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Community Rights Report Newsletter -
2003 Eye on Washington Archive




DECEMBER 2003

$600 Million Takings Claim Pits Old West Against New

When Defenders of Wildlife hoisted its logo over the door of a renovated black marble building in Washington, D.C. that formerly served as the headquarters of the National Mining Association, few missed the image's potent symbolism. But Old West policies like the Mining Law of 1872, which remarkably still allows people to maintain royalty-free claims to mineral resources on the public lands, die hard. Now a $600 million takings claim over mineral rights in the Siskiyou Mountains stands as an equally vivid symbol of the continued debate between resource protection and resource extraction.

Walt Freeman owns 161 mining claims that he says entitles him to dig for nickel, iron, and chromium in the Siskiyou region of southern Oregon. Boasting more than 300 plant species, some of which are found nowhere else in the world, the Siskiyou National Forest is considered one of the most biologically rich areas in North America. Federal agencies have thus far blocked the project to protect the environment, and Freeman believes he should be paid handsomely to give up his claims.

Under the 1872 Mining Law, even if Mr. Freeman does develop his claims, he will pay no royalties and has little responsibility to account for the environmental harm his operations could cause. Congress has attempted to reform the law since the 1970s but mining interests have prevented any significant changes to rules set up to encourage pioneers to settle the West. What's more, the Bush administration recently reversed a Clinton-era ruling limiting the amount of public land acres available by right to claimants for processing ore and dumping often toxic mine waste.

The Supreme Court rejection of a takings challenge where federal law extinguished a mining claim in United States v. Locke (U.S. 1985) gives us hope that the government will prevail. Mr. Freeman's claim, if successful, could seriously impede the ability of the natural resource agencies to protect public lands under federal land laws and other laws without incurring huge liability for takings claims.


NOVEMBER 2003

Does the Takings Clause Guarantee a Reasonable Rate of Return?
Cienega Gardens v. United States, 331 F.3d 1319 (Fed Cir. June 12, 2003)

The Federal Circuit has issued clunkers before - cases such as Florida Rock v. U.S. and Loveladies Harbor v. U.S. - and, happily, few courts around the country have taken much notice. Let's hope a similar fate awaits the court's recent decision to award compensation to owners of property serving low-income tenants who argued that restrictions on their ability to prepay their mortgages - and thereby escape obligations to rent their properties to low-income tenants - constituted a taking.

In the late 1960s, the owners of the Cienega Gardens apartments obtained low-interest forty-year mortgages with the assistance of the Department of Housing and Urban Development. In return, the owners agreed to rent a percentage of their property to low-income tenants. Regulations in effect at the time allowed the owners to prepay their mortgages and be free of restrictions after twenty years, but they also allowed for changes to the regulations "at any time and from time to time." As the twenty-year mark approached, Congress passed legislation to preserve affordable housing that prohibited prepayment of mortgages under this program. The owners brought suit alleging contractual violations and a temporary taking of their property.

In 2001, the Federal Circuit rejected Cienega Gardens' per se taking claim but remanded for consideration of their claim under Penn Central. The Court of Federal Claims dismissed the case, but this summer the appellate court held that the claimants had a property interest in the contractual right to prepay and exit the housing program. Notwithstanding the explicit regulatory provision allowing for a change in the regulatory program, the Federal Circuit held that the plaintiffs had reasonable, investment-backed expectations in the terms of their mortgage contracts. Even more remarkably, the Court focused entirely on the owner's estimated loss in annual profits, rather than the diminution in their property value (estimated by the government to be only 35%), in finding that Cienega Gardens had suffered sufficient economic loss to maintain a Penn Central claim.

Interestingly, a different Federal Circuit panel on the same day decided a case on the similar facts, Chancellor Manor v. United States, 331 F.3d 891, but declined to find a taking and indicated, without prejudging the outcome, that the government might be able to defend itself against a Penn Central claim on remand.


OCTOBER 2003

House Panel Reviews Takings Executive Order

Property rights advocates and environmentalists debated a new General Accounting Office study on the implementation of the much-criticized Reagan Takings Executive Order before a panel of the House Committee on the Judiciary October 16, possibly teeing up a renewed effort to revise the order and implementing guidelines.

Roger Marzulla of Defenders of Property Rights testified that takings law's evolution since President Reagan issued the order in 1988 required new guidance and urged Congress to pass legislation making the executive order legally enforceable. By contrast, John Echeverria of the Georgetown Environmental Law and Policy Institute told the panel the order was "fundamentally flawed from its inception" and said the GAO, rather than focusing on the sufficiency of implementing guidance, "should be asking whether Executive Order 12630 should simply be scrapped." The GAO report and witness testimony are available on the panel's website - http://www.house.gov/judiciary/constitution.htm.

