Case Year: 

Case Ruling: 

Opinion Justice: 

 

Facts

            A long stretch of the St. Croix River forms a boundary between Minnesota and Wisconsin. The lower portion of the river slows and widens to create Lake St. Croix, an area highly valued by tourists and residents for scenic beauty and recreational activities. In 1972, the river was designated for federal protection under the Wild and Scenic Rivers Act. The law required that the states of Minnesota and Wisconsin develop a management plan for the river area. In 1975, Wisconsin responded by adopting such a plan to limit development for the protection of the wild, scenic, and recreational qualities of the river. Especially relevant to this case is a regulation that prevents the use or sale of adjacent lots under common ownership as separate building sites unless the lots have at least one acre of land suitable for development.

            In 1960, William Murr and his wife purchased a river-front lot (Lot F) and titled it in the name of the Murr’s plumbing company. They built a three-bedroom cabin on the property for family recreational use. In 1963, for investment purposes, they purchased an adjacent parcel (Lot E), which they owned in their own names. In 1994, with the goal of maintaining the property as a family legacy, the Murr parents transferred title to Lot F to their six children. The next year they similarly gifted Lot E to the children. Subsequently, two of the Murr children quitclaimed their interests to their four siblings who became owners of both lots.

            In 2004, the family wanted to replace the existing cabin on Lot F with new construction located on higher ground to avoid flooding possibilities. They intended to sell Lot E to finance the project. State authorities, citing the 1975 land use regulations, denied permission for the sale of Lot E. Although the lot was 1.25 acres in size, high bluffs and other geographical conditions reduced the area suitable for development to 0.5 acres, significantly less than the 1-acre minimum. Because Lots E and F were adjacent to one another and commonly owned by the four Murr children, the substandard status of Lot E required the state to consider the two lots as one merged parcel. The Murr siblings petitioned for a variance from the regulations, but the petition was denied.

            The Murrs filed suit, claiming that the state’s regulatory action deprived them of the economic value of Lot E and thus constituted a Fifth Amendment taking for which they are entitled to compensation. Wisconsin courts ruled in favor of the state, concluding that the Murr children should have been aware of the regulations when they acquired the lots in 1994 and 1995, and that the economic loss of combining the two lots into one was less than 10 percent.

 

          

JUSTICE KENNEDY delivered the opinion of the Court.

The classic example of a property taking by the government is when the property has been occupied or otherwise seized. In the case now before the Court, petitioners contend that governmental entities took their real property—an undeveloped residential lot—not by some physical occupation but instead by enacting burdensome regulations that forbid its improvement or separate sale because it is classified as substandard in size. The relevant governmental entities are the respondents. . . .

[R]espondents contend there is no regulatory taking because petitioners own an adjacent lot. The regulations, in effecting a merger of the property, permit the continued residential use of the property including for a single improvement to extend over both lots. This retained right of the landowner, respondents urge, is of sufficient offsetting value that the regulation is not severe enough to be a regulatory taking. To resolve the issue whether the landowners can insist on confining the analysis just to the lot in question, without regard to their ownership of the adjacent lot, it is necessary to discuss the background principles that define regulatory takings. . . .

The Takings Clause of the Fifth Amendment provides that private property shall not “be taken for public use, without just compensation.” The Clause is made applicable to the States through the Fourteenth Amendment. As this Court has recognized, the plain language of the Takings Clause “requires the payment of compensation whenever the government acquires private property for a public purpose,” see Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency (2002), but it does not address in specific terms the imposition of regulatory burdens on private property. Indeed, “[p]rior to Justice Holmes’s exposition in Pennsylvania Coal Co. v. Mahon (1922), it was generally thought that the Takings Clause reached only a direct appropriation of property, or the functional equivalent of a practical ouster of the owner’s possession,” like the permanent flooding of property. Mahon, however, initiated this Court’s regulatory takings jurisprudence, declaring that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” A regulation, then, can be so burdensome as to become a taking, yet the Mahon Court did not formulate more detailed guidance for determining when this limit is reached.

In the near century since Mahon, the Court for the most part has refrained from elaborating this principle through definitive rules. This area of the law has been characterized by “ad hoc, factual inquiries, designed to allow careful examination and weighing of all the relevant circumstances.” Tahoe-Sierra. The Court has, however, stated two guidelines relevant here for determining when government regulation is so onerous that it constitutes a taking. First, “with certain qualifications . . . a regulation which ‘denies all economically beneficial or productive use of land’ will require compensation under the Takings Clause.” Palazzolo v. Rhode Island (2001). Second, when a regulation impedes the use of property without depriving the owner of all economically beneficial use, a taking still may be found based on “a complex of factors,” including (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action. Palazzolo. . . .

