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Supreme Court Buoys Property Rights Advocates

WASHINGTON _ The U.S. Supreme Court's latest take on takings law is getting two cheers from landowners and property rights advocates and grudging acceptance from land use regulators and environmentalists.

"An excellent decision," says James Burling, an attorney with the Pacific Legal Foundation in Sacramento who represented the Rhode Island landowner, Anthony Palazzolo, in the case. "We're very happy with it."

"A useful advance in the law," says Michael Berger, of Santa Monica's Berger & Norton, who has built a career representing developers and landowners in takings cases. "The court is continuing the concerns that it expressed a couple of years ago that landowners are being jerked around by regulators."

But Rhode Island Attorney General Sheldon Whitehouse saw the outcome very differently. "The important point is, under the theory Mr. Palazzolo pursued, he lost and he lost flat out," Whitehouse told the Associated Press.

"More of a muddle," observes Richard Frank, California's chief assistant state attorney general and the office's leading expert on land use law. He says the ruling will lead to "more fact-based inquiry" in individual cases and "more uncertainty for state regulators, property owners, and the interested public."

"Everybody won a partial victory," Frank adds, "and those on either side who might claim full victory are mistaken."

The high court's ruling in Palazzolo v. Rhode Island reinstated a takings claim by an 80-year-old, retired auto wrecker over a state agency's refusal to allow him to fill wetlands on an 18-acre tract in the coastal town of Westerly. The high court threw out two procedural hurdles that Rhode Island courts had thrown in front of Palazzolo.

Contrary to those courts, the U.S. justices voted 6-3 that Palazzolo's claim was legally "ripe." And by a 5-4 vote, the high court held that he could bring a claim even though he acquired legal title to the land after the state's adoption of wetlands protection regulations.

But the high court agreed with the Rhode Island Supreme Court that Palazzolo had failed to show a "total deprivation" of the value of the property because he could build a house worth at least $200,000 on an upland part of the site. On that basis, the justices remanded the case to Rhode Island courts to give Palazzolo a chance to seek compensation under a test that gives judges more flexibility to reject a takings claim.

Property rights advocates disagree among themselves about which of the two procedural rulings was more important. Berger points first to the ruling on the ripeness issue, which he said showed the justices wanted to "examine what's really going on here and not worry so much about how many specific applications were made for what particular uses, how detailed the applications were, and so on."

But Burling gives greater weight to the court's ruling on the so-called "notice rule" the view in some cases that a landowner cannot claim a taking because of regulations already in place at the time of property acquisition.

"The Supreme Court put an end to the notion that purchasing previously regulated property means that you have no right to challenge those regulations or the applications of those regulations," Burling says.

For his part, Frank viewed the ripeness decision as the more important of the two setbacks for regulators. "They seem to be signaling some general discomfort with the harsher applications of the ripeness rule," says Frank, co-author of the 1999 book The Takings Issue. As for the notice rule, Frank emphasizes that the justices' separate opinions indicate division on how to evaluate a takings claim based on pre-acquisition regulations.

For the majority, Justice Anthony M. Kennedy decisively sided with property rights advocates on that issue. Under the state's argument, Kennedy said, "the postenactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable." The court's four other conservatives joined that part of Kennedy's opinion: Chief Justice William H. Rehnquist and Justices Sandra Day O'Connor, Antonin Scalia, and Clarence Thomas.

In a concurring opinion, however, O'Connor said the opinion did not mean that the timing of a regulation was "immaterial" to a taking claim. That prompted Scalia to write his own concurring opinion, saying that the timing of the regulation should have "no bearing" on compensation.

The four liberal-leaning justices all indicated that a landowner typically could not claim a taking for a pre-acquisition regulation including Justice John Paul Stevens, who sided with the conservatives on the ripeness issue but would have barred Palazzolo's claim anyway. Any taking, Stevens wrote, "occurred before [Palazzolo] became owner of the property."

The muddled decision reflected the muddled facts of Palazzolo's case. He bought the property in 1959 with another investor as part of a closely held corporation. The corporation was dissolved in 1978 for failure to pay taxes, and legal title passed to Palazzolo individually. By that time, Rhode Island had created the state's Coastal Management Council with a statutory charge in part to protect coastal wetlands.

Twice, the council turned down Palazzolo's applications to fill the wetlands for development, in 1983 and 1986. In their rulings, Rhode Island courts concluded that the council had not rejected all possible development on the site and specifically noted that at least one house could be built on part of the property. But Palazzolo sought $3 million in damages, claiming that he could have built up to 74 houses on the site but for the state regulation.

In his opinion, Kennedy said the council's decisions "make plain that the agency interpreted its regulations to bar [Palazzolo] from engaging in any filling or development activity on the wetlands." For the dissenters, however, Justice Ruth Bader Ginsburg said, "The prospect of real development shown by the State warranted a ripeness dismissal." Justices David H. Souter and Stephen G. Breyer joined her opinion.

All nine justices agreed that Palazzolo's ability to build at least one house on the property knocked out his "total taking" claim under the Supreme Court's decision in Lucas v. South Carolina, 505 U.S. 1003 (1992). But the majority said Palazzolo was entitled to a chance to show that a taking occurred under a multipart test laid down in another case, Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978). The ruling instructs courts to consider several factors in weighing taking claims, including the property owner's "reasonable investment-backed expectations" as well as the public purpose of the regulation.

Attorneys on both sides of the issue agree that Palazzolo faces an uphill battle in Rhode Island courts. "We are dealing with a court system that in the past has been a little recalcitrant in embracing the taking doctrine," says Burling.

Frank is blunter: "I would be very surprised if the state of Rhode Island lost on remand."

In California, too, one leading expert cautions landowners against finding great encouragement in the ruling.

"The bottom line, in California at least, is that we've only had two cases that have found a taking after you've gotten over ripeness," says Daniel Curtin, of McCutcheon, Doyle, Brown & Enersen in Walnut Creek and author of Curtin's California Land Use and Planning Law. "Even though it might be easier for [landowners] to get into court, you still have to prove you have a taking and that's still an uphill battle."

 

The Case:
Palazzolo v. Rhode Island, No. 99-2047, 01 C.D.O.S. 5439, 2001 DJDAR 6685. Filed June 28, 2001.
The Lawyers:
For Palazzolo: James S. Burling, Pacific Legal Foundation, (916) 362-2833.
For Rhode Island: Michael Rubin, Office of Attorney General (401) 274-4400.

Kenneth Jost, formerly editor of the Los Angeles Daily Journal, is staff writer for Congressional Quarterly and author of The Supreme Court Yearbook.