UPDATE

In our July 2003 Eye on Washington, we reported on developer efforts to seek U.S. Supreme Court reconsideration of Williamson County through a petition for certiorari in Kottschade v. City of Rochester. On October 6, the Court denied the petition.


SEPTEMBER 2003

Federal Circuit Rejects Oil Tanker Takings Claim

On September 9, in Maritrans, Inc. v. United States, 2003 WL 22076611, the Federal Circuit rejected the claims of tank barge owners who alleged that the double hull requirement of the Oil Pollution Act of 1990 worked a taking of their single hull barges. The law, enacted in the wake of the Exxon Valdez disaster, reduced the value of Maritrans' barges by 13.1 percent. Although the result is laudable, the court's reasoning is flawed in at least two respects.

First, the court rejected the government's position that the barge owners lacked a property interest in the use of the vessels in interstate navigation. That the owners had a property interest in the barges themselves was indisputable, but the Court muddled the more precise question of whether the barge owners had a cognizable interest in the use of the barges for the specific purpose at issue. Surprisingly, the appeals court upheld the trial court's finding that the law interfered with Maritrans' reasonable expectations notwithstanding the long history of heavy regulation in the industry.

What's more, the court failed to consider adequately the distinction between real and personal property under the Fifth Amendment. The government argued that the Lucas per se rule does not apply to personal property, relying on the Lucas court's holding that "in the case of personal property, by reason of the State's traditionally high degree of control over commercial dealings, [the owner] ought to be aware of the possibility that new regulation might even render his property economically worthless." The Federal Circuit blithely responded that "tangible property may be the subject of a takings claim," without recognizing the important analytical distinctions that come into play when applying the Lucas per se rule.

The court will have a chance to address these important issues again in Rose Acre Farms (see Sept. 2002 Takings Watch) and other cases. They demand a more nuanced analysis.


AUGUST 2003

Evolving Reciprocities

"We sure get a kick out of it when the sheep are around." That's not a comment one expects to hear from residents of a resort development. But Walecia Konrad of The New York Times recently reported that more and more builders are realizing that by conserving open space around their development projects, they can actually increase land value and enhance homebuyer enjoyment. See http://www.nytimes.com/2003/08/01/realestate/01LAND.html (registration required)

As Konrad put it, "the ultimate second-home amenity is a slice of wilderness." These open areas not only provide scenic views of bighorn sheep and other wildlife, but also shield residents from strip malls or other unattractive development. People are willing to pay more for these benefits, with studies conducted in California showing that property values within a mile of open space increase by 8-10 percent.

This is good news for states and municipalities facing takings challenges to open space protections. These studies support the argument that regulations restricting development of a portion of land (for example, in a wetlands area) benefit the developer by enhancing the property's overall value. The case that first recognized the concept of a regulatory taking -- Pennsylvania Coal Co. v. Mahon (1922) -- introduced the notion of "reciprocity of advantage" as a justification of various laws. More recently, the Supreme Court reaffirmed the reciprocity theory in Keystone Bituminous Coal Ass'n v. DeBenedictis (1987), explaining that "while each of us is burdened somewhat by such restrictions, we, in turn, benefit greatly from the restrictions that are placed on others." And in Tahoe-Sierra, the court cited the reciprocity of advantage enjoyed by property owners subject to a common land use planning program designed to protect Lake Tahoe, which provides much of the land value in the Tahoe Basin.

Thanks to nature-lovers everywhere, the defense of reciprocity of advantage is gaining strength. Let's hear it for those who enjoy watching sheep from the front porch.


JULY 2003

Developers Press for High Court Review in Kottschade v. City of Rochester

Despite two swings and two big misses in the lower courts, development interests are back in the batter's box swinging for the fences in what could be their final strike at Williamson County's ripeness requirement. Franklin Kottschade, backed by the National Association of Home Builders and a small armada of developer amici, has filed a petition for certiorari in the U.S. Supreme Court.

Kottschade maintains the development conditions imposed by the City of Rochester, Minnesota took his property without compensation. Despite Williamson County's unambiguous ruling requiring aggrieved property owners to seek redress in state courts before filing a federal takings claim, Kottschade sued in federal district court without first having pursued his claim at the state level. Citing Williamson County, the district judge dismissed the claim, but Kottschade appealed to the Eighth Circuit where he pressed the novel argument that City of Chicago v. International College of Surgeons (U.S. 1997) modified Williamson County's ripeness rule even though that case never cited Williamson County. In February, the Eighth Circuit rejected this contention and affirmed the dismissal.

