The Volokh Conspiracy
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The Supreme Court just issued its decision in Murr v. Wisconsin, by far the most important property rights case of the term. The opinion is both a setback for constitutional property rights and likely to create confusion and uncertainty going forward. The case arose from the Murr family's efforts to sell one of two contiguous lots they own, only to find that the sale was blocked by land-use regulations that rendered the lot largely worthless. But the implications of the ruling reach far beyond these specific facts. Many property owners own contiguous lots that could potentially be affected by the decision, including homeowners, small businesses, charities, and others.
The Takings Clause of the Fifth Amendment requires the government to pay "just compensation" any time it "takes" private property for public use. Murr considers the important issue of whether an action that might otherwise be a taking might cease to be one merely because the owner of the affected lot also happens to own other property contiguous to it. In at least some cases, today's indeed ruling allows the government to avoid compensating property owners for the taking of their land, merely because they also own the lot next door. But the vague nature of the test established by the Court makes it very hard to figure out exactly when that might happen.
In the famous 1978 Penn Central case, the Supreme Court ruled that whether regulatory restrictions on property rights amount to a taking depends on their impact on the "parcel as a whole." If the regulation affects only a small part of the parcel or has little effect on its overall value and use, it probably will not be ruled a taking, and no compensation is required. The bigger the unit that counts as the relevant parcel, the less likely it is that the courts will rule that a restriction on the use of any part of it is a taking requiring compensation. Regulators who want to avoid paying compensation therefore have an obvious interest in counting contiguous parcels as well as the one actually being restricted. Property owners' interests are the opposite.
I. The Court's New Dangerously Vague Balancing Test.
After the oral argument in March, I worried that the Court might end up issuing a muddled decision that creates needless confusion. Sadly, that is exactly what the justices have done. In a close 5-3 decision (Justice Neil Gorsuch did not participate because he was not yet on the Court when the case was argued), the majority sided with the government against the property owners. But they rejected the state of Wisconsin's position that the courts should simply treat contiguous parcels as one anytime state law indicates they should be. But they also rejected the opposite view: that there should be a strong presumption in favor of analyzing each parcel separately.
Instead, Justice Anthony Kennedy's majority opinion (joined also by the four liberal justices) creates a vague multifactor balancing test for addressing these issues. it states that courts must consider a variety of factors in an attempt to "determine whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts." These factors "include the treatment of the land under state and local law; the physical characteristics of the land; and the prospective value of the regulated land." The treatment of the land under state and local law includes restrictions on land use in place at the time the owner acquired the lots, but possibly other regulations, as well. The relevant "physical characteristics" include "the physical relationship of any distinguishable tracts, the parcel's topography, and the surrounding human and ecological environment." Consideration of "prospective value" includes the need to "assess the value of the property under the challenged regulation, with special attention to the effect of burdened land on the value of other holdings. Though a use restriction may decrease the market value of the property, the effect may be tempered if the regulated land adds value to the remaining property, such as by increasing privacy, expanding recreational space, or preserving surrounding natural beauty."
Even this many not exhaust the list of potentially relevant factors. The Court also emphasizes that "the reasonable expectations at issue derive from background customs and the whole of our legal tradition." Other aspects of those customs and traditions may turn out to be relevant too!
The above list is a recipe for confusion, uncertainty, and constant litigation. All of the factors in the test are complicated and difficult to measure. Often, which way they cut is in the eye of the beholder. For example, who can say which preexisting land-use restrictions should count against the owner, or what really counts as a relevant aspect of "the surrounding human and ecological environment?" In addition, the Court provides little if any guidance on what to do if some of these factors cut in favor of the government, and others in support the property owners. Judges can hardly avoid deciding these kinds of issues at least in large part based on their personal and ideological preferences.
The Court states that the inquiry they require is "objective." Given its extreme vagueness, I don't see how that could possibly be the case. Subjective considerations will inevitably have a substantial influence on judges' consideration of the different factors and how to weigh them against each other.
