You know those times you go to the store and try to get a refund on something you've purchased, and instead of cash back, you get a gift card, only useable at the same store? Or when, instead of refunding your plane ticket, the airline gives you some limited-time credit for a future flight? Anyone like those?
Well, a fascinating case from the New Mexico Court of Appeals, Premier Trust of Nevada, Inc. v. City of Albuquerque, No. A-1-CA-34784 (Oct. 1, 2020) reminds us of the risks associated with these things.
Albuquerque has an impact fee ordinance which developers must pay to offset the costs of needed infrastructure such as roads, drainage, parks, and public safety facilities. To satisfy the exaction requirement, the property owner could either pay money, build the improvements, or give the city property. If the value of these exactions was more than the impact fees due, the developer would receive credits which could be used to pay for future impact fees, sold to others, or in some cases, exchanged with the city for cash. These credits have a shelf-life of seven years.
Premier either bought or was otherwise conveyed $2.3 million in these excess credits.
Later, however, the city apparently decided to ease things up: it repealed the ordinance and replaced it with a new law that reduced the impact fees, expanded the areas in town in which the credits could be used, and extended the time in which the credits could be used from seven to fifteen years. While that was good for those who wanted to develop their property, it wasn't so good for those, like the plaintiff, who held these excess credits. "Because fewer impact fees were assessed under the reduced impact fee rates in the 2012 Ordinance, the result of the 2012 Ordinance, according to Premier, has been a diminished demand for excess credits and a substantial reduction in the value of the credits it holds." Slip op. at 6. Takings (under the N.M. Constitution), and breach of contract lawsuit followed. The city's motion to dismiss for failure to state a claim granted.
The N.M. Court of Appeals affirmed. The plaintiff didn't possess "property." The plaintiff still possessed all of the "sticks" associated with owning impact fee credits (use, sell, convey, etc.), they just were not worth as much as under the prior exaction scheme. The court characterized the property interest alleged as "a right to a favorable market for its excess credits." Slip op. at 11. You don't have a vested right to "static market conditions." Slip op. at 12. Especially when it is a government-created market:
Further, upon examination of relevant state and local laws, it is apparent that neither the Act nor the 2005 Ordinance, as Premier seems to suggest, conferred any right to excess credit holders to sell credits at the rates set out in the 2005 impact fee schedules.
Slip op. at 12. The plaintiff's belief that the credit market was stable was a "unilateral expectation that the impact fee rate schedules would not change[.]" Slip op. at 13.
The court also rejected the owner's argument that it could avoid dismissal by applying Penn Central. The court noted that the case was brought only under the N.M. Constitution's takings clause and not Penn Central, but analyzed the issue anyway. See slip op. at 9 ("Premier fails in any meaningful way to explain if or how the district court erred in its application of New Mexico law."). New Mexico's takings law does not apply Penn Central's ad hoc test, but rather employs a different standard:
[t]he general rule is that a regulation which imposes a reasonable restriction on the use of private property will not constitute a “taking” of that property if the regulation is (1) reasonably related to a proper purpose and (2) does not unreasonably deprive the property owner of all, or substantially all, of the beneficial use of [the] property.
