CHAPTER 8 APPLICATION OF THE LAW OF "TAKINGS" TO RESTRICTIONS ON MINERAL DEVELOPMENT

• Jurisdiction: United States

Mineral Development and Land Use
(May 1995)
CHAPTER 8
APPLICATION OF THE LAW OF "TAKINGS" TO RESTRICTIONS ON MINERAL DEVELOPMENT
Barton H. Thompson, Jr. ^*
Stanford Law School
Stanford, California

I. INTRODUCTION

Since 1980, the United States Supreme Court (joined by a number of federal and state courts) has embarked on a new and active defense of property rights under the "takings protections" of the federal Constitution. After several decades of upholding virtually all property regulations in the face of takings challenges, the Court has created several categories of virtual "per se" regulatory takings and breathed new life into the takings protections.

How the Court's new activism will affect expanding restrictions on mineral development, however, is open to question. Most of the Court's recent cases have involved regulation of real property and have reflected an apparent unease with growing environmental and "public access" demands. In the one recent case to deal with mineral restrictions, the Court bucked its own proproperty rights trend and upheld a Pennsylvania statute that required coal mine operators to keep up to 50 percent of their coal in place and to repair surface damage caused by subsidence even if surface owners had waived their rights.¹ To reach this result, moreover, the Court had to distinguish the foundation of modern takings jurisprudence—Pennsylvania Coal Co. v. Mahon,² in which Justice Holmes held that a remarkably similar Pennsylvania statute required compensation.³ The Court's new activism, nonetheless, provides mineral developers with a set of potentially winning arguments against certain forms of regulations.

The new activism also raises a variety of difficult questions regarding the proper dividing line between noncompensable regulatory exercises and compensable takings. Courts have never had an easy time determining this dividing line, partly because drawing

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the line often requires the courts to determine who should bear the burden of unforeseen technological, societal, or economic changes. Because the current takings jurisprudence was developed to address the regulation of real property, moreover, mineral regulations add a further layer of complexity. Doctrines that make at least some semblance of sense in the context of real property can yield unique conundrums when applied to mineral interests.

This paper begins, in Part II, by outlining the current trends in the views of the United States Supreme Court and a number of lower courts regarding when the regulation of real property constitutes a taking for which just compensation must be paid. Part III then provides a brief summary of the type of mineral regulations that have been challenged in recent cases and the typical disposition of the challenges. The paper then looks in more detail at some of the issues that arise in mineral cases. Part IV considers the question of whether the owner of a mineral interest has the same degree of protected property as the owner of real estate. Part V looks at how courts have applied current takings tests to mineral cases. Part VI briefly examines current legislative efforts to expand compensation rights. Finally, Part VII comments briefly on parallel Contract Clause challenges that might be lodged against regulations of mineral development.

II. A BRIEF OVERVIEW OF CURRENT TAKINGS JURISPRUDENCE AS APPLIED TO REAL PROPERTY

A. Pre-1980: The High Tide of Ad Hoc Balancing

In Penn Central Transportation Co. v. New York City,⁴ the United States Supreme Court rejected the view that there was or could be "any 'set formula' for determining when 'justice and fairness' require that economic injuries caused by public action be compensated by the government."⁵ The Court urged that takings cases must instead be handled as "ad hoc, factual inquiries" in which a number of different factors are weighed and balanced—including the "economic impact" of the governmental action on the property owner, the extent to which the action "has interfered with distinct investment-backed expectations" of the owner, and the "character" of the action (e.g., does it result in a "physical invasion" of the property).⁶ This balancing approach was, and still is, favored by many state high courts.

B. 1980-Today: A Search for More Crystalline Rules

The United States Supreme Court has not totally abandoned its ad hoc, balancing approach to determining when there has been a

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regulatory taking. But over the last fifteen years, the Court has tried to add some structure to its jurisprudence—in part by creating a few effectively "per se" categories of takings.

