Making sense of Penn Central.

• Author: Echeverria, John D.
• Position: Regulatory takings law

"[W]e have frequently observed that whether a particular restriction will be rendered invalid by the government's failure to pay for any losses proximately caused by it depends largely upon the particular circumstances [in that] case."--Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978).

"[A] 'totality of the circumstances' analysis masks intellectual bankruptcy."--Thomas Merrill, "The Economics of Public Use," 72 Cornell L. Rev. 61, 92 (1986).

INTRODUCTION

In Penn Central Transportation Co. v. City of New York, (2) the Supreme Court famously observed that it had been "unable to develop any 'set formula' for determining when 'justice and fairness' require" payment under the Takings Clause, and that it was therefore compelled to rely on "essentially ad hoc, factual inquiries." (3) In an apparent effort to begin to give some content to regulatory takings analysis, the Court identified three factors with "particular significance" in a takings case: (1) the "economic impact" of the government action, (2) the extent to which the action "interferes with distinct investment-backed expectations," and (3) the "character" of the action. (4) Yet, over the following twenty-five years, the Court has provided little guidance on the meaning and proper application of these three factors, (5) perpetuating the essentially ad hoc approach to takings analysis (6) and contributing to the widespread view that regulatory takings is an especially confused field of law. (7) The Court's failure to come to grips with the meaning of Penn Central is especially striking in view of the substantial progress the Court has made recently in resolving other questions about regulatory takings doctrine. (8) The next "big thing"--perhaps the last big thing--in regulatory takings law will be resolving the meaning of the Penn Central factors.

At one point, the Court appeared poised to jettison the Penn Central analysis altogether. During the 1980's and 1990's, as an antidote to the chronic vagueness of the Penn Central framework, the Court attempted to develop a set of alternative, bright line tests. (9) In Lucas v. South Carolina Coastal Council, (10) the Court ruled that a regulation that denies the owner "all economically viable use" of private property represents a per se taking. And in Loretto v. Teleprompter Manhattan CATV Corp., (11) the Court said that a regulation resulting in a permanent physical occupation of private property also represents a per se taking. (12) From the perspective of property rights advocates, this approach appeared to lead reliably to findings of takings liability, albeit in narrowly defined circumstances. Even from the perspective of defenders of government regulatory authority, this approach had the potential benefit of identifying actions that would be safely immune from takings liability--assuming these per se tests came to define not only the grounds, but also the outer limits, of takings liability. (13)

The effort to construct a more rule-based takings doctrine has plainly faltered, returning Penn Central to the forefront. In recent years, the Court has given the Loretto per se rule a narrow interpretation, confining the test to a "relatively rare, easily identified" set of actions. (14) The Court has given the Lucas per se rule an even narrower reading, characterizing the Lucas test as applying only to "the complete elimination of a property's value." (15) Few if any regulations have such a drastic effect on property value, meaning that Lucas has been converted to a precedent of largely symbolic significance. At the same time, the Court's most recent regulatory takings decisions have explicitly reasserted the centrality of the Penn Central framework. For example, in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, (16) the Court said that "[o]ur polestar ... remains the principles set forth in Penn Central itself," which call for a "careful examination and weighing of all the relevant circumstances." (17) The upshot is that the law of regulatory takings today looks remarkably similar to the law as it existed in 1978 after Penn Central was decided.

The per se approach to regulatory takings failed in part because it has proven very difficult to cabin the complex fairness questions raised by takings claims with hard and fast rules. For example, the physical invasion of private space by third parties, in the abstract, represents a serious type of invasion of private property rights. But the burden imposed in the Loretto case by the requirement that Ms. Loretto accept placement of television equipment on the exterior of her building was actually quite trivial compared to the burden imposed by many restrictions on property use that plainly do not rise to the level of takings. (18) In addition, the per se Lucas rule is potentially subject to artful manipulation by clever investors who can structure land acquisitions in order to manufacture apparent regulatory wipeouts and create potential claims under that precedent.

Furthermore, the ideological middle of the Court, represented by Justice Anthony Kennedy and former Justice Sandra Day O'Connor, consistently resisted the effort by the more conservative wing of the Court, led by Justice Antonin Scalia, to develop a more rule-based approach to takings. They both preferred approaches that involved more nuanced examination of the factual circumstances of each case. (19) Eventually their preferences prevailed, throwing the Court back to the prior Penn Central analysis.

The upshot is that Penn Central now provides the only plausible path to reform of regulatory takings doctrine. An unsuccessful effort has been made to build a coherent, predictable law of regulatory takings by working around Penn Central. Now, as a practical matter, Penn Central is here to stay. Thus, the challenge ahead is figuring out how to convert Penn Central into the foundation for a manageable legal doctrine. To date, the ad hoc Penn Central analysis has appeared to mask, if not intellectual bankruptcy, to use Professor Merrill's provocative terminology, at least considerable uncertainty about the fundamental parameters of takings law. If the Penn Central test is to serve as more than legal decoration for judicial rulings based on intuition, it is imperative to clarify the meaning of Penn Central. (20)

This article seeks to achieve a modest objective using relatively modest analytic tools. Fundamental questions can, of course, be raised about the legitimacy of the entire regulatory takings enterprise. (21) But this article takes the Supreme Court's apparent commitment to some type of regulatory takings doctrine as a given. Moreover, a variety of competing theories have been advanced to explain and rationalize regulatory takings doctrine. (22) Rather than focus on those theories, this article primarily uses the holdings and reasoning of the Court's major takings precedents as building blocks in an effort to constrict a simpler, more predictable legal doctrine. A major theme of this article is that the Court's most recent takings decisions, Lingle v. Chevron USA, Inc., (23) in particular, should resolve a good deal of the confusion that has reigned in this field of law.

Two of the most baffling and contentious questions surrounding Penn Central have been whether the takings analysis is affected by (1) the magnitude of the public interest served by a regulatory program, or (2) the degree to which a regulation is designed to avoid "harms" to the public or other citizens instead of generating "public benefits." A primary contribution of this article is to attempt to offer answers to these critical questions.

As to the first question, it is intuitively appealing to conclude that, the greater the public interest served by a regulatory program, the less willing the courts should be to assess takings liability and thereby deter government from addressing public concerns. But, given that regulatory takings doctrine is a subset of condemnation law, it makes no logical sense to excuse the government from liability on the ground the takings power is being used to accomplish an important public purpose. After all, no one would argue that the government should be able to avoid paying for a right-of-way because a road will serve an important transportation purpose. The solution to this conundrum offered in this article is, first, to acknowledge that a regulatory takings claim cannot properly be rejected on the ground that the public value or importance of what the government is trying to accomplish somehow "outweighs" the burden on a private property owner. On the other hand, at least when a regulation applies fairly broadly across the community, the value or importance of the government program should influence the outcome of a takings case. The reason is that a regulation which applies broadly across the community not only burdens the property owner but also benefits the owner by restricting activities that can reduce neighboring property values and enhancing the character of the community generally. The greater the value or importance of a government program to the community, the more significant the reciprocal benefits from regulation for each affected owner, and hence the less likely a taking has occurred. In sum, the public importance of a regulatory program is relevant in takings analysis, but for a different reason than has generally been considered.

As to the second issue, this article posits that the harm-preventing versus benefit-conferring nature of a regulation should be a relevant consideration in Penn Central analysis. Prior to the Court's decision in Lucas v. South Carolina Coastal Council, (24) it was generally understood that a regulation designed to protect the public from serious harms did not constitute a taking. While sometimes referred to as the "nuisance exception," this principle was not limited to traditional nuisance...