inversecondemnation.com

Feds Likely To Seek Cert In Casitas (Water Rights Taking Case)

It looks like the federal government will likely seek U.S. Supreme Court review of Casitas Municipal Water District v. United States, 543 F.3d 1276 (Fed. Cir. 2008). As noted here, the SG's office has sought and received two extensions of time and the cert petition is now due by July 17, 2009.

In Casitas, the Federal Circuit held that contractual water rights were taken when the federal government required the landowner to construct a fish ladder and divert water in order to protect endangered steelhead trout. The court held that the requirement resulted in a physical diversion of water for public use, and that "Casitas will never, at the end of any period of time, be able to get the water back. The character of the government action was a physical diversion for public use -- the protection of an endangered species." The Federal Circuit's opinion is posted here, and the court's denial of rehearing and rehearing en banc -- which generated concurring and dissenting opinions, see 556 F.3d 1329 (Fed. Cir. 2009) -- is available here.

The briefs in the court of appeals are not available via PACER, unfortunately, but the mp3 of the oral arguments is posted here. More background from the local paper.

Thanks to New Jersey Eminent Domain Law blog for reminding us of this case.

We predicted this was a case to watch, and we will be following any developments.

Federal Circuit: Plaintiff Alleged Property Right To Develop Land

The US Court of Appeals has reversed the Court of Federal Claims' dismissal of a takings case, holding the right to develop land is property protected by the Takings Clause. In Schooner Harbor Ventures, Inc. v. United States, No. 2008-5084 (June 16, 2009), the property owner claimed a designation of its property (Site 28) by the U.S. Fish and Wildlife Service as a critical habitat for the Mississippi Sandhill Crane -- which required it to purchase another parcel as a mitigation measure before it could sell Site 28 to the Navy -- was a taking.

The property owner sought just compensation in an inverse condemnation action in the CFC, which entered summary judgment for the government because the owner failed to assert a property right. The CFC characterized the interest claimed as "the right to sell its property to the government, without conditions imposed, in this instance to meet regulatory burdens imposed on the Navy, by obtaining the mitigation parcel." The CFC's decision is available here.

The Federal Circuit reversed, concluding the CFC misconstrued the property owner's claim, which was not a that it was deprived of its ability to sell to the Navy, but that the critical habitat designation affected its right to sell to any other party, the right to develop the land, and its fee simple title.

This alleged regulation of Schooner Harbor’s right to develop Site 28 would have an obvious impact on any subsequent sale, regardless of the purchaser’s identity—a development-restricted parcel commands a lower price. A lower sale price, of course, is not a restriction on the right of alienation, but rather one effect of a regulation on the right to develop. A detailed reading of Schooner Harbor’s position below and on appeal thus reveals that this alleged regulation of the right to develop Site 28 is also asserted as a taking.

Slip op. at 8-9. The court remanded the case to the CFC for a ripeness determination, and (if ripe), an application of the Penn Central factors to determine whether these property interests were taken.

Of additional note is the court's admonition to the CFC about the so-called "notice defense," where the government (even after the argument was expressly rejected by the U.S. Supreme Court) continues to assert it can escape takings liability for a regulatory scheme that affects property values simply because the regulation was in place at the time the plaintiff purchased the property:

An additional consideration may arise on remand. The trial court indicated that because the critical habitat designation occurred in 1977, subjecting the property to certain regulatory restrictions, and Schooner Harbor did not purchase the land until 2000, it "stretches the credulity of the court that plaintiff, as a real estate developer, did not do due diligence and was not aware of the protected status of the land at issue." Schooner Harbor, 81 Fed. Cl. at 414. Schooner Harbor’s knowledge of the regulation is not per se dispositive, although it is a factor that may be considered, depending on the circumstances. "A blanket rule that purchasers with notice have no compensation right when a claim becomes ripe is too blunt an instrument to accord with the duty to compensate for what is taken." Palazzolo v. Rhode Island, 533 U.S. 606, 628 (2001) (rejecting the argument that one who acquires title after the relevant regulation was enacted could never bring a takings claim). Consequently, the trial court must consider if and when any claim ripened as well as all of the factors relevant to Schooner Harbor’s investment-backed expectations.

