Category: Takings

Plaintiffs’ inverse condemnation claim survives summary judgment on allegations that state control of water levels behind private dam that collapsed constitutes public use

Gary Taylor

by Gary Taylor

David Krieger, et al., v. Department of Environment, Great Lakes, and Energy

Michigan Court of Appeals, September 7, 2023

In this 37-page opinion, 20 pages of which were dedicated to simply listing all the litigants, the Michigan Court of Appeals addressed the question of whether plaintiffs’ adequately stated a claim in their pleadings for inverse condemnation against the Michigan Department of Environment, Great Lakes, and Energy (DEGLE) for the failure of the Edenville Dam in 2020. Plaintiffs’ alleged that the actions of DEGLE in the years prior contributed to the failure. The court’s opinion simply dealt with the adequacy of plaintiffs’ pleadings, but provides

The Edenville dam was built in 1924 to hold back water from the Tittabawassee and Tobacco Rivers for hydroelectric power. Boyce Hydro Power, LLC (Boyce) purchased the dam in 2004 and acquired a license from the Federal Energy Regulatory Commission (FERC) to operate the dam to generate hydroelectric power. FERC made repeated requests of Boyce to ubgrade the dam because it was not structurally adequate and its spillway capacity was inadequate in the event of a “Probable Maximum Flood,” defined as the flood that may be expected from the most severe combination of critical meteorologic and hydrologic conditions reasonably possible in the drainage basin in question. After years of unaddressed regulatory violations, FERC revoked Boyce’s federal license in September 2018, at which point the dam fell under the oversight of DEGLE and the Michigan Department of Natural Resources (DNR). Within days experts conducted a cursory inspection and found the Edenville dam to be in fair structural condition, but that inspection was not intended to determine whether the dam met safety standards. A group called Four Lakes Task Force petitioned the circuit court to establish a legal water level for the lake formed by the dam (Wixom Lake), and the court set the lake level at that previously required by FERC. Despite the establishment of this level, and the rejection by DEGLE of a request by Boyce to draw down the lake level, Boyce lowered the lake level anyway. in April 2020, DEGLE issued Boyce a permit to restore the lake to its previous level, and conditioned the permit on Boyce maintaining high water levels even though, as plaintiffs’ alleged, Michigan regulators knew about the dam’s inadequate spillway, overall deterioration, and need for repairs. Then on May 19, 2020 the Edenville dam failed, resulting in the failure of the Sanford dam and damage to two other dams, forcing the evacuation of thousands of residents, and resulting in devastating flooding and property damage to nearby residents.

We will jump straight to the discussion concerning inverse condemnation. Citing previous precedent, the Court of Appeals stated that “a plaintiff alleging a de facto taking or inverse condemnation must establish (1) that the government’s actions were a substantial cause of the decline of the property’s value, and (2) that the government abused its powers in affirmative actions directly aimed at the property.” Although the state departments challenged element (1) on summary disposition, they did not renew that argument on appeal.

Affirmative actions directed at plaintiffs’ properties. The court looked at several past cases to determine what constitutes “affirmative actions” in this context. Common among these cases was a holding that “inaction and omissions by the state” could not sustain a takings claim. For example, the court in 2004 found the state did not take “affirmative action” when a fire that spread from an abandoned house that the state acquired through tax delinquency proceedings damaged a neighboring property. “At most, the state failed to abate a fire-hazard nuisance.” The court concluded, however, that in the present case the plaintiffs’ sufficiently pleaded affirmative actions taken by the state that were aimed directly at plaintiffs’ properties. First, plaintiffs’ alleged that the state knew about the dams inability to withstand significant rainfall and that its deteriorated condition posed a danger to downstream owners. Second, plaintiffs’ alleged that the state actively prevented repair efforts and threatened enforcement action if the lake levels were drawn down. Finally plaintiffs’ claimed that the state concealed risks posed by the dam and acted to raised the lake to dangerous levels in disregard of those risks in order to improve environmental conditions in the lake. If proven at trial, these allegations would constitute affirmative actions; they would demonstrate “more than mere regulatory actions such as issuing or denying a permit.” Contrary to the state’s assertion that Boyce was responsible for raising lake levels, the court found that the state’s action in authorizing and requiring Boyce to raise lake levels was, if proven true, sufficient affirmative action to sustain a taking claim.

