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Community Rights Report Newsletter -
2003 Feature Case Archive




DECEMBER 2003

$2B Takings Award for La. Oyster Fishermen "Shocks the Conscience"
Avenal v. State, 2003 WL 22501685 (La. App. 4 Cir. 10/15/03)

Oyster fishermen in Louisiana stand to receive an unprecedented windfall from the state's courts, a result of two class-action lawsuits alleging that the value of their state-issued oyster bed leases was wiped out by a successful coastal restoration plan. Thus far state courts have awarded some 200 claimants more than $2 billion, an amount equal to one eighth of the state's budget. The awards, the largest in U.S. history, are worth more than the total value of all oysters harvested in Louisiana since the state created its leasing program in 1902. By way of comparison, in the 1803 Louisiana Purchase, the United States bought more than 800,000 sq. mi. of land extending from the Mississippi River to the Rocky Mountains, doubling the size of the country, for about $15 million, or roughly $230 million in today's dollars.

"This is the most ridiculous thing, this is when the legal system doesn't work. This is totally skewed. If it were me, I wouldn't pay it," said Gov. Mike Foster on his radio program.

The restoration plan, which ironically was supported by the oyster industry, involved diverting freshwater to reduce artificial salinity in Breton Sound caused by Mississippi River levee systems. The change in water salinity has improved oyster conditions in some areas, but reduced oyster viability in the areas of the claimants' leases. The U.S. Court of Federal Claims previously rejected an identical takings claim, ruling that the oyster harvesters had no property interest in the artificial salinity levels caused by the levee systems. The Federal Circuit affirmed, holding that the claimants had no reasonable investment-backed expectations because they had warning of, and indeed supported, the freshwater diversion project.

The Avenal claimants found a warmer reception in state court, which by a 3-2 vote affirmed a $1.3 billion dollar jury award. Dissenting Judge Love wrote that the award "shock[s] the conscience." In a bizarre move, the court set damages not at the value of the leases (which cost about $2 per acre) or even the value of the oysters themselves, but chose instead the estimated replacement cost of restoring or creating in another location suitable water bottom conditions sufficient to support oysters. The award includes more than $21,000 per acre to "restore" their leases by adding some six inches of cultch material-crushed shells and other debris to which oysters attach themselves. Ironically, this amount of cultch was never present on most of these leases in the first place.

Avenal, and a related case awarding roughly $600 million in compensation, are being appealed.



 

NOVEMBER 2003

Georgia High Court Rejects Takings Challenge, Limits Nollan/Dolan Review
Greater Atlanta Homebuilders Ass'n v. DeKalb County, 2003 WL 22532675 (Ga. Nov. 10, 2003)

Just as hard cases make bad law, straightforward cases can often produce some of the soundest, clearest analysis in the law. In somewhat predictably rejecting a takings challenge to a municipal tree ordinance, the Georgia Supreme Court issued an important decision that touches on the limits of Nollan/Dolan review and the importance of the parcel-as-a-whole rule. The decision is a welcome contrast to last month's Feature Case, Coast Range Conifers, in which an Oregon appellate court rejected the parcel-as-a-whole rule, potentially subjecting municipalities in the state to sweeping takings liability.

The challenged tree ordinance conditions new development permits on the submission of a tree survey and imposes various preservation and replacement requirements. The Georgia Supreme Court rejected the homebuilders' facial takings claim because they failed to prove that the ordinance "does not substantially advance legitimate state interests" or "denies an owner economically viable use of his land." The court concluded that the tree ordinance does not destroy the homebuilders' ability to develop their lands but merely imposes some additional management costs that are not sufficient to sustain a takings claim.

The homebuilders argued that each tree was a separate piece of real property, but the court flatly rejected their attempt to ignore the parcel-as-a-whole rule and divide the property into small parcels for takings purposes. Moreover, the court declined to extend Dolan's rough proportionality test to the tree ordinance because Dolan involved an as-applied challenge to a land dedication requirement and was therefore "inapposite" to run-of-the-mill exactions.

With cases involving the parcel-as-a-whole rule and Dolan review still percolating through the courts, keep this Georgia case in mind for supplemental authority.


OCTOBER 2003

Oregon Appeals Court Rejects Whole-Parcel Rule
Coast Range Conifers, LLC v. Oregon, 76 P.3d 1148 (Or. Ct. App. 2003)

On September 24, the Oregon Court of Appeals issued a stunning takings ruling that flatly rejects the parcel-as-a-whole rule, potentially opening up municipalities in the state to takings liability for ordinary zoning and planning activities.

