9.2 Evolution of the Regulatory Taking Concept

• Library: Eminent Domain Law in Virginia (Virginia CLE) (2017 Ed.)

9.2 EVOLUTION OF THE REGULATORY TAKING CONCEPT

9.201 Pennsylvania Coal Co. v. Mahon. American courts have had a long and difficult struggle trying to define regulatory takings. Justice William Brennan once said that the Court's search for the point at which regulation amounts to a taking is as difficult as the physicist's hunt for the quark. Because this area of the law remains in flux, this chapter is intended to provide a starting point for further research.

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The entire notion of a taking by regulation is of relatively recent vintage. As stated by the Supreme Court in Brown v. Legal Foundation of Washington ⁴ :

Our jurisprudence involving condemnations and physical takings is as old as the Republic and, for the most part, involves the straightforward application of per se rules. Our regulatory takings jurisprudence, in contrast, is of more recent vintage and is characterized by "essentially ad hoc, factual inquiries," ⁵ designed to allow "careful examination and weighing of all relevant circumstances." ⁶

Indeed, it was not until the early 1920s that the Supreme Court extended the protection in the Fifth and Fourteenth Amendments to excessive governmental regulation of property. In Pennsylvania Coal Co. v. Mahon, ⁷ the Court reviewed an injunction granted to Mr. and Mrs. Mahon against the Pennsylvania Coal Company. The Mahons had purchased their property from the coal company but the deed granted them only surface rights while reserving unto the coal company the right to remove coal under the surface. The Mahons had been successful in obtaining an injunction prohibiting the coal company from mining under their house in such a way as to remove the supporting coal structure and cause a subsidence. The Mahons claimed that the coal company's retained right to mine under their house had been taken away by Pennsylvania's "Kohler Act" of 1921, which forbade the mining of anthracite coal in such a way as to cause subsidence of structures used for human habitation.

In reviewing the injunction, the Court deemed it necessary to decide whether destruction of the coal company's property right to mine under the Mahons' house could be justified by Pennsylvania's police power. Writing for the majority, Justice Holmes, recognized that while some values are enjoyed under an implied limitation and must yield to the police power . . . the implied limitation must have its limits or the contract ⁸ and due process

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clauses are gone. One fact for consideration in determining such limits is the extent of diminution. When it reaches a certain magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to sustain the act. ⁹

In language that invited future claims and set the stage for ad hoc decision-making, Justice Holmes continued:

So the question depends upon the particular facts. The greatest weight is given to the judgment of the legislature, but it always is open to interested parties to contend that the legislature has gone beyond its constitutional power ¹⁰ . . . . The 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. ¹¹

Given this lack of guidance, it is not surprising that, since Mahon, American courts have had a difficult time determining when a given regulation goes "too far" and requires compensation. The ad hoc nature of decision-making means that older Supreme Court cases remain relevant. One can expect a court to draw upon them while engaging in the particularized factual inquiry directed by Justice Holmes. Further, older cases are often employed by individual justices in concurring or dissenting opinions where it is difficult to glean a majority opinion. The evolution of Supreme Court regulatory takings jurisprudence since Mahon is summarized in the following paragraphs.

9.202 Years 1922 to 1978. The only rule to emerge from this period is that there is no set formula for determining when a regulation requires that compensation be paid. ¹² Still, several trends are noteworthy.

A. Regulation Must Provide "Fundamental Fairness" or "Average Reciprocity of Advantage." In Mahon, Justice Holmes ob-

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served that a regulation will require compensation if a landowner does not share in the public benefits of the regulation. ¹³ In ensuing years, the Court repeated the requirement that a regulation must assure a "fundamental fairness" or provide an "average reciprocity of advantage." ¹⁴ In other words, a regulation must provide some advantage to the complaining landowner so that the landowner is not saddled with a disproportionately greater burden for achievement of the regulatory objective.