Public use. The state agencies also argued that plaintiffs’ inverse condemnation claims fail because the state did not put plaintiffs’ property to a public use. In contrast, plaintiffs alleged that defendants exercised control over the Edenville Dam so much so that their use of the dam constituted a public use. The court determined the relevant question to be “whether defendants took plaintiffs’ property by controlling the operation of the dam for a public use, not whether plaintiffs’ property—once taken—would be put to a public use.” If proven to be true at trial, by pressuring Boyce to keep water levels high to protect aquatic life, prioritizing that interest at the expense of the safety of people and property, the state agencies through their operational control of the dam, put the dam to a public use in their pursuit of environmental protection. When allegations are made that the government—acting along with a privately owned dam operator—took affirmative steps that caused the dam to fail and damaged downstream property owners, Michigan’s takings clause provides a remedy.

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Seizure of proceeds of tax sale in excess of taxes owed constitutes a taking

Gary Taylor

by Gary Taylor

Tyler v. Hennepin County, Minnesota

United States Supreme Court, May 25, 2023

Ninety-four-year old Geraldine Tyler owned a condominium in Hennepin County, Minnesota, that accumulated $15,000 in unpaid real estate taxes, interest and penalties. Under Minnesota state law, the the County was allowed to seize the condo after three years because of the unpaid taxes. Hennepin County sold the condo for $40,000, and under Minn. Stat. sec. 282.08 the proceeds in excess of the tax debt and the costs of the sale ($25,000) were allowed to be kept by the county and split between the county, the town and the school district. Tyler filed suit, alleging that the County had unconstitutionally retained the excess value of her home above her tax debt in violation of the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment. The District Court dismissed the suit for failure to state a claim, and the Eighth Circuit affirmed. She appealed to the United States Supreme Court.

Standing to sue. The County alleged that Tyler lacked standing to bring the claim because she did not “disclaim the existence of other debts or encumbrances” on her home, namely, a $49,000 mortgage and a lean of $12,000 for unpaid homeowners’ association dues. The County argued that these encumbrances exceeded $25,000 and therefore she had no interest in, and suffered no real financial harm form the sale by the County. The Supreme Court disagreed, observing that in Minnesota a tax sale extinguishes all other liens on a property, so Tyler could have retained the excess and used it to reduce any such remaining liabilities.

Taking. Whether Tyler could claim a taking hinges on whether she had a property interest in the excess value of the condo. To answer this question the Court draws on “existing rules or understandings” about property rights, which includes state law, “traditional property law principles,” “historical practice” and Courts’ precedents. The County reasoned that Tyler had no property interest protected by the Takings Clause because in 1935, the State purported to extinguish that property interest by enacting a law providing that an owner forfeits her interest in her home when she falls behind on her property taxes. However, citing an 1884 Minnesota Supreme Court case, the Court noted that prior to 1935 Minnesota recognized that a homeowner whose property has been sold to satisfy delinquent property taxes had an interest in the excess value of her home above the debt owed. “Though state law is an important source of property rights, it cannot be the only one because otherwise a State could ‘sidestep the Takings Clause by disavowing traditional property interests’ in assets it wishes to appropriate.”

The Court went all the way back to the Magna Carta for “the principle that a government may not take from a taxpayer more than she owes.” “From the founding, the new Government of the United States could seize and sell only ‘so much of [a] tract of land . . . as may be necessary to satisfy the taxes due thereon.’” The Court noted that Minnesota was in the minority in seizing excess tax sale proceeds; most states and the federal government require excess value to be returned to the taxpayer whose property is sold to satisfy outstanding tax debt. The Court also noted that Minnesota law recognizes in many other contexts that a property owner is entitled to the surplus in excess of her debt, citing bank foreclosure on a mortgage and the collection of past due taxes on income or personal property as two examples.

