Another week, another Federal Circuit panel opinion on takings authored by Judge Timothy Dyk (following the recent MR-GO opinion). And you know what that means: property owners lose.
The Court of Federal Claims concluded that the feds had taken the plaintiff's lease of of a part of Dallas' Love Field -- under both a Lucas and Penn Central regulatory and physical taking theory -- and rendered a verdict of $135 million in just compensation. In Love Terminal Partners, L.P. v. United States, No. 16-2276 (May 7, 2018), the Federal Circuit, in the Judge Dyk-authored opinion, reversed.
The facts of the case are not terribly complex. Back in the day, Braniff Airways (those of you of a certain age will remember Braniff) leased land at Love Field. Decades later, in order to spur the growth and use of Love Field's competition Dallas-Fort Worth airport (DFW), Congress adopted the Wright Amendment, which "limited the use of Love Field to servicing final destinations within Texas and its four contiguous neighboring states," and despite later loosening of these restrictions, "commercial air passenger service from Love Field was significantly limited by the Wright Amendment's provisions for most of the airport's modern history." Slip op. at 3.
Even later, the plaintiffs subleased a portion of the land and built the Lemmon Avenue Terminal for Legend Airlines, and offer Wright Amendment-compliant service. Legend and another airlines made a go of it, but both proved unsuccessful. Southwest Airlines (which is based at the main Love Field terminal) and other interested parties (including DFW and the City of Dallas) agreed upon a plan for the Lemmon Avenue Terminal. They agreed that the City would eventually acquire (via purchase or condemnation) the facility and demolish it and terminate the lease "to ensure that the facility can never again be used for passenger service."
The agreement was subject to this one critical condition: if Congress did not adopt legislation which would allow the agreement to be implemented (things like eliminating the number of gates at the Terminal, allowing through-traffic and eventual repeal of the Wright Amendment), the deal "is null and void." Soon thereafter, Congress did just that, adopting the Wright Amendment Reform Act of 2006, Pub. L. No. 109-352, 120 Stat. 2011. Two years later, the master tenant stopped paying rent, and one year after that, the City demolished Lemmon Avenue Terminal.
The two sublesses of the Terminal sued the feds in the CFC, alleging a regulatory taking of the lease, and a physical taking of the Terminal. The CFC concluded the federal government was liable for a physical taking because the Wright Amendment Reform Act incorporated the parties' agreement, and it resulted in the demolition of the Terminal. After a trial, the CFC also concluded that the lease had lost all economic value under Penn Central, and awarded $133 million in just compensation.
The Federal Circuit panel opinion started off by identifying the government action alleged to have triggering the obligation to pay compensation. It wasn't the enactment of the Wright Amendment, but rather "plaintiffs' regulatory takings claims seems to be premised on three distinct government actions and inactions" Slip op. at 12.
- Failure to repeal the Wright Amendment. That is inaction, not something which, in Judge Dyk's view, can result in a taking. Note: he is doubling down on his recent holding in the MR-GO case, and trying to bolster that case's conclusion. Slip op. at 12 ("But it is clear that this kind of government inaction cannot be the basis for takings liability.").
- "Plaintiffs suggest that a taking occurred because WARA provided a benefit to Dallas by liberalizing the Wright Amendment without providing plaintiffs with the same benefit." Slip op. at 13. More inaction. And if that wasn't enough, the government favoring one party over another doesn't lead to takings liability.
- "Finally, plaintiffs argue that WARA constituted a regulatory taking because it prevented use of their property for commercial air passenger service—as had been permitted under the pre-WARA regulatory regime." Slip op. at 14. Unlike the first two, the panel conceded this could lead to takings liability, but held that the lessees had not shown enough of an economic injury to make out their case.
Slip op at 12-13.
On that last point, the court held there wasn't enough of a "serious" financial loss to be a taking, either under the Lucas "wipeout" standard, or under Penn Central:
To assess the severity of a regulation’s economic impact, the court must compare the value of the property immediately before the governmental action that is alleged to cause the taking with the value of the same property immediately after that governmental action.
Slip op. at 14-15. Here, the "before" condition of the property was pretty dire according to the court ("Plaintiffs’ historical financial performance suggests that their property was not valuable for air passenger service with the Wright Amendment in place[,]" slip op. at 17), and moreover, "none of the plaintiff's experts assessed the use or value of the plaintiff's leaseholds with the Wright Amendment in effect--despite the fact that the Wright Amendment was the governing law at the time of the alleged taking and had been for over a quarter century before then." Slip op. at 16.
The plaintiffs didn't fare any better with the court's review of the "investment backed expectations" Penn Central factor, concluding that an expectation of regulatory change isn't reasonable, and that expectations are formed by the the existing regulatory regime. Slip op. at 19-20. The opinion also made note of a circuit split regarding whether investment-backed expectations" are relevant in a Lucas analysis. Slip op. at 20 n.6.
The court rejected the lessees' contention that their expectations "that they could use the property for air passenger service is sufficient." The lessees analogized their expectations to the situation in eminent domain law where the highest and best use of condemned property takes into account the probability of future rezoning. The court acknowledged that, but held that the scope of the project rule would prohibit the argument:
It is undoubtedly true that, when assessing the economic impact of a particular government action alleged to constitute a taking, a court can consider the extent to which other, unrelated, reasonably probable zoning or regulatory changes may have influenced the property’s fair market value. But this principle does not remotely authorize the economic impact analysis undertaken here by the Claims Court. To the contrary, the cases plaintiffs cite in support of their valuation theory emphasize that plaintiffs cannot seek compensation for economic value attributable to the project for which the property was taken.
Slip op. at 22. The project rule applied because "the government action that allegedly affected a taking, WARA, is the same action that liberalized the Wright Amendment." Slip op. at 23.
In short, the plaintiffs have not shown a decrease in the value of their property as a result of government regulation. Even assuming that WARA barred the use of plaintiffs’ property for air passenger service, there is still no regulatory taking under the Penn Central or Lucas analyses because plaintiffs failed to demonstrate that their property would have had value (with the Wright Amendment in effect) that was adversely affected by government action. As the Supreme Court said in Brown v. Legal Foundation of Washington, “just compensation for a net loss of zero is zero.” 538 U.S. 216, 240 n.11 (2003); see also A & D Auto Sales, 748 F.3d at 1157; Cienega Gardens, 331 F.3d at 1340.
Slip op. at 23.
On the physical taking by demolition claim, the court held that WARA did not incorporate all provisions of the parties' agreement, and that the statute did not require the demolition of the Terminal:
It is true that WARA incorporates portions of the Agreement, makes a number of specific changes to federal law contemplated in the Agreement, and directly references the Agreement. But we think that the Claims Court misread the statute. WARA does not incorporate Dallas’ commitment to “demoli[sh] the gates at the Lemmon Avenue facility immediately upon acquisition of the current lease to ensure that the facility can never again be used for passenger service.” J.A. 3092. Indeed, the requirement that federal funds not be used for removal of Lemmon Avenue gates explicitly distances the federal government from Dallas’ intended action.
Slip op. at 25.
What do you think of the court's analysis in this case? Read the opinion (whether you agree or not, the case raises a host of interesting issues for takings mavens) and let us know.
Love Terminal Partners, L.P. v. United States, No. 16-2276 (Fed. Cir. May 7, 2018)
