Redefining the Denominator: Supreme Court Adopts New Test in Regulatory Taking Case 

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

In Murr v. Wisconsin, the US Supreme Court declined to find that a landowner's riverfront property was the subject of a regulatory taking. In a 5-3 decision, the majority adopted a new test for defining the bounds of the property underlying a regulatory taking claim.

As the Supreme Court first noted in Pennsylvania Coal Co., “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” Pursuant to the Fifth Amendment, a landowner who has suffered a regulatory taking is entitled to “just compensation.” 

Referred to as the “denominator problem,” regulatory taking cases often involve a dispute between a landowner and the government over how the court should define the scope of the property that has allegedly been taken. For example, a regulatory burden placed on a two-acre forest located within 200 acres of contiguous landholdings would seem small if the property were defined as the 200 acres of contiguous landholdings. The same burden would seem large, however, if the property were defined as a two-acre forest. The Supreme Court’s decision in Murr addressed this longstanding problem.

The Murrs owned two adjacent lots along the St. Croix River, which forms the boundary between Wisconsin and Minnesota. In the area where their lots were located, state and local regulations prevented the use or sale of adjacent lots under common ownership as separate building sites unless they had at least one acre of land suitable for development. The Murrs’ two lots were each over one acre in size, but because of their topography they each had less than one acre suitable for development. The Murrs attempted to sell one of the lots and sought a variance from the local board of adjustment. The board denied the request and the Murrs sued, claiming a taking. 

One of the “critical question[s]” before the Supreme Court was determining “the proper unit of property against which to assess the effect of the challenged government” regulation. Rejecting the Murrs’ “simple test,” which would require separate lots to be treated separately, the Court adopted a “multi-part analysis” for determining “whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel or, instead, as separate tracts.” The Court suggested three factors to be used when conducting this analysis: “(1) the treatment of the land under state and local law; (2) the physical characteristics of the land; and (3) the prospective values of the regulated land . . . [giving] special attention to the effect of burdened land on the value of other holdings.” 

Applying these factors to the facts of the case, the Court held that the Murrs’ two lots should be treated as one for purposes of the takings analysis because: (1) Wisconsin property law treated them as one; (2) the lots were contiguous and their topography and location made land-use regulations predictable; and (3) the lots were more valuable when combined.

Chief Justice John Roberts dissented along with Justices Samuel Alito and Clarence Thomas. The dissent rejected the Court’s new denominator test, arguing that it heavily favors the government by considering its interests twice: once when defining the denominator and a second time when considering the ultimate question of whether a taking has occurred. 

It is unclear whether the new denominator test will ultimately weaken landowners’ ability to prevail on regulatory taking claims given the broad discretion afforded to courts in the second step of the taking analysis.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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