The Court rejected the County’s argument that Tyler had no property interest in the surplus because she constructively abandoned her home by failing to pay her taxes. The Court stated that no precedent exists for concluding that a failure to pay taxes is itself sufficient to prove abandonment. “Abandonment requires the ‘surrender or relinquishment or disclaimer of’ all rights in the property.” “It is the owner’s failure to make any use of the property—and for a lengthy period of time—that causes the lapse of the property right…..The County cannot frame [the failure to pay property taxes] as abandonment to avoid the demands of the Takings Clause.”

The Court concluded that history and precedent dictate that, while the County had the power to sell Tyler’s home to recover the unpaid property taxes, it could not use the tax debt to confiscate more property than was due. Doing so effected a “classic taking in which the government directly appropriates private property for its own use.”

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Condemnation and demolition of historic Keokuk church not a taking. 657A not the sole procedure for abating a dangerous building

Gary Taylor

by Gary Taylor

Christ Vision, Inc., v. City Keokuk

Iowa Court of Appeals, January 25, 2023

Built in 1876, the former Unitarian Church in Keokuk had fallen into serious disrepair by 2005. That year the city sent a letter to the church’s owner – Christ Vision – asking the owner to address deteriorating brick and falling moldings. Christ Vision took no action for three years, so the city delcared the building unsafe to occupy in 2008, informing Christ Vision that “no person shall remain in or enter any building that has been so posted except to enter for repair or demolish….” Christ Vision representatives spoke with city officials numerous times, and presented (unfunded) plans for rehabilitation, but by December 2016 Christ Vision still had made no repairs. By then the church had gaping holes in the roof, fallen plaster and bricks, depressions in the floor, water in the basement, and other serious deficiencies. The city filed for a declaration of nuisance, and after a hearing the district court found in December 2016 that the church’s hazardous condition constituted a nuisance and ordered abatement. The court told Christ Vision that, at a minimum, the roof would need to be replaced and “any hazardous conditions with the structure that make it unsafe to occupy” would need to be fixed. Otherwise, the building would need to be demolished or deeded to the city. The court ordered Christ Vision to create a written abatement plan with a timeline by March 2017, but when that did not happen, and had not happened even by October 2017, the city approved a contract for the church’s demolition. Christ Vision applied for a temporary injunction, but (and i am skipping some irrelevant facts here) the city began demolition before the hearing on the injunction. Two years later Christ Vision filed this lawsuit, alleging a taking, trespass, and conversion of personal property.

Taking. Christ Vision alleged that the city’s nuisance action amounted to an illegal taking; however, the Court of Appeals noted that in City of Eagle Grove v. Cahalan, 904 N.W.2d 552, 561 (Iowa 2017) the Iowa Supreme Court held that the state’s exercise of its related police powers over abandoned property did not constitute a taking, even though Eagle Grove’s action denied the owner of “all economically beneficial or productive” use of the property. The Court of Appeals confirmed that a landowner has no vested property right in a nuisance, and so in demolishing the church in compliance with an unchallenged court order (the December 2016 order) the city did not take anything. “Bottom line, Keokuk could enforce its nuisance law without compensating Christ Vision for its losses stemming from that enforcement.”

Due Process. Christ Vision did not did not contest contest the procedural history of the December 2016 order, but rather insisted that the order did not automatically authorize demolition of the church once the March 2017 deadline was missed. It argued that the city then needed to Follow Chapter 657A before it could demolish the building. The Court of Appeals disagreed, noting that Iowa Code 657A.11(2) states “This chapter does not prevent a person from using other remedies or procedures to enforce building or housing ordinances or to correct or remove public nuisances.” The city followed its own nuisance ordinance and state law. The fact that the city demolished the church prior to the hearing on the temporary injunction was of no effect because there was not yet an injunction in place, meaning it was still lawful for the city to proceed under the December 2016 order.

Trespass and conversion. Because Christ Vision did not challenge the court’s authority to permit the city to demolish the building once the owner missed the abatement deadline the city was within its rights to enter the premises. “[C]onduct otherwise a trespass is often justifiable by reason of authority vested in the person who does the act.” Nothing in the December 2016 order imposed on the city a duty to help preserve the church; to the contrary, the onus was on Christ Vision to take action. As for the claim of conversion, Christ Vision claimed the city interfered with its right to personal property by demolishing the church with the property still inside. There was no evidence, however, that Christ Vision requested access to the church to remove personal property once it knew demolition was imminent or any time prior.

