is one in which a vested interest exists.[7] For example, a vested interest includes long term leases[8] but not contractual wind rights dependent upon issuance of a conditional use permit.[9]

Types of "Takings"

Whether a "taking" has occurred is a question of law.[10] There are five types of "takings." The most easily recognizable one is also the rarest ― when the government itself physically appropriates private property[11] ― as when the federal government seized the coal mines in 1943 to prevent a coal miner strike.[12]

The more nettlesome "taking" issues involve government regulation that substantially impairs the ability of the owner to use his property.[13] The problem, as mentioned earlier, is determining whether the government's exercise of its police power has gone so far as to constitute an appropriation of the property. The U.S. Supreme Court has eschewed a set formula so courts, by necessity, make determinations based upon the circum-stances,[14] which require evaluating the regulation's economic impact and the degree to which it interferes with legitimate property interests.[15]

Regulatory takings are of four stripes. The first occurs when the government requires an owner to suffer a permanent physical invasion of his property without compensation.[16] An example is Loretto v. Teleprompter Manhattan CATV Corp.,[17]in which the New York state legislature, in an effort to facilitate expanding cable TV to tenants, enacted a law requiring all landlords to permit cable companies to install cable facilities in apartment buildings.

The second type ― commonly referred to as a "total regulatory taking" ― is a regulation whose effect is to deprive the owner of "all economically beneficial use" of the property.[18] The seminal case is Lucas v. S.C. Coastal Council,[19] in which the plaintiff purchased two beachfront residential lots on which he intended to build single-family homes. Two years after his purchase, the South Carolina legislature, in an attempt to reduce erosion in certain coastal areas by curbing development, enacted a law that effectively barred the plaintiff from building residences, which made his property valueless.

The U.S. Supreme Court disagreed with the state supreme court's conclusion that compensation was not required because the legislature was simply exercising its police power to mitigate harm to the public interest that the plaintiff's land use might cause. Rather, the Supreme Court concluded that the South Carolina Supreme Court had failed to include in its analysis whether the proposed use would have been permissible under property law and public nuisance principles.[20] If the proposed use would have been permissible, the property owner is entitled to compensation if the property's only economically productive use is lost.

Lucas is limited to situations in which the regulation or restriction is permanent and removes all productive or economically beneficial use.[21] Kansas appellate courts have rejected the application of Lucas in zoning matters because zoning rarely precludes all uses for the subject property.[22]

Finally, when determining whether all beneficial use is removed, a court will look at the entire parcel rather than dividing the parcel into segments and attempting to determine whether the rights in a particular segment have been abrogated (e.g., right to hunt on one's property only one facet of the bundle of rights associated with property).[23]

If Lucas doesn't apply, then the case is evaluated under the troublesome tenets established in Penn Central Transp. Co. v. New York City.[24] Those tenets delve into "complex factual assessments of the purposes and economic effects of government actions."[25]

In Penn Central, the owner of Grand Central Station contended that New York City's Landmarks Preservation Commission had "taken" its property without just compensation when the Commission refused to allow the owner's lessee to construct an office building on top of the station. Concluding that no "taking" had occurred, the U.S. Supreme Court considered several factors in examining the burden on private property rights: (1) the economic impact of the regulation; (2) interference with the owner's reasonable investment-backed expectations; and (3) the character of the government action.[26]

The Court also rejected the proposition that a "taking" occurs when an owner is unable to exploit a property interest (i.e., the air space rights) that may be available for development, as being contrary to the property "as a whole" concept.[27]

The Kansas Supreme Court applied the Penn Central tenets to reject a "takings" argument for the City of Salina's 33-month moratorium on the construction of driveways and other improvements within certain rights-of-way in an improvement project area.[28] The Court has also rejected Penn Central "takings" claims in zoning,[29] property demolition,[30]and nuisance matters.[31]

The last type of regulatory "taking" occurs in land-use cases when the government conditions approval of a land-use permit on the owner's relinquishment of a portion of the owner's property (i.e., the Tough Mudder situation). Compensation is required unless there is a "nexus" and "rough proportionality" between the government's demand and the effect of the land use.[32]

The "nexus" requirement was spawned in Nollan v. California Coastal Commn,[33] in which the California Coastal Commission conditioned its permission for demolition of a bungalow and construction of a larger house on the owner's donating an easement designed to connect two public beaches separated by the Nollans' property. The Commission maintained that the easement was necessary to minimize the blocking of the ocean view caused by construction of the larger house.

The U.S. Supreme Court determined that a "taking" had occurred because of an insufficient "nexus" between a legitimate government interest ― visual access to the ocean ― and the requirement that the public be allowed to walk across the Nollans' beachfront lot.

Seven years later, in Dolan v. City of Tigard,[34] the Supreme Court addressed the sufficiency of the "nexus." In Dolan, the property owner applied for a building permit to double the size of her plumbing and electrical supply store and pave a 39-space parking lot. As in Nollan, the city conditioned the permit on Dolan dedicating a portion of her property lying within the floodplain for improvement of the storm drainage system and an additional strip of land as a pedestrian/bicycle pathway.

While the Court found that a nexus existed, its sufficiency was lacking because there was no "individualized determination that the required dedication [was] related both in nature and extent to the impact of the proposed development."[35] For example, the city didn't articulate why a public greenway, as opposed to a private one, was required in the interest of flood control and failed to meet its burden of demonstrating that the additional number of vehicles and bicycle trips generated by the development reasonably related to the requirement for a dedication of a pedestrian/bicycle easement.[36]

The lesson of Nollan/Dolan is that a municipality cannot require, without compensation, that a property owner dedicate part of his property...

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