State courts struggle to apply Penn Central test to regulatory takings

If the government severely restricts your use of your property, should you receive “just compensation,” as promised in the Fifth Amendment’s Takings Clause? That’s the question presented in regulatory takings cases, in which the property owner still owns the property but cannot make full use of it. In Justice Oliver Wendell Holmes’s well-worn words, “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.”

But how do you decide if the government has gone too far? The Supreme Court has said that if a regulation destroys all economically viable use of a property or physically invades the property, the government must compensate the owner. But the Court also established a test for cases in which a regulation does not destroy or grant physical access to your land but still limits how you can use it. This is the Penn Central test.

In the 1978 case Penn Central Transportation v. City of New York, the City prevented train company Penn Central from building a structure above Grand Central Terminal. To determine whether that regulation was a taking, the Supreme Court relied on three non-exhaustive factors: the economic impact of the regulation, the property owner’s distinct investment-backed expectations, and the character of the government action.

Penn Central is a notoriously flawed Supreme Court precedent. Justice Clarence Thomas recently called it a “standardless standard” that “nobody—not States, not property owners, not courts, nor juries—has any idea how to apply.”

To see how courts were applying Penn Central, I surveyed over two hundred takings cases in which state courts addressed regulatory takings claims. I found that Justice Thomas was right: State courts are struggling to understand and consistently apply Penn Central, and property owners almost always lose regulatory takings cases.

I wrote up my findings in the Wake Forest Journal of Law & Public Policy, for those who want a full deep dive. But here are key points:

• Property owners came away with a Penn Central win after final ruling—on appeal if either party appealed—in only 28 of 235 total cases reviewed, or 11.9%.

• State courts often decide Penn Central claims on fewer than all three factors in the original Supreme Court test. About a third of state trial court decisions considered less than all three Penn Central factors, while over half of the appellate court decisions considered less than all three.
• State courts relied on economic impact more than other factors—almost always to reject the takings claim.
• Many state courts take a with-and-without approach—they look at the value of the property without the regulation in place compared to the value with it and then calculate the percentage lost. Perhaps the most obvious concern with asking courts to select a point along the scale of economic harm is that it invites arbitrary and subjective decision-making.
• When evaluating property owners’ expectations, state courts often treat regulation as a ratchet that only tightens. It is always reasonable to assume further regulation of one’s property but never reasonable to think that such regulatory burdens might be removed. Property owners should purchase property with the understanding that their use might get upended by zoning changes, not the hope that zoning might become more favorable. In short, only expectations of doom and gloom will be honored. A once-in-a-century pandemic should be expected—but a “starry eyed hope” that a legal restriction might be repealed or amended is too speculative. Courts’ approach to expectations has no place for “a far-seeing investor willing to bet that the regulatory restraints would someday be lifted.” Property is for pessimists.
• State courts often decline to find a Penn Central taking at least in part because the regulation at issue does not authorize or cause a physical invasion. This is a troublesome approach: The lack of a physical invasion can justify extraordinary regulatory burdens.
• State courts often reject takings claims because the regulation advances a legitimate government purpose. This is contrary to Supreme Court precedent and the language of the Takings Clause. The Clause accepts that the government can take property for a “public use” but only on the condition that compensation is given, however beneficent the government’s purposes might be.
• Penn Central wins are more likely than the losses to turn on character of the government action. While these cases lack a strong coherence, several of the Penn Central wins emphasized the disproportionate burden placed on the plaintiff vis-à-vis other property owners when analyzing the character of the government’s action.
• On the flip side, courts that lean more heavily on economic impact are more likely to result in losses. No plaintiff in the data set won when economic impact was the sole factor relied upon by the court.

You can read the full article, or check out my colleague John Groen’s recent article “Takings, Original Meaning, and Applying Property Law Principles to Fix Penn Central” or PLF’s cert petition in Gym 24/7 Fitness for more on Penn Central.