Development interests are supporting Kottschade's petition with no fewer than six amicus briefs. Filing separate briefs thus far are Pacific Legal Foundation, American Forest and Paper Association, Wisconsin Builders Association, Santini Homes, Inc. (of Vernon, CT), Defenders of Property Rights, and land use professor Daniel Mandelker of Washington University in St. Louis.

Kottschade has shifted ground in te Supreme Court and is no longer arguing (ridiculously) that Williamson County already has been overruled. Instead, he is now urging the Supreme Court simply to abandon Williamson County. The city's opposition is due August 25. Given the absence of a circuit split, the Court's repeated reaffirmation of the unanimous Williamson County ruling, and the ruling's grounding in a century of precedent, the case is uncertworthy in the extreme. Here's hoping the High Court will strike out this most recent assault on Williamson County.


JUNE 2003

High Court Denies Cert. in Esplanade, Review to Be Sought in McQueen

The Supreme Court denied certiorari June 16 in Esplanade Properties, LLC v. City of Seattle, a Ninth Circuit ruling that relied on the public trust doctrine as a background principle of property law to absolve the government of the need to pay compensation to a landowner who was denied a permit to build on tidelands. The Ninth Circuit held that the state's public trust obligations precluded shoreline development. Pacific Legal Foundation filed the cert. petition, which was supported by several amici from the developers' bar. The Supreme Court's denial of certiorari, while not unexpected, is still most welcome.

In other news involving the public trust doctrine, the Washington Legal Foundation recently pledged on its website to seek Supreme Court review of McQueen v. South Carolina Coastal Council (last month's Feature Case) "at the earliest possible opportunity." As in Esplanade, the McQueen court invoked the public trust doctrine to reject a takings claim by a landowner denied permission to fill tidal wetlands. We'll keep you posted on future developments.


MAY 2003

Linking Judicial Junkets and Judicial Pay

For nearly five years, Community Rights Counsel has been fighting to ban "judicial junkets": lavish trips for federal judges, bankrolled by polluting corporations, which are designed to advance an anti-regulatory legal agenda. Our particular concern has been trips offered by a Montana-based outfit called Foundation for Research on Economics and the Environment (FREE), whose programs advance extreme views on subjects like the Takings Clause.

It has been a busy couple of months on this front. In April, Senator Patrick Leahy, the Ranking Democrat on the Senate Judiciary Committee, introduced S. 787, the Fair and Independent Judiciary Act of 2003, a bill that would link a ban on judicial junkets to a judicial pay raise. This past week, Senator Leahy indicated his intention to seek to amend a separate judicial pay raise bill, introduced by Senator Orrin Hatch, to include his ban on junkets. He was supported in this effort by Senator Russ Feingold, who had introduced a similar bill in July 2000. Two dozen national organizations, including the Leadership Conference on Civil Rights, the American Association of University Women, Natural Resources Defense Council, and Defenders of Wildlife, wrote letters supporting this proposed amendment.

To head this amendment off, representatives of the Judicial Conference (the judiciary's policy-making body) met with Senator Leahy and assured him that they would revisit and revise their internal ethical guidance to address his concerns. Given the prior adamant opposition by the Judicial Conference to any reform in this area, this represents significant movement on their part. Still, both Senators Leahy and Feingold expressly left open the possibility of future efforts to move legislation on these issues, with Senator Feingold, in particular, stating that he would evaluate the progress the Judicial Conference had made by the time the pay raise bill was scheduled for floor action and decide then whether to pursue an amendment on the floor. We will keep Takings Watch readers posted as this drama unfolds.


APRIL 2003

UPDATE ON TAHOE-SIERRA

The Tahoe-Sierra litigation, which yielded last year's landmark ruling from the U.S. Supreme Court, has finally ended. On February 28, the Ninth Circuit disposed of the remaining claims, ruling that the challenges to the 1987 Regional Plan were barred by principles of res judicata because they were substantially similar to claims previously dismissed as barred by the applicable statute of limitations. The court further ruled that certain claims brought by landowners subject to various mitigation provisions were not ripe for failure to pursue administrative relief. Assuming the landowners do not once again seek certiorari (unlikely, in our view), the long-running Tahoe-Sierra litigation is now over.


MARCH 2003

"Obtain" vs. "Take"

In Scheidler v. National Organization of Women, Inc., 123 S. Ct. 1057 (2003), the Court interpreted the word "obtain" as used in the federal Racketeer Influenced and Corrupt Organizations Act, concluding that the petitioners had not "obtained" the respondents' property even though they significantly interfered with its use:

There is no dispute in these cases that petitioners interfered with, disrupted, and
in some instances completely deprived respondents of their ability to exercise their property rights. * * * But even when their acts of interference and disruption achieved their ultimate goal of "shutting down" a clinic that performed abortions, such acts did not constitute extortion because petitioners did not "obtain" respondents' property. Petitioners may have deprived or sought to deprive respondents of their alleged property right of exclusive control of their business assets, but they did not
acquire any such property.

