Court Finds Regulatory Taking of Developer’s Property

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SandBar 7:1, Regulatory Takings Issue, April, 2008 Court Finds Regulatory Taking of Developer’s Property Bailey v. United States, 2007 WL 2317493 (Ct. Fed. Cls. Aug. 10, 2007) *Sarah Spigener, 3L, University of Mississippi School of Law* The Court of Federal Claims held that a private property owner may seek compensation for a regulatory taking of property at any time the regulation continues to be enforced, even if the regulation existed prior to the purchase of the property or a previous owner had been awarded compensation for the same regulatory taking. Background In 1989, Gary Bailey bought land bordering the Lake of the Woods in Minnesota. Bailey initially planned to build a marina or a harbor on the property, so he applied to the United States Army Corps of Engineers (Corps) for a dredging permit. In 1990, the Corps approved the permit; however, Bailey never began the project. Three years later, the Corps informed Bailey that he would need a different permit to complete the project because the property was located in a wetlands area and suggested that Bailey hire a consultant to designate which portions of his property were wetlands. Bailey did not take any action until late 1996 when he applied to Lake of the Woods County to have 13.2 acres of his property along the lakeshore platted as a subdivision. As a condition of approval from the county, Bailey had to construct an access road as an extension of an existing road to the property. In June 1998, Bailey was orally advised to cease work on the access road until he obtained the necessary permit from the Corps. Bailey applied for an after-the-fact permit for the access road. With his application to the county, Bailey submitted a Wetland Replace ment Plan pursuant to the Minnesota Wetland Conservation Act. The county forwarded the application to the Corps and the Corps acknowledged that a wetlands permit was needed pursuant to the Clean Water Act. In Sep tember, the Corps sent Bailey a written order to stop operations until a permit was obtained; however, Bailey continued to work on the road to obtain county approval. In December, the county approved the fourteen lot subdivision and in August 1999 the county approved the access road. In August 2000, the Corps conducted its own wetlands delineation of the property and determined that a majority of the land was wetlands. In October, the Minnesota Pollution Control Agency revoked its previously-issued water quality certification and in June 2001, the Corps denied the after-the-fact permit for the access road. The Corps gave Bailey three options: (1) completely remove the road; (2) partially remove the road; or (3) mitigate. In October 2001, the Corps ordered the road to be completely removed. By this time, some of the lots had been sold. When the permit was denied, Bailey bought back four of the lots. In August 2002, Bailey sued the Corps alleging that the restrictions on the subdivision property deprived him of all economically beneficial and productive use of his land, or, in the alternative, substantially diminished the value of his property, resulting in a regulatory taking of his property requiring just compensation under the Fifth Amendment. Regulatory Taking In order to bring a claim, the claim must be based on a final agency decision. Initially, the Corps argued that the court should dismiss the taking claim for lack of ripeness or readiness, because there was no final decision. The court found that the taking claim based on the restoration order was ripe, agreeing with Bailey’s argument that the order to remove the road was a final decision because it prohibited access to the property. Furthermore, the court held that Bailey’s challenge of the restoration order did not bar him from proceeding with the taking claim. The crux of the decision focused on what property was allegedly taken by the Corps’ denial of the permit. The Corps argued that Bailey could only base his taking claim on the property interests he held on the date of the alleged taking, and not on the interests he acquired after that date, such as the lots he bought back. The court explained that government compensation for the physical displacement of a private property owner from the exercise of a property interest is permanent. For example, if the takings claim was based on a physical invasion of private property by the government, a subsequent owner could not seek government compensation. However, the court found that no court had previously considered a regulatory taking claim raised by a subsequent owner. The court relied on the Supreme Court’s decision in First English,1 which emphasized that a government actor whose regulatory actions are found to have taken property cannot be required to obtain the full, permanent interests in the property; because, the government retains the option of converting the taking into a temporary one. The court also relied upon the Supreme Court’s decision in Palazzolo,2 in which the court held that a property owner may base a takings claim on the application of a regulation to his property even if the regulation existed prior to his ownership. The Supreme Court stated that the “claim is not barred by the mere fact that title was acquired after the effective date of the state-imposed restriction.”3 The court explained that when a government restriction on the use of the property is so severe as to result in a taking, the owner is suing for his loss of use, not for the loss of subsequent owners.4 The court further explained that a regulatory taking can never be viewed as a permanent restriction on the land since the government may choose to stop regulating the use of the property at any time. As a result, the court held that whoever owns the property while the regulatory taking continues is entitled to compensation. The court reasoned that the right to use property runs with the land. If a current owner is compensated for the restricted use of his land, a subsequent owner of the restricted land would be similarly entitled to compensation. Con sequently, the court held that Bailey could seek compensation for the alleged taking of his property interests in five lots, one which he continuously owned and four that he had repurchased after the permit denial. Conclusion A property owner who owned lakeshore property which he converted to subdivision lots brought this action to contest the denial of an after-the-fact permit and order of the Corps, pursuant to wetlands regulation, to remove an access road he had constructed for his property amidst Corps warnings to cease construction operations. The plaintiff argued that the regulation of his property, which left the property without a means of access, rendered it void of any economic value. The Corps argued that the plaintiff could not assert a taking claim based on his property interests in the reacquired lots because a taking claim should be based on property interests at the time of the alleged taking. However, the court held that rule was only applicable to physical permanent takings. The court held that current owners, as well as subsequent owners, may assert a regulatory taking claim and seek compensation. Therefore Bailey could assert a regulatory taking claim for four lots which he repurchased and one lot for which he continuously held title. Endnotes 1. First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304 (1987). 2. Palazzolo v. Rhode Island, 533 U.S. 606 (2001). 3. Id. at 630. 4. Bailey v. United States, 2007 WL 2317493 (Ct. Fed. Cls. Aug. 10, 2007). (Emphasis in the opinion).
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SandBar 7:1, Regulatory Takings Issue, April, 2008

