Property Class Notes 1/16/04

We left Nollan with the idea that regulation is a taking unless it advances a state interest and does not deny the owner of all economically viable use of the property.

Back to Lucas

This is kind of an odd case because we’re not quite sure what the statute means. The Supreme Court assumes that the statute means what the South Carolina Supreme Court said, which is that there are no exceptions to the no-build line.

What’s the holding of this case? The U.S. Supreme Court reversed the South Carolina Supreme Court and found for Lucas. Let’s assume that the value of Lucas’s land has gone down to $0, that is, 100%.

The Court says that Lucas is entitled to fair market value.

Say you have a nuclear power plant, and suddenly it’s discovered that the plant is located on an earthquake fault and thus it’s very dangerous to people in the vicinity. This is not a taking, because this use was always a nuisance. It’s just that we didn’t know at the time that it was a nuisance.

The right to create a nuisance is not part of the “bundle of sticks” of property rights. You always take the risk as you develop property that a nuisance will develop such that the cost of fixing it zeros out the net value of the property.

If there’s a taking, just compensation is required, though it may be quite small.

Wasn’t the South Carolina legislature trying to prevent a nuisance by passing the statute? What’s Scalia’s concern with the nuisance exception? He’s concerned that it’s just a loophole around paying compensation for what would otherwise be takings.

How does Scalia get around that? Can state governments create new and novel nuisances?

If you distrust the state, and it’s clear that Scalia does, you have to be concerned with what prohibits the state from saying: “You want a nuisance? I got yer nuisance right here!”

Scalia tries to get around it thus: if something was a nuisance in the 19^th century, it’s okay to regulate it without running into the Fifth Amendment. If it’s always been considered a nuisance, then the state can regulate it. On the other hand, Scalia says: “Don’t just go back and declare something a nuisance all of the sudden. You’ll have to show something special about this property before you can say that it would be a nuisance to build on it.”

But the problem with this, according to Braunstein, is that it limits the legislature in terms of discovering new nuisances. What Scalia must be saying is that the Court will defer to the common law of nuisances, but if the legislature starts creating new and novel nuisances they will be scrutinized carefully to make sure they’re not just trying to weasel their way out of the Fifth Amendment.

The nuisance exception is tough to limit. The legislature can say anything it wants is a nuisance. All we’re left with is that the question of whether something is a nuisance must be judged against the background of state law. That’s fine, but as new things are discovered that constitute nuisances, it’s going to be difficult or impossible to regulate those nuisances without paying just compensation.

Footnote 11: what’s it all about? It’s the denominator problem! Scalia recognizes its existence, but doesn’t do much to help solve it. He does two things:

1. He says the New York Penn Central decision is unsupportable. The court in that case said that the denominator is all of Penn Central’s holdings in the whole world.

2. If the state clearly recognizes that one “stick” in the “bundle” is an important property right, that may form the relevant denominator.

But overall, he pretty much just gives up and says “It’s a tough problem!”

What about footnote 12? Justice Stevens says the “100%” rule is arbitrary. Say Lucas had been deprived of 95% or 99% of the productive economic value of his property. Why should he be deprived of the benefit of this rule?

Say you have two neighbors. Say one neighbor has 100% of their property over the no-build line, while the other neighbor has a sliver of land on the “build” side of the “no-build” line. Then the first neighbor gets 100% compensation, and the second neighbor gets nothing.

How does Scalia deal with this problem? First, he says basically “life is tough”. This seems like an unsatisfactory answer to Braunstein.

It’s hard to know what it means to be deprived of 100% of value. The state didn’t do much to say what Lucas could still do with his land, but there may have been something productive he could have done. It’s hard to believe he couldn’t have done anything.

However, the rule is easy to state. If you are deprived of 100% of the economically productive value of your land, it’s a taking and you’re entitled to just compensation unless the regulated use of the land constitutes a nuisance under established (not “new and novel”) state law.

The State ex rel. R.T.G., Inc. et al. v. The State of Ohio et al.

Braunstein says this is a good summary of what the law is, even if we may disagree with the fairness of the result.

