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October 01, 2020 Feature

Love Terminal: A Tale of Two Theories

William W. Wade, PhD

I. Introduction: Contrasting Theories of Justice in Federal Courts

For the Hampstead Group—the people with the vision, the know-how and the money to invest millions in expanded air travel services at Dallas’s Love Field—it was the best of times in the Court of Federal Claims (CFC) . . . and the worst of times at the Federal Circuit.

Akin to Dickens’s contrast of justice in eighteenth century France and England,1 the conflicting theories that governed Hampstead’s regulatory takings litigation in the two courts hinge on divergent views of judicial regard for investment backed expectations. Economic issues governed Hampstead’s two outings in the CFC;2 the Federal Circuit overturned the trial courts’ two carefully documented decisions narrowly on the law3—excluding economic evidence.

Takings cases are always about the money. Penn Central was about millions of dollars annually needed from leases for a proposed building above Grand Central to stave off bankruptcy. The economic question to reexamine about the two courts’ Love Terminal decisions is the following: Which outcome achieved justice in the balance between the plaintiff’s losses or the government’s payments, which “hardly could [could be expected for every decline in] property value . . . for every [regulatory] change in the general law.”4

This litigation originated as an antitrust case in the federal district court of the Northern District of Texas, Dallas Division.5 The facts and outcome of that case are essential background for the subsequent takings litigation. Hampstead acquired a 26.8-acre ground lease and built a new terminal at Love Field, having determined that Dallas air travel demand would increase, requiring repeal of a federal regulation—the Wright Amendment—restricting interstate air travel from Love Field.

Hampstead was correct; restrictions on interstate air travel from Love Field were removed in October 2006 with the passage of the Wright Amendment Reform Act (WARA). But Hampstead was blindsided by a condition contained in WARA.

The antitrust trial decision reported that five other aviation interested parties—two having worked with Hampstead for removal of restrictions on increased interstate travel from Love Field—conspired to block Hampstead’s use of its newly built terminal. That litigation reveals that Congress was induced to incorporate language provided by the Five-Party Agreement to block Hampstead from future competition. That decision documents the conspiracy but dismissed plaintiffs’ claim based on the Noerr-Pennington doctrine that shielded the defendants.6

A. Implications of Love Terminal III: Need for Predictable Legal Standards for Regulatory Takings Litigation

The Supreme Court has issued three takings decisions since 1922 that adopted the criteria governing payment of just compensation, but with no explanation of how to evaluate and apply the criteria. Perhaps the forthcoming one hundredth anniversary of Pennsylvania Coal 7 might prompt some interest in establishing predictable legal standards to discern with consistency when “too far” deserves just compensation.

In the absence of Supreme Court guidance, the Federal Circuit and other state and federal appellate courts have confounded Penn Central’s believed-to-be “polestar” test8 for payment of just compensation with unique hurdles for plaintiffs to qualify for payment for government takings.9 The Penn Central test is a framework to decide the economic balance of justice between the plaintiff and government for regulatory limits on property or business.10 In lieu of Penn Central, Love Terminal III adopted as precedent Good v. United States11 to conclude that Hampstead had no reasonable expectation of repeal of the Wright Amendment. The decision excluded CFC economic evidence of investment expectations and financial loss along with findings about the Penn Central character prong:

The failure to establish “reasonable, investment-backed expectations,” at least under the Penn Central analysis, “defeats [a regulatory] takings claim as a matter of law.”. . . Because we find the expectations factor dispositive, we will not further discuss the character of the government action or the economic impact of the regulation.12

The Federal Circuit Love Terminal decision is yet one more example where the lack of guidance and questionable understanding of standard financial analytic methods undermined the decision in a regulatory taking case with millions of dollars at risk. If Love Terminal III is precedent to rule out prospective income to measure the value of a property lost due to regulatory change, this outcome cancels a century of financial economic research and practice, which puts the practice of takings law at odds with both tort law and real world economics.13

B. Organization of the Article

Section II of this article is a brief overview of salient elements of takings law and economic doctrines that govern the issue at trial that set the two courts’ decisions apart.

Section III provides an overview of the economic history of Hampstead’s investments in Love Field aviation.

Section IV discusses the factual details and legal proceedings of the conspiracy reported by the Love Terminal I and II decisions in contrast to the Love Terminal III’s decision for the defendant in spite of the anticompetitive behavior endorsed by WARA.

Section V discusses the governing economic and legal issues that set apart the two courts’ decisions particularly the decisions’ reliance on reasonable financial expectations v. reasonable regulatory notice.

Section VI discusses the effect of Love Terminal III’s decision guided by the Good decision’s reasonable notice precedent for excluding the trial court evidence of both plaintiff and future litigation.

II. Salient Elements of Takings Law Guiding the Decisions

Following the loss due to the Noerr-Pennington shield, Hampstead filed a complaint in the Court of Federal Claims (CFC) seeking damages for a regulatory taking caused by WARA. This section briefly traces the evolution of investment-backed expectations criteria post-Penn Central to discover the path that led to the Federal Circuit’s decision to overturn the CFC finding for Hampstead.

The CFC reached its decision (Love Terminal II) based on extensive evidence presented and evaluated within a standard three-prong Penn Central test.14 The Federal Circuit overturned based on the single-prong dealing with investment-backed expectations, excluding evidence bearing on the other two prongs. Exactly how and why these two courts evaluated the same facts with different legal frameworks reveals the jurisprudence problem affecting Hampstead’s millions of dollars and, importantly, future litigation.

A. Fifth Amendment Has Fairness and Public Use at Heart

The Fifth Amendment initiated the standard for government compensation: “nor shall private property be taken for public use,15 without just compensation.” The Constitutional language referred to physical property that has evolved into a body of condemnation law. A 1960 Supreme Court decision clarifies the consideration of whether the taxpayers or the plaintiff should incur the cost of government taking: the “Fifth Amendment’s guarantee . . . [is] designed 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.”16

B. Pennsylvania Coal: How Far Is “Too Far” Remains a Mystery

Regulatory takings arose as an offshoot of condemnation law in the 1922 Pennsylvania Coal case.17 Pennsylvania Coal vaguely envisioned a balancing process to protect both public needs and restrictions on private property. The decision penned the famous phrase, “while property may be regulated to a certain extent, if the regulation goes too far it will be recognized as a taking.”18

“Too far” is never defined. Factors mentioned in that case to consider how far is “too far” are the extent to which the regulated property is diminished in value as a result of the regulation and the average reciprocity of advantage (ARA) conferred on the claimant by the regulation.19 The decision for the plaintiff ultimately was based on the coal company’s ownership of the surface rights, which entitled them to mine the coal under the surface in contravention of the Kohler Act.20

C. Penn Central’s Famous, If Unsettled, Three-Prong Test

Fifty-six years later, the Supreme Court sought to impose some clarity about how far is “too far” with Penn Central’s “several factors that have particular significance” to the decision to pay compensation. The three factors were considered relevant together, not stand-alone. Subsequently labelled the Penn Central test, its three prongs to examine and balance in reaching a decision are the following:

  • the economic impact of the regulation on the claimant;
  • particularly, the extent to which the regulation has interfered with distinct investment-backed expectations (DIBE); and
  • the character of the government regulation.21

The decision never addressed the three prongs, initiating the three factors with no guidance to the legal community. Subsequent decisions parsed Penn Central’s test in terms of quantitative measurement and evaluation of the plaintiff’s severity of economic loss.22 The Penn Central test embeds two economic prongs within its evaluation. These two prongs entail fact-specific economic analyses that must conform to standard peer-reviewed methods.23 Unfortunately, legal precedent does not adapt to economic precedent with consistency in Penn Central litigation.

In the ensuing forty-one years, the Supreme Court has provided little clarification beyond Lingle’s affirming the Penn Central three-prong test as its “polestar.”24 Thousands of words in trial briefs, journal articles, and court decisions reveal conflicting and often mistaken economic approaches to the two economic prongs. Relevant to the Love Terminal Federal Circuit decision, whether the decision to pay just compensation should be based on a balance of some kind among the three prongs or simply a single prong would seem to be unsettled, albeit at odds with Penn Central’s original intent.