B. Armstrong v. United States—Enforcement of Material-men's Liens. In Armstrong v. United States, ¹⁵ the Court found that the sovereign immunity bar to enforcement of materialmen's liens required payment of compensation. The materialmen had supplied materials to a prime contractor building boats for the United States. When the prime contractor defaulted, the United States exercised its rights to terminate the contract and to require the contractor to transfer the title of all work to it. The Court found that the liens, while valid, could not be enforced against the sovereign. The Court found that this sovereign immunity bar required compensation. Although it did not directly so state, the Court appeared to be concerned that the regulation in question would not confer some broader public benefit in which materialmen would share. It was, rather, the exercise of a contractual provision benefiting no one other than the United States in its contractual arrangements. ¹⁶ The Court concluded that:

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. A fair interpretation of this constitutional protection entitles these lienholders to just compensation here. ¹⁷

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The Court appeared to be concerned that the materialmen were left without a remedy for the destruction of their property when that destruction did not promote any police power from which they could benefit. The Court indicated that, in such cases, fairness requires that the public as a whole should pay the damages resulting from the United States' contractual arrangements. That burden should not fall solely upon the materialmen.

C. United States v. Fuller—Equitable Principles of Fairness. Although United States v. Fuller ¹⁸ was a physical takings case, the Court firmly embraced the principal that the "constitutional requirement of just compensation derives as much from the basic equitable principles of fairness . . . as it does from technical concepts of property law." ¹⁹

D. During War, Takings Can Go Uncompensated. During World War II, the War Production Board issued its Limitation Order L-208, ordering nonessential gold mines to close down to divert skilled workers and materials to the production of nonferrous metals. The Court held that compensation was not due, frankly observing that "[i]n the context of war we have been reluctant to find that decree of regulation which, without saying so, requires compensation to be paid for resulting losses of income." ²⁰ The Court continued that this is because "wartime economic restrictions, temporary in character, are insignificant when compared to the widespread un-compensated loss of life and freedom of action which war traditionally demands." ²¹

Although a physical taking case, United States v. Caltex (Philippines), Inc. ²² is instructive on how unlikely compensation is for devastating economic impacts caused by governmental acts during wartime. In Caltex, oil companies sought compensation for their oil terminal facilities that were destroyed by the United States in order to prevent the facilities from falling into Japanese hands as the Japanese advanced on the Philippines. Citing dictum from the post-Civil War case of United States v. Pacific Railroad, ²³ the

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Court held that the destruction of private property during wartime to impede the advance of the enemy is not compensable under the Fifth Amendment. ²⁴

E. Police Power Can Justify Drastic Reductions in Value. Notwithstanding what could be read as broader language in Mahon, the Court continued to suggest that a valid exercise of police power would continue to defeat takings claims, even where severe diminution in value was present. In Goldblatt v. Hempstead, ²⁵ the plaintiff failed to produce any evidence that the regulatory prohibition on excavations below a certain level would reduce the value of the property. Nevertheless, the Court continued to cite its pre-Mahon cases for the proposition that it is an "oft-repeated truism that every regulation necessarily speaks as a prohibition. If this ordinance is otherwise a valid exercise of the town's police powers, the fact that it deprives the property of its most beneficial use does not render it unconstitutional." ²⁶ Specifically, the Court elected, in dictum, to balance the economic impact concerns in Mahon against its precedent in Hadacheck v. Sebastian, ²⁷ "where a diminution from $800,000 to $60,000 was upheld." ²⁸

F. Thresholds Introduced. In this period, 1922-1978, the Court also introduced certain thresholds that must be satisfied by either the government or the landowner. These thresholds would reappear in later Supreme Court cases.

G. Landowner Must Possess the Regulated Property Right. In United States v. Willow River Power Co., ²⁹ the Supreme Court did not address the question of fundamental fairness or average reciprocity of advantage. Instead, it focused on whether the landowner possessed the property right of which it claimed to have been deprived. (In this case, the claimant power company was not entitled to...