Slip op. at 12. The oral argument recording is available here (37mb mp3).

Materials And Links From Today's Water Law Seminar

To those who attended today's seminar "Integrating Water Law and Land Use Planning," thank you.  The materials from my session on "Water Rights, Property Rights and the Law of Settled Expectations" are below. 

• Kaiser Aetna v. United States, 444 U.S. 164 (1979) - the Hawaii Kai Marina case - physical invasions, regulatory takings, and interference with settled expectations.

• Haw. Const. art. XI, § 7  (the declaration of public trust).

• Hawaii's Takings Clause.

• U.S. Constitution, amend. V (federal takings clause).

• U.S Constitution amend. XIV (federal due process clause).

• 42 U.S.C § 1983 (federal civil rights statute).

• 42 U.S.C § 1988 (prevailing party attorney's fees statute).

• Maui Tomorrow v. State of Hawaii, 110 Haw. 234, 131 P.3d 517 (2006) - Hawaii water law is not a federal case.  Summary of the decision here.
  

• The State zoning law, Haw. Rev. Stat. ch. 205.

• The Hawaii State Planning Act, Haw. Rev. Stat. ch. 226.

• The Hawaii Water Code, Haw. Rev. Stat. ch. 174C.

• Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926), the case in which the U.S. Supreme Court first upheld the segregation of land uses in an Ohio suburban town into districts against a substantive due process challenge. Law students study the case, land use lawyers and planners know it intimately, and "Euclidean" zoning has become the shorthand for district-based single use zoning.

• Hadachek v. Sebastian, 239 U.S. 394 (1915) - the government's police powers can be used to protect against nuisances.

• Joseph L. Sax, The Public Trust Doctrine in Natural Resource Law: Effective Judicial Intervention, 68 Mich. L. Rev. 471 (1970).  Copy available here.  

• In re Water Use Permit Applications (Waiahole), 94 Haw. 97, 9 P.3d 409 (2000) (the mother of all Hawaii water law cases -- the decision so vast it required its own table of contents)

• In re Waiola O Molokai, Inc., 103 Haw. 401, 83 P.2d 664 (2004) (burdens of proof).

• State and local government agencies have public trust duties - Kelly v. 1250 Oceanside Partners, 111 Haw. 205, 140 P.3d 985 (2006).

• A counterpoint to Waihole: David L. Callies & Calvert G. Chipchase, Water Regulation, Land Use and the Environment, 30 U. Haw. L. Rev. 49 (2007).  Copy posted here.

• Hawaii vested rights: Arrow of Time - Vested Rights, Zoning Estoppel, and Development Agreements in Hawaii - 2006 U. Hawaii Law Review article. Drop me an email, and I will email you a pdf, or send you a hard copy (tell me which).

• Upsetting settled expectations in shoreline law - accretion and erosion: Maunalua Bay Beach Ohana 28 v. State of Hawaii, No. 28175 (Haw. ICA) - here's the brief we filed which illustrates the principle that the legislature (or a court) cannot simply change the settled law without raising takings concerns. The issue in that case is whether the state or littoral landowners are entitled to ownership of accreted land. In "Act 73," the legislature declared that shoreline land naturally accreted belongs to the State of Hawaii and is public property.  The act overturned the age-old rule of shoreline accretion and erosion, which held that beachfront owners lose ownership of land when it erodes, but gain it when it accretes.  Instead of these balanced rules, Act 73 made the erosion/accretion equation one-sided: the State wins every time. 

• Compensation for regulatory taking of water rights - Casitas Municipal Water District v. United States, No. 2007-5153 (Mar. 3, 2009).

Guest Post: Of Shoes and Ships, Eggs and Farms; Or, Penn Central Through the Looking Glass

Economist Bill Wade offers his thoughts on the recent (and latest) Rose Acre decision by the Federal Circuit, a case we summarized here.
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Of shoes and ships, eggs and farms; Or, Penn Central through the Looking Glass

by William W. Wade, Ph.D.