I am amazed that no systematic understanding of Penn Central’s three famous prongs has been agreed upon by now. Smyth and other recent appellate decisions across the country reveal that consistency and understanding of how to measure economic impacts and determine their interference with distinct investment backed expectations hopelessly elude jurists and opposing counsel.25

1. Michelman’s seminal article established financial investment-backed expectations that became distinct investment-backed expectations

The investment expectations prong of the Penn Central test originated in Professor Michelman’s seminal 1967 article, which implied that land speculators are some sort of moral plague on society with no need of protection against changing regulations.26 His intent of excluding protections for “speculators” led to the requirement that plaintiffs demonstrate “some distinctly perceived, sharply crystallized, investment-backed expectation,” which Justice Brennan simplified to the received DIBE language.

The certain intent of DIBE adopted by Justice Brennan matches standard investor decision-making behavior—well-documented in college finance courses and business practices—but not necessarily followed by the justices nor some jurists through time. Investors’ expectations must be shown to yield measurable financial returns sufficient to recoup investment with a return on investment.27

The Penn Central decision denied the proposed construction of a fifty-five-story office building above Grand Central Terminal, which would have brought-in $1 million per year during construction and at least $3 million annually thereafter. That denial misperceived the fact that Penn Central was in bankruptcy, deciding that it was earning “reasonable returns” on the Grand Central Terminal.28 The Court’s mistaken assessment of reasonable returns from Grand Central was the criterion for confirming the lower court’s takings decision.29

Justice Rehnquist’s dissent recognized the railroad’s contention that it was in a financially precarious position and needed the increased source of revenues to survive.30 He called attention to the majority’s lack of definition for reasonable return or economically viable language and concluded that a rule without definitions poses “difficult conceptual and legal problems.”31 Economic expectations, mistaken or not, was Michelman’s original meaning adopted by the Penn Central decision.32

D. DIBE Relabeled RIBE for No Substantial Reason

Clearly Penn Central had reasonable financial returns in mind. The decision mentions the phrase “reasonable returns” twenty-one times in the decision, footnotes, and dissent.

For no discernible legal purpose, Justice Rehnquist changed “distinct” to “reasonable” the year following Penn Central in Kaiser Aetna v. United States.33 The Hawaiian navigation case was decided on the plaintiff’s right to exclude,34 with only a brief mention and cite to the Penn Central test and no discussion of its prongs or reasonable expectations. No context for what might have been Justice Rehnquist’s reason for the change is apparent.

I have always believed that Justice Rehnquist changed “distinct” to “reasonable” because “reasonable returns” is and was more common financial jargon; the term “reasonable returns” is mentioned twenty-one times in Penn Central.

Justice Rehnquist’s decisions confirm knowledge of economic methods (e.g. DuQuesne Light Co. v. Barasch).35 That decision includes extensive, erudite discussion of reasonable returns: “‘just compensation’ safeguarded to a utility by the fourteenth amendment of the federal constitution is a reasonable return on the fair value of its property at the time it is being used for public service.”36 His famous footnote 13 in Penn Central reflects his understanding of finance, which he perceived his brethren did not possess.

Brennan’s DIBE became Rehnquist’s RIBE for no legal reason—but it has transformed the Penn Central test.

1. Supreme Court has never elucidated Penn Central’s three prongs

Kyser Aetna became the third Supreme Court takings decision since 1922 penning language adopted as criteria governing payment of just compensation with no illustration or explanation of how to evaluate and apply the criteria. Professor Daniel Mandelker’s conclusion from a 1995 article remains relevant: “If investment-backed expectations are to play a role in takings cases, courts must resolve [the] inherent ambiguities and develop a clear idea of what the term means.”37

In the absence of Supreme Court guidance, the Federal Circuit has confounded Penn Central’s reasonable financial expectations with plaintiffs’ reasonable notice of regulatory prohibitions. This change muddled standard financial evaluation criteria (e.g., return on investment) with dates of regulatory prohibitions. The change from Brennan’s “distinct” expectation to Rehnquist’s cavalier “reasonable” set the stage for forty years of ongoing argument about investment-backed expectations.38

E. Federal Circuit Theory of Investment-Back Expectations Transformed DIBE’s Financial Backbone to RIBE’s Regulatory Notice

Lacking guidance from the Supreme Court, the Federal Circuit, and other appellate courts, have adopted and applied Justice Rehnquist’s undefined language revision of Penn Central’s distinctly financial expectations to awareness of regulatory restrictions. Reasonable Investment-Backed Expectations (RIBE) transformed to reasonable notice of regulations has eroded the financial analysis of interference with DIBE. This section picks up the thread with Good v. United States39 cited by Love Terminal III.40

1. Good decided on lack of reasonable expectations

In Good v. United States, the CFC found no taking in a Penn Central case because of state and federal regulatory regimes in place at the time of plaintiff’s investment; Mr. Good assumed the risk at the time of purchase that it might be difficult to obtain approvals for his project. The court ruled on summary judgment that Good lacked reasonable investment-backed expectations.41 He appealed.

The Federal Circuit decision applied the relabeled reasonable investment-backed expectations prong of Penn Central and confirmed that plaintiff incurred no compensable loss. The court adopted language from the Creppel decision to confirm that reasonable expectations

limit recovery to owners who can demonstrate that they bought their property in reliance on the non-existence of the challenged regulation. . . . One who buys with knowledge of a restraint assumes the risk of economic loss. In such a case, the owner presumably paid a discounted price for the property. Compensating him for a “taking” would confer a windfall.42

The court was definitive: Good, a Florida real estate developer, “could not have had a reasonable expectation that he would obtain approval to fill ten acres of wetlands in order to develop the land in view of the regulatory climate that existed.”43 The Good decision “found the requirement that a party have reasonable investment-backed expectations to be dispositive and did not address [Penn Central’s] other two factors.”44 The court ruled that the “lack of reasonable expectation defeats [plaintiff’s] takings claim as a matter of law.”45

2. Loveladies Harbor definitions do not foreclose analysis of the economic impact and interference with DIBE

Loveladies Harbor discussed Penn Central’s interference with the distinct investment-backed-expectations prong in language that limits compensation for takings “to owners who could demonstrate that they bought their property in reliance on a state of affairs that did not include the challenged regulatory regime.”46 The decision provides two sensible elements of reasonable expectations that are consistent with standard economics:

  • “A ‘reasonable investment backed expectation’ must be more than ‘a unilateral expectation or an abstract need.’”47
  • “In legal terms, the owner who bought with knowledge of the restraint could be said to have . . . assumed the risk of any economic loss. In economic terms, it could be said that the market had already discounted for the restraint, so that a purchaser could not show a loss in his investment attributable to it.”48

The Loveladies opinion examined each of the prongs of the Penn Central test, affirming the CFC decision that plaintiff had a reasonable expectation of regulatory approval and deciding the case for the plaintiff on the issue of the “relevant denominator” by which to benchmark plaintiff’s loss.49 Plaintiff’s loss was affirmed as ninety-nine percent of the litigated 12.5 acre parcel.

Loveladiesreasonable expectations language has provided definitional content adopted in subsequent litigation to miscast Penn Central’s financial context of distinct investment-backed expectations as reasonable notice of regulations. In fact, the Loveladies language does nothing more than define the obvious first step of standard economic valuation. Unfortunately, takings cases have relied frequently on the language as reasonable notice to preclude the financial analysis of Penn Central’s original distinct investment-backed expectations prong. Such is the issue with Love Terminal III.

3. Protecting or enhancing public welfare, the ultimate reason for government takings, missing from Love Terminal III

Good, Creppel, Loveladies, and takings law generally confirm that regulatory constraints are related to the importance of protecting and preserving the environment for the common good.50 This principle was not the case in Love Terminal III. WARA was not intended to preserve and protect the public welfare. The antitrust decision stated:

The [Five-Party Agreement] is anticompetitive in limiting air carrier operations and consumer choices for air travelers in North Texas. It violates the federal antitrust laws by significantly reducing competition for airline services and eliminating competition by commercial terminal operators. Essentially, the anticompetitive deal was put together to eliminate competition and protect American and Southwest from competition against each other and other carriers, allowing them to preserve their dominant market shares and fare premiums.51

WARA provided no enhancement of the common good or protection of the environment. Yet, Love Terminal III adopted the precedent of the Good decision to rule against Hampstead, thereby excluding a Penn Central analysis of the evidence from Love Terminal II.

[Hampstead’s] reasonable, investment-backed expectations are . . . limited by the regulatory regime in place at the time they acquired the leases, which included the Wright Amendment. The failure to establish “reasonable, investment-backed expectations,” at least under the Penn Central analysis, “defeats [a regulatory] takings claim as a matter of law.”52

The facts of the Love Terminal litigation, extensively documented in Love II’s lengthy CFC Penn Central trial decision,53 are at odds with the Good precedent. Protecting the environment for the public welfare was not at issue in this litigation. Neither were Hampstead’s distinct investment-backed expectations unclear. In contrast to language from Creppel adopted by Good,54 Hampstead developed its project at Love Field specifically because investors foresaw that the existing regulatory restraint would be lifted. Hampstead was correct—but with a nefarious hitch.