Court Finds Regulatory Taking of Developer’s Property

Bailey v. United States, 2007 WL 2317493 (Ct. Fed. Cls. Aug. 10, 2007)

Sarah Spigener, 3L, University of Mississippi School of Law

The Court of Federal Claims held that a private property owner may seek compensation for a regulatory taking of property at any time the regulation continues to be enforced, even if the regulation existed prior to the purchase of the property or a previous owner had been awarded compensation for the same regulatory taking.

Background
In 1989, Gary Bailey bought land bordering the Lake of the Woods in Minnesota. Bailey initially planned to build a marina or a harbor on the property, so he applied to the United States Army Corps of Engineers (Corps) for a dredging permit. In 1990, the Corps approved the permit; however, Bailey never began the project. Three years later, the Corps informed Bailey that he would need a different permit to complete the project because the property was located in a wetlands area and suggested that Bailey hire a consultant to designate which portions of his property were wetlands.
      Bailey did not take any action until late 1996 when he applied to Lake of the Woods County to have 13.2 acres of his property along the lakeshore platted as a subdivision. As a condition of approval from the county, Bailey had to construct an access road as an extension of an existing road to the property. In June 1998, Bailey was orally advised to cease work on the access road until he obtained the necessary permit from the Corps.
      Bailey applied for an after-the-fact permit for the access road. With his application to the county, Bailey submitted a Wetland Replace ment Plan pursuant to the Minnesota Wetland Conservation Act. The county forwarded the application to the Corps and the Corps acknowledged that a wetlands permit was needed pursuant to the Clean Water Act. In Sep tember, the Corps sent Bailey a written order to stop operations until a permit was obtained; however, Bailey continued to work on the road to obtain county approval. In December, the county approved the fourteen lot subdivision and in August 1999 the county approved the access road.
      In August 2000, the Corps conducted its own wetlands delineation of the property and determined that a majority of the land was wetlands. In October, the Minnesota Pollution Control Agency revoked its previously-issued water quality certification and in June 2001, the Corps denied the after-the-fact permit for the access road. The Corps gave Bailey three options: (1) completely remove the road; (2) partially remove the road; or (3) mitigate. In October 2001, the Corps ordered the road to be completely removed.
      By this time, some of the lots had been sold. When the permit was denied, Bailey bought back four of the lots. In August 2002, Bailey sued the Corps alleging that the restrictions on the subdivision property deprived him of all economically beneficial and productive use of his land, or, in the alternative, substantially diminished the value of his property, resulting in a regulatory taking of his property requiring just compensation under the Fifth Amendment.

