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Takings Watch Newsletter -
2001 On the Horizon Archive


DECEMBER 2001

Tahoe Moratorium Argument: New Voices on Behalf of the Government

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 Watch.

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.



NOVEMBER 2001

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!


OCTOBER 2001

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 probable.

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.


SEPTEMBER 2001

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.


AUGUST 2001

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.


JULY 2001

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 a taking.

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.


JUNE 2001

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.


MAY 2001

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.

 

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