This case presents a question that is linked to the ultimate determination whether a regulatory taking has occurred: What is the proper unit of property against which to assess the effect of the challenged governmental action? Put another way, “[b]ecause our test for regulatory taking requires us to compare the value that has been taken from the property with the value that remains in the property, one of the critical questions is determining how to define the unit of property ‘whose value is to furnish the denominator of the fraction.’” Keystone Bituminous Coal Assn. v. DeBenedictis. . . .

[N]o single consideration can supply the exclusive test for determining the denominator. Instead, courts must consider a number of factors. These include the treatment of the land under state and local law; the physical characteristics of the land; and the prospective value of the regulated land. The endeavor should determine whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts. The inquiry is objective, and the reasonable expectations at issue derive from background customs and the whole of our legal tradition.

First, courts should give substantial weight to the treatment of the land, in particular how it is bounded or divided, under state and local law. The reasonable expectations of an acquirer of land must acknowledge legitimate restrictions affecting his or her subsequent use and dispensation of the property. A reasonable restriction that predates a landowner’s acquisition, however, can be one of the objective factors that most landowners would reasonably consider in forming fair expectations about their property. In a similar manner, a use restriction which is triggered only after, or because of, a change in ownership should also guide a court’s assessment of reasonable private expectations.

Second, courts must look to the physical characteristics of the landowner’s property. These include the physical relationship of any distinguishable tracts, the parcel’s topography, and the surrounding human and ecological environment. In particular, it may be relevant that the property is located in an area that is subject to, or likely to become subject to, environmental or other regulation.

Third, courts should assess the value of the property under the challenged regulation, with special attention to the effect of burdened land on the value of other holdings. Though a use restriction may decrease the market value of the property, the effect may be tempered if the regulated land adds value to the remaining property, such as by increasing privacy, expanding recreational space, or preserving surrounding natural beauty. . . .

State and federal courts have considerable experience in adjudicating regulatory takings claims that depart from these examples in various ways. The Court anticipates that in applying the test above they will continue to exercise care in this complex area.

The merger provision here [considering Lots E and F as one parcel] is . . . a legitimate exercise of government power, as reflected by its consistency with a long history of state and local merger regulations that originated nearly a century ago. Merger provisions often form part of a regulatory scheme that establishes a minimum lot size in order to preserve open space while still allowing orderly development.

When States or localities first set a minimum lot size, there often are existing lots that do not meet the new requirements, and so local governments will strive to reduce substandard lots in a gradual manner. The regulations here represent a classic way of doing this: by implementing a merger provision, which combines contiguous substandard lots under common ownership, alongside a grandfather clause, which preserves adjacent substandard lots that are in separate ownership. Also, as here, the harshness of a merger provision may be ameliorated by the availability of a variance from the local zoning authority for landowners in special circumstances.

Petitioners’ insistence that lot lines define the relevant parcel ignores the well-settled reliance on the merger provision as a common means of balancing the legitimate goals of regulation with the reasonable expectations of landowners. Petitioners’ rule would frustrate municipalities’ ability to implement minimum lot size regulations by casting doubt on the many merger provisions that exist nationwide today. . . .

Under the appropriate multifactor standard, it follows that for purposes of determining whether a regulatory taking has occurred here, petitioners’ property should be evaluated as a single parcel consisting of Lots E and F together.

First, the treatment of the property under state and local law indicates petitioners’ property should be treated as one when considering the effects of the restrictions. As the Wisconsin courts held, the state and local regulations merged Lots E and F. The decision to adopt the merger provision at issue here was for a specific and legitimate purpose, consistent with the widespread understanding that lot lines are not dominant or controlling in every case. Petitioners’ land was subject to this regulatory burden, moreover, only because of voluntary conduct in bringing the lots under common ownership after the regulations were enacted. As a result, the valid merger of the lots under state law informs the reasonable expectation they will be treated as a single property.

Second, the physical characteristics of the property support its treatment as a unified parcel. The lots are contiguous along their longest edge. Their rough terrain and narrow shape make it reasonable to expect their range of potential uses might be limited. The land’s location along the river is also significant. Petitioners could have anticipated public regulation might affect their enjoyment of their property, as the Lower St. Croix was a regulated area under federal, state, and local law long before petitioners possessed the land.