4. Love III’s fact pattern at odds with Good decision

In contrast to Good’s reliance on the existing regulations to bar compensation, the following facts trace Love III ’s divergence from the economic underpinnings of Penn Central.

  • The Wright Amendment (WA) was not a regulatory constraint for environmental protection for the public’s welfare. WA was introduced to provide economic protection for the 1978 start-up of DFW airport.
  • In 1999, after twenty years of DFW’s economic protection, Hampstead, a sophisticated, knowledgeable investment management group, conducted economic and political research that led them to perceive a business opportunity to invest in future air travel growth at Love Field.
  • Hampstead’s analysis concluded that existing WA restrictions on interstate air travel from Love Field would be rescinded in response to growing demographic and economic forces.
  • Hampstead leased land and built a new air terminal, investing millions, to serve the growth in air travel in the Dallas market.
  • Hampstead did not enjoy any reported discounts in its construction costs.
  • Love Terminal II ’s decision provides ample evidence that Hampstead’s DIBE were neither speculative nor unilaterally held.
  • Hampstead’s distinct investment-backed expectations were confirmed in Love Terminal II.
  • The CFC decision adopted substantial and reasonable evidence of Hampstead’s studies and lobbying efforts to anticipate that interstate travel restrictions from Love Field would be rescinded.
  • Hampstead’s investment expectation was accurate: the existing interstate air travel restrictions from Love Field were lifted by Wright Amendment Reform Act (WARA).
  • Language drafted by five other interested parties in an agreement (Five-Party Agreement (FPA)) blindsided Hampstead to block their future participation in the deregulated Love Field.
  • The Five Parties induced Congress to include the FPA in WARA. Antecedent trial decisions do not report what inducements were offered to Congress to adopt the Five-Party Agreement in WARA.
  • Love Terminal I and II document the conspiracy reported in the 2007 antitrust trial,55 which blocked Hampstead’s damages recovery based on the Noerr-Pennington doctrine.
  • Hampstead testified and Love Terminal II agreed that the effect of the conspiracy on Congress’s WARA was not foreseeable, which questions Love III’s reliance on the Good forseeable precedent to decide for defendant.
  • The Federal Circuit’s adoption of Good’s reasonable notice as the single prong to decide a Penn Central case led to the exclusion of abundant evidence litigated in Love II’s Penn Central test, which supported the decision for Hampstead.

The Federal Circuit did not evaluate the balance among Penn Central’s three prongs in the Love Terminal III decision, instead adopting Good’s precedential public notice interpretation of reasonable expectations. The facts in Love I and II are dispositive that Hampstead had a reasonable expectation of success following repeal of the Wright Amendment. The slim eighteen-page Love III decision excluded economic and financial testimony to the contrary and precluded a Penn Central test.

Penn Central’s original financial meaning of interference with distinct investment-backed expectations (DIBE) matches the facts of the case. Hampstead’s careful approach to the investment conforms to Professor Michelman’s original focus upon “distinctly perceived, sharply crystallized, investment-backed expectations,”56 which became the DIBE prong of the seminal Penn Central test.

Hampstead’s reported investment evaluation process and expertise conforms with business evaluations involving large investment decisions. Love Terminal II decided that the process did not reflect a “unilateral expectation or an abstract need.”57 Hampstead correctly expected that the Wright Amendment would be repealed. This fact is opposite to the context of the Good decision, which ruled that plaintiff had notice that plaintiff’s permit was not a reasonable expectation in Florida’s regulatory climate.

Hampstead’s investment was destroyed not by some foreseeable regulatory restraint; the unforeseeable nefarious Five-Party Agreement adopted by Congress created the actions that destroyed all value in Hampstead’s investment to enrich the Five Parties. Enhancing the public good was not achieved by the taking of Hampstead’s real property and business opportunity. A detailed Penn Central analysis revealed the taking in Love II. The factual conflict of Mr. Good’s situation with the evidence developed in two CFC decisions disappeared from the Federal Circuit’s de novo review. Perhaps, a Penn Central reanalysis of the facts would have confirmed the CFC decision.

F. Corporate Investment-Backed Expectations Rely on Detailed Studies and Expertise Akin to Hampstead’s Testimony

Far from discourse of legal distinctions between RIBE or DIBE, American corporate and business entities such as the Hampstead Group, initiate, on a daily basis, studies by specialized staff, expert consultants, lawyers, and lobbyists to consider multimillion dollar investments in projects expected to earn future profits for their companies and their investors.

Hampstead had a “sharply crystalized” vision backed by expert research to recognize a reasonable business investment opportunity that WA would be repealed for the benefit of the traveling public. Their decision was made with the calculation that future cash flows would recoup the investment and reward the investors. WARA was foreseen; the illicit conspiracy was not. But for the illicit Five-Party Agreement adopted in WARA, expert testimony adopted in the Love Terminal II decision validates that reasonable expectation.

III. Economic Facts of Hampstead’s Investments at Love Field58

Now consider Hampstead’s economic facts that led to the Love Field investment reported in the record and the Five-Party Agreement that gutted the outcome. Hampstead recognized changing economic and demographic forces that would affect the outlook for air travel at Love Field. Subsequent actions by other interested municipal and aviation parties caused the litigation by their conspiracy reported in Love Terminal Partners v. City of Dallas.59 The litigation ended with the Federal Circuit overturning the CFC’s detailed, fact-based Penn Central decision for plaintiff narrowly based on the interpretation of law governing Penn Central’s investment-backed expectations prong—and the Supreme Court denying certiorari on June 24, 2019, in yet another controversial takings decision involving economic methods.

Love Field has served Dallas as its convenient municipal airport since 1927. In 1968, Dallas and Fort Worth agreed that both cities would work together to phase out operations at Love Field and transfer the services to DFW, located between the two cities as the regional airport. Eight airlines agreed to move to DFW, which opened for commercial air service in 1974. Southwest remained at Love Field.

Love Field, closer to Dallas than DFW, continued to be fully operational. Commercial airlines operated out of the terminal owned by Dallas, along with general aviation flights for private pilots, charter flights, and helicopters. By 1978, activities at Love Field were sufficiently affecting the operations at DFW that legislation was sought to protect the economic vitality of DFW. Dallas and Fort Worth lobbied to prohibit interstate commercial air service from Love Field, which resulted in the Wright Amendment.

Congress passed the Wright Amendment in 1979 to restrict flights from Love Field to locations within Texas and four contiguous states (Arkansas, Louisiana, New Mexico, and Oklahoma). Commuter airlines were limited to aircraft with a capacity of fifty-six passengers. In 1998, the Shelby Amendment permitted longer-haul flights on larger airplanes but configured to accommodate no more than fifty-six passengers. The Shelby Amendment added Alabama, Kansas, and Mississippi to the list of states that airlines could serve directly from Love Field.

A. Hampstead’s Investments in Love Field

The Hampstead Group, a private equity firm,60 became interested in an operation from Love Field in 1999 and, after substantial research, developed a plan to fund the construction of a terminal for its operation.61 Two CFC trial decisions reveal that Hampstead had a vision of future growth that foresaw both rising demand for air travel and Dallas travelers’ preference for nearby Love Field.

Love Terminal II cites extensive demand and valuation studies contracted by Hampstead to evaluate its investment in future airline terminal operations at Love Field.62 Love Terminal Partners (LTP) (ultimately the plaintiffs), wholly owned by a subsidiary of Hampstead, obtained a sublease to 9.3 acres on Love Field in 1999 and initiated construction to build a terminal.63 Hampstead ultimately invested $23.5 million to build a six-gate terminal (the “Lemmon Avenue Terminal”) on their leased area of Love Field. The Lemmon Avenue Terminal, with six gates and adjacent parking garage, was completed in 2000. “Hampstead’s investment plan was broadly focused on using the real estate to build and then expand an airline terminal. . . .” 64

That same year, the city of Dallas, working with interested participants, including Hampstead, Southwest, and American Airlines initiated a Master Plan for Love Field that included thirty-two gates, six of which were locate on the Lemon Street Terminal. The plan allowed for ten additional gates on the Lemon Street Terminal65—pending growth in demand expected after Wright Amendment restrictions were lifted.