Abandoned/unsafe buildings, Due Process, Iowa Court of Appeals, Nuisance, Takings, Trespass , , ,
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Into the weeds of the National Trails System Act. (That rail trail you like to ride may have a long legal history)

Gary Taylor

by Gary Taylor

Memmer v. United States

United States Court of Appeals for the Federal Circuit, September 28, 2022

This case originated in the United States Court of Federal Claims (Why?  Read this) when Jeffrey Memmer and eleven other Indiana landowners (landowners) brought suit seeking compensation for an alleged taking arising from the application of the National Trails System Act (NTSA) to the abandonment of railway easements by Indiana Southwestern Railway Company.  Landowners claimed they held reversionary interests in the property which were “taken” under the NTSA.  It’s complicated.  Bear with me.

The Surface Transportation Board (STB) has authority to regulate the construction, operation, and abandonment of most rail lines in the United States.  A rail carrier must either file an application with, or seek exemption from, the STB if it intends to abandon or discontinue a rail line.  At the same time, the NTSA allows a rail carrier to instead negotiate an agreement with a locality or a private trail sponsor to convert the railroad’s right-of-way into a recreational trail.  If a rail carrier agrees to negotiate an agreement with a trail sponsor, the STB will issue a Notice of Interim Trail Use or Abandonment (NITU). The NITU provides for a negotiation period during which the railroad can discontinue service on the rail line and salvage track and materials.   If no agreement is reached with a locality or trail sponsor during the negotiation period the railroad may file a notice of consummation of abandonment with the STB, thus abandoning the line.  If an agreement is reached, however, trail use of the right-of-way is authorized and abandonment by the railroad is blocked indefinitely, subject to restoration of the right-of-way for railway purposes.  Because it is possible to again put the right-of-way to use as a railway, the NTSA process is known as “railbanking.”

Another possibility is that after an application for abandonment is filed with the STB another party may make an Offer of Financial Assistance (OFA) to subsidize the operation of the rail line to keep it open.  This could be a local government, for example, or an entity such as a grain elevator that makes consistent use of the line.  If an OFA is proffered those negotiations take precedence over any proposed or ongoing negotiations with a trail sponsor.

It is possible that the railbanking process and conversion of property to use as a recreational trail can result in a takings claim.  It depends on state property law of the state in which the line is situated.  A taking occurs when state law reversionary property interests that would otherwise vest in the adjacent landowners are blocked from so vesting by the NTSA.  In other words, state property law in some states is interpreted to automatically revert the right-of-way to adjacent landowners, while in other states no such reversionary right exists. 

In the present case, Indiana Southwestern submitted a notice of exemption from abandonment proceedings on October 25, 2010, stating that it would consummate abandonment of its rail lines on or after January 15, 2011. In response, the STB published a notice on November 12, 2010 stating that the deadline for railbanking requests was ten days later, on November 22, 2010, and that absent third party intervention, Indiana Southwestern could abandon the lines on December 14, 2010.  The notice indicated that Indiana Southwestern was given until November 12, 2011, to file a notice of consummation of abandonment, if it chose to do so.  A few days after the STB’s notice was published, the Indiana Trails Fund (Fund) submitted a request for the Board to issue a NITU for the rail corridor to permit negotiations with Indiana Southwestern about railbanking. The STB also received notice from the Town of Poseyville, Indiana of its intent to file an OFA, which took precedence over the Fund’s request.  After several months of negotiations with the Town, the Town’s offer fell through.  An NITU was then issued that became effective May 23, 2011, and the Fund and Indiana Southwestern proceeded to negotiate.  Ultimately they failed to execute a trail-use agreement, even after four extensions of the NITU.  The final NITU deadline lapsed on November 8, 2013; however, Indiana Southwestern chose not to consummate the abandonment of the rail line at that time. In the meantime while the NITU was pending, Indiana Southwestern executed a contract with A&K Materials (A&K) to purchase and remove the rails on the rail line except those in rail crossings and move the ties from the center of the rail line. A&K completed its work by early February of 2012.