Coast Range Conifers sought a permit to log a 40-acre tract of forestland that was later identified as a nesting site for bald eagles, a "threatened" species under the federal Endangered Species Act. The state forester permitted logging on 31 acres but denied the company a permit to log the nine acres closest to the nesting site. After losing an appeal to the Board of Forestry, the company filed an inverse condemnation action. The trial court dismissed the company's claims, but the appellate court reversed in a radical ruling that turns Oregon takings jurisprudence on its head.

The parcel-as-a-whole rule is a bedrock principle of takings law that protects government from liability for common land use regulation. The Supreme Court has repeatedly reaffirmed the proposition, first articulated in Penn Central, that "'taking'
jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated."

The Oregon appellate court, however, chose to focus only on the nine acres restricted by regulation, holding that "although the Oregon courts have not been exactly generous in their explanations * * * they have effectively rejected" the whole-parcel rule. In so holding, the court relied heavily on a questionable reading of Boise Cascade Corp. v. Board of Forestry, 935 P.2d 411 (Or. 1997). The appellate court also ignored unambiguous federal constitutional precedent because it concluded that the parallel takings provisions of the federal and state constitutions do not have the same meaning.

The importance of the parcel-as-a-whole rule-and the potential impact of this case on municipal planning-cannot be overstated. If takings claimants can win compensation for infringement of individual sticks in the proverbial bundle of rights that characterize property, no zoning and planning law is immune from potential challenge. We'll keep you posted on the likely appeal.


SEPTEMBER 2003

Second Circuit Gives Developer Second Bite at Takings Apple
Santini v. Connecticut Haz. Waste Mgt. Serv., 2003 WL 22020555 (2d Cir., Aug. 28, 2003)

In rejecting a developer's takings claim last month, the Second Circuit broke new procedural ground that is sure to heighten debate over when litigants can assert federal takings claims in the face of adverse state decisions.

Connecticut developer Evandro Santini sought compensation after the state's waste management agency announced that his property was under consideration for condemnation for location of a low-level nuclear waste disposal facility. Although the site was not chosen, Santini sued for $955,000 in compensation for the two-year period that construction and sales were hampered by the siting announcement.

Following the requirements of Williamson County, Santini filed a takings claim in state court, and the court rejected the suit on the merits. He then filed a federal claim in federal court. The Second Circuit held that where a landowner "reserves"
the federal takings claim in state court, the reservation immunizes the claimant against not only claim preclusion, but also issue preclusion, effectively giving the claimant a second bite at the apple on issues already litigated and decided in state court. This ruling stands in stark contrast to Dodd v. Hood River County, where the Ninth Circuit held that a claimant can use a reservation to avoid claim preclusion but that issue preclusion still bars relitigation of specific issues already decided in state court. The Santini court failed altogether to address a point central to the Dodd ruling, the federal Full Faith and Credit Act, which requires federal courts to give state judgments the same preclusive effect that another court of that state would give the ruling.

Williamson County issues are central to a number of pending cases. For example, Kottschade is awaiting a Supreme Court ruling on the landowner's petition for certiorari (scheduled for conference later this month), and the San Remo Hotel case is now on appeal to the Ninth Circuit.


AUGUST 2003

Adverse Possession As a Taking?

The First Circuit rejected a takings claim on procedural grounds last month, but it left standing a bizarre district court assertion that the government can cause a taking through adverse possession. In Pascoag Reservoir & Dam, LLC v. Rhode
Island
, 2003 WL 21730581 (1st Cir. July 28, 2003), the state argued that adverse possession is a background principle of state law that, by definition, cannot cause a taking. The First Circuit, however, assumed arguendo that a taking could result and instead dismissed the case because the claimants failed to bring a state action within the statute of limitations.

Echo Lake, a man-made reservoir in Rhode Island, was created in 1860. In 1964, the state purchased a lot abutting the lake and constructed a public boat ramp the next year. Pascoag took ownership of the reservoir in 1983. For 32 years, the public used the state's ramp as an access point for boating, fishing, and other recreational activities, but starting in 1997 Pascoag banned public access to the lake. The state asserted it had acquired property rights in the reservoir through adverse possession.