By 2003, anticipating the repeal of the Wright Amendment, Love Terminal Partners (LTP and later LTP/VA with the addition of Virginia Aerospace) purchased a master lease on 28.8 acres of Love Field, in December 2003, for $6.5 million. The intent was to add more parking and to build more gates to meet future demand.

B. Aviation Experts Expected Wright Amendment to Be Repealed

Plaintiffs and airline experts, based on studies and actions described in the CFC decision,66 anticipated that the Wright Amendment would soon be repealed. By late 2004, Southwest initiated a campaign to repeal the Wright Amendment. In response, the Senate Committee on Commerce, Science, and Transportation conducted a hearing to allow more interstate flights but added only Missouri to the list of Wright Amendment-exempted states. American Airlines, operating from DFW, and the operators of Dallas-Fort Worth Airport (DFW) opposed lifting restrictions at Love Field.

The antitrust decision wrote:

The need for Wright Amendment protection of DFW Airport ha[d] weakened over time, . . . and consumers expressed interest in facilitating more convenient, less expensive travel to and from Love Field. The Wright Amendment was challenged by various interests. In an era of airline deregulation, the law effectively restricted competition among airlines who desired to compete in the lucrative North Texas market.67

Subsequentially, five interested parties—Southwest, American, DFW, and the cities of Dallas and Fort Worth—met, excluding the plaintiffs, owners of the Lemon Street Terminal, and reached an agreement, July 11, 2006 (“Five-Party Agreement”), at the expense of the plaintiffs, who were not part of the agreement.68 The Five-Party Agreement sought to relax the restrictions on flights from Love Field, but to limit the number of flights operating by precluding the use of LST/VA’s leasehold and terminal for flights.

The antitrust decision wrote:

In August 2005 Southwest and Dallas secretly discussed destroying the LTP Terminal. The conspiracy proceeded in secret throughout 2005 and into February 2006. By early February 2006, defendants had agreed that the LTP Terminal should be destroyed to ensure the success of the scheme to divide the North Texas markets and to insulate Southwest from increased competition. After [the Five-Party Agreement was] adopted in March 2006, defendants continued their negotiations through a series of closed-door discussions in which they finalized their plan to carve up the market for commercial air passenger service to and from North Texas.69

C. WARA Removed Restrictions on Love Field as Anticipated—with a Nefarious Twist

Congress ultimately was induced to adopt parts of the Five-Party Agreement in the language of the Wright Amendment Reform Act, October 2006 (WARA). WARA’s language from the Five-Party Agreement prohibited the use of plaintiff’s property, thereby destroying all economic value or benefit of their leasehold. The city of Dallas ultimately demolished the terminal in September 2009.70

D. Plaintiff’s Antitrust Litigation Failed Due to an Obscure Legal Doctrine

Plaintiffs initiated litigation: first, an anti-trust suit against the parties to the Five-Party Agreement. In that suit, the district court agreed with petitioners that the Five-Party Agreement “was put together to eliminate competition and protect American and Southwest from competition against each other and other carriers, allowing them to preserve their dominant market shares and fare premiums.”71 But the court concluded that “the Noerr-Pennington doctrine shielded the defendants from antitrust liability.”72 “Dallas . . . successfully argued that it was required to demolish the Lemmon Avenue Terminal gates pursuant to the WARA, thereby effectively asserting that it was acting pursuant to a federal mandate.”73 The plaintiff’s antitrust case established the facts of the anticompetitive behavior but received no damages based on the law.

The Noerr-Pennington doctrine “makes private entities immune from liability under antitrust laws for attempts to influence the passage or enforcement of laws, even if the laws they advocate for would have anticompetitive effects.”74 This strange turn of events protected the guilty parties.

Plaintiffs shifted their focus to protections provided by the Fifth Amendment that are designed to protect aggrieved parties from legislation such as WARA. Plaintiffs filed suit in the Court of Federal Claims (CFC), in July 2008, alleging that the government, through the enactment of WARA, prohibited the use of their Lemmon Avenue Terminal and underlying leaseholds, which destroyed all economic value of their leasehold and effected a taking.75

IV. Procedural History of Love Terminal Takings Litigations

The case has been before the CFC twice and the Federal Circuit, which brings us to the focus of this article. Salient elements of each decision are discussed.

A. Love Terminal I Summary Judgment Decided a Per Se Physical Taking

Love Terminal I 76 is a seventy-page decision, which—importantly—examined and determined that much of the language in WARA exactly matches language in the Five-Party Agreement.77 The court ruled that WARA’s incorporation of language from the Five-Party Agreement into WARA made the federal government responsible for the taking, including actions undertaken by Dallas.78

The court concluded on summary judgment, February 11, 2011, that the enactment of the WARA made the United States responsible for the demolition of the six-gate Lemmon Avenue terminal, resulting in a physical taking of Love Terminal Partners’ property. The decision concluded that the “WARA effected a per se, physical taking of plaintiffs’ property for which the government is liable to pay just compensation. . . .”79 “The court left for trial the following two issues: (1) whether the federal government took the remainder of the leasehold without paying just compensation, and, if so, what amount was due; and (2) the amount of just compensation that plaintiffs were due for the per se physical taking of the six-gate Lemmon Avenue terminal.”80

B. Love Terminal II Decided Both Lucas and Penn Central Takings

Love Terminal II was litigated both as a Lucas81 and a Penn Central taking. The evidence presented is overlapping. The subsequent decision agreed with Love Terminal I that:

The WARA, which was the codification of the Five-Party Agreement, was enacted solely to protect the interests of two cities (Dallas and Fort Worth), two airlines (Southwest and American), and a competing airport (DFW), all to the detriment and expense of plaintiffs. Indeed, the statute was clearly anticompetitive, a fact acknowledged by the United States District Court for the Northern District of Texas.82

The CFC trial in October 2012 included numerous fact and expert witnesses by both parties with yet another extensive (fifty-one-page) decision. The court examined facts and testimonies of plaintiffs’ and defendants’ experts under both Lucas and Penn Central legal theories. The decision presents a detailed factual and expert record, which found for the plaintiffs under both theories.

In conclusion, the court determines that the expert testimony of [plaintiff experts] was, unlike the testimony offered by the defense witnesses, highly reliable and persuasive. Accordingly, . . . the court finds that the highest and best use of plaintiffs’ leasehold before the enactment of the WARA was as a passenger airline terminal. . . . [T]he court determines that, following the enactment of WARA, such use was completely prohibited. As a result, plaintiffs were deprived of all economically viable use of the property by a regulation—a Lucas categorical taking.83

Similarly, “the court conclude[d] that plaintiffs . . . also demonstrated a taking of the entire 26.8-acre leasehold under the Penn Central factors.”84 The trial court adopted plaintiff experts’ discounted cash-flow estimates of the fair market values and concluded that plaintiffs are entitled to just compensation for [1] the per se physical taking of the six passenger gates at the Lemmon Avenue terminal and [2] for the regulatory taking of the entire 26.8-acre leasehold.85 After careful review of plaintiffs’ experts’ analyses, the court accepted plaintiffs’ estimate of $133.5 million as the value of the 26.8 acre leasehold based on the discounted present value of multiple streams of future net cash flows projected by the plaintiff’s experts.86

The decision provides extensive discussion of the three prongs of the Penn Central test, which is relevant to contrast with the Federal Circuit’s exclusion of the Penn Central test discussed in Section IV.C.

