This Land is your Land, this Land is our Land ... What Constitutes a Taking

I get the calls and the irate emails from members who are recently face-to-face with some ordinance, or zoning prohibition or are hit with some new permit requirement. The conversations are nearly identical. “How can they do this?” “Is this legal?” For those with either a little deeper level of legal knowledge or those with a good memory of a history class they took in high-school I’ll hear, “This is an illegal taking. I can sue, right?”

Again, I hear this all the time. The purpose of this article is to address these common situations. The intent is to better inform a member faced with some local ordinance or other action, or help their hired attorney who is going in to confront a city manager, attorney, or local elected official.

The first step is that we have to know what we are talking about and where we stand. We have to know not only our rights but the legal realties and probabilities of success. Otherwise, like playing any hand of poker, we don’t know when our cards are better, when to fold, or, and perhaps most critical, how to effectively bluff.

The basics are this, if a local government passes some ordinance or rule that either directly or indirectly deprives or divests a property owner from his or her property without compensation, then it is a government taking under the Fifth Amendment of the Constitution.

Simple, right? We are done here. All we have to do when some city passes something that we think is going to have an adverse impact on our private property rights is to walk in and throw a copy of the Constitution at the official, and in our most confident Donald Trump like voice proclaim, “Taking, stupid. You can’t do this.” I’ll leave the hand gestures and other types of non-verbal celebrations up to your own discretion.

Perhaps this is a good time to mention that I’m not recommending the above as advice to handle an adverse local ordinance. Not only is it not legal advice, it isn’t good advice.

Why?

Because such thinking is based on a gross oversimplification, and while clearly hyperbolic, one can see that even a lesser fashioned reaction is one that won’t generate legitimate consideration from any city official or politician. Worse yet, such a response could solicit a reaction from potential adversaries that you don’t know what you are talking about.

This article and the companion article about the history of Texas case law related to manufactured housing and zoning prohibitions seeks to educate us on this area of the law.

The Basics

Anyone who has read just about anything I have written in the past knows that I try to do what I can with bland and sometimes tedious topics. Especially ones that involve details of legal analysis and the dreaded “legalese.” I struggled mightily to come up with something on this topic of a “taking” until it was hit-me-in-the-face obvious. I have a three year old daughter and a one and a half year old son. While struggling to have some form of adult conversation with my wife on just about any given night, it is unceremoniously interrupted by screeches around the corner from one of our kids. Signifying the end of our attempt to converse normally and abruptly kicked back into parenting mode, we round the corner to see the two fighting over the same toy. Countless other toys abound yet inevitably the only one either child ever wants to play with is the one the other has in their hand. Then there is a toy grab, and responsive hit, the wailing of both, and when mom or dad round the corner to arbitrate the eventual outcome the immediate pleading of cases and pointing fingers. How, as a parent, one gets to an ultimate resolution in these instances is not too far off from evaluating and litigating an assertion of an improper taking of the government. However, as all my metaphors tend to do, this one breaks down when in the kid context I’ve noticed just about everything boils down to the ultimate trump card of, “who had it first?” We wish this was the case in land use. If it was for all those communities or lots that were acquired outside a city’s jurisdiction that were later annexed, and then still later imposed upon by new ordinances, we could simply show up in court and say, “we had it first…judge.” And the judge would say we win, and then send the city to timeout for hitting.

But alas in our world this isn’t the case.

Bear with me on this, but the case law at the U.S. Supreme Court level on land use regulation dates back to the 1880s. Land use authority was essentially authorized by the courts in the 1920’s and basically every decade since has had some modification, addition, or limitation placed on previous precedential rulings. While I’m sure there are some in the vast minority wishing for me to spend the next 5,000 words going through the history and evolution of land use authority, I’ve decided to spare the masses, with the aside that we all should know that this area of the law has been in play at the Supreme Court level for over 100 years.

What’s the punchline?

The punchline is that despite all the time and all the cases and opinions rendered in this area, to this day no set formula or bright line standard exists as to what constitutes an improper taking, save a physical invasion or a denial of all economic or productive use of the land. And based on the history of the court, it doesn’t appear likely that a clear standard will ever exist.