 Indiana Southwestern did eventually submit a new notice of exemption to start the process over in 2021.  No potential trail sponsors came forward, and no NITU issued, so Indiana Southwestern consummated the abandonment of the line on August 31, 2021.  As a result, the landowners’ fee simple interests became unencumbered by any railway easements on that date. 

While all this was going on, litigation ensued (which presumably why you are still reading this post).  The landowners claimed that a permanent categorical taking occurred with the issuance of the first NITU, because the evidence was that Indiana Southwestern would have abandoned the line absent the NSTA-mandated NITU; that evidence being that no rail traffic had moved over the line for at least two years and that they hired A&K to remove the rails regardless of the outcome of negotiations.  The federal government countered by arguing that there was no government action resulting in a change to the landowners property interests “when a railroad requests abandonment authority (from the STB) and then chooses not to exercise that authority.” 

The Federal Circuit Court of Appeals disagreed with the government that a physical taking cannot occur when a NITU ends without either a trail-use agreement or the consummation of the railroad’s abandonment:

The NITU in this case, as in similar cases, was a government action that compelled continuation of an easement for a time; it did so intentionally and with specific identification of the land at issue; and it did so solely for the purpose of seeking to arrange, without the landowner’s consent, to continue the easement for still longer, indeed indefinitely, by an actual trail conversion….Thus, once initiated, a NITU can effect a “mandated continuation” of an easement by the STB that  provides a right of occupation by someone other than the landowner.

Memmer v. US, slip opinion p. 15

The Court then addressed the duration of the physical taking.  The Landowners argued that the temporary taking lasted from May 23, 2011 (the issuance of the first NITU) until August 31, 2021 (when the rail line was finally abandoned) because the requirements for abandonment under Indiana law were satisfied when the railroad removed the rails, yet their reversionary rights were still blocked until the railroad consummated the abandonment.  The government argued that the taking ended upon expiration of the NITU (and its extensions) on November 8, 2013 because it was on that date that the United States was no longer responsible for mandating the continuation of the easement.

The Court agreed with the government’s position because, from November 8, 2013 forward the decision rested solely in the hands of Indiana Southwestern.  “A takings claim must be predicated on actions undertaken by the United States….It is always the railroad’s choice that ultimately impacts the duration of the taking….Moreover, acceptance of [landowners’] argument would effectively contradict the STB’s authority to regulate abandonment which Congress granted over one hundred years ago.”

The Court remanded the case to the Court of Federal Claims for a determination of the compensation and interest due to the landowners as a result of the temporary taking of their property from May 23, 2011 to November 8, 2013. 

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Iowa Supreme Court Rules that Cities May Take Possession of Abandoned Properties

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Cby Eric Christianson

Eagle Grove v. Cahalan Investments
(Iowa Supreme Court, December 1, 2017)

Cahalan Investments purchased two residential properties in the City of Eagle Grove, one in 2002 and the other in 2011. Both properties have remained unoccupied and in deteriorating condition since their purchase. The properties were the subject of multiple complaints by neighbors and were found to be unfit for human occupancy.  In 2014 the city began an effort to clean up a number of nuisance properties, these properties were among those targeted. The city sent several letters to Cahalan advising them that they were in violation of the city’s nuisance ordinance. Cahalan made no effort to abate the nuisance and would later testify that they had no intention of making either property habitable in the foreseeable future

Iowa Code section 657A.10A allows cities to petition a district court to transfer ownership of abandoned properties to the city. The code details the following criteria that a court is to use when determining if a property has been abandoned.

a. Whether any property taxes or special assessments on the property were delinquent at the time the petition was filed.
b. Whether any utilities are currently being provided to the property.
c. Whether the building is unoccupied by the owner or lessees or licensees of the owner.
d. Whether the building meets the city’s housing code for being fit for human habitation, occupancy, or use.
e. Whether the building is exposed to the elements such that deterioration of the building is occurring.
f. Whether the building is boarded up.
g. Past efforts to rehabilitate the building and grounds.
h. The presence of vermin, accumulation of debris, and uncut vegetation.
i. The effort expended by the petitioning city to maintain the building and grounds.
j. Past and current compliance with orders of the local housing official.
k. Any other evidence the court deems relevant.