1. Economic impact

In part, the decision discusses and evaluates the testimony of plaintiffs’ and defendant’s experts. Plaintiffs presented three experts in (1) aviation commercial facilities, (2) aviation property valuation, and (3) transportation economics/airport demand forecasting. The aviation demand forecast at Love Field without WARA is the lynchpin of plaintiffs’ estimate of economic impact.87 The expert showed that not only would future demand for terminal services expand significantly to benefit Love Field and the plaintiffs’ terminal, but also that both Southwest and the city of Dallas had been aggressive in their efforts to get Congress to rescind the Wright Amendment—before their subsequent conspiracy with the Five Parties to exclude plaintiff. A crucial element of the experts’ testimony was evidence of the widespread belief in the imminent repeal of the Wright Amendment to foster more competition at Love Field.88

Plaintiffs’ two other experts discussed terminal facilities and provided competent fair market values of the plaintiffs’ terminal and master lease, estimating discounted present values of several streams of income foregone by WARA, which resulted in the $133.5 million dollar award. The trial judge remarked that she found the three plaintiff witnesses’ analysis and testimony credible and reliable, emphasizing the importance of the demand forecast several times. The trial judge notably agreed with plaintiff experts’ testimony that the highest and best use of the property was as an airline terminal, given a strong demand for plaintiffs’ expanded terminal.89

Defendant experts, in contrast, postulated that suitable uses of the plaintiffs’ Master Lease were either for a parking lot or as a phased general hangar.90 The trial judge was unpersuaded by the defendant experts’ analytic details and findings:91

Accordingly, based upon plaintiffs’ experts’ testimony, the court found that the highest and best use of plaintiffs’ leasehold before the enactment of the WARA was as a passenger airline terminal.”92. . . [T]the court concludes that plaintiffs suffered a serious financial loss. . . . [T]his factor weighs entirely in plaintiffs’ favor.93

2. Interference with reasonable investment-back expectations

The CFC decision viewed the evaluation of the second prong of the Penn Central test as a factual determination that the plaintiffs’ actual expectation that WARA would be repealed and that a reasonable investor would have believed that WARA would be repealed.94 The court was persuaded by Hampstead’s founder, who testified that “Hampstead . . . believed that the Wright Amendment would be repealed, having examined legal issues surrounding Love Field, including the Wright Amendment.”95 The decision adduced abundant research undertaken by Hampstead to support the investments, apart from the trial experts. The decision relied on the demand forecast and lobbying efforts to repeal the Wright Amendment, including the Master Plan by the city of Dallas, as confirmation that Hampstead’s investments were based on a reasonable belief.96

The decision remarked that “no amount of due diligence on Hampstead’s part, or on the part of any investor in its position at the time, could have predicted the devastating effect the WARA would ultimately have.”97 The court took note of the secret agreement among the Five Parties to cut Hampstead out of the deal in the inducement of the government to enact WARA, which shut out the plaintiffs from any use of their terminal and leasehold investments.

“The court conclude[d] that plaintiffs acquired their leasehold interests in reasonable reliance on the repeal of the Wright Amendment.”98 Their expectation was not a unilaterally held expectation. Abundant information presented in both CFC trials confirms that plaintiffs made substantial investments at Love Field only after in-depth research predicted expected growth in aviation demand post rescinding of the Wright Amendment. The Five-Parties conspiracy adopted by Congress rendered Hampstead’s investment—and years of planning—worthless.99

3. Character of the government action

Love Terminal II regarded WARA as an anticompetitive action that destroyed the plaintiffs’ reasonably planned investments. The character of the government’s action cannot be seen as benefiting the public.

When reviewing the character of the governmental action, the “reviewing court [must] consider the purpose and importance of the public interest reflected in the regulatory imposition. In effect, a court [must] balance the liberty interest of the private property owner against the Government’s need to protect the public interest through imposition of the restraint.”100

The court determined that “WARA, which was the codification of the Five-Party Agreement, was enacted solely to protect the interests of two cities (Dallas and Fort Worth), two airlines (Southwest and American), and a competing airport (DFW), all to the detriment and expense of plaintiffs. The statute was clearly anticompetitive.”101 Indeed, “by 2007, [Southwest] passenger demand at Love Field had risen by twenty percent.”102

The court ruled that plaintiffs’ factual and expert testimony had demonstrated a taking. The court awarded $133.5 million, plus interest and legal and expert fees.

C. Love Terminal III103 Overturned CFC Decisions by Excluding the Penn Central Test

Brushing aside evidence of years of research, planning, investing, and lobbying by the Hampstead Group to develop terminal services at Love Field, the Federal Circuit overturned the two lengthy CFC takings decisions in a terse eighteen-page decision on May 7, 2018. The Federal Circuit “review[ed] the Claims Court’s legal conclusions de novo104 but, following the precedent of the Good decision,105 focused the review exclusively on the law, with limited review of the factual record.

Love Terminal III reversed both Love Terminal CFC decisions. The ruling acknowledged the Five-Party Agreement,106 which became the basis for the October 2006 WARA that limited Love Field terminal to twenty gates, excluding the plaintiffs’ new terminal. The decision agreed that “the legislation effectively barred plaintiffs from using the Lemmon Avenue Terminal for commercial air passenger service,”107 but regarded it as irrelevant.

“[The court concluded] that there was no regulatory taking.”108 “[Hampstead’s] reasonable, investment-backed expectations are . . . limited by the regulatory regime in place at the time they acquired the leases, which included the Wright Amendment.”109

[For WARA] to establish [a] regulatory-takings . . . , plaintiff must show that a particular government action significantly diminished the value of its property. There cannot be a regulatory taking in the absence of economic injury. . . . [A] showing that property is valueless after a government action only suggests that a taking has occurred if there is evidence showing that the property would have had value absent the government action.110

Simply restated, the decision concluded that the Hampstead Group invested in the ground leases and built the Lemon Street Terminal governed by the Wright Amendment. When WARA instigated the repeal of interstate air-traffic limitations, but excluded the plaintiffs’ use of their investment, Hampstead was left in the same economic condition as they were before WARA—unable to generate economically viable revenues from their newly built terminal. Consequently, the Federal Circuit ruled that plaintiffs suffered no compensable loss caused by WARA.

Love Terminal III replaced extensive evidence of distinct investment-backed expectations, confirmed by Love Terminal II as reasonable and neither abstract nor unilaterally perceived, with Good’s reasonable notice of existing WA regulations. This decision eliminated standard economic-evaluation methods used to estimate economic impacts and evaluate their interference with DIBE.

The Love Terminal facts do not conform to the context embedded in Good’s regulatory notice language—notably that a foreseeable regulatory restriction precludes further investigation into a regulatory taking. Hampstead built its terminal, correctly expecting that the Wright Amendment would be repealed, and it was. This fact is opposite to the context of the Good decision, which ruled that plaintiff had no reasonable notice that a permit was forthcoming. Love II determined “that no amount of due diligence on Hampstead’s part, or on the part of any investor in its position at the time, could have predicted the devastating effect the WARA would ultimately have.”111

1. Aside on the character prong

The Fifth Amendment initiated payment for government taking with the language “nor shall private property be taken for public use, without just compensation.” Love Terminal II determined that WARA was the codification of the Five-Party Agreement enacted solely to protect the interests of Dallas and Fort Worth, two airlines (Southwest and American), and a competing airport (DFW), all to the detriment and expense of plaintiffs.112

The CFC decision reveals that the Fifth Amendment phrase “for the public use” conflicts with the clear intent of WARA, which denied Hampstead’s planned air-travel services, which would have provided more aviation competition for the flying public at Love Field. Had the Federal Circuit felt bound by the Penn Central test, perhaps a finding for the plaintiff on the character prong would have been obvious.

V. Federal Circuit’s Reasonable Notice Ignored Plaintiffs’ DIBE and Excluded Penn Central’s Three-Prong Test

America’s economic history is rich with stories of visionaries who foresaw a unique confluence of economic forces that would create a business opportunity. For example, a very few financial market traders, about whom Michael Lewis wrote in The Big Short, realized that housing market and lending data portended what became the Great Recession of 2008–2009. Those few traders anticipated the real estate bust, shorted the market, and made billions. The evidence in Love Terminal II reveals that Hampstead leadership was akin to those few visionaries. They foresaw a unique opportunity in interstate air travel from Love Field and anticipated the repeal of the Wright Amendment.

A. Hampstead’s Evaluation of Love Field’s Opportunity Aligned with Michelman’s Criterion for Just Compensation

Hampstead’s saga—richly reported in the antitrust litigation and both CFC decisions— reveals that leadership became aware of a confluence of Dallas area economic forces, demographic changes, and consumer preferences that would stimulate growth in demand for air travel from the nearby Love Field. They realized that the Wright Amendment restrictions to protect DFW would have to be repealed to support growing interstate air travel from Dallas. Hampstead made multimillion-dollar investments at Love Field to capitalize on its vision and worked with other interested parties to urge congressional action to repeal the Wright Amendment.