Fans of arcane takings decisions will not find a more economically confused record and decision than Rose Acre Farms VI.  (Rose Acre Farms, Inc., v. United States, United States Court of Appeals for the Federal Circuit , 2007-5169, March 12, 2009.)  Whether the case was about eggs or farms, gross revenues or net profits, lost income or lost value, marginal costs or average costs apparently eluded the judges, the instant parties and experts.  In 15 years of writing about the economic underpinnings of regulatory takings case decisions, I have to award both the expert testimony and judicial interpretations in this case some sort of pinnacle award for sophistry, obfuscation and confusion.  But that is beyond this little note.

I want to focus on one simple question: Has anybody noticed that the government’s arguments in Cienega X and Rose Acre Farms VI do away with temporary takings?

Cienega X addressed the question of whether valuation of the lost income from use of the plaintiff’s property or valuation of the change in real property value measured before and after the taking period is the more appropriate measure of the Penn Central test.  Although inconsistent with the received cannon of finance and economics, the government argued and won the point in Cienega X that the change in real property values of the buildings should govern the Penn Central test because the buildings would recover value after the period of the taking. 

The government’s brief in Rose Acre Farms VI argues that in light of the Tahoe Sierra parcel as a temporal whole language, “[t]he exclusive focus upon Rose Acre’s lost profitability during the temporary period [of the restrictions] is an erroneous assessment of the economic impact of a temporary regulatory restriction upon the property as a whole.”  They conclude that “[t]he obvious purpose for this requirement is to assess the economic impact of the temporary regulatory action in relation to the entire life of the property.”  (Emphasis added.)

The implication of this claim would be that the plaintiff’s expert must evaluate the economic impact of a temporary loss of income with evidence to prove that the loss during the temporary taking period would eviscerate the economic prospects of the business for all time to come. 

Time values of money are important to this determination.  Depending on the length of the taking period and discount rate, plaintiff may or may not ever recover from the economic loss of a temporary loss of revenues.  If it were true that a temporary taking must prove Penn Central’s economic impact prong “in relation to the entire life of the property,” then the temporary taking actually would be equivalent to a permanent taking to surmount this hurdle.  If so, temporary takings do not exist. 

On reflection, both Cienega X and Rose Acre Farms VI so confused standard economic measurement and evaluation benchmarks that proving a temporary taking is tantamount to proving a permanent taking.  But then, why does a body of temporary takings law exist?

The recovery of value of the Tahoe-Sierra plaintiffs’ tangible real property clearly is not a competent comparison to a business’ ability to resume operations after the end of the regulatory prohibition.  Abundant case decisions show that earnings lost in time are lost forever.  The Federal Circuit Court’s decisions suggest that the inability to recover and continue in business is now the relevant criterion for payment of compensation for a temporary taking. But then, why does a body of temporary takings law exist?

Rose Acre Farms VI is the best example yet where confused presentation and faulty understanding of economics undermined judicial thinking.  I concluded in this ELR article [Confusion About "Change in Value" and "Return on Equity Approaches to the Penn Central Test in Temporary Takings, 38 ELR 10486 (2008)] that "the line of [Court of Federal Claims HUD] cases prior to Cienega X needs to become the fabric of broader jurisprudence to inform legal practitioners and jurists.  The implications of [Cienega X] are broader than the plaintiffs' losses in Cienega IX." Rose Acre Farms VI shoves takings jurisprudence thru the looking glass.

William W. Wade, Ph.D., is a resource economist and has served as an expert witness in takings cases, testifying on the economic elements of the Penn Central test. He owns the firm Energy and Water Economics in Columbia, Tennessee.

Federal Circuit: Commercial Fishing Ban Frustrated Contract, But Is Not A Taking

Thanks to my fellow Damon Key land user Greg Kugle for letting me know the Federal Circuit has affirmed Palmyra Pacific Seafoods, L.L.C. v. United States, 80  Fed. Cl. 228 (Jan. 22, 2008), a case we summarized here.  The Federal Circuit's opinion is available here.

The court held that licenses to use Palmyra Atoll as a commercial fishing base were not taken when the federal government declared the waters around the atoll as a wildlife refuge and prohibited commercial fishing. The court held that the licenses were not "property," and even if the licenses were rendered worthless, the takings clause was not implicated.

