The taking issue in the Ninth Circuit after Lucas.

• Author: Watters, Lawrence
• Position: 1993 Ninth Circuit Environmental Review

1. Introduction

   In 1993, the Ninth Circuit Court of Appeals decided a number of Fifth Amendment(1) "taking" cases. In most, the party asserting the claim did not prevail, calling to mind the observation that a great deal of attention is lavished on a remedy that rarely succeeds.(2)

   In the first year after Lucas v. South Carolina Coastal Council,(3) the Ninth Circuit's reported decisions(4) indicate that Lucas will affect only a narrow band of cases. First, there are very few cases in which the action of government eliminates all reasonable use of property. Second, there are even fewer cases where a property owner is precluded from seeking a variance or an exception from the regulation which otherwise effects the taking.(5)

   Beyond these general considerations, the Ninth Circuit's decisions carefully adhere to settled precedent which bars the exercise of federal jurisdiction over cases that clearly belong in state court. The doctrines of stare decisis, ripeness, and abstention commit the court to the position that litigants generally have a forum for taking claims in state court and they must use it.

   The resolution of such claims by the Ninth Circuit follows an established structure. This structure reveals both symmetry in principles and high predictability that is extremely important for practitioners who need to provide legal advice with confidence.

2. The Taking Issue

   1. Signs and Nonconforming Uses:

      Outdoor Systems, Inc. v. City of Mesa(6)

      In Outdoor Systems, the Ninth Circuit upheld the right of cities to require the removal of non-conforming billboards as a condition for the granting of a building or occupancy permit.(7) When the underlying use of a parcel is changed, there is a legitimate state interest in eliminating non-conforming uses, an interest that meets the "essential nexus" requirement of Nollan v. South Carolina Coastal Comm'n.(8) Such a precondition to a permit is not a per se taking under Lucas because the owner still retains economic use of the property (as shown by the desire for a commercial development permit in the first place).(9)

      In a complex opinion addressing the regulation of signs and nonconforming uses, the Ninth Circuit consolidated two lower court decisions. In the first, a district court held that the city of Mesa's ordinance effected a taking.(10) The Mesa ordinance mandated the removal of billboards from property requiring a city issued certificate of occupancy. The city refused to issue a developer a building permit for a sports complex until the developer removed a billboard on the property. The developer and a sign company, Outdoor Systems, challenged the ordinance by bringing Civil Rights Act(11) claims alleging First, Fifth and Fourteenth. Amendment violations. The district court held the city could not constitutionally require the removal of a nonconforming sign as a condition for granting a building permit.(12)

      In the second case, a district court upheld a city of Tucson ordinance that prohibited billboards on developed property and required their removal before issuing a certificate of occupancy for building on an undeveloped parcel.(13) Whiteco, a company that constructs billboards, unsuccessfully challenged the ordinance on the same grounds as Outdoor Systems had attacked the Mesa ordinance. (14)

      On appeal, the plaintiffs, Whiteco and Outdoor Systems, argued that even if the cities' interests in restricting or eliminating signs was legitimate, the ordinances caused a taking without just compensation.(15) Whiteco and Outdoor Systems based their challenge on the "essential nexus" requirement of Nollan v. California Coastal Commission,(16) which requires that a regulation must "substantially advance" a legitimate state interest.(17) The Nollan Court held that a regulation does not advance the state's interest if no nexus exists between the effect of the regulation and the government interest sought to be advanced.(18)

      In Outdoor Systems, the Ninth Circuit found "a simple and clear nexus" between the cities' interests and provisions of the sign codes which required the nonconforming billboards be removed from developed land.(19) The vacant lot provisions required removal of nonconforming billboards from developed land. "The cities' interests, in restricting billboards and eliminating nonconforming billboards, are advanced directly by these provisions, as the number of billboards in general and nonconforming billboards in particular will be reduced by their operation."(20) Plaintiffs contended a nexus was required between the building and occupancy permit requirements and the state interest in removing nonconforming signs.(21) But the court determined Nollan only required a nexus between the vacant lot provisions and the cities' interests.(22) The court found the requisite nexus in this case by observing that the building and occupancy permits (which issue when the nonconforming signs are removed), were simply the "mechanisms" by which the cities achieve their purposes.(23) The court also rejected the companies' claims that the ordinances eliminated the economically viable use of the property, holding, as in Christiansen v. Yolo County,(24) that the existence of permissible uses "determines whether a development restriction denies a property holder the economically viable use of its property."(25)

