What is is about the U.S. Supreme Court's decision in Palazzolo v. Rhode Island, 533 U.S. 601 (2001), that so many lower courts just don't get?
We've read the opinion (multiple times, we assure you), and it seems straightforward enough to us: acquisition of land after the time the government imposes an allegedly restrictive regulation does not deprive the owner of the ability to challenge the restrictive regulation as a taking. The Court held that prohibiting the a takings challenge would result in a "windfall" to the government, allowing the state to "shape and define property rights and reasonable investment-backed expectations." Id. at 626. Thus, because the state cannot "put an expiration date on the Takings Clause," the Court held that "[f]uture generations, too, have a right to challenge unreasonable limitations on the use and value of land." Id. at 627.
Well the message isn't quite getting through to New York's Second Appellate Department (doink-doink). In Monroe Equities, LLC v. State of New York, No. 2016-00095 (Dec. 7, 2016), the court attempted to distinguish Palazzolo in a case in which the State Department of Health's watershed regulations prohibit installation of a septic system on the plaintiff's residentially-zoned land. Without a sewage system, the local government cannot subdivide the land.
The owner alleged a Lucas total wipeout taking. The Court of Claims rejected the owner's motion for summary judgment on liability, and instead (after the court's own research) dismissed the case because the offending watershed regulations had been adopted 85 years before the plaintiff purchased the property in 2005. Thus, the regulations were a Lucas "background principle" and the owner never owned the right to use the land to install a sewage system.
The Appellate Division affirmed, concluding that "the right to install a septic system was never part of the 'bundle of rights' the claimant acquired with title to the property and the claimant cannot succeed on its takings claim." Slip op. at 3. The opinion relied on two New York cases to support that conclusion, Soon Duck Kim v. City of New York, 90 N.Y.2d 1 (1997), and Gazza v. New York State Dep't of Envtl. Conservation, 89 N.Y.2d 603 (1997). But as Professor Steven Eagle has written (see here and here, for example), it is unlikely that these rulings survived the U.S. Supreme Court's Palazzolo ruling four years later.
Not to be deterred, the Appellate Division tried to distinguish that case:
Contrary to the claimant’s contention, the United States Supreme Court’s decision in Palazzolo v Rhode Island (533 US 606) does not compel a contrary result. In Palazzolo, the Supreme Court declined to adopt a blanket rule that purchasers with notice have no compensation right when a claim becomes ripe and it expressly stated that a regulatory takings claim “is not barred by the mere fact that title was acquired after the effective date of the state-imposed restriction” (id. at 609). Nevertheless, the Court emphasized that it had “no occasion to consider the precise circumstances when a legislative enactment can be deemed a background principle of state law or whether those circumstances are present here. It suffices to say that a regulation that otherwise would be unconstitutional absent compensation is not transformed into a background principle of the State’s law by mere virtue of the passage of title” (id. at 629-630). Resolution of the instant claim does not rely upon application of a blanket rule. As discussed above, the record establishes that the right to install a septic system was never part of the bundle of rights acquired by the claimant.
Slip op. at 3-4.
Sorry, we don't get it. Palazzolo held that the mere passage of time and title doesn't mean a regulation is a background principle. But here, the Appellate Division held that the mere passage of title and 85 years meant that the watershed regulations were a background principle. How is that not "relying on a blanket rule" as the opinion claims to not be doing? The "as discussed above" to which the court was referring was this bit:
The claimant acquired title to the subject parcel of land in 2005, 85 years after the watershed regulations first went into effect. Furthermore, in opposition to the claimant’s motion, the defendant submitted evidence that the claimant’s parcel was once joined with abutting lands that were split into separate parcels in 1989. Thus, the right to install a septic system was never part of the “bundle of rights” the claimant acquired with title to the property and the claimant cannot succeed on its takings claim.
Slip op. at 3.
This issue isn't going away. Other courts treat Palazzolo with the same (lack of) respect, paying lip service to the passage-of-title rule, but essentially ignoring it. One of these days, the Supreme Court is going to take this issue up, even if it is only to announce a rule that we thought it announced long ago.
Our thanks to our New York colleague Daniel Lehmann (follow him on Twitter here, and ping him on LinkedIn here) for the heads-up on this decision, and keying us in to Professor Eagle's takedown of Kim and Gazza. Thanks also for sending the briefs along, in case any of you want more on the facts and arguments, since the Appellate Division's opinion is, like many of New York's court's opinions, very short: