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.