July 2, 2013

The government can't "regulate away" the right to just compensation

By Brian T. Hodges Senior Attorney

PLF attorneys filed this brief today in support of Arkansas landowner Mike Mehaffy’s petition for certiorari to the Supreme Court of the United States.  Mr. Mehaffy owns property on the Arkansas River in North Little Rock.  He acquired it in 2000, and in 2006 he applied to the Army Corps of Engineers for a Clean Water Act permit that would allow him to fill some wetlands.  The Corps denied his application, at which point he filed a lawsuit alleging that the permit denial caused a taking of his property.  The Court of Appeals for the Federal Circuit ruled late last year that Mr. Mehaffy had not suffered a taking because he had no “investment-backed expectations” to use the property.  In essence, the court said that Mr. Mehaffy could not reasonably assume that he would be allowed to develop his property, because he would have to get a Clean Water Act permit first.

Our brief argues that Supreme Court precedent requires courts to examine multiple factors to determine the effect of government regulation in cases like this one.  In addition to the property owner’s investment-backed expectations, courts must evaluate the economic impact of the regulation on the property owner, and the character of the regulation.  The Federal Circuit’s decision addressed only the expectations factor without evaluating how the permit denial affected the value of Mr. Mehaffy’s property, or any other factor that might lead a court to conclude that a taking had occurred.  Indeed, the Federal Circuit’s truncated “one-factor” reasoning suggests that courts may find that a regulation does not cause a taking—even if it substantially destroys the value of the property—so long as the court thinks the property owner had diminished expectations to use the property.

The court’s exclusive reliance on Mr. Mehaffy’s investment-backed expectations leads to another problem.  The court believed that Mr. Mehaffy could not reasonably expect to use his property because the federal government had been regulating it under the Clean Water Act since the early 1970s.  But the notion that long-established regulation somehow taints a takings claim is a manifestation of the infamous “notice rule,” which the Supreme Court rejected in PLF’s 2001 victory in Palazzolo v. Rhode Island.  The Palazzolo Court said that a property owner may prevail in a takings case even if the challenged regulation affected the property before the current owner came on the scene.

These two principles—(1) that courts may not rely exclusively on the property owner’s investment-backed expectations in analyzing a takings claim, and (2) that property owners may challenge regulations that attached to their property before they acquired it—protect people from the government’s attempts to “regulate away” the right to just compensation.  Think what the government would do if a property owner’s chances of success in a takings case depended entirely on the owner’s investment-backed expectations, and the government could color those expectations through regulation.  Government agencies would adopt the most intrusive regulations they could devise.  Why?  Because that would destroy property owners’ development expectations, such that no one could ever show that he had a reasonable expectation to use his property.  It would be impossible for a property owner to win a takings case and receive just compensation from the government under those circumstances.

The Takings Clause is made of stronger stuff.  Where a property owner alleges that a regulation effects a taking of his property, a court must look to the totality of factors affecting the claim.  And a new owner has the same right as a prior owner to seek just compensation when regulation goes too far, even if that regulation has applied to the property for a long time.

The Supreme Court will decide whether to take up Mr. Mehaffy’s case in September.

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