This is important for a number of reasons, but the most significant is to know that this area of law requires argument and there is no clear path to victory. Now we know this reality. And I would guess competent council for a local government knows it as well.

Facial versus actual taking and ripeness

The next key lesson to understand is the distinction between a facial taking and one based on actual applied facts to a particular situation. I liken a facial taking to my daughter complaining that if one of her dolls is left in a spot her brother can reach and that he is likely to improperly acquire. This is based on assumptions, albeit logical ones, that results just by the mere being of the condition (an ordinance is passed that the doll must be placed at eye level for a one year old on the fireplace). This is different from when the little guy actually waddles over and grabs said doll, which now is based on a specific set of facts. He actually took the doll improperly that he knew was his sisters (an actual and physical taking).

Why am I harping on this? It all turns on the likelihood of success for a legal challenge to a takings claim. Historically and statistically facial challenges asserting logical, but hypothetical, outcomes resulting from an ordinance are essentially doomed to fail for a complaining property owner. The courts over the last 100-plus years have been more than reluctant to take up and side with a challenger in these situations. The only real chance, more to come, for any challenge is to start first with an actual situation. Actual applied facts to a specific government action of an ordinance, permit rejection, or something similar that a private property owner can then assert a challenge against the specific act.

Challenges under the takings provisions of the Fifth Amendment and the Equal Protection clause of the Fourteenth Amendment are extremely fact sensitive. So not only do you have to go through an actual incident, it must also be shown to the court that it is “ripe.” All “ripe” means is that a final determination has been made after exhausting all local appeals and other processes or that waiting for such a determination would be futile. This means you have to try, try again, appeal, fail and then you are ready to challenge. This is both time consuming and expensive, but necessary to have a chance challenging a local ordinance as an improper taking.

To follow in my analogy, this is when both kids have fought, cannot resolve who deserves the toy, I come around the corner and they plead there cases to me, and then I say to their final appeals, “Go ask your mother.” Mom rules, one kid is happy, the other is not, the not happy kid at this point can sue and have a chance to maybe win.

Now let’s assume there is an adverse ordinance and as applied to a real life situation there is some private property owner injustice – denial of a placement, local fine, permit denial, etc. and this has been adjudicated to its furthest extent at the local level as to constitute exhaustion. What is the next step?

As if we weren’t there already, this is where things can get complicated.

For decades courts looked for bright line tests when deciding if some action was a compensable taking by a government actor. The Supreme Court has provided such a test in only two situations. The first is when there is a permanent physical occupation. The second is when there is a denial of all economically viable use.

Before dining into the next topics I need a quick disclaimer. Many of the cases I’m going to mention actually involved manufactured home communities. However, if the case and opinion refer to the community as a “mobile home park” I use that term below. This is not in an effort to be derogatory. Far from it. But I use it to provide consistency with the court opinions being referenced and in some cases to provide the appropriate time stamp in history when a specific case was heard. So please, don’t get offended by the term rather than using community. In other words, no hate mail please.

Physical Occupation

A physical invasion of private property by the government or by the government authorizing others to do so is seen by the courts as a per se taking. Most notably was the case before the Supreme Court in which they narrowly held that a New York law that forced property owners to allow a cable company to string cable on their property was a compensatory taking based on physical occupation.

The Ninth Circuit actually took up two cases involving mobile home parks. In one case the court analyzed the owners’ claim as one of a taking by physical occupation when a city ordinance required the owner to offer tenant leases of unlimited duration. The court compared the case to the Supreme Court cable stringing case because the ordinance transferred the right to occupy in perpetuity to the tenants and the tenants could transfer the right without the landlord’s approval. The court said that the landowner loses forever the aspect of ownership that is the right to control wholly who will occupy his property and on what terms, while giving the tenants’ rights they can later sell when they leave the property.

In the other mobile home park case heard by the Ninth Circuit, the court held that rent control ordinances were not a physical taking. The case was based on California state law as well as city ordinances imposing restrictions on the landowner, such as specific limitations for when they can terminate a lease to only nonpayment and a change in ordinances that imposed rent control. The Supreme Court said the regulations were for use of the land but were not a physical taking because the landowner voluntarily rented their land to the mobile home owners and neither state nor city law compelled the landlord to continue to rent the land. The court reasoned this case was different from the Ninth Circuit ruling because the landowner could choose to no longer rent the land and change the use, therefore nothing permanent had been taken. The court said this was not a physical taking, but did say that while not a physical taking it could have been analyzed as a regulatory taking. However, since the alternate issue of a regulatory taking was not brought up prior the court did not provide an opinion as to a regulatory taking and only ruled that it was not a physical taking.