Regulatory Taking
In order to bring a claim, the claim must be based on a final agency decision. Initially, the Corps argued that the court should dismiss the taking claim for lack of ripeness or readiness, because there was no final decision. The court found that the taking claim based on the restoration order was ripe, agreeing with Bailey’s argument that the order to remove the road was a final decision because it prohibited access to the property. Furthermore, the court held that Bailey’s challenge of the restoration order did not bar him from proceeding with the taking claim.
      The crux of the decision focused on what property was allegedly taken by the Corps’ denial of the permit. The Corps argued that Bailey could only base his taking claim on the property interests he held on the date of the alleged taking, and not on the interests he acquired after that date, such as the lots he bought back. The court explained that government compensation for the physical displacement of a private property owner from the exercise of a property interest is permanent. For example, if the takings claim was based on a physical invasion of private property by the government, a subsequent owner could not seek government compensation.
      However, the court found that no court had previously considered a regulatory taking claim raised by a subsequent owner. The court relied on the Supreme Court’s decision in First English,1 which emphasized that a government actor whose regulatory actions are found to have taken property cannot be required to obtain the full, permanent interests in the property; because, the government retains the option of converting the taking into a temporary one.
      The court also relied upon the Supreme Court’s decision in Palazzolo,2 in which the court held that a property owner may base a takings claim on the application of a regulation to his property even if the regulation existed prior to his ownership. The Supreme Court stated that the “claim is not barred by the mere fact that title was acquired after the effective date of the state-imposed restriction.”3 The court explained that when a government restriction on the use of the property is so severe as to result in a taking, the owner is suing for his loss of use, not for the loss of subsequent owners.4
      The court further explained that a regulatory taking can never be viewed as a permanent restriction on the land since the government may choose to stop regulating the use of the property at any time. As a result, the court held that whoever owns the property while the regulatory taking continues is entitled to compensation. The court reasoned that the right to use property runs with the land. If a current owner is compensated for the restricted use of his land, a subsequent owner of the restricted land would be similarly entitled to compensation. Con sequently, the court held that Bailey could seek compensation for the alleged taking of his property interests in five lots, one which he continuously owned and four that he had repurchased after the permit denial.

Conclusion
A property owner who owned lakeshore property which he converted to subdivision lots brought this action to contest the denial of an after-the-fact permit and order of the Corps, pursuant to wetlands regulation, to remove an access road he had constructed for his property amidst Corps warnings to cease construction operations. The plaintiff argued that the regulation of his property, which left the property without a means of access, rendered it void of any economic value. The Corps argued that the plaintiff could not assert a taking claim based on his property interests in the reacquired lots because a taking claim should be based on property interests at the time of the alleged taking. However, the court held that rule was only applicable to physical permanent takings. The court held that current owners, as well as subsequent owners, may assert a regulatory taking claim and seek compensation. Therefore Bailey could assert a regulatory taking claim for four lots which he repurchased and one lot for which he continuously held title.

Endnotes
1. First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304 (1987).
2. Palazzolo v. Rhode Island, 533 U.S. 606 (2001).
3. Id. at 630.
4. Bailey v. United States, 2007 WL 2317493 (Ct. Fed. Cls. Aug. 10, 2007). (Emphasis in the opinion).