The code then states that if the court finds the property is abandoned, “the court shall enter judgment awarding title to the city.” In this case, the district court found that Cahalan’s properties were indeed abandoned under the definition set forth in the statute. In fact Cahalan Investments does not dispute this finding; however, Cahalan argued that awarding ownership of these properties to the city without compensation violated the takings clause of the US Constitution. In this case, the district court found Cahalan Investment’s argument convincing and did not award title to the City of Eagle Grove.

The City of Eagle Grove appealed the district court’s decision to the Iowa Supreme Court.

The Iowa Supreme Court revisited the question of whether awarding ownership to a city under Iowa Code section 657A.10 is constitutional.

Proving that a section of state code is unconstitutional is not easy. The court quotes an earlier decision stating that, “statutes are cloaked with a presumption of constitutionality. The challenger bears a heavy burden, because it must prove the unconstitutionality beyond a reasonable doubt.”

Takings jurisprudence is based primarily on the takings clause of the Fifth Amendment which states that, “private property [shall not] be taken for public use, without just compensation.” To determine if a governmental action has violated the takings clause, the court uses the following framework:

(1) Is there a constitutionally protected private property interest at stake? (2) Has this private property interest been “taken” by the government for public use? and (3) If the protected property interest has been taken, has just compensation been paid to the owner?

In this case, Cahalan’s case fails on the first question. The court cites an earlier ruling which states that “the State has the power to condition the permanent retention of [those] property right[s] on the performance of reasonable conditions that indicate a present intention to retain the interest[s].” Ownership of property comes with many rights, but is not absolute. Here the court is saying that in Iowa a property owner’s rights do not include allowing properties to remain abandoned. By doing so here, Cahalan has forfeited their rights.

By allowing the properties to persist in a condition unfit for human habitation, allowing the properties to remain vacant, and failing to make timely and reasonable efforts to remedy the public nuisances created by the properties after notification of the problems, Cahalan did not comply with the section 657A.10A(3) criteria. Thus it failed to “indicate a present intention to retain the interest.” See id. at 526, 102 S. Ct. at 790. We conclude the district court erred in concluding Cahalan holds a constitutionally protected private property interest in the abandoned properties for which just compensation is owed.

Finding that Cahalan Investment’s stake in the properties was not a constitutionally protected right is enough to decide the case, but for completeness the court did examine the second question as well.

Assuming that Cahalan did have a constitutionally protected private property right the court still found that takings jurisprudence supports the city’s actions. A taking occurs when the government denies a property owner “all economically beneficial or productive use” of property. In this case there is no dispute that Cahalan Investments has been deprived of all use of these two properties. Generally when that occurs, the government is required to pay just compensation. However, there is a public nuisance exception in takings jurisprudence. The state has the “power to abate nuisances that affect the public generally, or otherwise,” and this action, “is not a constitutional taking for which compensation is required.”

The court also examined whether the fact that Cahalan Investments purchased these properties before the enactment of this particular section of 657A would prevent it from being applied in this case. Here the court found that the state’s existing legislation as well as the principles of nuisance law already in place at the time of purchase were sufficient to hold that Cahalan never possessed the right to maintain properties in an abandoned state.

The Iowa Supreme Court reversed the finding of the district court that the city’s exercise of 657A constituted an unconstitutional taking and remanded the case back to district court.

Abandoned/unsafe buildings, Iowa legislation, Iowa Supreme Court, Nuisance, Police powers, Takings , ,
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Court of Appeals finds $25,000 award reasonable for sewer easement

ejchr

by Eric Christianson

City of North Liberty v. Gary Weinman
(Iowa Court of Appeals, April 5, 2017)

In 2014 North Liberty was in the process of developing what would become Iowa City Liberty High School to alleviate overcrowding in the Iowa City School District. However, the site selected did not have access to sanitary sewer. To service the area, the City of North Liberty explored several options before selecting its ultimate path in 2014. This path crosses the private property of 13 individuals. The city was able to secure temporary easements (for construction) and permanent easements (for ongoing maintenance) from 12 of the 13. The final holdout was Dr. Gary Weinman who first sought through a pair of lawsuits to force the city to stop construction and reconsider other routes. Those suits failed.

