Tahoe Moratorium Argument: New Voices on Behalf of the
Attorneys on both sides of the takings debate may be surprised
when they see the advocates for the government's position
at the January 7 oral argument in Tahoe.
The Solicitor General, Theodore Olson, is scheduled to argue
for the United States as amicus curiae in support of the Tahoe
Regional Planning Agency. Although the Justice Department
has participated in many arguments in regulatory takings cases,
to our knowledge no other Solicitor General has argued a reg-take
case in the post-Penn Central era. General Olson, the prevailing
advocate in Bush v. Gore, is a former Board member
of Defenders of Property Rights.
Another reputed conservative will argue for the Agency: John
Roberts, a partner at the law firm of Hogan & Hartson.
Mr. Roberts is President Bush's nominee for a seat on the
prestigious U.S. Court of Appeals for the D.C. Circuit, a
controversial nomination in certain circles.
Both attorneys prepared forceful briefs on behalf of their
clients. Their advocacy for the government shows just how
extreme and radical the landowners' position really is. We'll
report on the oral argument in the January issue of Takings
Philip Morris Update: In our October issue, we reported that
the U.S. Court of Appeals for the First Circuit rejected a
takings challenge to disclosure requirements for tobacco products
imposed by Massachusetts. Unfortunately, the First Circuit
recently granted en banc review, and the full court will hear
oral argument in January.
More on IOLTA
In our October "On the Horizon," we predicted that
the U.S. Supreme Court would soon jump back into the dispute
over "Interest on Lawyers Trust Accounts" (IOLTA)
programs in view of the Fifth Circuit's recent ruling invalidating
the Texas IOLTA program under the Takings Clause. Supreme
Court review now is looking even more likely because on November
14, 2001, the Ninth Circuit issued an en banc ruling that
squarely conflicts with the Fifth Circuit's decision, rejecting
a takings challenge to Washington State's IOLTA program by
a vote of 7-4. Washington Legal Found. v. Legal Found.
of Washington, No. 98-35154, 2001 WL 1412787. Stay tuned!
IOLTA Redux in the U.S. Supreme Court?
Because the U.S. Supreme Court grants only a tiny percentage
of the thousands of requests for review filed each year, it
would be folly to guarantee that the Court will hear any particular
case. But we're tempted to throw caution to the wind regarding
the October 15, 2001, ruling by the U.S. Court of Appeals
for the Fifth Circuit in Washington Legal Foundation v.
Texas Equal Access to Justice Foundation, No. 00-50139.
The ruling's implications are so great, its legal reasoning
so shallow, and its result so starkly in tension with rulings
from other federal appeals courts and state supreme courts
that a grant of certiorari seems likely. Toss in the fact
that the case proved worthy of Supreme Court review once before
in 1998, and a return trip to the Court starts to appear highly
The appeal court's ruling enjoins operation of Texas's "Interest
on Lawyers Trust Accounts" (IOLTA) Program. Under this
and similar programs adopted in all 50 states, the interest
on funds deposited by clients with their lawyers is used to
fund legal services, public legal education, indigent defense,
and other programs that promote the administration of justice.
IOLTA programs across the country generate tens of millions
of dollars for legal service programs for the poor. Because
IOLTA programs are a critical source of funding, the state
and local government community filed an amicus brief in support
of the government defendants when the case previously went
to the Supreme Court.
When considering the takings implications of the Texas IOLTA
program, the key fact to keep in mind is that the clients
suffer no economic harm. No client funds qualify for the program
unless they are so small and held for such a short duration
that they could not generate net interest (interest minus
bank fees) for the client on their own. Under the IOLTA program,
however, the funds are pooled and thus generate interest.
The clients do not lose a penny because without the IOLTA
program, no interest would be generated at all.
In 1998, the Supreme Court ruled that the interest is a property
right of the client cognizable under the Takings Clause, but
it left open the issues of whether the IOLTA program works
a taking and, if so, what compensation is due. On remand,
the Fifth Circuit held that the IOLTA program works a per
se taking akin to a permanent physical occupation under Loretto.
More disturbingly, it held that the plaintiffs are entitled
to injunctive relief -- a prohibition on the operation of
the IOLTA program -- even though they suffered no economic
loss. As noted by the dissent, just compensation for any taking
would be zero, and thus there has been no violation of the
constitutional prohibition against taking property without
just compensation. The Fifth Circuit's holding conflicts with
rulings from the First and Eleventh Circuits and the highest
appellate courts of seven states, all of which have rejected
takings challenges to IOLTA programs.
The lead plaintiff in the case is Washington Legal Foundation,
a non-profit "property rights" group with little
to gain except the satisfaction of depriving poor people of
needed legal services. The dissent compared the plaintiffs
to Aesop's fable about the dog who refused to allow the cow
into the manger to feed on the hay, even though the hay was
of no use to the dog. Let's hope the U.S. Supreme Court gives
this story a happy, and just, ending.