In attempting to define the property right that was purportedly taken by the regulation at issue in this case, the plaintiffs have provided little beyond the general assertion that the Interior Department interfered with their "exclusive right to use Palmyra as a commercial fishing base." They contend that "the contract entitled PPS to the exclusive occupation and use of certain lands of the atoll (e.g., the base camp)," and refer to a "right to use certain facilities on Palmyra as the base for its commercial fishing operation." The problem with that argument is that the Interior Department’s regulation does not prohibit commercial fishing operations on Palmyra—it merely prohibits commercial fishing activity in the surrounding waters. The fact that the government’s regulation of activities in the waters surrounding Palmyra may have adversely affected the value of their contract rights to engage in activities on shore is not sufficient to constitute a compensable taking.

Slip op. at 8-9 (footnote omitted). The court boiled the case down to a hypothetical:

The problem with the plaintiffs’ takings theory in this case, as well as their claim that "targeting" converted an otherwise innocuous regulation into a compensable taking, can be illustrated by a hypothetical case that contains all the essential elements of this case without the complicating details that tend to obscure the analysis. Suppose that a business that offers "outdoor adventures" obtains rights from a private party to build a facility next to a federally owned national wilderness area for the purpose of attracting adventurers who are interested in hiking in the wilderness area. Suppose further that the government, being concerned that the influx of large numbers of hikers will disrupt the wilderness area, closes the wilderness area to all hikers or strictly limits the number of hikers who can enter the area. In that event, no property right of the business has been taken, even if the government acted in direct response to the prospect of having a hiking tourism business next to the wilderness area. To be sure, the expectation of the outdoor adventure company has been disappointed, but it is not an expectation that was based on any property right that was taken, and thus the government did not effect a taking for which compensation must be paid. While it might be different if the government regulated activities on a private individual’s property—in the example, if the government were to prohibit private landowners from running a hiking business within 20 miles of a wilderness area—that is another matter altogether from the government regulating activities on its own property, or property over which it has full control, even if that regulatory action disappoints the expectations of nearby property owners. Accordingly, even if the Interior Department regulation in this case is regarded as "targeted" at the plaintiffs, it regulated conduct as to which they had no protectable property interest, and it therefore did not constitute a taking for which compensation had to be paid.

Slip op. at 15-16.

Court Of Federal Claims Round-Up

Here are the latest opinions of interest from the Court of Federal Claims, which has nationwide jurisdiction over inverse condemnation and regulatory takings claims against the federal government where the compensation sought exceeds $10,000:

• Energy Security of America Corp. v. United States, No 08-373C (Feb. 27, 2009) - "inherently unknowable" for purposes of the statute of limitations and failure to state a claim. 
  

• James v. United States, No. 01-2911L (Mar. 5, 2009) - subject matter jurisdiction, ownership of parcel in question; "scrivener's error."

• Fauvergue v. United States, No. 08-431L (Feb. 24, 2009) - class actions in rails-to-trails takings; applying John R. Sand & Gravel v. United States.

• Biery v. United States, Nos. 07-693L, 07-675L (Feb. 27, 2009) - more rails-to-trails takings - certifying questions of abandonment under Kansas law to the Kansas Supreme Court.

• Strategic Housing Finance Corp. of Travis County v. United States, No. 06-741T (Feb. 27, 2009) - subject matter jurisdiction of CFC and arbitrage tax rebates, conceding the illegality of the government action as precursor to CFC jurisdiction.

Federal Circuit: 35k SF Government Borrow Pit On Your Property Not "Inherently Unknowable"

In 1999, without asking the owner's permission, the federal government constructed a 35,000 square foot "borrow pit" on a parcel in a remote corner of Texas. The owner did not learn about the government's activities until 2004, when a migrant worker who had crossed the property to access the Rio Grande told him about it. The owner visited the property in late 2004 and for the first time discovered the borrow pit.

In 2006, the owner filed an inverse condemnation claim against the United States in the Court of Federal Claims.  Over the owner's objection that he was unaware of the taking until the migrant worker told him about it in 2004, the CFC dismissed the claim because it was filed outside the six-year statute of limitations.

