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October 31, 2017 Practice Points

Penn Central Has Officially Been Squared

The Supreme Court applies a multifactor test in Murr v. Wisconsin to determine the property taken by regulation

by Nicholas P. Shapiro

In April 2017, I wrote an article about oral argument in Murr v. Wisconsin, Supreme Court Docket No. 15-214, and the Justices’ struggles with the beguiling question of how to calculate the “denominator” in regulatory takings cases (the property against which such a claim is to be measured).

At the end of the last term, Justice Anthony M. Kennedy, writing for a 5-to-3 majority of the Court, answered the question. See Murr v. Wisconsin, 137 S. Ct. 1933 (2017). Right or wrong, the answer contained in the majority opinion is now the law, and practitioners must take notice because “the answer to this question may be outcome determinative.” The smaller the denominator, the more likely a regulatory taking has occurred.

Murr holds that the threshold denominator question should be answered employing roughly the same methodology as the merits. “Like the ultimate question whether a regulation has gone too far, the question of the proper parcel in regulatory takings cases cannot be solved by any simple test.” “Courts must instead define the parcel in a manner that reflects reasonable expectations about the property [and] strive for consistency with the central purpose of the Takings Clause: to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”

Thus courts are required to apply a multifactor test to identify the property that is the subject of the regulatory taking claim. “[N]o single consideration can supply the exclusive test for determining the denominator. Instead, courts must consider a number of factors” including the following:

State/local law treatment. How all state and local law treats the land, and not only state real property law, and “in particular how it is bounded and divided” under that expansive body of law. 

  • Though not dispositive, even the law challenged as amounting to a regulatory taking may be considered, if it (a) comprises “[a] reasonable restriction that predates a landowner’s acquisition” and (b) is the type of regulation “that most landowners would reasonably consider in forming fair expectations about their property.”

Physical characteristics of the land:

  • “physical relationship of” the land to “any distinguishable tracts”
  • topography
  • “surrounding human and ecological environment”—whether, given its physical features, the property is obviously “subject to, or likely to become subject to, environmental or other regulation.”

Value of the land as affected by the challenged regulation

  • Courts are to pay “special attention to the effect of the burdened land on the value of other holdings” because of the potential for an agglomerative effect or complementarity with other properties.
  • However, consideration of the relationship of the land’s value with other holdings requires that the commonly owned properties be contiguous or have a special relationship with each other. “The absence of a special relationship between the holdings may counsel against consideration of all the holdings as a single parcel, making the restrictive law susceptible to a takings challenge.”

Overall, courts must “determine whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts. The inquiry is objective, and the reasonable expectations at issue derive from background customs and the whole of our legal tradition.” Applying the factors addressed above, would an average property owner expect that her properties would be treated as a unitary whole? If the answer is yes, then the multiple properties will be treated as one denominator.

As is true for most multifactor tests, the Murr standard raises as many questions as it answers. Undoubtedly, courts and litigants will struggle to reconcile the standard’s conflicting principles, which emanate from the tension underlying regulatory takings jurisprudence: Between “the individual's right to retain the interests and exercise the freedoms at the core of private property ownership” and “the government's well-established power to adjus[t] rights for the public good.” As Justice Kennedy exhorted, “[s]tate and federal courts have considerable experience in adjudicating regulatory takings claims . . . The Court anticipates that in applying the test above they will continue to exercise care in this complex area.”

Given that it allows the denominator to include more than the single lot that might have been “taken” by regulation, Murr will make it incrementally more difficult for a landowner to prevail. Justice Kennedy hastened to warn that “[d]efining the property at the outset . . . should not necessarily preordain the outcome in every case.” Only time will tell whether this warning rings true.

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