Id. at 1065-66 (citation omitted).

If one cannot "obtain" property by shutting down a business or otherwise interfering with the owner's use of the property, one wonders how local officials can be deemed to have "taken" property where community protections interfere with land use. Community Rights Counsel has long encouraged government counsel to emphasize the narrow plain meaning of the word "taken" in the Takings Clause. While it is unlikely that the Court will abandon the doctrine of regulatory takings anytime soon, the narrow meaning of "taken" should act as a forceful check against the inappropriate expansion of takings liability. Let's hope that the Court's recent cogitations on the meaning of "obtain" have a beneficial spillover effect on its takings jurisprudence.

EYE UPDATE

Last month, we reported on efforts by property rights groups to persuade the U.S. Supreme Court to review two cases involving legislative impact fees: Rogers Machinery Co. v. City of Tigard (Or. Ct. App. 2002), and Agencia La Esperanza Corp. v. Orange County Bd. of Supervisors (Cal. Ct. App. 2002). On March 10, the Court declined to review both cases.


FEBRUARY 2003

The Campaign to Eliminate Legislative Impact Fees

The U.S. Supreme Court is currently considering requests by property rights groups, amply supported by developer amici, to review two state court cases holding that Dolan's rough proportionality test does not apply to legislatively imposed impact fees. The cases will be considered at the court's February 28th conference. If embraced by the court, the petitioners' contentions could severely limit, if not scuttle altogether, legislatively imposed impact fees across the country.

In Rogers Machinery Co. v. City of Tigard, 45 P.3d 966 (Or. Ct. App. 2002), the court refused to apply Dolan to a traffic impact fee imposed as a condition to a permit to build a new corporate headquarters. The court observed that "with near uniformity," other courts have declined to apply Dolan to legislatively imposed fees. Id. at 977. In Agencia La Esperanza Corp. v. Orange County Bd. of Supervisors, 2002 WL 681798 (Cal. Ct. App. 2002), the court declined to apply Dolan to a traffic impact fee imposed on all applicants for nonresidential building permits based on the square footage of the project. The court rejected arguments that the fee was unfair because the claimant's proposed self-storage facility would have less severe traffic impacts than other nonresidential facilities.

These rulings flow directly from Dolan, which expressly relied on the adjudicative nature of the permit condition at issue to justify imposition of its rough proportionality standard on government officials. Moreover, cases involving impact fees (as opposed to dedication requirements) make exceptionally poor vehicles for further illumination of takings jurisprudence. In Eastern Enterprises, five Justices (Kennedy, Breyer,
Stevens, Souter and Ginsburg) concluded that the Takings Clause does not apply to a government-imposed monetary liability that does not affect an identified property interest.

The petitioners, represented respectively by Oregonians in Action Legal Center and Pacific Legal Foundation, argue that permit applicants should be able to use Dolan's rough proportionality test to attack reasonable legislative judgments about the impact of new development. Under their theory, a developer could challenge a school-impact fee by showing that a small portion of its subdivision sales went to seniors or others without children in the home. In essence, they contend that permitting officials must adjust impact fees on an individual basis. If subject to second-guessing on a permit-by-permit basis, the entire notion of legislatively imposed fees could fall by the wayside, thereby significantly increasing the cost of reviewing plans for approval.

The U.S. Supreme Court has repeatedly declined to grant review on precisely this issue. Let's hope the Court continues to see this ruse for what it is.


JANUARY 2003

Welcome to the Team, Roger!

We thought we were dreaming when we read recently in the National Law Journal that Roger Marzulla -- founder and General Counsel of Defenders of Property Rights and a mainstay of the property rights movement -- helped defeat a multi-billion dollar regulatory takings claim brought by Coastal Petroleum against the State of Florida based on Florida's cancellation of oil leases. But Mr. Marzulla's welcome defection is simply the latest in a lengthy list of prominent conservatives who have argued against an unduly expansive application of the Takings Clause and other constitutional provisions.

As we've previously reported, Solicitor General Theodore Olson personally defended the moratorium upheld in Tahoe. Conservative pundit James Kilpatrick recently opined in favor of the government in the pending takings challenge to Washington State's IOLTA program. In his book, Narrowing the Nation's Power, Reagan-appointee and respected legal historian Judge John Noonan created a stir last year with a scathing criticism of the Rehnquist Court's federalism jurisprudence. And Judges J. Harvie Wilkinson III and Bobby R. Baldock, both Reagan-appointees, have denounced anti-environmental judicial activism.

Perhaps it would be asking too much for Richard Epstein to renounce his takings treatise, but with the arrival of the New Year, hope springs eternal.

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