Although Takings Watch focuses primarily on regulatory takings
challenges to land use controls and other community protections,
we also monitor non-land use takings cases. On October 10,
2001, the Supreme Court will hear oral argument in Verizon
Communications, Inc. v. FCC, No. 00-511, a challenge to
portions of the Telecommunications Act of 1996 that seek to
make local phone service more competitive. The Act requires
existing carriers like Verizon to make equipment available
to new market entrants at a regulated rate. Current FCC rules
require the use of replacement costs, rather than historical
costs, to set the rate. The case raises interesting issues
regarding whether takings concerns should ever be used to
narrow the interpretation of a statute. If the Court were
to read the 1996 statute narrowly due to takings concerns,
the ruling could have an adverse spillover effect on state
and local laws. A future Takings Watch will report on the
ruling in Verizon once the Court hands down a decision.
The Meaning of the "GVR" in McQueen
With all the hoopla over Palazzolo and the grant of
certiorari in the Tahoe moratorium case, (see the June and
July issues of Takings Watch) it's important not to overlook
one other recent action by the U.S. Supreme Court. On June
29, 2001, it "GVR-ed" (Granted Cert., Vacated, and
Remanded) McQueen v. South Carolina Dept. of Health and
Envt'l Control, 530 S.E.2d 628 (S.C. 2000). The Court
sent McQueen back to the Supreme Court of South Carolina "for
further consideration in light of Palazzolo,"
issued the day before the GVR. 121 S. Ct. 2581 (2001).
McQueen involves unusual facts. In the early 1960s, Sam McQueen
paid $4200 for two lots in Myrtle Beach created by fill next
to manmade, saltwater canals. Over the next 30 years, neighboring
lots were improved with bulkheads and homes, but McQueen's
lots eroded and reverted to wetlands. In 1991, McQueen applied
for permits to build bulkheads and fill his lots to prevent
further erosion. The state denied the permits because the
property is located in a critical tidal wetlands area. McQueen
challenged the permit denials as a per se taking under Lucas.
The state supreme court observed that it was "uncontested"
that McQueen lost all economically viable use, but ruled that
there was no taking because he did not have a reasonable expectation
to develop the land in 1991 after failing to protect his lots
from erosion for 30 years. In so ruling, the court relied
heavily on Good v. United States, 189 F.3d 1355 (Fed.
Cir. 1999), for the proposition that the lack of reasonable
expectations may defeat a Lucas claim.
McQueen raises several interesting legal issues, including
the role of expectations under Lucas and the continued
viability of Good in light of Palm Beach Isles,
Assocs. v. United States, 208 F.3d 1374 (Fed. Cir.), modified,
231 F.3d 1354 (Fed. Cir. 2000), which creates an intra-circuit
split with Good by holding that expectations are irrelevant
to a Lucas claim.
The first order of business on remand, however, will be how
to interpret the GVR order. Does it mean that the U.S. Supreme
Court expects a new outcome in light of Palazzolo?
Absolutely not. Lower courts have consistently ruled that
GVR orders do "not create an implication that the lower
court should change its prior determination." Hughes
Aircraft Co. v. United States, 140 F.3d 1470, 1473 (Fed.
Cir. 1998); accord, United States v. M.C.C. of Florida,
Inc., 967 F.2d 1559, 1562 (11th Cir. 1992); United
States v. National Soc'y of Prof'l Eng'rs, 555 F.2d 978,
982 (D.C. Cir. 1977), aff'd, 435 U.S. 679 (1978). In one study
of 90 GVR-ed cases in which there was at least a surface inconsistency
between the vacated judgment and an intervening decision,
the lower court adhered to its original ruling in more than
60 cases. Hellman, Granted, Vacated, and Remanded -
67 Judicature 389, 394-395 (1984).
Thus, the GVR order does not require the South Carolina Supreme
Court to alter its holding. Nor does it preclude a ruling
for the state on other grounds, such as whether the public
trust doctrine entitles the state to restrict development
on the land without incurring takings liability. Keep an eye
on McQueen for an early indication of how lower courts
will be applying Palazzolo.
U.S. Supreme Court to Hear Tahoe Moratorium Case
On June 29, 2001, the U.S. Supreme Court agreed to hear a
very important case -- Tahoe-Sierra Preservation Council,
Inc. v. Tahoe Regional Planning Agency, 216 F.3d 764 (9th
Cir. 2000), cert. granted 121 S. Ct. 2589 -- which raises
the issue of whether a reasonable development moratorium constitutes
The case involves two moratoria imposed to protect Lake Tahoe,
an exceptionally clear alpine lake in the Sierra Nevada Mountains.
