Twenty five years ago this spring, Justice Scalia handed-down the Supreme Courts monumental decision in Lucas v. South Carolina Coastal Council, holding that government must pay landowners just compensation for the fair market value of their land if imposed restrictions completely deny the owner all economically beneficial rights. Most courts have construed this to mean that you should be able to obtain compensation if regulatory restrictions completely deny you the right to build anything on the subject property. But if the restrictions in question prohibit development only on a portion of the land, then generally speaking no compensation is owed because the landowner will generally lose his takings claim under Penn Central Transportation Co. v. New York.
While this might seem like a fairly straight-forward rule, the reality is that it can be awfully complicated if you are dealing with separate tracts of land. This is because the governmental defendant will almost invariably argue that separate tracts should be treated as a single parcel for the purpose of determining whether imposed restrictions go so far as to violate the Takings Clause. For example, it is not uncommon for a small business to buy separate adjoining lots—perhaps with the idea of possibly expanding operations in the future, or perhaps holding one of those lots as an investment property. So when should a court view lawfully divided lots (or parcels) as a single economic unit?
This is the question the Supreme Court is now wrestling with in Murr v. Wisconsin. It matters big time because, in a case where a small business owns adjoining lots, the Court’s decision in Murr will almost certainly be the difference between winning and losing a takings claim if the government should prohibits development opportunities on one lot or the next. To put it more bluntly, this means that a landowner might, in this sort of situation, either obtain full compensation, or zero compensation. So, the stakes are high.
But from the tenor of the Court during oral argument this week, it sounds like we’re likely going to end-up with some sort of squishy balancing test that gives no concrete guidance to anyone. On the one hand, we would like a cut and dry—easily applied—rule that courts should always treat lawfully divided lots as separate property. And for many reasons, some explained more fully by Professor Ilya Somin in his post on the Vololkh Conspiracy Blog—this is the most sensible approach. But the progressive wing of the Court seems inclined to take a much more abstract (or “flexible”) approach that would allow courts to treat lawfully divided parcels as technically merged where that might advance public goals. In our view that approach is fundamentally at odds with the Takings Clause because it would enable authorities to take away previously recognized rights in separate parcels by simply redefining the relevant parcel more broadly.
In any event, it looks like this case is likely to split the Court along predicable ideological lines. This would mean—as ever—that Justice Kennedy is the essential swing vote. And while it is difficult to get a real sense as to what direction Kennedy is leaning, it seemed that he was inclined to say that preexisting parcel lines matter, but that the owner’s intentions at the time of purchase should also matter.
For a more in-depth analysis, check out Professor Somin’s commentary here. And for an engaging explanation of the issues presented in Murr, check out this clever video, recently released by the Federalist Society. Lastly, for those interested, NFIB Legal Center’s amicus brief is available here.