The Federal Circuit affirmed. The claim accrued on the date of the taking -- April 1999 -- but the owner asserted the accrual should be suspended because he did not know of the claim, and the injury was "inherently unknowable" because the property was remote (a 12 hour drive), access was cut off several times, and because the government's right of entry agreement did not note its intent to create the borrow pit.  The Federal Circuit rejected these arguments, holding:

[A] landowner will be deemed to be on inquiry of activities that are openly conducted on his property. Applying that principle to this case, it is apparent that the government’s use of the fill material from Mr. Ingrum’s property was an open and notorious act that put him on inquiry that he had a potential claim. By Mr. Ingrum’s own estimation, the borrow pit created by the government’s use of the fill material had a footprint of roughly 35,000 square feet. Mr. Ingrum concedes that if he had visited his property after the government performed the 1999 repairs, he would have discovered the pit because it was "in plain sight" and clearly visible from the road. Under those circumstances, the government’s actions cannot fairly be described as inherently unknowable.

Ingrum v. United States, No. 2008-5085 slip op. at 8 (Mar. 25, 2009).

Cert Denied In Amerisource (Taking Of Property As Evidence)

The U.S. Supreme Court today issued an order denying review in AmeriSource Corp. v. United States, No. 08-497 (cert. petition filed Oct. 15, 2008), the case which asked "[w]hether it is a taking compensable under the Fifth Amendment for the  Government to seize (and not return) an innocent third party’s property for use as evidence in a criminal prosecution, if the property is not itself contraband, is not the fruits of criminal activity, and has not been used in criminal activity." The briefs and a link to the Federal Circuit's opinion are available here.

New Chief Judge For The Court Of Federal Claims

According to this story from the BLT (Blog of Legal Times), President Obama has appointed Judge Emily C. Hewitt as the new Chief Judge of the Court of Federal Claims.

This is of interest to readers of this blog, of course, because the CFC hears regulatory takings and inverse condemnation claims by property owners who are seeking just compensation from the federal government.  CJ Hewitt was appointed to the CFC by President Clinton in 1998, and we litigated one of her first takings cases, which involved the federal government's taking of property in San Francisco Bay.  See Alameda Gateway, Ltd. v. United States, 45 Fed. Cl. 757 (1999).

Federal Circuit: Eggonomic Impact Not Eggregious Enough To Require Feds To Shell Out Compensation

Okay, we've decided to surrender to temptation and let fly with bad (and obvious) egg puns. But at least they're out of our system in the beginning. After that, no more yolks. We promise.

In Rose Acre Farms, Inc. v. United States, No. 2007-5169 (Mar. 12, 2009), the U.S. Court of Appeals for the Federal Circuit held that a regulation restricting the sale of eggs was not a taking under Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978), because the economic impact of the regulation "was not severe" and the character of the government action "strongly favored" the government.

Rose Acre Farms owns egg-laying chickens.  A lot of them: "eight layer-hen farms with millions of hens." The USDA first promulgated temporary, then final regulations that restricted the interstate sale and transportation of eggs determined to be contaminated with salmonella. After illness outbreaks were traced to three of Rose Acre's farms, the company was forced to sell its eggs from these farms as "breaker eggs" (pasteurized eggs used in products such as cake mixes), instead of table eggs. Breaker eggs have about a 10% lower value. Approximately 43% of Rose Acre's table eggs were used as breaker eggs.

After its legal challenge to the validity of the regulations was upheld by the Seventh Circuit, Rose Acre sought just compensation in the Court of Federal Claims. The first trial resulted in an award of $6.1 million for a categorical taking plus $2.5 million in attorneys fees and costs, but the Federal Circuit disagreed with the applicable legal standard, and sent the case back for further consideration of the Penn Central factors.  The Penn Central test applies three factors:

The economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations are, of course, relevant considerations. See Goldblatt v. Hempstead, supra, at 594. So, too, is the character of the governmental action.