RTG decides that there’s some land in Ohio that they want to mine for coal. To that end, it begins to acquire the land. It acquires some land in fee simple, which is to say that it acquires both the surface and sub-surface (the whole thing). There is other land where it just acquires a leasehold in the minerals. That means you’ll pay a rent to the owner of the land equal to some percentage of the value of the coal mined from the land. So they own two kinds of land.

The Ohio Department of Natural Resources comes in and declares some of the land unsuitable for mining on the basis that mining would have a negative impact on wells that provide water to towns near the mine.

The lower court rules that the fee land hasn’t been taken even though they can’t mine under it. All that means is that this isn’t a per se take. So the lower court applied Penn Central and found it wasn’t a take.

On the other hand, the leasehold land had lost all its value because its only value was to mine coal. Thus, 100% of the value has been taken and the Lucas test is applied.

What Braunstein likes about the case is that they go through and talk about both tests. First, they look at the Penn Central test, which has three factors:

1. The nature of the governmental regulation

2. The economic impact of the regulation

3. The extent of the interference with the “distinct investment backed expectations” of the landowner

The third factor was pretty clear: they had recently spend a lot of money to get access to the land to mine coal, which was legal at the time they acquired the land.

This ad hoc analysis applies only when the deprivation is less that 100% of the economically beneficial use of the property.

Then the court goes on and talks about the per se test, which involves one of the following:

1. Physical invasion - Loretto

2. Denial of all[1] economically beneficial or productive use of land – Lucas

If Lucas applies, there’s a taking unless the regulated conduct constitutes a nuisance under established state law.

The court also tackles the denominator problem. The numerator is the portion of the property that has been taken by the regulation (this is the easy part). The denominator is the property interest that is subject to the regulation. If the resulting fraction is equal to one, then there is a per se taking. Otherwise, the regulation will be judged under the factor test of Penn Central.

This goes pretty far: it seems that the fraction will always be one when the state says “you can’t mine that coal”.

Use this as a helpful summary of everything we’ve been working on so far.

Now, what we have to do is figure out which of these two apply. Braunstein likes this better than the Preschool case because the analytical framework is set up better.

In this case, we must define the denominator both in the vertical and horizontal planes.

The denominator in the vertical plane

Is the relevant parcel the surface and the coal, or just the coal? The court cites Penn Central but refuses to follow it. Other cases have criticized the rule. The court says that the constitution of a state can grant rights that are above the minimum set by the U.S. Constitution.

The court decides to look at the coal as the relevant parcel because there is a tradition in Ohio of having rights in coal being a separate right from surface rights. The court also says that the owners’ intent was to purchase the property solely to mine the coal. The court will go on to claim that the surface rights were worth nothing to the RTG because the surface was actually an impediment to getting at the coal. But why would you determine the value of the surface subjectively (the value to RTG) as opposed to objectively (the value to anyone).

The denominator in the horizontal plane

The court finds that the relevant parcel in the vertical plane is the coal—the sub-surface rights. But what about the horizontal plane?

It turns out that 20% of the coal is outside the “unsuitable for mining area”. The court says that economies of scale make mining outside of the UFM commercially impractical. But there’s no factual support for that in the case. The case also seems to be internally inconsistent to Braunstein (he bets that you can find economically productive coal mines of 100 acres or less). Therefore, the court says that the relevant parcel is the coal locating in the UFM area.

What the court has done in order to determine the denominator in the horizontal plane is to ignore the coal that RTG can mine. The court claims that the economics of coal mining are such that the 20% outside of the UFM becomes worthless due to this regulation.

Braunstein is especially suspicious of the use of the “all” from Lucas. He doesn’t thing all really means all in this case.

The analysis wraps up by claiming that there hasn’t been a nuisance, and thus there has been a taking of both the leasehold coal and the fee simple coal.

Wrapping up RTG

What do we get out of this case? It’s a good analytical summary of the rules and the circumstances in which they apply. Also, no matter how hard you try, the denominator problem is very difficult and one that is really left up to the discretion of judges.

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