Lake Tahoe is a national treasure. Mark Twain once described
it as "the fairest picture the whole earth affords." Unfortunately,
the Lake is becoming a victim of its own beauty because rampant
development in the Tahoe Basin is adding nutrients to the
lake, which spurs the growth of algae. Lake Tahoe is losing
a foot of clarity every year, and unless development is controlled,
the Lake will become opaque and green forever.
In 1981, the Tahoe Regional Planning Agency imposed two successive
development moratoria for a total of thirty-two months while
it prepared a regional development plan. Some 450 landowners
have brought a facial takings challenge to these moratoria.
The trial court found that the moratoria did not interfere
with the landowners' expectations because the average holding
period between lot purchase and home construction in the Basin
is 25 years. The court also found that the moratoria were
reasonable in scope and duration. As a result of these and
other findings, the trial court held that no taking occurred
under Penn Central's multifactor analysis. Nonetheless, the
trial court concluded that a per se taking occurred under
Lucas because the moratoria temporarily deprived the
landowners of all economically viable use of their land.
On appeal, the Ninth Circuit reversed, holding that the moratoria
do not constitute a per se taking under Lucas. The
appeals court ruled that it must consider the landowners'
entire bundle of property interests, including future uses
available after the moratoria ended. In other words, the landowners
could not engage in "temporal severance" by focusing exclusively
on whether they could use the land during the moratoria. In
rejecting the per se claim, the appeals court also relied
heavily on Agins v. City of Tiburon, which held that
"mere fluctuations in value during the process of government
decisionmaking, absent extraordinary delay . . . cannot be
considered as a 'taking' in the constitutional sense."
One key legal issue before the Supreme Court will be the
meaning of the Court's 1987 ruling in First English,
which holds that compensation must be paid for a temporary
taking. The landowners argue that when read in conjunction
with Lucas, First English requires compensation
for virtually any development moratorium. The Agency argues
that First English is far more limited in scope, holding
only that a taking must be compensated where the government
renders the taking temporary through government rescission
of the offending regulation. The Agency supports its position
with citations to numerous lower court rulings that reject
takings challenges to reasonable moratoria.
The landowners have retained new counsel, Michael Berger,
who argued First English (and other takings cases)
before the Supreme Court. In their petition for certiorari,
the landowners argue that the Agency effectively imposed a
"twenty-year rolling moratorium" because their land remained
restricted under the regional plans after the moratoria were
lifted. Although the restrictions imposed by the regional
plans are not part of the case before the Supreme Court, the
landowners can be expected to continue to characterize the
restrictions as, for all intents and purposes, permanent.
A photo of Lake Tahoe appears on page 2 of this newsletter.
More information on the Tahoe case and CRC’s Ninth Circuit
Brief on behalf of IMLA are available at www.communityrights.org.
Two cases - both involving state bans on mining designed
to protect water resources - present to the highest courts
of Pennsylvania and Ohio the key issue of how to define the
relevant parcel in takings cases. In Machipongo Land &
Coal Co. v. Commonwealth of Pennsylvania, No. 112 MAP
2000, the Commonwealth Court ruled that a mining ban on 373
acres of land designed to protect the Goss Run Watershed is
a taking even though the ban applied to only six percent of
the claimants' land. Defying decades of Supreme Court rulings
directing courts to consider the claimant's parcel as a whole,
the lower court defined the relevant parcel to include only
the portion of the claimant's land affected by the mining
ban. In State of Ohio ex re. R.T.G., Inc. v. State of Ohio,
Case No. 01-748, the appeals court applied the parcel-as-a-whole
rule to reject a takings challenge where the claimants hold
both mining rights and surface rights to the property. It
found a taking, however, with respect to three parcels in
which the claimants allegedly hold only mining rights. As
to these parcels, the court rejected the State's argument
that the proposed mining would constitute a nuisance because
it would degrade or destroy a sole-source aquifer that serves
as a public drinking water supply for area residents. Rulings
in these two cases should help clarify how to define the relevant
parcel in takings challenges to curbs on harmful mining. Community
Rights Counsel has filed amicus briefs on behalf of municipalities
in both cases.
Before its Term ends in late June, the U.S. Supreme Court
will issue a ruling in Palazzolo v. Rhode Island, No.
99-2047, a takings challenge to state protections for 18 acres
of pristine coastal wetlands in Westerly, Rhode Island. The
case raises issues concerning ripeness, the nature of a per
se takings under Lucas, the scope of the background-principles
defense, and the role of expectations in takings analysis.
Soon the Court will also decide whether to review: (1) Tahoe-Sierra
Preservation Council v. Tahoe Regional Planning Agency,
216 216 F.3d 764 (9th Cir. 2000), which rejected a takings
challenge to moratoria that curbed development while government
officials designed a plan to protect Lake Tahoe from harm
caused by uncontrolled development; and (2) McQueen v.
South Carolina Coastal Council, 530 S.E.2d 628 (S.C. 2000),
which rejected a takings challenge to wetlands protections.