It is important to know that many state constitutions have provisions against improper takings that can result in stricter interpretations by state courts. The Supreme Court of Washington invalidated a state law requiring a right of first refusal be granted to tenants of a manufactured home community because the court concluded the law was a compensatory taking based on the state’s constitution. Texas also has taking provisions in our state bill of rights in Article 1, Section 17.

Takeaway

When government action deprives an owner the power to exclude others from his/her own property, a taking may have occurred.

Denial of All Economic Use

The other means of achieving an actionable compensatory takings claim is if the government deprives a private property owner, “all economically beneficial use.” The Supreme Court in 1992 held that denial of all economic use outweighed and therefore trumped the government’s goal to substantially advance a legitimate state interest.

The only defense the government has to a per se taking under a denial of all economic use is that the imposed ordinance or law prevents a nuisance.

But before developers, community owners, or retailers rejoice thinking that zoning ordinances with manufactured home placement prohibitions are now guaranteeing them takings checks in the mail, we have to understand the limitations of the Supreme Court holding.

The government denial must be for all economic use. Not merely some denial of economic use and not even for denial of the best economic use. To illustrate this rather steep threshold, the Third Circuit in 1987 held that a per se compensable taking had not occurred when a city rezoned a portion of a landowner’s property from industrial to agricultural because of community opposition to an industrial development project. The landowner alleged that the rezoning dropped the value in his property from $495,600 to only $52,000 (an 89.5 percent decrease in value), but the court held no taking had occurred under this theory because the land still had some value and was viable for “residual economically feasible use.” Essentially the property owner must prove loss of all reasonable use.

Lower courts have held when governments downzone or revoke permits blocking continued development of previously approved projects that a taking has occurred when the effect is a reversal of prior approved reasonable economic use of the property. Texas actually has a specific state law related to prior approved projects and the grandfathering of that approval despite subsequent local changes so long as certain conditions are met.

For some manufactured home community owners the denial of prior approved projects may be the only viable option to meet the high burden under a denial of all economic use theory. In fact, in 1989 a Michigan appellate court held that a taking had occurred when a city rezoned to block the expansion of a mobile home park by changing zoning and imposing large two and a half acre minimum lot-size requirements that precluded development. The rezoning of the land for agriculture purposes was proven by the landowner that no viable agricultural uses were capable of surviving on the rezoned property.

Courts will look to the existing use of property to determine reasonable use and if government interference with the owner’s expectations has occurred.

Also, worth noting is the Supreme Court has held that both personal property as well as real property are covered by the Takings Clause.

What Else You Got?

The court has clearly provided for two per se (automatic) conditions of constituting an improper taking – physical invasion and denial of all economic use. But what if neither of these two conditions apply? When a challenge doesn’t rise to the level of a per se taking, is there still any path forward?

Yes, but it is difficult.

The Supreme Court established in 1978 and confirmed again in 2005 that a three part test in Penn Central Transportation Co. v. City of New York is to be used to decide if a regulatory (not a per se) taking has occurred:

1. The character of the government action in question;
2. The economic impact of the regulation on the landowner; and
3. The extent to which the regulation has interfered with distinct investment-back expectations.

The character of the government action in question means that a court will look at the public purpose goal of the action compared against the means chosen by the government to achieve that goal. However, the courts give wide latitude to local governments and legislatures, and typically the only instances that courts rule governments have treaded too far are when the government action requires some form of concessions that is deemed to be so severe against a property owner that the court views it as an “extraction.”