Easements are always considered takings and therefore Weinman was entitled to just compensation under the Fifth Amendment. A compensation commission decided that Weinman was entitled to $75,000. This included a temporary easement for construction (1.1 acres for four months) and a permanent easement (.75 acres). The city appealed claiming that amount was excessive. Weinman requested a jury trial so the matter was tried de novo to the jury. The jury set the compensation amount at $25,000 relying largely on the testimony of an expert assessor brought by the city.

Weinman appealed this decision to the Iowa Court of Appeals. The Court of Appeals does not  generally reverse compensation awards provided that they are not “wholly unfair or unreasonable.” In this case, because the jury’s decision was reasonable based on the evidence, the award of $25,000 was affirmed.

 

Condemnation, Easements, Iowa Court of Appeals, Iowa District Courts, Public sewer and/or water services, Takings , ,
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What to Make of Murr v. Wisconsin

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by Eric Christianson

Suppose a landowner owns two adjacent parcels, which she purchased at two different points in time.  One parcel is 20 acres that consists almost entirely of wetlands. The second parcel, immediately to the west, is 50 acres of rolling, developable land.

Years after she purchased both parcels the state enacts a law that effectively prohibits filling, dredging, developing, or otherwise modifying wetlands. The landowner sues the state, claiming a taking of “all viable use” of her property.

What is her “property”?  The landowner will claim that her property for purposes of her takings claim is only the parcel made up of the 20 acres of now-unbuildable wetlands. The state will argue that her property is both parcels taken together, which means the landowner continues to have “viable use” 50 of her 70 total acres.

Who is right?  Courts have long struggled with developing rules for determining the appropriate “denominator parcel” for analyzing taking claims. In Murr v Wisconsin (see the full case brief from last week below) the Supreme Court dealt with precisely this question. And while not offering any clear rules, the court does seem to give local governments the benefit of the doubt in this determination.

A key element in arguing a regulatory takings claim successfully is that the owners show that they have been deprived of, “all or nearly all economically beneficial use of their land” by the offending regulation. This is often determined by comparing the value of the property before the law in question went into effect to its value under the effects of the new law.

Defining the property more narrowly usually gives the landowner the upper hand. Focusing only on the effected parcel makes the loss more severe relative to its value. However, when considered with the entirety of a property owner’s holdings, the deprivation may be less significant relative to the the full value of the land. This is often called the “denominator problem” in takings analysis. Courts need to determine which value to divide the loss by to see if a law has resulted in a loss of all economically viable use.

One complicating factor is the existence of merger provisions in state and local law which under certain circumstances automatically merge adjoining parcels held under common ownership. Such merger provisions have been features of local zoning ordinances for a long time. Towns began enacting them in the 1920s. They were very common by the 1960s, because local governments and state courts recognized that they represent an attractive middle ground between two unattractive extremes: (1) entirely prohibiting the development of substandard lots, which would be a hardship to their owners, and (2) allowing the development of all substandard lots, which would be a hardship to neighbors and restrict the ability of a community to pass regulations.

Whether the inclusion of a merger provision in local law is enough to determine the relevant parcel was one of the most important aspects of Murr v. Wisconson. In this case, the Supreme Court adopted a three-part test to help guide lower courts in making this determination. It also gives local governments some idea what the extent of their power is in setting land use regulations.

This new test directs courts to take into account: (1) state and local law, (2) the physical characteristics of the land, and (3) the prospective value of the land. This case does not give us any bright line rules, but it appears that merger clauses will determine the relevant parcel in most cases. Kennedy’s argument in adding physical characteristics and prospective value to the equation is his attempt to avoid “gamesmanship” by states to avoid paying for regulatory takings. States do not have total power to determine what property rights are.

