Property Definition at Stake as High Court Hears Land Use Case

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By John Henry Stam

The U.S. Supreme Court March 20 appeared split during oral arguments on how to define two contiguous properties in a regulatory takings case ( Murr v. Wisconsin, U.S., No. 15-214 , oral argument 3/20/17 ).

The court is reviewing whether two contiguous, commonly owned lots should be considered one parcel when evaluating whether land-use restrictions amounted to a regulatory taking requiring compensation under the Fifth Amendment of the U.S. Constitution. Justice Anthony M. Kennedy again appeared to be the swing vote in a divided court.

The Wisconsin Court of Appeals ruled that the two parcels of land on the St. Croix River in Wisconsin were properly considered as one in determining that regulations didn’t deprive the owners of all or substantially all the value of their land ( Murr v. State , 859 N.W.2d 628, 2014 BL 360927 (Wis. Ct. App. 2014)).

The St. Croix River is protected under the Wild and Scenic Rivers Act, and Wisconsin and Minnesota have passed laws to govern its conservation and management. In addition, St. Croix County amended its zoning ordinances to comply with the Wisconsin law, including those setting minimum size requirements for riparian property development and sale and requirements for merging properties.

Justice Elena Kagan asked why the court should ignore state law on merging commonly owned, contiguous property for purposes of development and sale. If regulations impact a small portion of a larger parcel instead of most of a smaller parcel, it is more difficult to establish a taking requiring government compensation.

John M. Groen of the Pacific Legal Foundation in Sacramento, Calif., representing the Murr family who brought the case, argued the property wasn't actually merged but merely merged in effect under the applicable county ordinances for purposes of development and sale, and that the legal lots of record should define the relevant parcel.

Misha Tseytlin, Wisconsin’s solicitor general, said there would be no purpose in actually merging the two lots at issue. Under Wisconsin law the property owners wouldn't change any of their ownership rights or gain any benefits from doing so. He argued the two lots should be considered one parcel.

Views From Justices

Chief Justice John G. Roberts Jr. appeared to favor finding the legally defined lot lines as defining the property, which would make finding a taking of the single regulated lot easier. Justice Samuel Alito Jr. seemed sympathetic to the interests of the Murrs who invested in the property to eventually sell for development and were frustrated by regulatory restrictions.

Justice Sonia Sotomayor, however, seemed skeptical the Murrs had reasonable, investment-backed expectations to separately sell the undeveloped second lot as the properties came under common ownership after the St. Croix County merger ordinances came into effect. Kagan also pressed Groen on whether reasonable expectations matter when acquiring property subject to regulatory restrictions.

Justice Stephen G. Breyer said he could think of many circumstances where a bright-line test, such as using legal lots, would be inappropriate and that the court would like to look at other factors to fulfill the purposes of the Fifth Amendment.

Kennedy asked Groen about how the second lot should be valued for takings purposes if it has more value combined with the first lot.

Merger Ordinances Invalid?

He pressed Groen on whether all merger ordinances are invalid.

Groen told Bloomberg BNA that the grandfather clause differentiating between owners of commonly owned property and other property owners is the difference between this case and most merger ordinance situations. At a panel discussion after the oral argument, Groen said there are all sorts of merger ordinances and that there wasn't an actual merger in this case. He said he didn't anticipate a rush to litigation or an assault on local regulation but a delineation of a principled basis for conducting takings analysis if the court adopted a presumption of legal lot lines to define property.

Tseytlin told Bloomberg BNA in an email that the lot-line presumption would endanger merger provisions throughout the country.

Kennedy also asked Assistant Solicitor General Elizabeth B. Prelogar, who argued in support of Wisconsin and St. Croix County, whether investment-backed expectations should be objective.

Richard J. Lazarus of Harvard Law School, who represented St. Croix County in the argument, said ordinances for commonly owned property aren't unusual and have been around for decades throughout the country. They have never been held to effect a taking. The key factor, he argued, is determining economic impact of regulation, and that should be determined by looking at both properties, which often are enhanced economically by being joined.

Tseytlin argued the regulations were designed to protect important environmental and economic interests and slowly phase out smaller substandard lots while reducing the economic impact of the phase-out on regulated property owners. He argued that determining the parcel should be a straightforward bright line rule based on the totality of state law, and not require a fact-intensive, multi-factor inquiry.

Prelogar argued that property should be defined based on spatial, functional and temporal factors.

At the panel discussion, Lazarus said the county, state and federal government had different interests that led them to advocate different tests for determining property. The federal government has a significant interest in wetlands regulation based on federal law, and so its test is a universally applicable evaluation not based on state law, while Wisconsin advocated for a state law-defined property right, he said.

With only eight justices hearing the case, the possibility of a four-four split exists, in which case the Wisconsin Appeals Court decision would stand while setting no Supreme Court precedent. Alternatively, the court could hold off a decision and rehear the case when there is a ninth justice to avoid the four-four split.

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