Dashed "investment-backed" Expectations: Will the Constitution Protect Property Owners from Excesses in Implementation of the Growth Management Act?

• Publication year: 1993
• Citation: Vol. 16 No. 03

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 16, No. 3SPRING 1993

Dashed "Investment-Backed" Expectations: Will the Constitution Protect Property Owners from Excesses in Implementation of the Growth Management Act?

Elaine Spencer(fn*)

The Growth Management Act of 1990 (GMA) mandated the most sweeping revisions to the regulation of real property rights in Washington State history.(fn1) Twenty-six counties and one hundred eighty cities are currently in the process of redrafting their comprehensive plans, adopting ordinances to protect the targeted values of resource lands and critical areas, and revising their zoning codes in order to comply with the GMA.(fn2)

Courts indulge in a "usual assumption that . . . [such changes are] simply 'adjusting the benefits and burdens of economic life' in a manner that secures an 'average reciprocity of advantage' to everyone concerned."(fn3) Such "average reciprocity of advantage" occurs more easily in legal theory than in reality, however. It is inevitable that for some property owners, the result of all this "reregulation" will be that their land cannot be used as they had reasonably expected, and investments in land that they have reasonably made, in some instances over many years, will be rendered of little or no value. Thus, now more than ever, the issue will be tested of whether the constitutional rights to be free of uncompensated taking of property and to substantive due process offer real-world protection to property owners.

Although the Fifth Amendment has traditionally barred a state's physical occupation of property and not merely a regulation of the property's use, the general rule is that if regulation goes too far, it will be recognized as a taking.(fn4) Protection from regulation that goes too far will have real-life value only if the courts find a way to give meaning to the United States Supreme Court's statement that the Fifth Amendment Takings Clause protects a citizen's "distinct investment-backed expectations" from being frustrated for the public good.(fn5)

As the courts have repeatedly said, takings cases are intensely factual and each case will turn on its own individual facts.(fn6) Thus, the courts will continue to reject facial challenges to regulations on takings grounds unless it is clear from the face of a particular regulation that it deprives an owner of all viable economic use of its property or that the ordinance does not substantially advance legitimate state interests. That will rarely be the case.(fn7) Furthermore, the courts will continue to require that all possible administrative remedies be exhausted.(fn8) Thus, although broad classes of potentially injured parties can be identified, the prospects for challenging any zoning regulation on its face are so dismal that the right to be free from an uncompensated taking regulation must nearly always be vindicated, if at all, through individual litigation rather than by a class. The sheer cost of the litigation, added to the cost of meeting the judicial mandate of exhaustion of administrative remedies, will leave many plaintiffs with meritorious claims without a remedy.

In addition to interpreting the Fifth Amendment, Washington courts have increasingly looked to principles of substantive due process to protect private property rights. Although largely ignored by federal courts since the Depression, substantive due process has been a major alternative theory in five recent Washington Supreme Court cases,(fn9) and it promises to figure significantly in the future.

Currently, Washington is far enough along in the implementation of the GMA that the factual outlines of many future cases can be identified. This Article examines some of the most frequent factual patterns of dashed expectations under the GMA and attempts to predict, in light of both the law as it has developed over the last fifteen years and the very recent cases, where the constitutional lines should be drawn. Section I briefly discusses the basic principles of takings law as enunciated by prior cases, as well as the United States Supreme Court's recent decision in Lucas v. South Carolina Coastal Council,(fn10) and the Washington Supreme Court's recent decisions in Sintra, Inc. v. Seattle(fn11) and Robinson v. Seattle.(fn12) Although the Lucas decision has received considerable publicity, it advanced the state of the law rather little. The real guidance for future decisions arising out of the GMA will come from earlier United States Supreme Court decisions and the Washington Supreme Court's decisions in Sintra, Robinson, and Lutheran Day Care v. Snohomish County.(fn13)

Section II introduces several hypothetical situations based on actual property owners with whom the Author is familiar. It examines how those hypothetical situations would be treated under an application of the law as it exists today. The Article concludes that although many truly injured parties will themselves be exhausted by the duty to exhaust administrative remedies, the law will protect the reasonable investment-backed expectations of those landowners who survive the administrative hurdles. It further concludes that public interest would be better served by a greater recognition of property rights at the stage of ordinance development and permitting, as well as by legislation, to both reduce the burden of exhausting adminstra-tive remedies and the potential size of damage awards where a taking or a violation of substantive due process rights has occurred.

I. The Existing Case Law: Suggestions of the Future, But Too Little That is Concrete

In most areas one can look to the case law and find reasonably clear guidance for future decisions. This is less true in the field of regulatory takings and property rights than in other fields for a number of reasons. First, the United States Supreme Court has sought every reason possible not to decide most of the cases it has even agreed to consider.(fn14) Second, many of its pronouncements concerning what would violate the Constitution are found in dicta in cases holding against the property owner.(fn15) Third, the only square holdings in favor of property owners have come in cases of either actual physical invasion(fn16) or of complete loss of use of an entire property.(fn17) This scenario is rare, and if it forms the only basis for constitutional protection of property rights, the Fifth Amendment's protection from uncompensated taking is of little value in the regulatory context.

The United States Supreme Court handed down one regulatory takings case in its October 1991 term, Lucas v. South Carolina Coastal Council.(fn18) In spite of the fanfare awaiting Lucas, it advanced the state of the law very little. Its principal value in predicting decisions under the GMA is found in dicta and by implication, with all the risks and uncertainties inherent in relying on dicta or implied decisions. Therefore, earlier cases such as Penn Central Transportation Co. v. New York City,(fn19) Nolan v. California Coastal Commission,(fn20) and First English Evangelical Lutheran Church v. County of Los Angeles(fn21) remain the backbone of federal takings law.

Washington courts have been quite active in the area of takings law, and it may be that Washington State law has eclipsed federal law in the area of protection of property rights from excessive regulations. In May 1992, the Washington State Supreme Court decided three land use regulation cases raising both takings and substantive due process issues: Sintra, Inc. v. Seattle,(fn22) Robinson v. Seattle(fn23) and Lutheran Day Care v. Snohomish County.(fn24) These cases are more dramatic in their holdings than the Lucas case, and their analysis appears more significant because the Washington court was willing to examine market realities and the effects of delay in a way that the United States Supreme Court never has. Because Washington cases contain egregious and unusual facts, however, it remains to be seen whether they will have significant impact on more typical regulatory cases.

In many ways, Penn Central remains the quintessential case concerning the protection of investment-backed expectations. Penn Central Railroad opened Grand Central Terminal in New York in 1913.(fn25) It is conceded to be a great building architecturally and from the standpoint of the engineering solution it embodies.(fn26) It is a fine railroad terminal, but by the mid-1960s it was an eight-story structure sandwiched between high-rise towers and a significant underutilization of its site.(fn27) Penn Central was by then in bankruptcy with a serious need to maximize the value of all of its assets. To do so, in 1968 it entered into an agreement with a developer under which the developer agreed to pay Penn Central one million dollars annually during construction and at least three million dollars annually for fifty years thereafter, and, in exchange, the developer would construct a fifty-five-story office tower to be can-tilevered over Grand Central Station.(fn28) That agreement was quashed, however, by New York's Landmarks Preservation Commission, which found the plan to be aesthetically in conflict with the building's status as a historic landmark.(fn29)

Penn Central claimed that its property had been "taken" in violation of the Fifth and Fourteenth Amendments.(fn30) In a six to three decision, the United States Supreme Court disagreed.(fn31) The Court pointed out...