In CCA Associates v. United States, No. 97-334C (Jan. 29, 2010), the U.S. Court of Federal Claims held that two federal statutes worked a taking under the three-part Penn Central test because it abrogated the rights of the owner of a Louisiana apartment building to prepay its way out of providing low income housing. The CFC held that the programs set up under the statutes in effect forced CCA to continue to provide low income housing — a public good — and that it was a taking.
The Government appealed, asserted the CFC missaplied the Penn Central test, and the property owner cross-appealed, argued the CFC wrongly dismissed a breach of contract claim. Penn Central, of course, refers to the multi-factored test for an ad hoc regulatory taking first announced in Penn Central Trans. Co. v. City of New York, 438 U.S. 104 (1978), and most recently reaffirmed by the Court as the “default” test in Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 539-39 (2005). The Penn Central factors to be weighed by a court include (1) the “economic impact” of the government action or regulation; (2) how this action “interferes with distinct investment-backed expectations;” and (3) the “character” of the regulation or government action. Ever since Penn Central, courts have struggled with what the factors mean, and how to apply them.
Last Thursday, the Federal Circuit heard oral arguments in which the meaning and impact of the facts on the Penn Central factors were the central issues. Stream the arguments below, or download the 50mb mp3 here. The briefs of the parties are linked at the end of this post.
Thanks to colleague William Wade (who presented a very interesting session on Penn Central at the recent ALI-ABA Eminent Domain program) for alerting us to this case. He also recently authored Penn Central’s Ad Hocery Yields Inconsistent Decisions , 42 Urban Lawyer 549 (2011). Bill writes:
One wonders how the Federal Circuit will deal with the CFC’s second decision for the plaintiff that an 18% diminution in the value of CCA’s property is an adequate basis for a taking. The 18% value only measures the diminution in value of the property, or the economic impact prong of the Penn Central test. This 18% value does not measure the all-important Penn Central test prong: frustration of distinct investment-backed expectation. The case was not about a taking of the property; rather, what was taken was rental income for five years from the use of the property. Cienega X precluded the CFC in the remand trial from comparing income losses to owners’ equity. Hence, the 18% number is not benchmarked to a proper denominator. The same problem confounded the Rose Acre VI decision; change in revenues is only one prong of the Penn Central test. It is only a measure of the economic impact and does not evaluate the severity of that economic impact vis-a-vis frustration of distinct investment-backed expectations (DIBE).
Deficiencies within Rose Acre Farms VI and CCA III decisions follow from Cienega X‘s economic errors. Progeny of Cienega X, Rose Acre Farms VI and CCA Associates decisions at the Federal Circuit and CFC reveal disarray in understanding what to measure, and how to evaluate the economic prongs of the Penn Central test. Each only measured the single economic impact prong of the Penn Central test and neither benchmarked the change in value to owners’ equity to examine whether the change was sufficient to frustrate of DIBE. The Cienega X methods are not only divergent from standard textbook economics; the change in value approach does not evaluate the Penn Central test. As the property owners argue in their Guggenheim cert petition, the Penn Central test is a three-step drill. In short, only one economic prong is evaluated in CCA, Rose Acre Farms and Cienega X. Diminution in value is a necessary but not sufficient economic condition to warrant a decision for the plaintiff. A takings decision must evaluate the second economic prong to show frustration of DIBE — if Penn Central is the law. Such an evaluation was precluded from Judge Lettow’s second opinion because it was constrained by Cienega X at the direction of the Federal Circuit’s first decision. This is inconsistent with the Penn Central test; Cienega X is inconsistent with Penn Central test.
Thanks, Bill. Our thoughts: in Hodel v. Irving, 481 U.S. 704 (1987), the Court confirmed that no single Penn Central factor is dispositive, and that all must be analyzed in every case. In Hodel, the Court noted that the property owners’ DIBE were “dubious,” and that the economic impact was minimal. Yet, because the character of the government action was so extreme — in that case, Congress enacted a statute that eliminated the right to pass property by will — the Court found a taking.
Here are the briefs:
CCA Associates is definitely a case to watch. We’ll post the opinion when it’s issued.