Trial records provide extensive evidence of Hampstead’s “distinctly perceived, sharply crystallized, investment-backed expectations,”113 or simply, Penn Central’s distinct investment-backed expectations (DIBE). Hampstead had a long-range plan to exploit the increasing demand for air travel from Love Field post WARA. Hampstead’s founder, Donald McNamara, testified: “By [and] large, Hampstead’s investments were successful, noting that one investment from 1990 took ten years to become profitable and is likely the company’s most profitable investment.”114

Hampstead’s story is akin to business decisions that occur frequently in America as discussed previously in Section II.F. In fact, Hampstead was right: WARA repealed the limitations at Love Field—except that Hampstead ended-up “benched” by the illegal Five-Party Agreement that comprised much of WARA. Not only were plaintiffs stopped from using their new terminal, WARA adopted the Five-Party Agreement language directing the city of Dallas to acquire and demolish the terminal as if to prevent a future correction of the anticompetitive actions documented in the record.115

B. Love Terminal III Misconstrued Accepted Financial Method to Isolate Economic Injury

The Love Terminal III decision diverged from Love Terminal II’s Penn Central finding when the decision misconstrued literally the phrase “absent the government action.”116 Yes, typical takings cases involve a finding that “the property would have had value ‘absent the government action.’”117 WARA removed the restraining regulation as anticipated by Hampstead, but replaced it with language from the Five-Party Agreement deemed illegal in the antitrust decision—and unforeseeable as ruled by Love Terminal II. The government action precipitated the taking.

In standard financial analysis, the guiding expression to isolate economic injury for payment of damages is “but for” the tort—or government action in a takings case—not absent. The error is substantial, not semantic. But for the Five Parties’ inducement of Congress to preclude Hampstead’s use of their terminal in WARA, no takings case would have been filed.

Measurement of WARA’s interference with Hampstead’s investment expectations begins with isolating the economic impact of the wrongful act through standard but-for analysis. The but-for scenario differs from what actually happened due to the wrongful act to isolate the economic injury and evaluate the severity of its interference with investment expectations.118

Like legal precedent, expert testimony involving income losses requires adherence to theory established in the economic and valuation literature and standard practice; that is, it must entail the application of reliable principles and methods to vetted data.119 Legal doctrine does not displace standard financial practice as the basis to isolate the economic injury caused by WARA. Correcting Love Terminal III’s single word, “absent” to but for, reveals the error of the Federal Circuit’s replacement of reasonable notice for the trial court’s reasonable financial expectations.

Distinct investment expectations were crushed by the illegal Five-Party Agreement adopted by WARA with no reasonable notice of a regulatory restraint, which was counterfactual to Florida’s regulatory situation in the Good decision. The evidence is compelling that the Wright Amendment would be repealed, confirming Hampstead’s DIBE. Love Terminal II adopted the plaintiffs’ showing that the property would have had $133.5 million value but for the adopted anticompetitive language of the Five Parties in the WARA. The correct Love Terminal III scenario framework to define the economic impact is the following:

  • Hampstead’s operation at Love Field with their demonstrably expected repeal of air travel limitations would have prospered but for the language from the Five-Party Agreement within WARA that eliminated Hampstead’s use and expansion of their terminal.
  • The benchmark value of the plaintiffs’ property is correctly stated by Love Terminal III (adopting Love Terminal II values) as the pre-WARA operation of the Lemon Street Terminal: zero.
  • The economic injury is the $133.5 million found by the CFC, the difference between the pre-WARA terminal without expected interstate air travel and the $133.5 million with air interstate travel.

C. Good Precedent of Reasonable Notice Excluded Penn Central Test

The Federal Circuit decision excluded the CFC’s Penn Central test, along with the extensive evidence in two trial records. Love Terminal III decided that the investment was not economically viable when initiated with the Wright Amendment (WA) regulations in place and remained uneconomic after WARA’s regulatory change denied operation of Hampstead’s terminal. Comparing the difference between these made-up scenarios as zero less zero equals zero, the decision ruled that plaintiff suffered no economic injury. The decision’s ad hoc scenario does not fit the evidence.

Had Love Terminal III reviewed the actual economic scenarios, the zero value with Wright Amendment in place, compared to the $133.5 million with Hampstead’s proven DIBE scenario, reveals the correct magnitude of the economic injury evaluated within the Penn Central test. The Good precedent that reasonable notice of existing restraints precludes the CFC’s proven Penn Central precedential financial investment expectations ignores the factual, economic differences between this litigation and Good.

I am reminded of the blind person’s touch of an elephant with one hand who cannot identify the object as an elephant. Love Terminal III ignored extensive broadly proven support for Hampstead’s reasonable financial expectations and the government’s adoption of illegal antitrust behavior by the Five-Party Agreement to eviscerate Hampstead’s investment. The decision ignored the elephant in the courtroom.

VI. Federal Circuit Misplaced Financial Methods Required in the Penn Central Test

Can this narrow reliance on the Good precedent in lieu of Penn Central be considered to yield justice? Economic practice in tort litigation would conclude no. Love Terminal III’s reliance on the decision’s decoupled reasonable notice reinterpretation of Justice Rehnquist’s RIBE financial context is inconsistent with the original intent of the Penn Central test.

The Federal Circuit decision dropped the precedent for a Penn Central test and ruled that the terminal operation was neither earning any positive cash flow with WA in place nor after WARA. Hence, “the plaintiffs [did not show] a decrease in the value of their property as a result of government regulation.”120 The ruling, tied to Good’s regulatory notice, rather than Penn Central financial calculations with the evidence of Hampstead’s lost investment, is contrary to the evidence of plaintiffs’ reasonable expectations confirmed in Love Terminal II. The fact that Hampstead’s investment was not yet earning a positive return is not uncommon for investment activity. That element of the basis for overturning the CFC is economically irrelevant.

Hampstead’s invested in Love Field with proven reasonable investment-backed expectations of future profits. Fundamentally, the Federal Circuit decision ignores the practical reality that new ventures might take significant time to prove profitable and provide a return on investment. The Hampstead founder testified that the investors envisioned a long-term horizon for economic forces to produce viable returns at Love Field. Replacing Love Terminal II’s evidentiary expectations with the Federal Circuit’s erroneous with and without scenarios created from regulatory notice reveals, yet again, a legal decision based on inadequate grasp of financial methods.

If the Love Terminal Federal Circuit decision is precedent to rule out prospective income to measure value of a property lost due to regulatory change, this method cancels a century of financial economic research and practice, which puts the practice of takings law at odds with both tort law and real-world economics. This ruling seems to be yet one more unintended consequence of the Supreme Court’s simple change of the language “distinct” to more common financial usage, “reasonable” investment expectations.

A. Divergent Views of Penn Central’s Three-Prong Test Emphasize Judicial Inconsistency

The Federal Circuit Love Terminal III decision excluded the economic evidence, which is at the heart of regulatory takings litigation. Hampstead’s insightful vision of future Dallas area air travel was blocked by the tainted WARA. The Federal Circuit’s reliance on existing Wright Amendment restraints to preclude evidence of Hampstead’s reasonably supported future cash flows is at odds with Penn Central and standard economic methods.

This decision is ominous for future federal litigation. Whether or not the Federal Circuit decision based on the single prong rather than a balance of Penn Central’s three prongs achieved justice and fairness remains economically obvious but an unsettled legal issue. Lack of consistency in the measurement and evaluation of economic impact has long been discussed in the “thousands of words” mentioned previously. Penn Central’s Distinctive Investment-Backed Expectations must be restored to its original intended financial context to clarify the economic backbone of the Penn Central test as the hurdle to collect just compensation. From an economic perspective, Justice O’Conner’s “all . . . relevant circumstances” in Palazzolo121 align with a balance among all of Penn Central’s three factors.


1. Charles Dickens, A Tale of Two Cities (1859).

2. Love Terminal Partners, L.P. v. United States (Love Terminal I ), 97 Fed. Cl. 355 (2011); Love Terminal Partners, L.P. v. United States (Love Terminal II ), 126 Fed. Cl. 389 (2016).

3. Love Terminal Partners, L.P. v. United States (Love Terminal III ), 889 F.3d 1331 (2018), cert. denied, June 24, 2019.

4. Pa. Coal Co. v. Mahon, 260 U.S. 393, 413 (1922).

5. Love Terminal Partners, L.P. v. City of Dallas, 527 F. Supp. 2d 538 (N.D. Tex. 2007).

6. Id. at 544–47; see discussion infra Sections 1.A, 3.4.)

7. Pa. Coal Co, 260 U.S. at 415.

8. Penn Cent. Transp. v. New York City, 438 U.S. 104, 124 (1978); see also Lingle v. Chevron U.S.A., Inc., 125 S. Ct. 2074, 2082 (2005).

9. See, e.g., Janice Smyth v. Conservation Comm’n, Case No. 17-P-1189 (Mass. App. Ct. Feb. 19, 2019).

10. See, e.g., Palazzolo v. Rhode Island, 533 U.S. 606, 636, (2001) (O’Connor, J., concurring). (“If investment-backed expectations are given exclusive significance in the Penn Central analysis, and existing regulations dictate the reasonableness of those expectations . . . then the State wields far too much power. . . . As I understand it, our decision today does not remove the regulatory backdrop against which an owner takes title to property from the purview of the Penn Central inquiry. It simply restores balance to that inquiry. . . . The Takings Clause requires careful examination and weighing of all the relevant circumstances in this context.”) (emphasis added).