The Rhode Island Supreme Court held that the state acquired the lake area around the ramp by adverse possession, as well as a prescriptive easement over the lake surface for boating and recreation. Pascoag filed a federal takings claim in October 2001, and the district court properly dismissed the action for failure to seek a timely state remedy under Williamson County. In doing so, however, the court said in dicta that governments must generally compensate for takings occurring through adverse possession or prescription, stating: "It does not matter how the State takes property, only whether the Constitution mandates that the State pay compensation." Lucas made clear, however, that no taking occurs where the challenged government action simply mirrors background principles of property law. In affirming the dismissal, the First Circuit unfortunately let the district court's troubling reasoning pass without comment. Although the disturbing dicta should be given no precedential effect, how this will shake out remains to be seen.


JULY 2003

Expectations in Heavily Regulated Industries

In Folden v. United States, 56 Fed. Cl. 43 (2003), the U.S. Court of Federal Claims rejected a takings challenge to the Federal Communications Commission's denial of applications for cellular licenses. The claimants asserted that the FCC abrogated an express or implied contract by not holding a license lottery, and thereby took their property interests in the contract. The court rejected the claim in part because the claimants "failed to demonstrate that they could have had distinct investment-backed expectations of static, FCC application procedures * * *." The court stressed that the claimants operate in a heavily regulated field and thus can have no reasonable "expectations that include reliance upon a legislative and regulatory status quo."

The case serves as a useful reminder that Penn Central's expectations analysis has unique, government-friendly application where a takings claimant is in a market sector subject to heavy regulation. The Supreme Court recognized this notion in Ruckelshaus v. Monsanto (U.S. 1984), where it rejected a takings challenge to the U.S. EPA's use of pesticide-related trade secrets, stating that the claimant had no reasonable expectation that its trade secrets would remain inviolate given that the pesticide industry "long has been the focus of great public concern and significant government regulation."

With respect to land use restrictions, the heavily-regulated-industry defense has been used more sparingly but with some success. For instance, in Good v. United States (Fed. Cl. 1997), the court rejected a takings challenge to a wetlands permit denial, expressly comparing land development in Florida to the highly regulated businesses at issue in Monsanto due to the pervasive network of federal and state land-use regulation. The Federal Circuit affirmed, observing that the claimant should have been aware that permitting standards might become more exacting. Given the extensive state of land-use regulation in most parts of the country we encourage government attorneys to invoke the defense wherever appropriate.


JUNE 2003

Right-to-Farm Laws as Takings

Farm bureaus may be rethinking their traditional support for expansive takings jurisprudence after an Idaho court struck down a portion of the state's Right-to-Farm law as an unconstitutional taking in Moon v. North Idaho Farmers Association, CV 2002 3890 (Idaho Dist. Ct. June 4, 2003). Idaho enacted a provision in April that immunized farmers who engage in crop residue burning from common law nuisance or trespass actions. Neighbors argued that burning grass seed stubble created noxious smoke and posed health risks. Because Idaho's new law prohibited these neighbors from suing the farmers for nuisance or trespass, they instead asserted a takings claim.

The court ruled that by abolishing nuisance and trespass claims, the Idaho legislature had imposed a "servitude" on the neighbors' property. Because field burning "impacts plaintiffs' right to exclusive possession" and the law eliminated their potential remedies of damages or injunctive relief, the court held the provision worked a taking. In so ruling, the Idaho court relied heavily on Bormann v. Board of Supervisors, a 1998 decision from Iowa that likewise struck down a Right-to-Farm law immunizing farmers from certain nuisance suits.

These cases show takings litigation can be a double-edged sword. Every developer's claim to a "right" to develop is counterbalanced by an equally or more valid claim by a neighbor of a "right" to be free of spillover costs. While we sympathize with the neighbors whose health was threatened by the farm operations at issue, expansive takings theories like those used in Moon and Bormann might come back to haunt those who promote environmental and other community protections.

No word yet on whether the Idaho farmers will appeal. But it's safe to say that we haven't heard the last word on this issue. A copy of the court's decision can be accessed at www.communityrights.org/PDFs/Moon.pdf.


MAY 2003

Takings Claim Denied Under State Public Trust Doctrine
McQueen v. South Carolina Coastal Council, 2003 WL 1957496
(S.C. April 28, 2003)

In an important test of the reach of background principles of state property law, the South Carolina Supreme Court last month denied compensation to a landowner whose property had reverted to tidelands and was no longer suitable for building. The court reaffirmed that under Lucas, even a regulatory denial of all viable use does not warrant compensation if background principles of state law already prohibited that use.

Sam McQueen purchased two lots adjacent to saltwater canals in North Myrtle Beach in the early 1960s, but did not seek a development permit until 1991. By that time, continuous erosion had caused the lots to revert to saltwater wetlands regularly inundated by tidal flow. After the state rejected McQueen's proposal to backfill the lots and construct bulkheads in preparation for development, a master-in-equity awarded McQueen $100,000 for a total deprivation of economically beneficial use of the lots. The state's highest court reversed, but the U.S. Supreme Court granted certiorari and remanded the case in light of Palazzolo.

