Daronda Combs

December 10, 2001

If the U.S. Supreme Court's decision in Palazzolo v. Rhode Island[1] reflects its intention to avoid being bound by set rules, clear lines, and fixed categories,[2] the environmental field can only be certain that there is still uncertainty under the takings doctrine.  The case came to the Supreme Court as a battle between property rights advocates and environmental regulators-specifically, a property owner of approximately eighteen acres of wetlands and Rhode Island's Coastal Resources Management Council (CRMC), the regulator of the State's wetlands.  With both sides claiming victory in the Palazzolo decision,[3] it is easy to see why the evolution of the takings doctrine has not made any steps toward elucidation.  Property rights advocates feel victorious because the Court rejected the Rhode Island Supreme Court's determination that Palazzolo took title with notice of the regulation, and therefore, was precluded from making a takings claim.[4]  Instead, the U.S. Supreme Court held that acquisition of title after the regulation's effective date did not bar the property owner's takings claim.[5]  Regulator's rights advocates applauded the decision for the Court's determination that Palazzolo was not deprived of all economic use of his property due to the substantial value of the upland portion.[6]  The Court, however, left much of what made the takings doctrine amorphous unresolved.  As a result, state and local regulators will continue to be in the dark about how far their regulations can go without going "too far."

Shore Gardens, Inc. (SGI), formed by Palazzolo and his associates, purchased the property in question in 1959.[7]  A series of applications for development were denied over the course of a seven-year period for various reasons, ranging from an inadequate supply of essential information to adverse environmental impacts.[8]  Before another application was submitted, two significant events occurred - Rhode Island enacted legislation in 1971 creating the CRMC and charging it with the duty of protecting the State's coastal properties, and SGI's corporate charter was revoked in 1978, leaving Palazzolo the owner of the property.[9]  Subsequently, Palazzolo submitted applications to develop the wetlands portion of the property - all of which were denied due to CRMC's regulations that precluded filling wetlands except where the proposed activity would "'serve a compelling public purpose which provides benefits to the public as a whole as opposed to individual or private interests.'"[10]  Palazzolo then filed an inverse condemnation action asserting that the State's wetlands regulations, as applied by the CRMC to his parcel, had taken his property without compensation in violation of the Fifth and Fourteenth Amendments.[11]  The Rhode Island Supreme Court held that Palazzolo's claim was not ripe, he had no right to challenge regulations predating his acquisition of the property, and that his claim of deprivation of all economically beneficial use of his property was contradicted by undisputed evidence that his upland portion retained a value of $200,000.[12]

In its analysis of Palazzolo's claim, the U.S. Supreme Court outlines the evolution of the takings doctrine.  Starting with "[t]he clearest sort of taking,"[13] the Court reminds us that the government's encroachment upon or occupation of private land for its own proposed use, even if minimal, requires compensation.[14]  Government actions that "affect and limit its use to such an extent that a taking occurs"[15] also require compensation.  As a result, the takings doctrine was based on a notion that regulation of property was allowed to a certain extent, but regulation that goes too far will amount to a taking.[16]

The Court gives itself credit for providing guidance, conceding, however, that it has not been very specific "to courts confronted with deciding whether a particular government action goes too far and effects a regulatory taking."[17]  This "guidance" has left many courts with more questions than answers regarding how to determine whether a taking has occurred.  The Court's first example is the rule espoused in Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992).[18]  Even though the rule is known for including those regulations that "'den[y] all economically beneficial or productive use of land,'"[19] that rule is not unqualified.[20]  Specifically, "a landowner's ability to recover for a government deprivation of all economically beneficial use of property is not absolute but instead is confined by limitations on the use of the land which 'inhere in the title itself.'"[21]  Similarly, the Court uses the rule from Penn Central Transp. Co. v. City of York, 438 U.S. 104 (1978), as its second example, despite the fact that this rule's three-prong test is more difficult to apply due to its "depend[ence] on a complex of factors including the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investment-backed expectations, and the character of the government action."[22]  Referring to these rules as "guidance" overstates their value because subsequent cases seem to always produce exceptions and/or alternatives to the already enigmatic doctrine.  As a result, it provides no practical guidance to regulators seeking to stay within the confines of the takings doctrine.

