June 3, 2015

Federal Circuit: Residual value does not defeat a takings claim

By Christina M. Martin Attorney

Monday, the Federal Circuit issued a very good decision for property rights in Lost Tree Village Corp. v. United States. In this case, Lost Tree Village Corp. (Lost Tree) wanted to build a residential development on about five acres of land in Florida. The developer got all of the necessary permits from state and local government. But a federal agency – the Army Corp. of Engineers – denied a necessary permit. (The agency did so only because it thought the developer had already profited enough from developing other parcels of land in the area.) The permit denial caused the land’s value to drop from $4.2 million to $27,500 – 99.4% of its value. The developer sued, seeking compensation for the federal government’s taking of virtually all use of the land by refusing to issue a permit.

Incredibly, the government argued that it had not taken enough of the land’s value to entitle the landowner to just compensation under the Fifth Amendment and Supreme Court precedent in Lucas v. South Carolina Coastal Council.  In Lucas, the Supreme Court held that a taking occurs if a regulation deprives an owner of “all economically beneficial use” of the property.  Thus, because Lost Tree could sell its land for $27,500, the government argued that Lucas could not apply and the court would have to turn to the factually intensive (and more difficult to win) standard articulated in a different Supreme Court case, Penn Central Transp. Co. v. New York City.

Joined by the National Association of Home Builders, PLF submitted a friend-of-the-court brief explaining that Lucas still applies whenever the government takes all economically viable use of land, regardless of whether the land retains some nominal value. That’s because all land has some inherent value, even land that cannot be put to productive use. In fact, the coastal property in Lucas itself retained the same kind of non-economically viable uses and residual value as the property in Lost Tree. And even if Lucas did not apply, the government’s actions still rose to a taking under Penn Central.

The Court of Appeals for the Federal Circuit agreed, holding that Lucas applied because Lost Tree’s land retained only “residual value stem[ming] from environmental value as wetland.” The land’s residual value was not attributable to any economic use of the land. And the ability to sell land for its environmental value is not an “economic use.” Thus the government committed a categorical taking of Lost Tree’s land and must pay just compensation per the Fifth Amendment.

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