A new time for denominators: toward a dynamic theory of property in the regulatory takings relevant parcel analysis.

Author:Wright, Danaya C.

    Despite the United States Supreme Court's 25 years of fierce forays and rapid retreats in the battle over property rights and the Takings Clause, two intractable theoretical problems have eluded the Court's attempts to provide guidance for state actors (1) as to when a regulation will, in the words of Justice Holmes, "go[] too far." (2) Those two problems lie in identifying the relevant parcel against which a property restriction will be weighed (i.e., the parcel as a whole, relevant parcel, or denominator), (3) and in determining the relevance of the timing of a regulation when analyzing the extent and reasonableness of a landowner's expectations of unregulated use for compensation purposes. (4) The first is a question about how we identify the quantum of property "taken" by a regulation; is it one toothpick out of a very large bundle of property rights, or is it the entirety of a relatively small bundle? The second is a question about the fairness of changing land-use regulations midstream, so that a person who purchased land under one regime might be entitled to compensation when a new, stricter regime significantly diminishes the uses she can make of her land. These two issues merge together when takings jurisprudence demands that we identify the relevant parcel at some specific regulatory moment in time.

    To date, the relevant parcel analysis has been a static snapshot of the property owner's holdings and her expectations for future development at a single point in time--when the regulation goes into effect or is applied to her land (i.e., the regulatory moment). The parcel determination requires identification of the relevant denominator in both physical and conceptual space--its size and dimensions as well as the legal use and development rights that are attached to it at the regulatory moment. (5) But while courts have wrestled for nearly 25 years with identifying the physical and conceptual parcel, they have generally ignored, until-recently, the temporal aspect of the timing of the regulation as it relates to a landowner's holdings over time. (6) Traditionally, this timing issue has been limited to a determination of whether the relevant parcel was acquired prior to the regulatory moment, and to a determination of the consequent expectations a landowner might form of unrestricted development opportunities. (7) Because the timing calculation has almost always limited the relevant parcel to the ownership interests at the time the regulation takes effect, (8) the relevant parcel determination has become a calculation of a static, independent condition. Once the parcel has been determined, courts look at the effects of the regulation on the parcel at the moment after enactment.

    Identifying the parcel at the time of regulation, however, obscures the way property ownership is a dynamic process in which actions prior to enactment of the regulation, which reduce or increase a landowner's susceptibility to harm from the regulation, can be an important variable in whether a regulation goes too far. (9) The United States Supreme Court modified slightly its position that the timing of the regulation is a fixed determinant when it rejected the categorical rule that no recovery is allowed if the land is acquired after the regulation is enacted. (10) The Court looked forward, past the regulatory moment in the unusual postregulation acquisition case of Palazzolo v. Rhode Island (Palazzolo). (11) The fairness involved in denying a categorical rule, however, calls for a temporal symmetry--the Court should look backwards at landowner actions that occurred before the regulatory moment in determining regulatory impact. It should relinquish its position that acquisition of land before a regulation is enacted means a landowner is a passive, innocent (12) victim of the harms (13) of regulatory change. While not all landowners who purchased land before a regulation limited their uses will be entitled to compensation under our federal takings jurisprudence, there exists a presumption that prior purchasers are all equally innocent in bringing about the change and that, therefore, the only constitutional concern is the direct impact of the regulation on the land's uses and value. Equal innocence in causing the regulation translates into equal rights to compensation for equal harms. I argue in this Article, however, that not all landowners who purchase before a regulation is enacted are innocent and therefore deserving of compensation even when the harms are uniform. (14) To support this claim, I propose that the Court look more closely at the dynamic nature of property ownership over time in the relevant parcel analysis. (15) In doing so, the Court will find that the denominator and the timing issues can be integrated in a principled and coherent manner.

    The most-cited concern with looking backwards to actions by landowners before a regulation is enacted is that doing so raises the possibility of treating similarly situated landowners differently. Hence, the retiree to Florida who buys a single lot for construction of his retirement home and the large developer who has developed and sold off all but one remaining lot might be treated differently if construction permits are denied for each lot and prior actions are taken into account. Because each landowner may own only that one lot, and may ultimately suffer the same economic loss--even a 100% economic loss--courts and commentators reasonably argue that both should be treated equally in a takings calculation. Under the Court's current rules, the denominator would be calculated to be the single lot owned by each at the moment of permit denial. But I would suggest that these two landowners are not similarly situated when we view their use and ownership of land over time, when we recognize that value is not determined by reference to a static set of land uses, and that any notion of fairness cannot be determined by a snapshot view of events divorced from their temporal and physical surroundings. Ironically, some commentators have criticized the parcel-as-a-whole rule because it "discriminates against those who happen to have a larger group of property rights in a single place." (16) This Article suggests that it would be unreasonable, unfair, and discriminatory to treat different landowners the same because we have failed to recognize their evolving actions and land holdings. The Florida retiree and the land developer are not equally innocent victims of regulatory harm.

    The Court's current rule, which seems to be an implicit adoption of federal circuit and state court decisions on an issue that it has not directly explicated, appears to establish a bright-line rule. The total relevant property owned at the regulatory moment is deemed to be the appropriate quantum of property to be used in the takings calculation. But like most bright-line rules, it risks being over- and under-inclusive. In many cases the relevant parcel determination, which is often made as an initial threshold matter, actually makes or breaks a case. (17) Despite its core relevance, the Supreme Court has failed to develop a rule, standards, or even guidelines that might treat landowners more fairly because reliance on bright-line rules often seems more equitable, and no principled theory has been suggested for changing the rule, or for justifying doing away with it altogether.

    The current approach is inequitable for numerous reasons discussed herein, and I ultimately favor a certain amount of fluidity in takings calculations (or "muddiness" as some have called it). (18) Doing away with a bright-line rule allows for more case-specific considerations of fairness and can avoid slippery slope problems by adoption of a set of parameters within which the parcel determination can be maintained and philosophically justified. Moreover, gut-level fairness is still the ultimate criteria behind regulatory taking doctrines and Justice Holmes's magic threshold of holding accountable regulations that go too far.

    The current approach to the denominator issue is also incoherent and illogical. To the extent prior actions of landowners that make themselves more vulnerable to regulatory harm are excluded from the denominator determination, horizontal and vertical severance issues are profoundly in tension with rules of fairness and equity. Additionally, to the extent functional severance of the relevant parcel into discernable rights--like the rights to exclude, descent, and devise--is tied to economic value, the Court's miles threaten to undermine our private property regime. And finally, a snapshot theory of regulatory takings that ignores the dynamic nature of property over time artificially attributes harm to a regulation when, in fact, the harm is the result of a complex series of events and actions to which the state must respond flit seeks to maintain its legitimacy. (19)

    In formulating a theory for addressing the relevant parcel problem and the timing problem, I look to other areas of property law for a different way of thinking about the impact of regulations on property rights, primarily the common law of lateral support, unity of title, and quiet enjoyment. In particular, I propose that courts look to the voluntary actions of landowners who sever their property--either physically, conceptually, or temporally--as relevant factors in determining whether a land-use regulation goes too far. (20) Courts generally ignore earlier property holdings and prior sales when determining the relevant parcel, as...

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