11. Good v. United States, 189 F.3d 1355 (Fed. Cir. 1999).

12. Love Terminal Partners, L.P. v. United States (Love Terminal III), 889 F.3d 1331, 1346 (Fed. Cir. 2018), cert. denied, June 24, 2019 (citing Good, 189 F.3d at 1363).

13. Aswath Damodaran, Valuation Approaches and Metrics: A Survey of the Theory and Evidence 5 (Stern Sch. Bus. Nov. 2006) (“[T]he principles of modern valuation were developed by Irving Fisher in two books that he published—The Rate of Interest in 1907 and The Theory of Interest in 1930.”).

14. Penn Cent. Transp. v. New York City, 438 U.S. 104, 124 (1978) (“In engaging in these essentially ad hoc, factual inquiries, the Court’s decisions have identified several factors that have particular significance. The economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations . . . [and] the character of the governmental action.”).

15. U.S. Const. amend. V (emphasis added).

16. Armstrong v. United States, 364 U.S. 40, 49 (1960).

17. Pa. Coal Co. v. Mahon, 260 U.S. 393 (1922).

18. Id. at 415 (emphasis added).

19. Id. (citing Plymouth Coal Co. v. Pennsylvania, 232 U.S. 531, 540 (1914)). Plymouth Coal lost the case because the restricted support coal was shown to provide a direct offsetting benefit to protect the claimant’s miners as well as the adjoining mine’s personnel. See William W. Wade & Robert L. Bunting, Average Reciprocity of Advantage: “Magic Words” or Economic Reality—Lessons from “Palazzolo,” 39 Urb. Law. 319 (2007) (discussing the intent of the ARA phrase).

20. Pa. Coal Co., 260 U.S. at 416.

21. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 124 (1978).

22. Cienega Gardens v. United States (Cienega X), 503 F.3d 1266, 1282 (Fed. Cir. 2007). Cienega X appears to adopt the phrase severity of economic deprivation from Tahoe Sierra as the threshold to determine that compensation is due for a taking. Tahoe Sierra Pres. Council, Inc. v. Tahoe Reg’l Plan. Agency, 535 U.S. 302, 322 n.17 (2002).

23. Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579 (1993); see also Fed. R. Evid. 702.

24. Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 539 (2005) (citing Palazzolo v. Rhode Island, 533 U.S. 606, 617–18 (2001) (O’Connor, J., concurring)).

25. See William W. Wade, Guest Post: Smyth and Massachusetts’ New Penn Central Factor, (Aug. 25, 2019),

26. Frank I. Michelman, Property,Utility and Fairness: Comments on the Ethical Foundations of Just Compensation Law, 80 Harv. L. Rev. 1165 (1967). See Daniel R. Mandelker, Investment-Backed Expectations: Is There a Taking?, 31 Wash. U.J. Urb. & Contemp. L. 3 (1987), for more insight into the opaque Michelman article.

27. Discussion of measuring and evaluating sufficiency of economic impact to justify just compensation relates to the “thousands of words” mentioned above, including by the author, not discussed in this article.

28. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 117 (1978); see William W. Wade, Penn Central’s Economic Failings Confounded Takings Jurisprudence, 31 Urb. Law. 277 (1999).

29. Penn Cent. Transp. Co. v. City of New York, 397 N.Y.S.2d 914 (1977); Penn Cent. Transp., 438 U.S. at 136–37 (The lower court arbitrarily agglomerated income from the whole neighborhood surrounding Grand Central to substitute for the foreclosed opportunity. Justice Brennan narrowed the income stream to only Grand Central’s entire city tax block in the decision’s famous “parcel as a whole,” but mistakenly regarded that income as sufficient to deny the taking.).

30. Penn Central, 438 U.S. at 143.

31. Id. at 149 n.13. The footnote appears to point out politely that the majority was not schooled in the meanings of the economic terms used in their language.

32. Looking Back on Penn Central: A Panel Discussion with the Supreme Court Litigators, 15 Fordham Envt. Law Rev. 287 (2004). This seminal transcript of a panel discussion among judges and lawyers present for the Penn Central trial makes clear that reasonable financial expectations were the context for the DIBE prong at both the state trial and the Supreme Court.

33. Kaiser Aetna v. United States, 444 U.S. 164, 175 (1979).

34. Id. at 179–80 (“[W]e hold that the ‘right to exclude,’ so universally held to be a fundamental element of the property right . . . that the Government cannot take without compensation.”).

35. DuQuesne Light Co. v. Barasch, 488 U.S. 299 (1989).

36. Id. at 305.

37. Daniel R. Mandelker, Investment-Backed Expectations in Taking Law, 27 Urb. Law. 215, 249 (1995). (Decisions in the Florida Rock and Cienega Gardens lines of cases have adopted recoupment of investment with a reasonable return or reasonable rate of return on investment as the financial tests governing interference with investment-back expectations. (See Fla. Rock Indus., Inc. v. United States, 791 F.2d 893 (Fed. Cir. 1986); Cienega Gardens v. United States (“Cienega VIII”), 331 F.3d 1319 (Fed. Cir. 2003).)

38. See R.S. Radford & J. David Breemer, Great Expectations: Will Palazzolo v. Rhode Island Clarify the Murky Doctrine of Investment-Backed Expectations In Regulatory Takings Law?, 9 N.Y.U. Envt. L.J. 449 (2000). They discuss the journey from finance to notice during the first twenty years.

39. Good v. United States, 189 F.3d 1355 (Fed. Cir. 1999), cert. denied, 529 U.S. 1053 (2000) (citing Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 117, 124 (1978)).

40. Love Terminal Partners, L.P. v. United States (Love Terminal III), 889 F.3d 1331, 1346 (Fed. Cir. 2018), cert. denied, June 24, 2019.

41. Good v. United States, 39 Fed. Cl. 81, 110–13 (1997).

42. Good, 189 F.3d at 1361 (quoting Creppel v. United States, 41 F.3d 627, 632 (Fed. Cir. 1994)) (emphasis added).

43. Id.

44. Id. at 1361 (emphasis added).

45. Id. at 1363.

46. Loveladies Harbor, Inc. v. United States, 28 F. 3d 1171, 1177 (Fed. Cir. 1994).

47. Id. (citing Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S. 155, 161, (1980)).

48. Id.

49. Id. at 1181, 1183. (It should be noted that denominator issues are a different “kettle of fish” irrelevant to Love Terminal litigation.)

50. Id. at 1175.

51. Love Terminal Partners, L.P. v. City of Dallas, 527 F. Supp. 2d 538, 545 (N.D. Tex. 2007) (emphasis added).

52. Love Terminal Partners, L.P. v. United States, 889 F.3d 1331, 1345 (Fed. Cir. 2018) (citing Good v. United States, 189 F.3d 1355, 1363 (Fed. Cir. 1999)).

53. See discussion infra Section IV.C.

54. Good, 189 F.3d at 1361 (quoting Creppel v. United States, 41 F.3d 627, 632 (Fed. Cir. 1994)) (“One who buys with knowledge of a restraint assumes the risk of economic loss.”).

55. Love Terminal Partners, L.P. v. City of Dallas, 527 F. Supp. 2d 538, (N.D. Tex. 2007).

56. Frank L. Michelman, Property, Utility and Fairness: Comments on the Ethical Foundations of Just Compensation Law, 80 Harv. L. Rev. 1165, 1233 (1967).

57. Ruckelshaus v. Monsanto Co., 467 U.S. 986,1005–06, (1984).

58. Information in this section is taken from Love Terminal II and III.

59. Love Terminal Partners v. City of Dallas, 527 F. Supp. 2d 538, 544–47 (N.D. Tex. 2007).

60. Love Terminal Partners, L.P. v. United States (Love Terminal II), 126 Fed. Cl. 389, 401 (2016) (“Hampstead made investments in real estate with funds raised from different sources, including the endowments of Yale, Princeton, and Stanford Universities.”).

61. Id.; see discussion infra Section IV.B (reviewing the impact of changes to the Wright Amendment).

62. Love Terminal II, 126 Fed. Cl. at 401; see also discussion of the Hampstead Group’s corporate entities and its research into the demand for and potential valuation of airline operations at Love Field prior to investment).