Slip op. at 15-16 (quoting Temple Baptist Church, Inc. v. City of Albuquerque, 646 P.2d 565 (N.M. 1982)). The court seemed to assume that because this is the test for New Mexico takings, the Penn Central test didn't apply. But that should not have been the end of the analysis because Penn Central provides the "floor" below which no state can go, even as a state is free to recognize more protections for property owners. Thus, the court could have compared the Temple Baptist's two-part test with Penn Central's three-part test to see whether one or the other recognizes more (or less) protections. But the court didn't do so, primarily because the plaintiff didn't make the argument. See slip op. at 16 ("Premier provides no argument why our New Mexico regulatory takings test is inadequate, or otherwise inappropriate, in this case, and we decline to develop this argument for Premier."). Consequently, the court did not look at the alleged facts in light of Penn Central, and concluded there was no taking solely under New Mexico's Constitution:
As previously noted, the 2012 Ordinance left intact excess credit holders’ abilities to use excess credits to offset impact fees assessed on new developments and to seek reimbursement from the City for excess credits. See ARO, § 14-19-11 19(J)(6)(a), (c). In this vein, Premier has alleged no restriction on its rights to use its credits or to seek reimbursement. Further, Premier has sold credits since the 2012 Ordinance, albeit under allegedly less favorable market conditions that resulted in a loss in value, according to Premier.9 Premier argues that this loss in market value is synonymous with an invasion of its right to sell credits. Premier, however, fails to cite any authority for this proposition, and we thus may assume none exists. See Curry, 2014-NMCA-031, ¶ 28.But even assuming a loss in market value under these circumstances invades some protected property right, we cannot say the 2012 Ordinance unreasonably deprives Premier of all or substantially all of the beneficial use of its excess credits, given Premier’s retention, and in certain instances, expansion, of rights as set out above. Such a loss in value, unaccompanied by the deprivation of other strands in the property rights bundle, as in this case, has been held insufficient to make out a regulatory takings claim under controlling New Mexico precedent. See, e.g., Chronis v. State ex rel. Rodriguez, 1983-NMSC-081, ¶ 15, 100 N.M. 342, 670 P.2d 953 11 (holding, in the due process takings context, that, notwithstanding reduction in the market value of liquor licenses due to changes in the statute, licensees retained the rights to transfer, devise, and use licenses, and to engage in the business of selling alcoholic beverages, and, therefore, the statutory change did not “unreasonably deprive[] the owner of all or substantially all of the beneficial use of his license,” and “d[id] not constitute a taking of private property”); id. ¶ 40 (Sosa & Federici, JJ., specially concurring and dissenting) (describing economic impact of statutory change); New Mexicans for Free Enter., 2006-NMCA-007, ¶¶ 52-53 (determining that an increase in the minimum wage rate did not constitute a deprivation of all or substantially all beneficial use of businesses, even though business owners alleged economic destruction of their businesses due to the increase); see also Sanchez, 1995-NMSC-058, ¶ 11 (noting that the Takings Clause “does not entitle an owner to use property for all economically viable purposes, and governmental actions imposing an incidental economic loss will be upheld”). We have been given no reason to depart from this precedent here, and, for the reasons stated, we conclude Premier has failed to allege a regulatory takings claim under New Mexico law.
Slip op. at 16-18.
The court also rejected the breach of contract and "illusory promise" claim, noting that there was no privity of contract between the plaintiff (which purchased the credits from developers), and was not a third-party beneficiary of any agreement between the city and the developers. This, we suppose, could have made a difference because if the credits' worth was "vested" or the city otherwise ensured that they would hold their value, the plaintiff might have avoided the sense that there's really no property right in the continued existence of a statute. See, e.g., American Pelagic Fishing Co. v. United States, 379 F.3d 1363 (Fed. Cir. 2004).
But something about this strikes us as not quite right. It's one thing when the government creates some expectations and encourages investment by adopting laws, and then later changes those laws. That "things change" may be one of those things that someone who plays in that market should expect. But when the government requires that someone who wants to use their property provide these impact fees -- and then, somehow, "overcharges" the developer -- it seems like a stretch to conclude that the developer (or someone to whom they assign their rights) does not have a valid expectation that those "credits" will hold their value. After all, Dolan tells us that the measure of constitutionality of these things is their "rough proportionality," and if the developers or their assigns didn't get some rough measure of value for the credits, this would seem to call into question of the original exaction. Or is the distinguishing feature here the fact that the government didn't directly devalue the exaction credits, but instead eased up on the requirements, resulting in a predictable -- but unintended -- reduction in value of existing credits due to alteration of demand?
Premier Trust of Nevada, Inc. v. City of Albuquerque, No A-1-CA-34784 (N.M. App. Oct. 1, 2020)
