Answers to Winter 2010
California Bar Exam Questions

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Winter 2010 Bar Question 5

Constitutional Law

Paula has owned and farmed a parcel consisting of 100 acres for many years. Last year, in compliance with County regulations, she expended a substantial amount of money in determining the economic feasibility of developing 10 acres of the parcel that border the shore of a small lake. She recently submitted a development application to County seeking to construct 30 homes on those 10 acres. County then determined that the 10 acres constitute protected wetlands that, under a state law enacted recently, had to be left undeveloped to protect certain endangered species. On that basis, County denied the development application.

Paula brought an action claiming that County’s denial of the development application constituted a regulatory taking in violation of the U.S. Constitution. It was stipulated that the 10 acres are worth $4,000,000 if development is permitted and $200,000 if it is not.

The trial court ruled that County’s denial of Paula’s development application did not constitute either (1) a total or (2) a partial taking.

Did the trial court correctly rule that County’s denial of Paula’s development application did not constitute:

1. A total taking? Discuss.

2. A partial taking? Discuss.

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Constitutional Law
Question 5, Winter 2010

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Constitutional Law
Question 5, Winter 2010

Total taking. The Fifth Amendment prohibits the federal government from taking private property without just compensation. It is made applicable to state and local government through the Fourteenth Amendment.

When private property is condemned or occupied, a physical taking has occurred. This governmental exercise of eminent domain requires compensation. Here, Pat’s land has not been condemned or occupied. Therefore the government has not exercised eminent domain and Pat cannot claim compensation on this basis.

Conclusion: Pat will not succeed in her claim of a total taking.

Partial taking. Generally, government regulation is considered mere zoning that does not require compensation to property owners. However, where government regulation goes too far, it is called a regulatory taking and compensation is required. The courts weigh the significance of the government interest against how severely the value of the property has been diminished, considering the landowner’s reasonable expectations of use of the land.

Regulatory taking is an evolving doctrine, and the line has moved several times, generally closer to finding a taking. Because of its evolving nature, it is difficult to identify a bright-line test. It would appear that the closer the regulation comes to diminishing all economically viable use from the property, the more closely it would approximate a total taking. That would make diminution in value the bright-line test. But courts have rejected this simplistic formulation. 

The court’s objective is drawing the line is between the valid exercise of police power and government actions that require compensating the landowner.  This is essentially a test of fairness. A good statement of partial taking or regulatory taking is this: when the government regulation extracts benefit (economic value) from the land, and the landowner’s use of his land did not cause the problem (nuisance), coupled with lack of any significant reciprocal benefits to the landowner that are proportional to the economic hardship, a takings is more likely to be found.

Factors:
•Benefit extraction—Has the land been significantly diminished in value?  
Where a landowner seeks to develop his land and that potential has always existed as part of his bundle of property rights, the government’s denial of development will be seen as benefit extraction. In a Florida case where a property owner sought to mine the minerals under his land, the mining permit was denied because of the danger of soil subsidence on his neighbors. The ownership of land include the right to mine under the surface. The Supreme Court found that imposing this burden on the Florida landowner forced him to maintain his land in its natural condition for the benefit of others, in perpetuity.  The Supreme Court termed this a benefit extraction that reduced the value of the land roughly 97.5 percent and found a partial taking.

Here, under a recently enacted state law protecting wetlands, Pat has been denied an application to develop ten acres of lakefront property as a housing subdivision. Not only that, but the wetlands regulations prevents her from building any structure at all on the land. The undeveloped farmland is worth $200,000, but as developed the subdivision would be worth $4 million. The benefit extracted is 80% of the developed land value. Thus, the government regulation is a significant extraction of benefit from Pat.

The Supreme Court and lower courts dilute the percentage of value lost by evaluating the loss in terms of the value of the entire parcel and not just the burdened acreage. If all of Pat’s 100 acres were worth the same as the ten acres when used as farmland, then the entire parcel is worth $2 million and the benefit extraction on denial of the lakefront ten acres is a mere 50% reduction in value. Courts appear to have settled on reducing land value by 75% as the floor for finding a partial taking. No court has ever found a partial taking at a reduction of as little as 50%.

• Notice—Did the regulation limiting land use exist when the landowner purchased the land? Another factor to be considered under benefit extraction is whether the landowner had notice of the use limitation at the time he purchased the property. Here, Pat had owned the parcel for many years, and the law preserving wetlands was passed recently. This would appear to cut in favor of a taking.

However, Pat’s expectation in purchasing the land appears to have been to farm it, as she has done for many years, Her desire to develop the lakefront acreage is a recent expectation, as seen by her recent feasibility studies. Therefore, it could be said that Pat did not have long-running expectations of developing the land that the recent law quashed. Furthermore, Pat’s development expectations were unilateral, since no such plans could be undertaking without county approval, which is at best uncertain to be approved. The Supreme Court in a 50-year old decision in Penn Central Transportation, said “disappointed expectations” did not require compensation.

• Causation—Is the landowner the cause of the problem? The courts have also called this the nuisance consideration. When the landowner’s use is a noxious, prohibiting it through regulation does not require compensation.

For many years, Pat has farmed her 100-acre parcel, including the ten acres she had hoped to develop. Pat is no more a cause of environmental degradation than is any other property owner. This is especially true if Pat’s farm is in a rural farm area. On the other hand, if Pat were permitted to build a housing subdivision the density and pollution from the 30 houses would place a strain on wildlife. It could be said there is somewhat of a causal link between Pat’s intended use and loss of wildlife habitat. However, neither farming nor housing subdivisions are nuisances that justify the government’s failure to compensate the landowner.

• Significant reciprocal benefits—If the landowner is not the cause, does he benefit from the regulation, making it a tradeoff? The question is, how much is Pat benefited by a wildlife sanctuary next to her farm? On the one hand, the regulation prevents any development of the wetlands acreage. Arguably, Pat’s farmland is benefited by cleaner air and water that industrialization or housing would cause. On the other hand, all citizens of the state are benefited by the preservation of wildlife habitat, roughly equally. Therefore, Pat is not receiving a reciprocal benefit in keeping with her lost economic opportunity.

• Proportionality—Does the benefit the landowner receives by the regulation roughly equal the loss in land use value?  In cases where a condition is placed on a building permit, such as an easement for a public path to the beach, the courts have focused on the equivalent value given and received. Here, Pat sought a development permit, but the county denied it. So Pat has not received any increased value.

Underlying all of the considerations in partial takings analysis is fairness. When the extraction of public benefits falls on the shoulders of a few property owners due to the accident of location, they are seen as being singled out as convenient targets of opportunity. In regulations protecting wetlands, the burden of providing a benefit shared by the public at large necessarily falls on those few property owners who
own swampland. Where the accident of topography dictates which property owners bear the burden of providing a public purpose, courts have generally found that the line has been crossed between legitimate uses of police power regulation and compensable takings. As one justice said in a wetlands cases, the government cannot take a shortcut to securing a public benefit by avoiding paying for it.

In cases where there is a substantial diminution in value of property and the regulation burdens the few without a countervailing significant benefit to the burdened landowner, a regulatory taking has been found and compensation is required.

Here, in light of the factors the courts are likely to apply, Pat is one of a few property owners who are bearing the cost of a generalized public benefit. The economic cost to her is great. She is not the cause of the degradation of wildlife habitat. And she does not receive a reciprocal benefit that is proportional to her loss.

Conclusion Pat will succeed in her claim of a partial taking.

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