63. Love Terminal II, 126 Fed. Cl. at 401.

64. Id. at 403.

65. Id. at 404 “([T]he Master Plan was extremely beneficial to Hampstead’s marketing plan because it specifically referenced the Lemmon Avenue terminal and allowed for the possibility of ten additional gates.”).

66. Id. at 405, 427–28, 432, 435.

67. Love Terminal Partners v. City of Dallas, 527 F. Supp. 2d 538, 544 (N.D. Tex. 2007).

68. Love Terminal Partners, L.P. v. United States (Love Terminal III), 889 F.3d 1331, 1337–38 (Fed. Cir. 2018), cert. denied, June 24, 2019.

69. Love Terminal Partners, 527 F. Supp. 2d at 545.

70. Love Terminal III, 889 F.3d at 1338. (“The parties . . . agreed to an allocation of . . . 20 gates among the three airlines currently flying out of Love Field (all based out of the main terminal). And the City of Dallas agreed to acquire and demolish the Lemmon Avenue Terminal . . . to consolidate the 20 gates in the main terminal . . . .”).

71. Love Terminal Partners, 527 F. Supp. 2d at 545.

72. Id. at 547.

73. Love Terminal Partners, L.P. v. City of Dallas, 256 S.W.3d 893, 897 (Tex. Ct. App. 2008).

74. Noerr-Pennington doctrine, Wikipedia,–Pennington_doctrine (last visited Oct. 3, 2020).

75. Love Terminal Partners, L.P. v. United States (Love Terminal I), 97 Fed. Cl. 355, 360 (2011).

76. Id. at 355–425.

77. Id. at 404–06 (“Section 4, Numerous Provisions of the WARA Contain Language Utilized in the Contract.”).

78. Id. at 424 (“Although Dallas was required to act by the authority of the federal government, it is the latter party that is responsible for any taking that stems from Dallas’s conduct.”).

79. Love Terminal I, 97 Fed. Cl. at 424–25.

80. Love Terminal Partners, L.P. v. United States (Love Terminal II), 126 Fed. Cl. 389, 394 (2016).

81. Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992).

82. Love Terminal II, 126 Fed. Cl. at 430 (citing Love Terminal Partners, L.P. v. City of Dallas, 527 F. Supp. 2d 538, 560 (N.D. Tex. 2007)) (“By reducing the flight output at Love Field through a 20-gate restriction, allocating the gates at Love Field to uphold Southwest’s dominance over the short-haul market, and requiring that the LTP Terminal be demolished, the Reform Act almost undoubtedly conflicts with the Sherman Act.”) (emphasis added).

83. Id. at 434.

84. Id. at 430.

85. Id. Text numbers added to emphasize two additive sources of value for just compensation.

86. Id. (This amount included the value alluded to as “the separate value of the 9.3-acre property amounts to $21,165,000.”).

87. Id. at 437 (“[G]iven Ms. Meehan’s forecast of a vast increase in passenger demand following the repeal of the Wright Amendment, and given Hampstead’s plans for a sixteen-gate terminal capable of meeting that demand, Mr. Miller’s assumption that larger planes would be permitted to fly out of the Lemmon Avenue terminal is not unreasonable.” See numerous references to expected aviation demand throughout the decision.).

88. Id. at 428 (“[T]he court is persuaded by the testimony of Ms. Meehan. Significantly, in this case, it is clear that Hampstead’s belief that the Wright Amendment would be repealed was reasonable for the simple fact that Hampstead was not alone in believing that the repeal would happen.” See numerous references to expected WARA repeal throughout the decision.).

89. Id. at 437 (“Significantly, Mr. Massey was the only expert who offered a valuation based on what the court has deemed to be the property’s highest and best use—as an airline terminal.”).

90. Id. at 418.

91. Id. at 419–24 (emphasis added). Defendant’s hypothetical rebuttals seem to fall into Whitney Benefits dust-bin of disingenuous ideas by government counsel who sought to show that the mining property would make for good cattle grazing in an effort to assert that “some value remains,” and hence no taking has occurred. The Federal Circuit ruled in that coal-mining takings case where SMCRA eliminated the full value of the plaintiff’s intended mining operation: “[W]e fully agree with the Claims Court’s evaluation of the argument as “completely off the mark.” Whitney Benefits Inc., v. United States,” 926 F.2d 1169, 1174 (Fed. Cir. 1991).

92. Id. at 424.

93. Id. at 424–25.

94. Id. at 425. This approach conforms to the obvious first step of standard economic valuation consistent with Loveladies Harbor, Inc. v. United States, 28 F. 3d 1171, 1177 (Fed. Cir. 1994).

95. Love Terminal Partners, L.P. v. United States (Love Terminal II), 126 Fed. Cl. 389, 427 (2016).

96. Id. at 428–29.

97. Id. at 429.

98. Id.

99. Actually, this valuation ruling by the court is faulty. The assets had residual value at least. This article is not aimed at re-evaluation of the court’s numbers. Arguably, some confusion exists between Love Terminal I’s value of the physical assets and Love Terminal II’s $133.5 million value of the loss: it remains unclear whether this amount includes or overlooks the prior value of the physical assets.

100. Id. (citing Loveladies Harbor v. United States, 28 F.3d 1171, 1176 (Fed. Cir. 1994); Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 543 (2005)).

101. Id. at 430.

102. Id. at 399.

103. Love Terminal Partners, L.P. v. United States (Love Terminal III), 889 F.3d 1331 (Fed. Cir. 2018), cert. denied, June 24, 2019.

104. Id. at 1340. (It should be noted that the underlying decisions found for the plaintiffs based on a physical taking, a Lucas taking and a Penn Central taking. One might imagine that the Federal Circuit undertook a large challenge to dispense with two courts’ lengthy, analytic decisions.)

105. Good v. United States, 189 F.3d 1355, 1363 (Fed. Cir. 1999) (“Because we find the expectations factor dispositive, we will not further discuss the character of the government action or the economic impact of the regulation.); id. (“Appellant’s lack of reasonable, investment-backed expectations defeats his takings claim as a matter of law.”).

106. Love Terminal III, 889 F.3d at 1337.

107. Id. at 1340.

108. Id. at 1341

109. Id. at 1346.

110. Id. at 1343.

111. Love Terminal Partners, L.P. v. United States (Love Terminal II), 126 Fed. Cl. 389, 429 (2016). Op. cit. fn 99.

112. Love Terminal II, 126 Fed. Cl. at at 440. Op. cit. fn 101.

113. Michelman, supra note 56, at 1233.

114. Love Terminal II, 126 Fed. Cl. at 401.

115. Love Terminal III, 889 F.3d at 1338.

116. Id. at 1343.

117. Id.

118. Mark A. Allen, Robert E. Hall & Victoria A. Lazear, Reference Guide on Estimation of Economic Damages, in Reference Manual on Scientific Evidence 425, 432 (3d ed. 2011),

119. Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579 (1993); see also Fed. R. Evid. 702.

120. Love Terminal III, 889 F.3d at 1347.

121. Palazzolo v. Rhode Island, 533 U.S. 606, 636, (2001) (O’Connor, J., concurring) (“[O]ur decision today does not remove the regulatory backdrop . . . from the purview of the Penn Central inquiry. It simply restores balance to that inquiry. . . . The Takings Clause requires careful examination and weighing of all the relevant circumstances in this context.”) (emphasis added).

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William W. Wade, PhD

William W. Wade, Ph.D. Editor’s Note: on May 18, 2020, as this article was making its way through the final production process, the author, William “Bill” Windsor Wade, passed away. Bill Wade served as a Navy Lieutenant aboard the aircraft carrier U.S.S. Franklin D. Roosevelt and was honorably discharged with the National Defense Service Medal and Vietnam Service Medal. He graduated from Spring Hill College in Mobile, Alabama, and received his Ph.D. in Economics at the University of Minnesota. Bill Wade’s calling was as a natural resource economic consultant. He established the San Francisco consulting firm Spectrum Economics and then ventured on his own with Energy and Water Economics in Franklin, Tennessee. He was highly regarded for his knowledge and scholarship of private property rights. Bill Wade was best known for his advocacy in developing more protective precedent for private property rights. His work took him to the four corners of the country. He was widely published and eagerly sought as a speaker at conferences. His last major appearance was at the annual ALI-CLE Eminent Domain and Land Valuation Litigation conference in Nashville in January 2020. Dr. Wade served as an expert financial economist in state and federal takings cases, and he has written and lectured about the economic underpinnings of the Penn Central test since 1995.