In rejecting the compensation award on remand, the state Supreme Court accepted as "uncontested" that McQueen suffered a total taking. Under South Carolina's public trust doctrine, however, the state holds "presumptive title to land below the high water mark," including tidelands, and "cannot permit activity" that significantly impairs marine life, water quality, or public access. Because tidelands are considered public trust lands, the court held that McQueen's ownership rights no longer include the right to develop the property. No compensation is due because, in the court's words, "[a]ny taking McQueen suffered is not a taking effected by State regulation but by the forces of nature and McQueen's own lack of vigilance in protecting his property."

The McQueen decision joins the Ninth Circuit ruling in Esplanade Properties, LLC v. City of Seattle as the latest use of the public trust doctrine and background principles of property law to absolve the government of the need to pay compensation. The Esplanade case likewise considered the denial of a landowner's permit to build on tidelands and found that the state's public trust obligations precluded shoreline development. A petition for certiorari in Esplanade is currently pending in the U.S. Supreme Court.

Kudos to John Echeverria, Director of the Georgetown Environmental Law & Policy Institute, who briefed and argued the case for the South Carolina Coastal Council. Community Rights Counsel submitted an amicus brief in support of the state on behalf of a coalition of municipal groups.


APRIL 2003

Water Rights Not Taken When Government Denies Pipeline Across BLM Land
Washoe County v. United States, 319 F.3d 1320 (Fed. Cir. 2003)

In an interesting but quirky case, the Federal Circuit recently put some meat on the bones of the Palazzolo ripeness ruling, and clarified government authority over public lands.

The court waded into a dispute over Nevada water rights and denied a takings claim that was based solely on the government's refusal to permit construction of a pipeline across federal land. Owners of the Fish Springs Ranch in western Nevada contracted with Washoe County to sell their water rights to benefit the Reno-Sparks metropolitan area. The county sought a right-of-way permit from the Bureau of Land Management to construct a pipeline. When a neighboring U.S. Army depot and an Indian tribe objected that the diversion might harm their water supplies, the Secretary of the Interior halted review of the project in 1994 until the applicants addressed these objections.

After failing to gain the support of the neighboring landowners, the county and ranch owners filed suit alleging that the denial of the right-of-way application constituted a taking of their water rights. Although the government questioned whether the Secretary's 1994 order was a final decision, the Federal Circuit found the claim ripe. Citing Palazzolo, the court held "there was no further 'reasonable and necessary step' Washoe County could have taken" to allow BLM to consider its application. Given the "inalterably adverse" position of the Army and the Tribe, the court concluded it was "known to a reasonable degree of certainty" that the permit would not be granted.

On the merits, the Federal Circuit recognized that a taking of water rights might occur where the government has physically diverted water for its own use or where it denies all meaningful access to the claimant's property. The court held, however, the government merely "den[ied] permission to use the government's own land to exploit those rights." Because the claimants had "no right to build on federal land," the court ruled that no private property right was truly at stake and denied the claim.

Arizona Downzoning Win Secured
Emmett McLoughlin Realty, Inc. v. Pima County, 58 P.3d 39 (Ariz. Ct. App. 2002)

Back in November 2002, Arizona planners rejoiced when the state appellate court struck down a 1998 property rights law that barred counties from downzoning property without first obtaining the owner's consent. We have since learned that the landowners' expected appeal was not timely filed, so that victory is now secure.


MARCH 2003

SUPREME COURT IOLTA VICTORY PROTECTS LEGAL FUNDING FOR THE POOR

It's official: There is a public side winning streak in takings cases. Okay, so it is only two wins, but after 15 years of losing, the win this week before the Supreme Court in Brown v. Legal Foundation of Washington, 2003 WL 1523550 (U.S. March 26, 2003), coming on the heels of last year's Tahoe victory, sure feels good. More importantly, the Brown victory preserves programs in virtually every state that provide approximately $160 million annually for legal services for the indigent.

Brown involved IOLTA ("Interest on Lawyers' Trust Account") programs, which pool small amounts of money held by lawyers for clients for short periods of time and use the interest generated to fund legal services for the poor. Funds go in IOLTA programs only if they are so small and held for so short a time that they cannot generate net interest outside the program. In other words, if IOLTA programs didn't exist, the clients whose funds are placed in IOLTA accounts would not earn a penny of net interest.

