The end of environmental law? Libertarian property, natural law, and the just compensation clause in the Federal Circuit.

• Author: Blumm, Michael C.
• Position: Includes discussion - Colloquium on Dolan: The Takings Clause Doctrine of the Supreme Court and the Federal Circuit

"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."

Justice Holmes, in Pennsylvania Coal Co. v. Mahon(1)

"The more often the government must pay for exercising control over private property, the less control there will be. That is the reality.... Ownership of property carries responsibilities to the community as a whole as well as privileges."

Chief Judge Nies, dissenting in

Florida Rock Industries v. United States(2)

1. INTRODUCTION

   We clearly are experiencing a judicial property rights revolution. In the past seven years, the Supreme Court has legitimized the concept of regulatory takings as a judicial check on land use and environmental regulation. The dimensions of this revolution remain unclear because the Rehnquist Court's pronouncements have not uniformly favored property owners. The Court has interpreted the Constitution's Just Compensation Clause(3) to require payment of compensation to landowners where regulations 1) abolished the right to bequeath property,(4) 2) required the dedication of public easements as a development condition,(5) and 3) eliminated all economic value by restricting development rights.(6) But it has rejected compensation claims where regulations 1) restricted mining to protect against subsidence,(7) 2) imposed a rent control ordinance allowing tenant hardships to factor into allowable rent increases,(8) and 3) imposed both rent controls and termination restrictions on landlords.(9)

   Some will see the Court's most recent pronouncement, in Dolan v. City of Tigard,(10) as an expansion of the Rehnquist Court's willingness to authorize the federal judiciary to serve as a "weapon of reaction" to ecological land regulation.(11) Although Dolan will increase the burden on government regulations to justify mitigation requirements as conditions for development approvals, the case does little to change the outlines of the Court's emerging just compensation law for regulatory takings. This is because Dolan, like most recent cases in which the Court has ordered payment of just compensation, is best understood as a physical occupation case.(12) Dolan will require regulators to increase the quality and quantity of 1;heir administrative records, which probably will produce an increased number of permit denials and certainly will increase developers, costs even when their projects are approved. These results are hardly the stuff of a property rights revolution.

   Considerably more revolutionary than Dolan are two 1994 decisions of the Federal Circuit, Florida Rock Industries v. United States,(13) and Loveladies Harbor, Inc. v. United States.(14) In Florida Rock, the court, in an opinion written by Judge Jay Plager, announced for the first time that a government wetlands regulation could violate the Just Compensation Clause if it worked a "partial taking" of property.(15) In Loveladies Harbor, also authored by Judge Plager, the court affirmed a trial court ruling that the relevant parcel of property for takings analysis was, at least under the facts of the case, only the wetlands burdened by the regulation, not the entire original tract owned and subsequently developed and sold by the landowner.(16)

   These two Federal Circuit decisions have ominous implications for federal wetlands regulation, indeed all federal environmental regulation, because they mean that virtually any federal restriction on development could work a partial taking, irrespective of how much profit a land development produced. The cases indicate that the Federal Circuit is prepared to impose much more exacting scrutiny on federal regulations than the Supreme Court has been willing to impose on state and local regulations. This is an anomalous result because federal regulations are much less likely than state and local regulations to suffer from the regulatory deficiencies which the Just Compensation Clause remedies.(17) Further, the two Federal Circuit results are inconsistent with the Supreme Court's recent just compensation clause decisions, which have emphasized physical occupations of property or their functional equivalent.(18)

   This Article explores the two Federal Circuit rulings in the context of recent Supreme Court precedent. Section II briefly reviews the most prominent Supreme Court precedent at the time of the Federal Circuit decisions, Lucas v. South Carolina Coastal Council.(19) Sections III and IV analyze Florida Rock and Loveladies Harbor, respectively, showing how large an extension of the Lucas rationale these cases represent. Section V suggests that the Federal Circuit's reasoning is inconsistent with the Supreme Court's recent emphasis on physical occupations, most recently confirmed in the Dolan case.(20) Section VI concludes by claiming that underpinning the Federal Circuit decisions is a radically libertarian view of property which countenances an unprecedented vision of judicial activism in reviewing land use and environmental regulations restricting development. The result is the creation of a kind of natural law of property development which has no basis in the text of the Constitution, the intent of the Framers, or the history of Anglo-American property law.

