Déjà vu: another court disregards precedent and property rights

April 21, 2014 | By JONATHAN WOOD

More than 10 years ago, PLF won an important property rights victory in the U.S. Supreme Court — Palazzolo v. Rhode Island. That case held that government cannot “put an expiration date on the Takings Clause” by forbidding any property owner from challenging the constitutionality of any regulation that existed at the time they purchased it even if the regulation severely restricted their use of the property and its value.

The lower courts have declined to faithfully implement this ruling because the standard for determining whether a regulatory taking has occurred includes consideration of the property owners “investment-backed expectations.” They continue to presume that a property owner could not expect, when she purchases property, that she will enjoy the protections of the Constitution against preexisting regulations.

Last year, PLF supported a petition to the Supreme Court challenging one of these decisions. The Federal Circuit rejected a Fifth Amendment challenge from a landowner against the restrictions on his ability to fill wetlands so that he could use his property. The Federal Circuit ruled that, as a relatively recent purchaser, the owner should have known that the government was going to regulate away his use of the property and couldn’t have reasonably expected it to grant him a permit. Unfortunately, the Supreme Court didn’t take up this important case, allowing the lower courts to continue to disregard Palazzolo.

This month, an appellate court in New Jersey followed suit:

[P]laintiffs were well aware of the federal and state regulations governing the subject property. In addition to the highly restrictive [federal] permit requirements, including that “[d]ischarges in wetlands areas should be avoided,” the [state] regulations existing at the time of plaintiffs acquisition that provided “a proposed use of costal [sic] resources should be deterred.” Thus, “no reasonable inference c[ould] be drawn from the evidence that plaintiff could ever have reasonably believed it could build a casino on the property or any other substantial development on the site.”

These decisions plainly conflict with Palazzolo and threaten to substantially weaken the Takings Clause. There are countless reasons why the owner of property at the time that a burdensome regulation is adopted won’t be able to challenge its constitutionality. She may not have plans to use the property inconsistent with the regulation. Or the regulation may be so burdensome that she can’t afford to challenge it and her only option is to sell.

If any purchaser will be denied the right to challenge an unconstitutional regulation, what incentive will he have to pay the market price for the property? Burdensome and destructive regulations will continue in force, perhaps indefinitely, because the original owner was too poor to be able to mount an expensive legal challenge. Yet that’s exactly what happens when courts ignore Palazzolo.

And what benefit do we get for imposing this injustice on a few poor property owners? As long as the government is complying with the Constitution, it shouldn’t matter whether a subsequent purchaser has the right to challenge a regulation’s constitutionality. The only reason to fear this is that the government is violating the Constitution and doesn’t want to pay for it.