In Phillips v. Washington Legal Foundation (1998), the Court held that interest generated in IOLTA programs was the "property" of the clients depositing funds in IOLTA accounts. In Brown, the Court assumed that IOLTA programs worked a per se taking of that property. Victory in Brown was snatched from the hands of defeat in the final "just compensation" phase of the takings inquiry. By a 5-4 ruling, the Court held that because the clients could not otherwise earn net interest, no compensation was due and, therefore, there was no constitutional violation. Community Rights Counsel's brief in Brown, filed on behalf of the National League of Cities, International Municipal Lawyers Association, and Trial Lawyers for Public Justice, focused exclusively on this dispositive issue. Kudos to all who defended IOLTA programs in the case.


FEBRUARY 2003

Eighth Circuit Rejects Challenge to Williamson County
Kottschade v. City of Rochester, No. 02-1504MN (8th Cir. Feb. 13, 2003)

The Eighth Circuit rejected a challenge to established ripeness rules this month, applying Williamson County's requirement that a landowner seek compensation in state court before filing a federal takings claim in federal court. Developer Franklin Kottschade sued the city of Rochester, Minnesota, in federal court, alleging that the city's development conditions took his property without compensation. A federal district judge dismissed the case under Williamson County, but despite this clear precedent, Kottschade appealed.

Kottschade argued on appeal that City of Chicago v. International College of Surgeons (U.S. 1997) modified Williamson County, even though that case does not even cite Williamson County. In affirming the district court's dismissal of the case, the Eighth Circuit held that College of Surgeons addresses "only the question of federal-question jurisdiction over a ripe takings claim" and did not "explicitly answer the question of what is necessary to render a takings claim ripe."

Kottschade's case has become a cause celebre in the homebuilding industry, which has tried for years to undermine the holding of Williamson County. The National Association of Home Builders, which is representing Kottschade, has vowed to take his case "all the way to the Supreme Court if necessary." Indeed, NAHB's litigation role comes on the heels of its failed efforts to lobby for a federal bill that purported to give landowners a direct path to the federal courts, effectively overturning Williamson County's ripeness requirements. The Kottschade opinion is available at http://www.ca8.uscourts.gov.



JANUARY 2003

U.S. Court of Federal Claims Rejects Takings Challenge to Mining Protections
Appolo Fuels, Inc. v. United States, 2002 WL 31889325 (CFC, Dec. 18, 2002)

The U.S. Court of Federal Claims denied compensation last month to a mining company that contended its coal was taken as a result of a permit denial designed to protect drinking water and the environment. The summary judgment decision in Appolo Fuels stands in stark contrast to last month's Feature Case, RTG v. State, in which the Ohio Supreme Court held that similar protections worked a taking even though the proposed mining threatened an important aquifer.

Appolo Fuels, a Kentucky coal mining company, acquired coal rights in some 2,600 acres, including coal seams within the Little Yellow Creek watershed that spans the border of Kentucky and Tennessee. The company began mining portions of the property in 1989 and sought additional permits to mine within the watershed area in 1994. In 1996, the Office of Surface Mining approved a petition of the National Parks and Conservation Association and the city of Middlesboro, Ky., prohibiting surface mining in about half the watershed because of potential harm to Middlesboro's water supply, the Cumberland Gap Historical Park, and endangered species. The OSM granted Appolo the right to conduct underground mining on tracts both within and outside the petition area, but the company sued, claiming that the surface mining restrictions worked both a categorical and partial regulatory taking.

The court began its analysis by rejecting Appolo's argument that the relevant parcel should include only its surface mineable coal reserves within the watershed, concluding that the parcel-as-a-whole rule requires inclusion of other property interests both within and outside of the watershed. Although the value of two of Appolo's leases dropped by 78 and 92 percent, Judge Christine Miller rejected Appolo's categorical taking claim because the relevant parcel retained economically viable use. The court also denied the company's partial taking claim, ruling that "plaintiff held no legitimate expectation that it could mine in the area unfettered by regulation." Judge Miller further ruled that water pollution was an "abatable nuisance" under Tennessee law and that "OSM exercised its police power to protect its citizens from a nuisance."

The Appolo Fuels court's insightful analysis and fidelity to precedent demonstrates the aberrancy of the Ohio Supreme Court's decision in RTG. Unfortunately, earlier this month the Ohio court denied the state's motion for reconsideration. For a cogent Columbus Dispatch editorial denouncing the RTG decision, go to www.communityrights.org/legalresources/crcbriefs/RTG/CD1-13-03.php.

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