Penn Central, 438 U.S. at 124.  After a second trial in which the testimony mostly consisted of expert witnesses (or should that be eggsperts? - sorry, couldn't resist), regarding economic impact, the CFC determined that Rose Acre would suffer a diminution in profit of 219%, held the character of the government action favored the USDA, and did not reconsider its earlier decision on Rose Acre's investment-backed expectations.  Weighing these factors anew, the CFC awarded $5.4 million in compensation, plus attorneys fees and costs.

The Federal Circuit held that "there was, and still is, little dispute about the underlying economic data to be used in assessing the economic impact," but that the disagreement arose over how to analyze the data, slip op at. 13, because "the same data appear to provide vastly differing depiction as to the severity of the economic damage incurred by Rose Acre, depending on whether one looks as lost profits or lost values." Id. at 15. After identifying the relevant property as the 135 million dozen eggs Rose Farms produced on the three affected farms overall (and not the value of the farms as going concerns), the court chose diminution in value.  The court explained:

The trial court’s analysis suffers as a result of limited guidance on the profits-based measure, as the court did not compare the 219% diminution in return to anything, such as some benchmark standard. Instead, the court simply viewed the number as indicative of a severe economic impact. This examination is flawed because it does not set any baseline or standard to which to compare an inherently relative number. And, as Dr. Reiff [a testifying expert] explained, comparing diminution in return in one case to diminution in value in another case "doesn't mean much." The dearth of comparable diminution-in-return numbers in the case law may have been the root of the trial court’s cursory analysis, but comparable numbers seem necessary to assess whether the lost profits represent a severe impact.

Slip op. at 15-16. The court continued:

Because the parcel of property is now clearly defined as the diverted eggs themselves, we are convinced that it was clear error to place sole reliance on the diminution in return metric. The eggs are a discrete asset, the market value of which is readily ascertainable. Indeed, as mentioned above, the parties do not materially dispute the average market value of the eggs in the table market versus the breaker during the regulated period. These data provide a clear picture of the decrease in value of the eggs.

Instead, when we consider all three offered metrics of economic impact, with the primary weight given to the diminution in value, we conclude the trial court clearly erred in determining that Rose Acre suffered a severe economic impact due to the SE regulations. Rose Acre points to no case in which a court has found a diminution in value of 10% as being severe or as favoring a taking. Additionally, the infirmities in the diminution in return metric, as discussed above, warrant against placing much, if any, weight on that calculation on the facts of this case. We hold therefore that, although the monetary loss to Rose Acre was not insignificant, it did not even approach the level of severe economic harm and thus does not strongly favor Rose Acre.

Slip op. at 27-28 (footnote omitted).

On the "character of the government action" Penn Central factor, the court held that Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (2005) "changed the takings landscape" and that a court can "no longer ask whether the means chosen by the government advance the ends or whether the regulation chosen is effective in curing the alleged ill."  Slip op. at 33. Those questions are reserved for a due process inquiry, which Rose Acre had litigated and lost in the Seventh Circuit. The court held that under the character prong, a court may only look at "'the actual burden imposed on property rights, or how that burden is allocated.'" Slip op. at 34 (quoting Lingle, 544 U.S. at 543).  Because the USDA rules applied to most egg producers nationwide and did not single out Rose Acre, and because the purpose of the regulations was to protect food safety, the character factor tipped in the government's favor.

The court concluded no taking occurred:

When we review all the factual findings above, we conclude that they require a holding of no compensable taking. First, Rose Acre’s economic impact is not severe. Second, although the reasonable investment-backed expectations favor Rose Acre, they are not strong enough to be dispositive. Third, the character of the government’s regulations strongly favors a non-taking.

. . . .

Although Rose Acre may feel otherwise, the law of regulatory takings does not generally compensate property owners when a regulation’s economic impact is slight and temporary but the potential for physical harm to the public is significant. Here, infected eggs could have caused serious illness and possibly even death.

Slip op. at 43-44. Rose Farms' litigation with the federal government started in 1990 which resulted today 19 years, two federal trials, and three appeals later, with a finding of no liability. We hope that Rose Farm didn't and spend the millions in compensation and attorneys fees it was awarded by the CFC. That would have been counting its chickens before they were hatched.  One last bad pun to see if you read this long post to the end.