1. Interference with core property interests.

In Loretto v. Teleprompter Manhattan CATV Corp.,⁷ the Court created its first "per se" category and, in the process, stratified takings analysis according to the character of the governmental action under attack. According to Loretto, takings analysis varies dramatically depending on whether a governmental regulation results in a "permanent physical occupation" of property, a "temporary physical invasion" of property, or neither.⁸ Regulations that result in "permanent physical occupations," according to the Court, are essentially the same as governmental condemnations and thus are per se takings.⁹ Where there is merely a "temporary physical invasion," there is a "governmental invasion of an unusually serious character," presumably pointing toward a taking, but not necessarily being a taking; some balancing still must occur.¹⁰ Finally, where there is no physical occupation or invasion, the Court indicated that we're back at the Penn Central balancing test (and, some of the Court's language suggested, will seldom find a taking).

Since Loretto, federal decisions have shed no additional light on the Supreme Court's tenuous distinction between "permanent physical occupations" and "temporary physical invasions." Federal courts, however, have continued to hold that virtually all governmental orders that deprive landowners of their right to exclude others from their property constitute takings.¹¹

Few mineral regulations are likely to involve physical "occupations" or "invasions." According to the Court in Loretto, however, physical occupations or invasions constitute particularly serious intrusions into property rights because a property owner's right to exclude others from his property is "one of the most essential sticks in the bundle of rights that are commonly characterized as property."¹² This logic raises the question whether there are other "essential sticks" in a property owner's bundle of rights that are also categorically protected against

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governmental regulation (perhaps varying across types of property). Could a mineral holder, for example, argue that the right to extract a mineral is as, or even more, essential of a "stick" in his "bundle of rights" than the right to exclude?

Courts, unfortunately, have not pursued this possibility. In Hodel v. Irving,¹³ the Court suggested that the "right to pass on property" at one's death is also a core property interest and that any regulation abolishing that right is a per se taking. In more recent takings cases, however, the Court has never referred to Hodel and has listed only the right to exclude as a core property interest.¹⁴

The Court, moreover, has indicated that courts should narrowly interpret even the "physical occupation" test. Whenever the Court creates a special "per se" category, attorneys for property owners naturally try to fit every possible regulatory action into the category. In Yee v. City of Escondido,¹⁵ plaintiffs argued that a city ordinance imposing below-market rental rates for mobile home pads, when combined with state laws that made it virtually impossible to evict mobile home tenants, effectively gave the tenants a fee interest in the land and thus constituted a physical taking. Two federal circuit courts of appeal had agreed with this argument.¹⁶ The Supreme Court, however, disagreed (although it left open the possibility that the plaintiffs could establish a regulatory taking through the Penn Central balancing test).

2. Destruction of all economically viable use.

In 1992, the Court enunciated another per se test: regulations that deny a property owner all "economically viable use of his land" require compensation without any need for case-specific balancing. Although the "economically viable use" test seems quite narrow on the surface, it could well provide mineral developers with a means of challenging a number of regulations. Unfortunately, the opinion that announced the rule raised more questions than it answered and has already spawned considerable litigation in the lower courts.

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In Lucas v. South Carolina Coastal Council,¹⁷ the South Carolina Coastal Council banned all construction of occupiable improvements along certain stretches of the state's coast. The Council acted pursuant to the state's Beachfront Management Act, in which the South Carolina General Assembly found that the banned beachfront development would "jeopardize the stability of the beach/dune system, accelerate erosion, and endanger adjacent property."¹⁸ David Lucas had purchased two unimproved residential lots in the ban zone for $975,000 prior to the ban. Under the ban, Lucas could build some nonhabitable structures on the lots—e.g., "wooden walkways no longer in width than six feet" and "small wooden decks no longer than one hundred forty-four square feet." But he could not build a house anywhere on the lots. Lucas therefore claimed, and the trial court found, that the state had "deprive[d] Lucas of any reasonable economic use of the lots, ... eliminated the unrestricted right of use, and rendere[d] them valueless."

The South Carolina Supreme Court, nonetheless, held that the ban did not constitute a taking. According to the court, a regulation designed to "prevent serious public harm" is never...