by Eric Christianson
United States Supreme Court, June 23, 2017
In the 1960s, the Murr family purchased two adjoining lots along the St. Croix River in Wisconsin. Lot F, was purchased in 1960 and used to build a vacation cabin. The other, Lot E, was purchased in 1963 and was primarily held as an investment. Originally the properties were held separately. Lot F was owned by the family plumbing company, and Lot E was owned by the family directly. In 1994 and 1995, the ownership of the two parcels was transferred from the parents, who purchased the lots, to their children. In 2004 the children began to attempt to sell Lot E to fund improvements to the cabin on Lot F; however, they were prevented from selling Lot E separately due to intervening changes in state and local land use laws. Both of these lots are now considered substandard as building sites, and a state law passed in 1976 considers adjoining substandard lots in common ownership to be effectively merged.
According to Wisconsin law in the area where these properties are located, a parcel must have at least one acre of buildable land to be developed or subdivided. Although both of these parcels are approximately 1.25 acres, the topography of the bluffs running through the lots as well as the steep river bank leaves only 0.98 acres of buildable land between the two. Wisconsin law does allow substandard lots to be developed through a grandfather clause, but does not allow them to be further subdivided. Despite the fact that they appear to be two separate lots on the plat map and have been taxed separately, they are effectively merged. The property owners are therefore barred by state and local law from “subdividing” the larger effective parcel and selling either lot independently.
The Murr family sought a variance from the St Croix County Board of adjustment to allow for separate sale of the lots. The Board denied the request, and the family appealed, alleging that the land use regulations deprived them of all economically beneficial use of Lot E. As the case moved through the Wisconsin court system, the argument for regulatory takings hinged largely on the “denominator problem.” This meant that the courts had do determine whether the parcels should be considered as a whole or if the takings analysis should be applied to Lot E alone. In this case, this decision would be determinative as the loss to Lot E is fairly significant, more than 90% of its value, while the loss to the two parcels taken together is fairly minor, less than 10% of the total value.
In a 5-3 decision written by Justice Kennedy (Justice Gorsuch took no part in this case) the court upheld the rulings of the lower courts that the two lots had been effectively merged and that the law as applied did not constitute a regulatory taking. In doing so, the court adopts a new multi factor test to determine the relevant parcel for a takings claim.
The Court continues to rely on the “Penn Central Test” in determining if government action goes too far and constitutes a regulatory taking. Unless regulations deprive property owners of all economically beneficial use of land, there are no hard and fast rules. Instead, courts are asked to reconcile the individual’s right to private property ownership and the government’s power to adjust rights for the public good. Courts have generally relied on a three-part test first established in Penn Central (1) the economic impact of the regulation (2) the extent to which the regulation has interfered with distinct investment-backed expectations, and (3) the character of the governmental action.
In this case as in Penn Central itself, before applying the three pronged “Penn Central Test”, the court must establish the relevant parcel. Because the test relies on the value of the property before and after application of a regulation, defining the parcel itself can be key to the the ultimate decision. In this case the state of Wisconsin and the local governments asked the court to defer to state law in determining the relevant parcel. The state argued that the court should take the state at its word that the two parcels are now one. The Murr family disagreed and preferred the lot lines as drawn on the plat maps.
The Court has never been entirely clear about how to determine the parcel to be used for analysis, but there are some principles to be drawn from previous decisions. Historically the court has not allowed petitioners to segment the most effected part of their property to allow them to claim a total loss of value in that particular segment. On the other hand, although property law has its foundations in state law, states have not been granted complete authority to define property rights.
This decision does not offer us a simple answer of how to determine the parcel in question for a takings claim. Instead, Kennedy offers up yet another multi-factor test considering: (1) state and local law, (2) the physical characteristics of the land, and (3) the prospective value of the land.
Under this new test, Lots E and F are considered effectively merged. (1) State law considers adjoining parcels to be merged if held in common ownership. The Murr family brought these two parcels into common ownership in 1995 well after the local law that merged them went into effect in 1976. (2) The physical characteristics of these lots support their treatment as a single parcel. The lots are contiguous along their longest edge and their rough terrain makes it reasonable to expect their use may be limited. (3) Even if Lot E cannot be sold independently it still contributes value to the parcel as a whole. A new larger cabin could be built anywhere on the two lots and the property has more privacy and recreational space than other substandard lots.
Chief Justice Roberts dissented joined by Thomas and Alito; however, they did not dispute the outcome, only the reasoning. Roberts would have preferred a much clearer ruling which takes state law as determinative of the relevant parcel in “all but the most exceptional circumstances.” Justice Thomas also filed a separate dissent stating his desire to “take a fresh look at our regulatory takings jurisprudence” in a way that could be better grounded in the original meaning of the constitution.
Later this week we will upload another post with more analysis of the implications of this decision for practitioners.