The Supreme Court Is Hearing a Case Today That Could Change How We Determine If a Property Is the Subject of a Regulatory Taking

by Buchanan Ingersoll & Rooney PC
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This year the Supreme Court of the United States will hear a highly-anticipated regulatory takings case that may determine whether two legally divided, but commonly held parcels, should be considered as one parcel in a takings analysis. The petitioners bring a challenge under the Court’s 1978 ruling in Penn Central Transp. Co v. New York City, where the Court established the “parcel as a whole” rule when determining whether a regulatory taking has occurred. If decided on the merits, the outcome of this case has potential to impact landowners, developers and local governments.

Per Penn Central, courts are to consider three factors to determine if a taking has occurred: 1) the “character of the government action;” 2) the regulation’s economic impact; and 3) the regulation’s interference with “reasonable investment-backed expectations.” The parties must look at the level of the regulation’s interference as it relates to “the parcel as a whole.” In Penn Central, the petitioners claimed that due to a governmental regulation, there was a taking of the air rights above their property, the Grand Central Terminal. The Court rejected the argument that the parcel should be segmented into discrete interests (i.e. air rights and ground rights), and held that the property should instead be considered as a single parcel or “as a whole” when analyzing if a taking had occurred. As such, the Court held that when looking at the “parcel as a whole,” there was not a regulatory taking of their property.

In the present case, Murr v. Wisconsin, the petitioners own two contiguous lots and argue that one lot should be analyzed apart from the adjacent lot as a “parcel as a whole,” per the Penn Central rule. The petitioners in this case are the Murr children. In 1960, their parents purchased a lot along the St. Croix River in Troy, Wisconsin, which was eventually titled in the name of the parent’s plumbing company. The parties refer to this lot as Lot F. In 1963, the Murr parents purchased the adjacent lot, referred to as Lot E, which has remained vacant ever since the purchase. The Murr parents took title to Lot E in their individual names.

In 1994, the Murr parents’ plumbing company transferred Lot F to the Murr children. The parents later transferred Lot E to their children in 1995. In 2004, the Murr children wanted sell Lot E and sought a variance from the county. At that point, they learned they were prohibited from selling Lot E separately from Lot F due to a county ordinance enacted in 1975. The ordinance “prohibits the individual development or sale of adjacent, substandard lots under common ownership, unless an individual lot has a least one acre of net project area.” While Lot E is approximately 1.25 acres in size, its “net project area” is 0.5 acres.

The ordinance contains a grandfather clause that makes exceptions to properties purchased before the ordinance was enacted, so long as the lot is in separate ownership from abutting lands. As such, Lot E and Lot F did not effectively merge when the ordinance was originally enacted, as Lot F was owned by the Murr plumbing company and Lot E was owned by the Murr parents. When the Murr parents transferred the two lots to their children, however, the lots came under common ownership and as such, under the ordinance, the lots were considered merged and were no longer protected under the grandfather clause.

As a result, the Murr children claim that such prohibition from selling Lot E by itself is a regulatory taking of that lot. The Wisconsin Circuit Court held, and the Court of Appeals affirmed, that there was not a regulatory taking. The Court of Appeals held that when Lot E was transferred in 1995, it brought the two lots under common ownership which resulted in a merger under the ordinance. Viewing the two lots as a single parcel, the court determined that the property as a whole could still be used for residential purposes and, as such, a taking had not occurred.

In their brief to the Court, the Murrs argue that the Court should clarify the Penn Central test as it relates to the “parcel as a whole” inquiry. Here, the Murrs distinguish their case from Penn Central stating that they are not segmenting separate property rights, but simply applying the “parcel as a whole” test solely to Lot E, as a single parcel. Despite the fact that the two parcels are adjacent, the Murrs argue that the lots were purchased at different times for different purposes and, as such, should be considered as two separate and distinct pieces of property in determining whether a taking has occurred. The fact that the lots are adjacent should be irrelevant. If considered in this light, they argue, that the entirety of Lot E was subject to a regulatory taking.

In their brief, the government argues that the “parcel of the whole” analysis should look at the property owner’s reasonable expectations regarding the value of their property. They argue that as a matter of state law, the states have sovereign rights in determining lot lines, which shape one’s reasonable expectations regarding property rights. The petitioners had constructive knowledge that if the two lots came under common ownership, then the 1975 ordinance would be triggered to treat the lots as one. Thus, looking at the Murrs’ objective reasonable expectations, the government argues that they took title to a single merged parcel when they took title to Lot E in 1995. As such, the government argues that the lots should be considered as one parcel under the Penn Central “parcel as a whole” analysis. The government and several amici curiae further argue that the “parcel as a whole” analysis has previously been applied by several other courts in a fashion beyond the single legal parcel application. As such, the Court should interpret the rule in such a manner that doesn’t limit the “parcel as a whole” to only state-defined legal parcels, but instead, define “parcel” as the entirety of the relevant property owned by a landowner. 

Additionally, the government claims that if the Court rules in favor of the petitioners it would cause a rise in manufactured takings claims. It is important to note that an ordinance of this nature is not unique to Wisconsin. As several of the amici curiae have indicated in their briefs, many states and local governments have implemented similar laws to phase out what governments deem to be substandard lots. They raise the concern that landowners and developers could strategically purchase and subdivide lots they believe would be subject to new regulations, for example wetlands, and then claim takings as to each subdivided lot. This result would frustrate the goal of governments to phase out substandard lots and cause an influx of unsubstantiated takings cases.

The Court is scheduled to hear oral arguments today, March 20, 2017.

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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