Enough Is Enough, Unless of Course, It's Not: A Missed Opportunity to Reexamine the Ambiguity of Penn Central.

• Author: Jarosz, Jay T.

"In general it is not plain that a man's misfortunes or necessities will justify his shifting the damages to his neighbor's shoulders." (1)

1. INTRODUCTION

   The Takings Clause of the Fifth Amendment protects property owners' tangible and intangible interests by preventing the government from imposing public burdens on certain individuals without just compensation. (2) The Founders envisioned the Takings Clause as a way to compensate property owners whose tangible property was physically seized by the government. (3) In 1922, Justice Oliver Wendell Holmes expanded protections offered under the Takings Clause by stating land use regulations that go "too far" constitute a taking. (4) This was the first time the Court used the Takings Clause to address government regulations that interfered with private property. (5)

   The Supreme Court has developed three major tests to analyze takings claims involving regulations that economically impact private land. (6) Loretto v. Teleprompter Manhattan CATV Corp. showed how landowners may successfully bring a takings claim when a regulation causes a physical invasion to occur on one's land. (7) Likewise, Lucas v. South Carolina Coastal Council exhibited that a regulatory taking can occur when a regulation strips a property of its economic value. (8) Penn Central Transportation Co. v. New York City, however, provides an ad hoc balancing test for cases involving only partial diminution of a private property's economic value with little instruction as to how courts should apply the balancing factors. (9)

   The three-pronged test has faced criticism for its ambiguity and lack of guidance. (10) While the Supreme Court addressed the test briefly in recent cases such as Palazzolo v. Rhode Island and Lingle v. Chevron U.SA. Inc., (11) the Court has yet to thoroughly address the many questions raised about Penn Central, resulting in inconsistent reasoning and outcomes when courts apply the test. (12) Recently, in Smyth v. Conservation Commission, (13) the Massachusetts Appeals Court held that an owner of a residential lot could not recover just compensation after suffering a 91.5% economic loss on her property resulting from a wetland regulation implemented after her family purchased the lot. (14) The court used the Penn Central test and concluded that although the owner lost a portion of the value, she still possessed some economic value in the property, and therefore any just compensation would result in a "windfall," i.e., the owner receiving more compensation than necessary. (15)

   Although Penn Central provided an ad hoc framework for establishing regulatory takings claims, courts have struggled to consistently apply the test. (16) This Note will first examine the evolution of regulatory takings jurisprudence under the Takings Clause, as well as the three major tests used to analyze takings claims involving regulations that economically impact private property. (17) Next, this Note will discuss the Massachusetts Appeals Court's application of the Penn Central test in Smyth. (18) Finally, this Note will analyze the application of the Penn Central test and explain why Smyth would have been a perfect opportunity for the Supreme Court to reexamine Penn Central and provide much-needed clarity to the balancing test. (19)

2. HISTORY

   1. Historical Background of the Takings Clause

      Through the Fifth Amendment of the United States Constitution, the Takings Clause acts as a limitation to the federal government's inherent taking power. (20) It also applies to state governments through the Fourteenth Amendment. (21) The Takings Clause prevents the government from acquiring property for public use without providing just compensation to injured parties. (22)

      In 1875, the Supreme Court officially acknowledged the power of eminent domain, the government's power to take public land for private use, calling it "an inseparable incident of sovereignty." (23) The Court described eminent domain as an inherent power that every independent government possesses, needing no constitutional recognition. (24) This inherent power may still be limited by requiring that just compensation be paid to landowners when taking their property for public use. (25) States widely accepted the Takings Clause as "natural law," and many states recognized it even without it being formally written into their state constitutions. (26) Nevertheless, the exercise of eminent domain must provide some public benefit, especially when the taken property is transferred to private parties. (27)