Third, the prospective value that Lot E brings to Lot F supports considering the two as one parcel for purposes of determining if there is a regulatory taking. Petitioners are prohibited from selling Lots E and F separately or from building separate residential structures on each. Yet this restriction is mitigated by the benefits of using the property as an integrated whole, allowing increased privacy and recreational space, plus the optimal location of any improvements.

The special relationship of the lots is further shown by their combined valuation. . . . [T]he combined lots are valued at $698,300, which is far greater than the summed value of the separate regulated lots (Lot F with its cabin at $373,000, according to respondents’ appraiser, and Lot E as an undevelopable plot at $40,000, according to petitioners’ appraiser). The value added by the lots’ combination shows their complementarity and supports their treatment as one parcel. . . .

Considering petitioners’ property as a whole, the state court was correct to conclude that petitioners cannot establish a compensable taking in these circumstances. Petitioners have not suffered a taking under Lucas, as they have not been deprived of all economically beneficial use of their property. They can use the property for residential purposes, including an enhanced, larger residential improvement. The property has not lost all economic value, as its value has decreased by less than 10 percent.

Petitioners furthermore have not suffered a taking under the more general test of Penn Central. The expert appraisal relied upon by the state courts refutes any claim that the economic impact of the regulation is severe. Petitioners cannot claim that they reasonably expected to sell or develop their lots separately given the regulations which predated their acquisition of both lots. Finally, the governmental action was a reasonable land-use regulation, enacted as part of a coordinated federal, state, and local effort to preserve the river and surrounding land.

Like the ultimate question whether a regulation has gone too far, the question of the proper parcel in regulatory takings cases cannot be solved by any simple test. Courts must instead define the parcel in a manner that reflects reasonable expectations about the property. Courts must strive for consistency with the central purpose of the Takings Clause: to “bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Armstrong [v. United States (1960)]. Treating the lot in question as a single parcel is legitimate for purposes of this takings inquiry, and this supports the conclusion that no regulatory taking occurred here.

The judgment of the Wisconsin Court of Appeals is affirmed.

It is so ordered.

 

CHIEF JUSTICE ROBERTS, with whom JUSTICE THOMAS and JUSTICE ALITO join, dissenting.

The Murr family owns two adjacent lots along the Lower St. Croix River. Under a local regulation, those two properties may not be “sold or developed as separate lots” because neither contains a sufficiently large area of buildable land. The Court today holds that the regulation does not effect a taking that requires just compensation. This bottom-line conclusion does not trouble me; the majority presents a fair case that the Murrs can still make good use of both lots, and that the ordinance is a commonplace tool to preserve scenic areas, such as the Lower St. Croix River, for the benefit of landowners and the public alike.

Where the majority goes astray, however, is in concluding that the definition of the “private property” at issue in a case such as this turns on an elaborate test looking not only to state and local law, but also to (1) “the physical characteristics of the land,” (2) “the prospective value of the regulated land,” (3) the “reasonable expectations” of the owner, and (4) “background customs and the whole of our legal tradition.” Our decisions have, time and again, declared that the Takings Clause protects private property rights as state law creates and defines them. By securing such established property rights, the Takings Clause protects individuals from being forced to bear the full weight of actions that should be borne by the public at large. The majority’s new, malleable definition of “private property”—adopted solely “for purposes of th[e] takings inquiry,” —undermines that protection.

I would stick with our traditional approach: State law defines the boundaries of distinct parcels of land, and those boundaries should determine the “private property” at issue in regulatory takings cases. Whether a regulation effects a taking of that property is a separate question, one in which common ownership of adjacent property may be taken into account. Because the majority departs from these settled principles, I respectfully dissent.

JUSTICE THOMAS, dissenting.

I join The Chief Justice’s dissent because it correctly applies this Court’s regulatory takings precedents, which no party has asked us to reconsider. The Court, however, has never purported to ground those precedents in the Constitution as it was originally understood. In Pennsylvania Coal Co. v. Mahon (1922), the Court announced a “general rule” that “if regulation goes too far it will be recognized as a taking.” But we have since observed that, prior to Mahon, “it was generally thought that the Takings Clause reached only a ‘direct appropriation’ of property or the functional equivalent of a ‘practical ouster of [the owner’s] possession,’ Transportation Co. v. Chicago (1879).” Lucas v. South Carolina Coastal Council (1992). In my view, it would be desirable for us to take a fresh look at our regulatory takings jurisprudence, to see whether it can be grounded in the original public meaning of the Takings Clause of the Fifth Amendment or the Privileges or Immunities Clause of the Fourteenth Amendment.