The majority's balancing test is great news for takings lawyers and property scholars. Because of the uncertainty and litigation it will generate, the decision will surely help make our income great again! It's almost a full-employment act for experts in this field. For the rest of America, the decision creates needless risk and uncertainty about the scope of our property rights.
II. What the Court Should Have Done.
As Chief Justice John Roberts explains in his dissent, regulatory takings jurisprudence already includes a conceptual muddle in the Penn Central test for determining whether a given regulation restricts property rights severely enough to qualify as a taking. Today's decision adds an additional layer of severe uncertainty when it comes to determining what counts as the relevant property interest in the first place. "Put simply," Roberts writes, "today's decision knocks the definition of 'private property' loose from its foundation on stable state law rules." He also worries that the decision "compromises the Takings Clause as a barrier between individuals and the press of the public interest." Roberts argues—correctly, in my view—that it would be better to adopt a presumption in favor of treating each parcel separately:
State laws define the boundaries of distinct units of land, and those boundaries should, in all but the most exceptional circumstances, determine the parcel at issue. Even in regulatory takings cases, the first step of the Takings Clause analysis is still to identify the relevant "private property." States create property rights with respect to particular "things." And in the context of real property, those "things" are horizontally bounded plots of land.
For reasons outlined in an amicus brief I coauthored on behalf of nine state governments, this approach better fits the text, history, and original meaning of the Takings Clause. The text of the Fifth Amendment states that the government must pay "just compensation" any time it takes "private property" for public use. Nothing in the amendment creates an exception for cases where the owner happens to own a lot next door that has a At the very least, nothing in that history—or in previous Supreme Court decisions—requires the kind of muddled balancing test adopted by the majority.
As also discussed in our brief, the approach endorsed by the majority is likely to lead to wasteful efforts at strategic manipulation by both property owners and local governments. The former may try to avoid placing contiguous lots under common ownership so as to lessen the risk of exposure to uncompensated takings. The latter, by contrast, will have incentives to try to manipulate the various factors listed in the majority opinion, so that they come out in their favor. The brief also explains how allowing contiguity to influence takings may put state property at risk of uncompensated regulatory takings imposed by the federal government. As with the risk to private property, this danger will be hard to gauge in any given case, because of the vague nature of the test established by the Court.
In fairness to the majority, some of the problems created by today's decision are ultimately rooted in the flaws of the "parcel as a whole" rule itself. As scholars on both right and left have pointed out, this rule has little if any basis in the text or original meaning of the Constitution. It is a judicial invention and an ill-conceived one at that. Even when it comes to a single parcel, there is no good reason for concluding that a regulation that qualifies as a taking for a one acre parcel might cease to be one if the parcel were two acres instead. The question to ask in a takings case is what property rights government has taken away from the owner, not how much property may be left to her. The text of the Fifth Amendment requires compensation whenever private property is "taken," and does not create exceptions for situations where the owner loses only part of her rights. As Richard Epstein argues in a recent article about Murr , the Court should simply abolish the parcel as a whole rule entirely. Short of that, they could have limited the damage the rule does by adopting Chief Justice Roberts' relatively clear approach. Sadly, the justices have not only retained "parcel as a whole," but made it worse than before.
Today's decision breaks a streak of important victories for property owners in important Supreme Court Takings Clause cases, including several issued in 2013, and the 2015 raisin takings case. Hopefully, Murr will not be the start of a trend going the other way.
Sadly, today is also the twelfth anniversary of Kelo v. City of New London, another unfortunate setback for constitutional property rights. On this date last year, the Court issued the dubious Fisher II decision, and Britain voted for Brexit. Perhaps the real lesson here is not to schedule anything important for June 23. That may be a better rule than the one adopted by the majority in Murr.
NOTE: As mentioned above, I coauthored an amicus brief supporting the property owners, on behalf of nine state governments led by the state of Nevada. As with other posts about Murr, what I write here represents solely my own views, not those of the states I represented. The brief is a pro bono project, and I have no financial interest in the case.
UPDATE: I have made a few minor additions to this post.