      The government may not simply take property for the sole benefit of private parties, even if the owner of the taken land is justly compensated. (28) In it reasoning in Kelo v. City of New London, the Court provided the classic example of land being transferred to a railroad company with "common-carrier duties" as a valid transfer of taken land from one private party to another. (29) While the railroad company benefits from the land, the public will eventually benefit as well by using the railroad for some purpose such as delivery or transportation. (30) The holding in Kelo, where the land was transferred for the purpose of economic development, expanded the idea of "public use" to a broader standard of "public purpose." (31) This standard allows sovereignties to transfer land from one private party to another, provided that the public derives some benefit from the land, even when the benefit is not necessarily related to direct use. (32) This allowed states more leeway to exercise eminent domain for economic development purposes. (33) This decision was met with much political backlash and many states subsequently enacted restrictions on the power of eminent domain to avoid takings for the purpose of economic development. (34) As of 2019, forty-five states have enacted post-Kelo reforms. (35)

      In 1922, Justice Oliver Wendell Holmes described a new form of takings that can occur when government regulations infringe upon a landowner's economic use of property. (36) Justice Holmes explained that if a regulation infringes in a way that "goes too far," a regulatory takings claim may seek just compensation for the infringement. (37) Requiring just compensation acts as a limitation on the government's inherent power to regulate and prevents the government from placing public burdens on private landowners. (38) Many courts, however, have struggled to define what Justice Holmes meant by a regulation that "goes too far," while recognizing the impracticability of providing compensation for every regulatory taking. (39) As acknowledged in Pennsylvania Coal Co., it would be impossible for the government to properly function "if to some extent values incident to property could not be diminished without paying for every such change in the general law." (40)

   2. Major Regulatory Takings Tests

      The Supreme Court has frequently noted that the existence of "extreme circumstances" may establish a valid regulatory takings claim. (41) Nevertheless, the Court has consistently recognized the desire to place societal burdens on the public as a whole, rather than a few select property owners. (42) This belief became known as the "Armstrong Principle" and was one of the first principles of takings jurisprudence that the Court recognized. (43) Expanding on the Armstrong Principle, the Court has developed three major tests for examining regulatory takings claims. (44) The main goal of the tests is to determine whether a regulation acts as the "functional[] equivalent" of eminent domain. (45)

      In Penn Central Transportation Co. v. New York City, the Supreme Court established a test that analyzes three factors of a regulatory takings claim: the economic impact of the regulation on the property owner, the extent to which the regulation has interfered with the investment-backed expectations of the property owner, and the character of the governmental action being imposed by the regulation. (46) In Penn Central, the owner of Grand Central Terminal entered into a lease agreement that allowed the lessee to build a multistory building above the terminal. (47) A year prior to the lease agreement, New York City designated Grand Central Terminal as a "landmark" under the city's Landmarks Preservation Law. (48) This designation required owners of landmark properties to preserve the exterior features of the building and seek approval from the Landmark Preservation Commission (Commission) for any alteration of external features or construction of external improvements. (49) Accordingly, the owner and lessee applied to the Commission seeking approval of the proposed construction. (50) The Commission denied the application, stating "to balance a 55-story office tower above a flamboyant Beaux-Arts facade seems nothing more than an aesthetic joke," explaining that New York must try to preserve its limited landmark sites by only allowing additions or alterations that would enhance the landmarks, rather than divorce them from their original setting. (51) The owner and lessee brought a takings claim against the Commission, requesting injunctive relief and damages to compensate the taking of the property's development rights. (52)

      When deciding Penn Central, the Supreme Court had no "set formula" to analyze regulatory takings claims, and therefore set forth a balancing test, weighing three factors of the regulatory impact: the economic impact; the investmentbacked expectations of the property owner; and the character of the governmental action. (53) The Court recognized that the regulation interfered with the owner and lessee's development rights but proceeded to analyze the property as a whole, noting that its existing economic use without the proposed construction showed that the property's value was not completely diminished. (54) The regulation intended to promote general public welfare and did not restrict any existing use of the property; therefore, although the regulation caused a...