November 27, 2013

Does pervasive regulation void the Takings Clause?

By Brian T. Hodges Senior Attorney

Yes, says the federal government.  In their most recent filing in Mehaffy v. United States, lawyers for the U.S. Army Corps of Engineers argue that a property owner’s takings claim is weakened if the property is subject to preexisting, comprehensive regulation.

You may recall that the Mehaffy case involves an Arkansas property owner who sued the Corps after that agency denied his application to fill some wetlands.  The Federal Circuit Court of Appeals held last year that Mr. Mehaffy had not suffered a taking because he had no investment-backed expectations to use his property, which is regulated under the Clean Water Act.  Mehaffy is now seeking review in the U.S. Supreme Court, and we filed a friend-of-the-court brief urging the Court to take the case.

The concept of “investment-backed expectations” is at the heart of Mehaffy’s case.  In most takings cases, courts must evaluate a property owner’s investment-backed expectations to determine whether a challenged regulation amounts to a taking.  One question that often comes up is whether preexisting regulations that apply to the property should be counted among the factors that influence the owner’s expectations for the property.

Our brief says no.

The notion that preexisting regulations can weaken a property owner’s takings claim contradicts the Supreme Court’s opinion in Palazzolo v. Rhode Island, a PLF victory from 2001.  In that case, the Court rejected a doctrine called the “notice rule.”  The notice rule said that property owners could not raise a takings challenge against regulations that applied to their property before they acquired it.  The Court refused to accept that rule, however, because it would put an “expiration date” on the Takings Clause, if property owners lost the ability to challenge unconstitutional regulations merely because the property had changed hands.

The same principle should control the outcome in Mehaffy—the fact that regulations applied to Mehaffy’s property before he acquired it should not be seen as weakening his ability to challenge those regulations as a taking.  Justice Scalia made the same point in a concurring opinion in Palazzolo when he said that “[t]he ‘investment-backed expectations’ that the law will take into account do not include the assumed validity of a restriction that in fact deprives property of so much of its value as to be unconstitutional.”

We also argue that the Federal Circuit’s Mehaffy opinion undercuts the Takings Clause because it encourages the government to enact more restrictive regulations.  The court determined that Mehaffy could not prevail on his takings claim because he knew that the Clean Water Act applied to his property.  But the lesson for government is that it can avoid takings liability by enacting as many property regulations as it can, since those regulations destroy owners’ investment-backed expectations, and that makes it impossible for property owners to win takings cases!  Alas, the government seems satisfied with the idea that it can sap a property owner’s development expectations and shield itself from takings liability by piling on regulations.

We are hopeful that the Court will see this significant conflict in the law and grant certiorari in Mehaffy later in the current Term.

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