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, withoutconditions imposed, in this instance to meet regulatory burdensimposed 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).