Takings Exception

Maverick legal scholar Richard Epstein on property, discrimination, and the limits of state action

Steve Chapman from the April 1995 issue

(Page 2 of 6)

Essentially the point that I'm trying to make in Takings--and I come back to it again in Bargaining with the State--is that you can have a world with forced exchanges without having a world of rampant redistribution, that you can abandon laissez faire without falling into the lap of the New Deal. A well-ordered theory of taxation is supposed to accomplish that. It doesn't do it perfectly, but it gets damn close to it with flat taxes relative to progressive taxes.

Another way to put this is to ask, How are political decisions made? The libertarian world is one which requires the unanimous consent of all individuals in order to reach a political decision. We know that in the old days of the Polish parliament, which required unanimous votes, they often got unanimity by taking the lone dissenter and throwing him out the window. On the other hand, rampant majoritarianism means that 51 percent can indeed confiscate the wealth of all 49 percent, which is what you get under the New Deal.

What the eminent domain compromise says that makes me a moderate is that we will allow the majority to have its way so long as it's willing to buy off its dissenters at a fair valuation. We can bring ourselves to a position in which we stop anybody from being made worse off by virtue of collective impositions.

Reason: Takings has significantly influenced the way the courts interpret the Takings clause of the Fifth Amendment. Are you encouraged by the impact?

Epstein: On an intellectual level, not very. To figure out what's going on with takings cases, you have to break them down almost area by area. Before the book came out, the basic attitude was that all matters of economic affairs were decided in the legislature. If you turned out to be very badly disadvantaged, all you could do was use political efforts to change the outcome. But you had no judicial recourse whatsoever.

The first of the breakthrough cases was Nollan v. California Coastal Commission [1987]. It raised an issue which has always been present but has never been explicitly answered: What's the extent to which you have to worry about extraction from the permit and approval system which undergirds the land-use system in the United States?

This was the case of an individual who had a small shack on a piece of beach-front property. He wanted to build a nice fancy house like his neighbors. The government said, "We'll let you build that house as long as you give us a lateral easement in the front of your property for our citizens at large to move to and from. You want the permit. You surrender the easement."

So libertarians were in a very odd position of trying to explain why it was that this contract was unjust and unconscionable. Justice Scalia tried very hard to do that. On one level, he said, we're going to give a higher level of scrutiny toward what governments do in these local property matters. But he was not able to fully articulate the reasons why this particular transaction is objectionable whereas other bargains that governments enter into with their citizens are not.

You're dealing with the hardest case in classical contract law: the one in which it turns out that the gains to both sides are evident, but nonetheless not as large as possible. This is different from the kinds of takings situations that most people think about--where property is just wiped out by virtue of government regulation or there's no potential gain to the regulated party.

The second big case came up five years later in Lucas. And once again, you've got a Scalia opinion and once again you've got a very fractured, intellectually confused result. In Lucas, a landowner was just told by the state: "No bargains here. You're not allowed to build a home anywhere on your entire plot of beach-front land because we're afraid that it might damage the coast. We think it's better that the land be vacant for the benefit of tourism and leisure." The landowner said, "That's a taking."

To people not versed in takings law, what else can the darn thing be? It doesn't seem like it's a very difficult case at all. In fact, the landowner lost in the lower courts, winning only when it came up in the Supreme Court. But he won on a theory which, to put it mildly, does not promise long-term serenity for the political realm.

The Court ruled that the reason we should take his claim seriously is that he's completely wiped out. The land had no residual value once he couldn't build on it. But, says the Court, if he had been told that he could only build a very small house--perhaps tucked off in the back of the land--then the state could more or less get what it wanted. So what the Court did was make a rule: full compensation for full wipeouts and no compensation for partial wipeouts, no matter how large. Then, with respect to those cases in which there are complete wipeouts, they ask (and rightly so) whether or not there is some kind of a common law nuisance that the state regulation was designed to prevent in a reasonable fashion, which wasn't the case.

But what Scalia did--and what was so terrible about the opinion--was to say essentially that the whole area of partial land-use restrictions is now beyond constitutional scrutiny. If you tell somebody they can't build a skyscraper but they can erect a four-story building--that they can't build a house but they can build a little tent or shack--then there's nothing they can do about it.

What was really needed was a coherent hearing which started from the ground up and took the very simple position that any time you impose a restriction on land use, the state has to either justify the restriction or pay for the value that is being deprived. Under those circumstances, the state will no longer have an incentive to hold a claim. But that was never done.

So now we have a set of rather funny rules that derive from Nollan on the one hand and Lucas on the other. The last of the big cases, which may ultimately be more significant than the other two, was the Dolan case [1994]. On its facts, Dolan was a more complicated version of the Nollan situation--the state was trying to withhold a permit. But it wasn't a pure case of exaction. There was a respectable argument that if you covered over large portions of the land, it would increase the amount of illegitimate runoff into a public creek, and some adjustment ought to be made for that. Justice Rehnquist had the right attitude. He said, Look, this is a certain set of circumstances in which it turns out that we cannot and should not tolerate a regime in which the state has perfect discretion over what it does and how it does it. But he could never figure out which frame of mind he should bring to a transaction which was imposed in part for good reasons--to prevent nuisance runoff--and in part for bad reasons--to extract an easement so that flood waters from other places could run peacefully by the Dolan land.