      The developer in Outdoor Systems argued that the ordinance would prohibit both building on the property and retaining a non-conforming n. But the court found that any diminution in value caused by the ordinance was insufficient to constitute a taking where the land still had economically viable use.(26) The fact that the property owner chose "to develop its land, moreover, indicates that the land, absent the billboard, may still be put to another, more profitable use."(27)

      The developer contended that the ordinance allowed the city to accomplish indirectly what it could not directly require, the removal of signs.(28) It relied on Frost v. Railroad Commission(29) for the principle that a state is "without power to impose an unconstitutional requirement as a condition for granting a privilege."(30) The Ninth Circuit was not persuaded by this argument. It found any degree of compulsion minor, because the determination whether to build a sports complex or to retain a sign seemed "a fairly easy decision" in economic terms.(31) Second, the ordinance did not require the immediate removal of nonconforming signs,(32) so such signs could remain as long as the property owner or developer wanted them to (and did not develop the property). The court emphasized that even if it assumed the unconstitutionality of requiring immediate removal of nonconforming signs, it does not follow that the eventual elimination of nonconforming uses is also unconstitutional.(33) If this were true, a property owner would have a perpetual right to maintain a nonconforming use. Under Arizona law, the right to continue a nonconforming use disappears once land is put to a different use.(34) Because there is no property right to continue a nonconforming use that is altered, it is not an unconstitutional taking to require removal of a nonconforming sign when the land on which it stands changes use.(35)

      The developer also contended the ordinances effected a per use taking under Lucas.(36) In Lucas the Supreme Court held that a regulation which deprives an owner of all economically beneficial use of the land is a taking, regardless of the governmental interest advanced, unless the use is already proscribed by existing state law.(37) The court held Lucas was not relevant to these issues since the property owners here retained their complete rights to develop or use the land.(38)

      Finally, the court found that the ordinances did not deprive the sign companies of property because they did not alter the companies' leasehold interests.(39) The ordinances allowed the signs to remain on the property as long as the property owner wanted them there and they did not impair the property interest or the obligation of the lessor or lessee.(40)

      Based on this analysis, the Ninth Circuit held that the ordinances did not, on their face, violate the Fifth Amendment and did not, as applied, effect a taking of the developer's property or the leasehold interests of the sign companies.(41) The court also rejected a taking challenge based on the Arizona Constitution, which has been interpreted consistently with federal decisions requiring the deprivation of all "economically viable use."

   2. The D'Oench Doctrine:

      The Savings and Loan Cases

      The taking issue arose not only in land use regulation cases, but also in federal litigation over failed savings and loan institutions. While the savings and loan cases fall outside the traditional realm of land use and environmental law, they are a reminder of the potential reach of the Fifth Amendment. The taking issue continues to arise "in every conceivable context."(42) Even politicians have invoked the Fifth Amendment. In Nixon v. United States,(43) the former President received compensation for papers confiscated by the government pursuant to an act of Congress during the Watergate scandal.

      In Notrica v. FDIC,(44) a second mortgagee brought suit against a defunct savings and loan and the Federal Deposit Insurance Company (FDIC), which had foreclosed on property under the saving and loan's first deed of trust. The district court entered judgment in favor of FDIC.(45) The mortgagee contended the FDIC had taken his property without just compensation in violation of the Fifth Amendment.(46) The mortgagee challenged the trial court's application of the doctrine of D'Oench, Duhme & Co. v. FDIC,(47) which precludes obligors from asserting side deals or secret agreements which may mislead bank examiners against the FDIC to diminish the value of written loan obligations."(48) The doctrine ensures that regulators are able to rely exclusively on a bank's records and not representations made by...