2. THE LUCAS LEGACY

   The Lucas decision generated a mountain of commentary,(21) which I will not retrace here. What is important for this analysis is simply what the Court did and did not hold. Lucas reversed a South Carolina Supreme Court decision that ruled there was no constitutional taking of private property when a state statute, enacted two years after a landowner paid nearly one million dollars for two beachfront lots zoned for residential use, barred construction of any permanent habitable structures on the lots.(22) The state court ruled there was no taking, regardless of the effect on property value, because the statute's objective of preventing public harm as a result of beach erosion fell within the longstanding nuisance defense to takings claims.(23) The Supreme Court reversed, in an opinion by Justice Scalia, holding that judicial deference to the legislature's declared nuisance-prevention purpose was unwarranted because it could effectively eviscerate all regulatory takings claims.(24)

   Having eliminated the nuisance defense to takings claims, Justice Scalia then somewhat unsuccessfully attempted to establish a new categorical rule requiring compensation for regulations that deny "all economically beneficial or productive use of land."(25) This new rule would join the Court's existing categorical takings rule concerning permanent physical occupations, which are compensable without regard to case-specific inquiry under the Court's balancing test.(26) Scalia's effort was somewhat unsuccessful because the new rule was subject to a significant caveat: no compensation is owed for a deprivation of all economic value if the regulation restricts a restricted use that was "not part of [the] title to begin with," such as when a regulation duplicates a result that could have been achieved under common law property and nuisance principles.(27) This caveat makes the constitutionality of regulation turn on a myriad of common law nuisance factors, such as the degree of harm likely to result from a landowner's proposed activity and the suitability of the use to the location,(28) thereby resurrecting case-specific factors that the categorical rule attempts to obviate. Despite the apparent indeterminacy of the new rule-the dissent in Lucas recognized that common law nuisance principles have been called an "impenetrable jungle"(29)--once a landowner proves a regulation deprives him of all economic use of his land, Lucas shifts the burden of proof concerning the constitutionality of a confiscatory regulation to the government, which must then show that such a restriction "inheres in the title" as a consequence of background principles of nuisance or property law.(30)

   Three aspects of the Lucas rule need emphasis for purposes of this inquiry. First, the Court emphasized that its ruling was limited to "relatively rare situations," that is, "the extraordinary circumstance when no productive or economically beneficial use of land is permitted."(31) In other words, the Lucas categorical rule applies only where regulations produce total economic wipeouts: in the opinion's words, "total taking[s]."(32) Justice Scalia made clear that the Lucas rule did not apply to a ninety-five percent wipeout, although he indicated that such a loss might require compensation under the Court's traditional formula of balancing the nature of the government action, its economic impact, and its effect on investment-backed expectations.(33)

   Second, the reason the Court confined the Lucas rule to total economic wipeouts was because it fashioned the rule on an analogy between total economic wipeouts and permanent physical occupations: "total deprivation of beneficial use is, from the landowner's point of view, the equivalent of a physical appropriation."(34) In both situations, the Court opined, the "asserted `public interests'" behind new regulations are irrelevant; what matters is preexisting restrictions upon property title.(35) Total economic wipeouts are like permanent physical occupations because resembling a condemnation, they effectively eliminate the range of use-options available to landowners.(36)

   The third point to emphasize about Lucas is that the background principles which can legitimize a complete regulatory wipeout without compensation are principles of state and federal common law.(37) For this reason the Court did not declare an unconstitutional taking in Lucas, but instead remanded the issue to the state courts.(38) Justice Scalia did say that permissible regulatory restrictions could be implicit, such as denying a landfill permit in order to promote flood control, or requiring decommissioning of a nuclear power plant on an earthquake fault; no...