Although the Court does not draw any bright lines in the takings doctrine, a majority agrees that post-enactment acquirer of property is allowed to bring a takings claim.[23]  This aspect is what leads property rights activists to exalt the decision and environmentalists and other regulators to criticize it.  Specifically, the Court stated that "[f]uture generations, too, have a right to challenge unreasonable limitations on the use and value of land."[24]  Furthermore, six justices of the Court thought it "illogical, and unfair, to bar a regulatory takings claim because of the post-enactment transfer of ownership where the steps necessary to make the claim ripe were not taken, or could not have been taken, by a previous owner."[25]  Accordingly, it is clear that regulators are now precluded from using the rationalization that property owners purchased or took title with notice of the limitation on that property and therefore have not lost investment-backed expectations.[26]  However, property rights advocates may be jumping the gun on this victory.  As complicated as the takings rules are, especially in application, this may have only removed one obstacle from the curvy course rather than paving a direct route to compensation.

Like Lucas, the Palazzolo Court left several issues unresolved.  First, the denominator issue was not determined.  As a result, we still do not know if the parcel as a whole (i.e., eighteen acre tract of land with one acre of buildable area) or the unusable portion of the land (i.e., the seventeen acres of regulated wetlands) should be used to determine whether a regulatory taking has occurred.[27]  The Court, however, insinuates that it could depend on how the takings claim is framed - whether the entire parcel or just the regulated portion serves as the basis for the claim.[28]  Additionally, the Court claims to have had no occasion to determine when a legislative enactment can be deemed a background principle of state law so as to "inhere in the title itself."[29]  We, therefore, have no further guidance on how to gauge when the landowner's chosen use of the property was included in his acquisition.  The Court only went so far as to say that it suffices that if the regulation would be unconstitutional absent compensation, it will not be "transformed into a background principle of the State's law by mere virtue of the passage of title."[30]  Moreover, the Court does delineate that the determination must be an objective one, contrary to the typical case-by-case determinations made in a takings analysis.[31]

So who really wins here?  The victors are definitely not the attorneys who have to litigate takings claims since the doctrine is no clearer now than it was before the Supreme Court decided Palazzolo.  Did the Supreme Court grant certiorari to decide that post-enactment acquirers of property have the right to bring takings claims?  Or did the Court grant it to try to clarify the line between Lucas and Penn Central as being one that is demarcated by a dollar amount?  It is really difficult to decipher why the Court granted certiorari, especially given all the unresolved issues left open to debate.  Is this the "guidance" we are to expect down the road for takings claims spawned from expanding regulatory actions?  If so, we may have another 225 years to debate what the Framers intended and what power regulators really have - especially in the environmental arena.

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[1] 121 S.Ct. 2448 (2001).

[2] Wetlands: Supreme Court Rejects Notice Defense, Remands Takings Case to R.I. High Court, 32 Env't Rep. (BNA) 1331 (July 6, 2001) [hereinafter Wetlands].

[3] Id.

[4] See 121 S.Ct. at 2463.

[5] See id. at 2453.

[6] See Wetlands, supra note 2; see also 121 S.Ct. at 2457.

[7] Id. at 2455.

[8] See id. at 2455-56.

[9] See id. at 2456.

[10] See id. citing CRMP § 130A(1).

[11] Id. at 2456.

[12] Id. at 2457.

[13] Id.

[14] Id. (citing Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 427 (1982)).

[15] Id. (citing Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922)).

[16] See id.

[17] Id.

[18] 121 S.Ct. at 2457.

[19] Id.

[20] Id.

[21] Id. at 2464 (citing 505 U.S. at 1029).

[22] 121 S.Ct. at 2457.

[23] M. Robert Goldstein and Michael Rikon, Two Key Decisions on Public Acquisitions of Wetlands, N.Y.L.J., Aug. 22, 2001.

[24] 121 S.Ct. at 2463.

[25] Id.

[26] See id. at 2462.

[27] Goldstein and Rikon, supra note 24.

[28] 121 S.Ct. at 2465.

[29] Id. at 2464.

[30] Id.

[31] See id.