An example of impermissible extraction was in the case where the Supreme Court held that it was illegal for a city to require a property owner to record a deed restriction granting a public easement on his property as a condition of obtaining a development permit. In a then later case the Court invalidated a city condition on a landowner’s expansion permit approval requiring 10 percent of the land in a floodplain be reserved for greenway and to permit a pedestrian pathway to cross the land. But just to make sure things remain as blurry as possible, the Court in a later case reasoned the results of the two prior cases requiring a dedication of property to the public as a condition necessary to obtain a permit can only survive if there is a “nexus” and “rough proportionality” between the property that the government demands and the social costs of the applicant’s proposal. This means there must be a relationship (“nexus”) between the government condition imposed and the public impact of a development and magnitude (“rough proportionality”) of the burden of the condition and its effects on the proposed development. Remember when I said no bright line? This is what I meant. This is the debate and argument the sides must have when pursuing a regulatory taking claim – character of action, the nexus, and rough proportionality relationship.

When analyzing the second condition of economic impact the courts look to the impairment of use on the property and the reasonable use that remains after the impairment. Recall when complete denial of all economic use is found then a per se compensatory taking has occurred. But when an impairment negatively impacts a property, but does not go so far as to deny all economic use, then the property owner finds themselves under this analysis. However, to prevail in most courts on this provision a property owner still has a high burden to prove extensive, though not complete, loss resulted from the government action.

Examples of cases that were held as not a taking under this second prong are: development moratoriums; granting of a noise ordinance variance to a race track over the objection of the adjoining property owner; allowing adjacent property to be rezoned for a landfill; requirements that a certain percentage of units be set aside and sold for affordable housing in order to obtain a development permit; imposition of higher fees following a court ordered rezoning; prohibitions of construction in wetlands; prohibition of pipelines within 100 feet of state highways without state’s permission; downzoning from residential to preservation that allowed for a golf course but not the more profitable resort development; prohibition of surface coal mining to protect an archaeologically significant area; a permanent ban on time share developments; designating a building as historic without the owner’s consent; prohibiting billboards in residential areas; denial of a permit to create a nine acre private lake; and revocation of a mining permit effecting 91 percent of the coal the owner expected to mine.

When courts are looking to interference with investment backed expectations the timing of the ordinance in question relative to the owner’s acquisition is a factor. However, merely acquiring property after an ordinance had been enacted, thus taking the property with notice, is not in itself enough to invalidate a property owner’s claim. Not actually paying money like with heirship or a donation is also not enough alone to invalidate a property owner’s claim. However, the expectations must be more than a “speculative possibility.” For example, in one case a purchaser bought a mobile home park that was under a local rent control ordinance in California. The new owner then sued, but failed because he could not survive this element of investment expectation because the court deemed it more speculative that he could theoretically get more value from his investment if the rent control ordinance was later lifted, and if anything the tenants who had previously purchased and paid more for their homes in the rent controlled park were the ones the court determined had legitimate investment backed expectations.

While coming to a property under existing ordinances is not automatically fatal under the investment back expectations, it does create a high burden to overcome if a subsequent buyer is to be successful with a challenge.

Conclusion

Like the TV promotional advertisements that end with, “The more you know…” and an animated star shooting under the words, now we know much more about a takings cause of action. Probably more than you ever cared to know.

To summarize, in order to challenge a government action it should be based on specific facts that as specifically applied have had a real, not theoretical, adverse impact. All efforts locally to resolve the conflict must be exhausted. Then if a property owner can prove the action fit within one of the two per se takings claims, either a physical occupation or denial of all reasonable use, the property owner can prevail. However, if there is only an impairment of use having some negative, but less than total, loss of value the owner must run through the three part test looking at the character of the action, severity of economic impact, and the investment expectations. Case history proves that prevailing on this three-part test for the property owner is far from easy.

I will also point out that a takings cause of action is not the only argument a property owner might have when faced with government interference with their property. Substantive due process; procedure due process; equal protection; 42 U.S.C. Section 1983 claims; first amendment like political speech, commercial speech, free speech (the one adult entertainment owners are particularly fond of using against regulations), free exercise of religion; the commerce clause; and state constitutions with their own due process and takings causes of action may be used to confront government action.

The other article in this two part series looks at some specific cases were TMHA sued cities and asserted not only a takings claim but many of the additional claims listed above.

Don’t we all just wish it was as easy as, “Who had it first? Now don’t hit your sister.”

Unfortunately what we have learned is that while it can and has been done, it is no small feat to send city hall to time out.