In returning to our example above, while we do not have a clear answer as to how a court would rule, we do have some idea how a court should reason. (1) What does state and local law say about these two parcels? Are they entirely separate? Or, is there some provision in state law which treats them as merged? (2) How do these two parcels fit together? Are they simply touching along a short edge or do they form a cohesive whole? (3) Finally what is the financial impact of the regulation on the parcels? Are the 20 acres of wetland a total loss or can they serve some economic purpose? Perhaps the wetland is an attractive amenity raising the value of a future housing development on the other 50 acres. Clearly our simple example does not have enough detail for us to answer all these questions.

The second and third factors have to do with the inherent qualities of the land and the local property market, but local governments do have control over the first. In Murr the Court gave significant weight to the existence of a merger provision local law.

In the end, this decision preserves the right of local governments to set minimum lot sizes and avoid further subdivision even where lot lines may appear on a plat map. This is overall a win for local and state governments. However, Kennedy finishes up the opinion of the court by reflecting that much like the analysis of regulatory takings itself, determining the relevant parcel “cannot be solved by any simple test.” If recent takings fights have taught us anything, where there is ambiguity, there will be litigation. Stay tuned.

Federal courts, Property law, Takings, United States Supreme Court, Wisconsin courts
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The power of local governments preserved in Murr v. Wisconsin

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by Eric Christianson

Murr v. Wisconsin

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.

Fourteenth Amendment, Property law, Takings, United States Supreme Court, Wisconsin courts
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SCOTUS to decide major takings case in 2017

Gary Taylor

The National Constitution Center has listed Murr v. Wisconsin as one of the ten most important US Supreme Court cases to be decided in 2017.  If you attended the Planning Law session at the APA-Iowa Annual Conference in Burlington you heard me discuss the nuances of the “parcel as a whole” rule as it pertains to this case.  The National Constitution Center gives its take on what the case is about here (you’ll need to scroll about halfway down the page).

Constitutional law and history geeks will want to explore the Center’s website generally.  A lot of fascinating reading.

Takings, United States Supreme Court , , ,
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Creek stabilization plan went beyond scope of original drainage easement

hdankbar

by Hannah Dankbar and Gary Taylor

Hamner v City of Bettendorf
Iowa Court of Appeals, October 12, 2016

Property owners in the Rolling Meadows subdivision complained that the City of Bettendorf overstepped their powers when they used a 25-foot “utility and drainage easement” established in 1968 for a stream bank stabilization project in 2015. Property owners claimed that the use of the 25-foot easement for stream bank stabilization constituted a taking and argued that they should be compensated for the land. The City did not offer any compensation for the removal of trees, change in land elevation, or the regrading of the property owners’ land.

The City argued that it was in the public interest to stabilize the creek, and that the easements granted in 1968 contemplated the type of work conducted by the City in 2015; thus the landowners were not entitled to compensation.

The district court ruled in favor of the landowners because the 1968 easement was granted to maintain the sanitary sewer, storm sewer, Stafford Creek drainage, and utility poles. The court determined that stabilizing the creek overstepped the City’s powers.  The City appealed.

On appeal, the Iowa Court of Appeals used a three-part test to evaluate the scope of the easement: 1) the physical character of past use compared to the proposed use; 2) the purpose of the easement compared to the purpose of the proposed use; and 3) the additional burden imposed on the servient land by the proposed use.

Physical character of past use compared to the proposed use. The City planned to remove all trees and foliage, install a retaining wall on one side of the creek, and place twenty-five tons of rocks along both sides.  The court concluded that this work would substantially change the physical character of the past use of the properties.

Purpose of the easement compared to the purpose of the proposed use.  The court found that while the proposed work did pertain to drainage in a general sense…the purpose of the project was to reshape Stafford Creek and the surrounding creek bed to cure past erosion and prevent future erosion.

Additional burden imposed on the servient land by the proposed use. The landowners presented estimates from a consultant of the loss of value of their properties ranging from $27,500 to $30,250.  This suggested a burden way beyond that contemplated by the original easement

The court determined that the original grantors of the easements did not “contemplate the expansive use of the easement now sought” by the City, and that the radical changes to the land demanded compensation to the landowners under Article I, Section 18 of the Iowa Constitution (the Takings Clause).

 

 

 

Easements, Iowa Court of Appeals, Takings , ,
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