A noteworthy decision from the Kansas Supreme Court in Creegan v. State of Kansas, No. 111082 (Mar. 24, 2017).
The facts of the case are pretty simple. Kansas DOT purchased land in a subdivision subject to restrictive covenants (CC&R's) which required all property within the subdivision to be used for single-family residential only. KDOT didn't use the land it bought for residential purposes, but "placed trailers on these lots and, in subsequent years, used the lots for various construction activities. Eventually, KDOT constructed permanent bridges and pavements on a number of the lots." Slip op. at 3. Other lot owners brought an inverse condemnation suit.
The trial court dismissed because violation of the restrictive covenants was not a physical taking, but the Court of Appeals reversed. The plaintiffs' property wasn't damaged nor was it physically invaded. It held that that the covenants are real property and that KDOT's use of its lots for nonresidential purposes was a physical taking of that property.
The Supreme Court agreed that this was a taking, but applied a different analysis than the Court of Appeals. The court (correctly, in our view) held that "we are far less concerned with whether there was physical damage to the parcels owned by plaintiff than with whether their rights to a certain amount of legal control over use of the parcels owned by KDOT was vaporized." Slip op. at 12. The court held that the CC&R right to control use of the KDOT parcels was one of the key sticks in the bundle, and that KDOT's use of the parcels for non-residential purposes destroyed ("vaporized") that right, triggering the requirement to pay compensation.
The court (again, correctly in our view) held that the focus was not on whether KDOT's actions was authorized by Kansas' eminent domain statutes -- as the trial court and the Court of Appeals determined -- but rather whether "there has been a taking requiring just compensation under the federal Constitution." Slip op. at 13. "Regardless of what types of takings the legislature has authorized under [Kansas' eminent domain law], we are concerned with whether the plaintiffs' Fifth Amendment right to just compensation is being infringed." Id. That's the correct approach, a point we made in a recent cert petition we filed in a case out of Mississippi. Yes, state law "defines" property. But the takings question is whether the right alleged taken "was one of the 'sticks' in the valuable 'bundles of sticks' [the plaintiffs] paid for when they acquired their land." Id. at 13. The court examined the nature of restrictive covenants, and held that, like easements, they are servitudes and not mere contractual interests. Ultimately, the court held that any distinction between a servitude (a real property interest) and a contractual right wasn't critical, because contractual rights are property. Id. at 17 ("The United States Supreme Court has long recognized that '[a] contract is property, and, like any other property, may be taken under condemnation proceedings for public use.'"). The court reiterated that the Kansas eminent domain statutes do not control the situation where a state may be trying to "disavow" traditional property interests long recognized under state law:
EDPA, no matter its virtues, cannot be the be-all and end-all on the substance of eminent domain and inverse condemnation law in Kansas. It may expand upon but cannot constrict any rights Kansans are guaranteed by the Fifth Amendment. No matter how this court may interpret or construe the statutory language, the constitutional provision trumps.
Id. at 18.
The court concluded:
The bottom line is that it matters not whether the right held by plaintiffs under the restrictive covenant in this case is further identified as a real property interest or a contract right. For purposes of eminent domain—and, by extension, inverse condemnation—each is "property" requiring just compensation under the Fifth Amendment if taken by the State.
Id. at 20. The court also made short work of KDOT's argument that use of the lots for a highway is not inconsistent with the residential CC&R's. Id. at 22 ("Plaintiffs' have been deprived of all economic value of their right of control under the covenant; their property interests, in this case, real property interests, have been taken.").
Seems just about right to us.