The United States Supreme Court issued a decision in Murr v. Wisconsin last week, siding with the state and holding that two lots adjacent to a river should be considered as one parcel for takings analysis.  Perhaps more relevant than the actual holding in the case is the discussion that the court engaged in related to regulatory takings analysis generally.

Background

The Murr siblings own two 1.25-acre waterfront lots on Lake St. Croix in Wisconsin.  The first lot, Lot F, was purchased in 1960 by the Murr parents, and then transferred into the ownership of the family business in 1961.  Lot E was purchased in the name of the Murrs’ parents in 1963.  The family built a cabin on Lot F, but lot E remained undeveloped.  In 1975, the City passed regulations the prohibited owners from developing or separately selling properties that had a “net project area” of less than 1 acre.  (Lot E did not meet this standard as its steep terrain would prevent building on part of the 1.25 acre tract.)  Additionally, adjacent lots under common ownership may not be sold or developed as separate lots unless they meet this same size requirement.  In 1994, ownership of Lot F was transferred to the Murr siblings.  In 1995, ownership of Lot E was transferred to them as well.

In 2004, the siblings wanted to move the cabin on Lot F to a different portion of the lot, and planned to sell Lot E in order to do so.  The 1975 regulation, however, prevented them from selling Lot E separately.  The siblings sought a variance from the city, but were unsuccessful.  At that point, the siblings filed an inverse condemnation claim, arguing that these regulations constituted a taking of their private property for which they were owed just compensation under the US Constitution.

The trial court granted the government’s motion for summary judgment, holding that in order to conduct a takings analysis, the two lots should be considered as one “parcel.”  Utilizing that approach, the trial court and Court of Appeals found that there was no taking, because the property retained beneficial and practical use as a residential lot.  The Wisconsin Supreme Court denied review, but the United States Supreme Court granted certiorari.

The question presented to the US Supreme Court was “In a regulatory takings case, does the ‘parcel as a whole’ concept establish a rule that two legally distinct, but commonly owned contiguous parcels must be combined for takings analysis purposes?”  Courts across the country have taken different approaches.  Michigan has taken the same approach as Wisconsin.  Massachusetts has established a rebuttable presumption in favor of one parcel.  Florida takes the opposite approach, having a rebuttable presumption that lots are separate parcels.  Ohio and Idaho have treated parcels separately in similar situations.

Supreme Court Opinions

The US Supreme Court affirmed the Wisconsin Court of Appeals, finding that the two lots constitute one “parcel” for takings analysis and that no taking occurred.  The opinion was authored by Justice Kennedy, who was joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan.  Justice Roberts wrote a dissenting opinion, which was joined by Justices Thomas and Alito.  Justice Thomas also wrote a separate dissent.  Justice Gorsuch did not participate in the decision of the case.  [Read full opinions here.]

Majority Opinion

The Takings Clause provides that private property may not be taken for public use without just compensation.  This applies to the state through the Fourteenth Amendment.

The Supreme Court has held that while physical invasions of property certainly constitute a taking, regulations may do so as well.  “While property may be regulated to a certain extent, if regulation goes too far, it will be recognized as a taking.”  Over the last century, the Court has utilized “ad hoc factual inquiries” to determine when a regulation goes too far.  There are two primary guidelines to consider:  (1) The Lucas test provides that if a regulation “denies all economically beneficial or productive use of the land,” a taking occurs; (2) The Penn Central test provides that if a regulation impedes the use of the property, while not depriving the owner of all beneficial use, a balancing test using the following factors is proper:  (a) the economic impact of the regulation on the claimant; (b) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the government action.

Before these tests may be utilized, however, a court must first determine the parameters of the “parcel” that is being considered. In Penn Central, the Court indicated that it would not limit the parcel in an artificial manner to the portion of property targeted by the regulation.  In that case, the Court said that it would not consider discrete segments such as air rights as the “parcel” at issue, but instead would look at the parcel as a whole.  Additionally, the Court noted that the view of property rights under the Takings Clause should be coextensive with those under state law.

Then, the Court essentially held that there is no bright line rule or test to determine the parcel size.  “No single consideration can supply the exclusive test for determining the denominator.”  Instead, a court should seek to determine “whether reasonable expectations about property ownership would lead a landowner” to anticipate that his holding would be treated as one parcel or two separate tracts.  To do this, a court must consider a number of factors, including “the treatment of the land under state and local law; the physical characteristics of the land; and the prospective value of the regulated land.”

First, courts should give “substantial weight” to the treatment of land under state and local law.  Second, with regard to physical characteristics, courts should look at the topography, relationship between lots, and the surrounding environment.  Third, a court should assess the value of the property under the challenged regulation, in particular considering the impact of the burdened land on other holdings.

Applying this test, the Court held that the property should be considered as one single parcel, containing both Lot E and Lot F.  The treatment under state and local regulations weighed in favor of this, as the 1975 law merged the two properties.  Further, the property was subject to this merger and regulatory burden because the Plaintiffs voluntarily brought them under one ownership many years after the regulation was put in place.  The physical characteristics also weighed towards treating the lots as one parcel as they are contiguous, have rough terrain, and narrow shape.  Finally, the prospective value that Lot E brings to Lot F also weighed in favor of one parcel, as the value of the lots together was greater than separate, showing they are complementary to each other.  Thus, the two lots are considered one parcel for Takings Clause purposes.

Considering the property as one whole, the Court held that no takings occurred.  Specifically, the Plaintiffs were not deprived of all property value to meet the Lucas test.  In fact, the value of the property has only decreased by 10%.  Similarly, no Penn Central taking occurred, because there was not a severe economic impact as noted above, there were no investment backed expectations since the regulations were in place well before the siblings owned the property, and the character of the state interest was a reasonable land use regulation.

Roberts Dissent

Justice Roberts’ dissent states that while the bottom line conclusion–that no taking occurred in this case–does not trouble him, but he takes issue with the Majority’s analysis of how to determine the relevant parcel.  He would reject the factors set forth by the Majority and, instead, look only to state and local law.  “I think the answer is far more straightforward:  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.”  He believes the “parcel as a whole” language from Penn Central prevented only the situation where a property owner chooses one “strand” in his bundle of property rights and claims that right has been taken.

Under the facts of this case, his approach would look simply at how the state and local law applied.  He would remand the case back to the Wisconsin Court of Appeals to determine whether under general state law principles, the two lots were legally distinct parcels of land.

Thomas Dissent

Justice Thomas says that he would like to “take a fresh look at our regulatory takings jurisprudence, to see whether it can be grounded in the original public meaning of the Takings Clause of the Fifth Amendment or the Privileges or Immunities Clause of the Fourteenth Amendment.

Take Away Points

This case provides an in-depth analysis of how courts will analyze a “parcel” for regulatory takings purposes.  This can be critical in a regulatory takings case, as is clear here.  Additionally, the Court carefully explains the two different regulatory takings tests and analysis for both in discussing Lucas and Penn Central.  Finally, it is a reminder of how difficult to win and fact-specific regulatory takings claims can be.