The Tricky Terrain of Property Rights in Takings Cases

By John H. Patton

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While the 5th Amendment of the U.S. Constitution — and parallel California provisions — guarantees payment of just compensation when the government takes private property rights, that guarantee must be vigilantly protected by the property owner or it can be lost.

Two California cases awaiting review by the U.S. Supreme Court explore the tricky terrain that the court sought to address when it decided Palazzolo v. Rhode Island in 2001.

Even in the most straightforward application, the laws governing when and if a claim for compensation can or must be brought is significantly more complicated than the usual injury or tort case.

Often, governmental action affecting the landowner’s rights has no real impact on the owner at the time of the measures, especially when they are in the form of regulations, studies, drafts, and preliminary orders. Sometimes the action is part of a long-term process that eventually culminates in restrictive action.

All of this can lead to real confusion: If there was in fact a compensable taking, when did a taking occur? Will the action impact the use or value of the property? If so, what is the true extent of that impact?

The complexity multiplies when the property is transferred at any stage of the process. Even more troubling is the notion that the landowner or future landowner may be required to initiate legal action to recover compensation when practical determination of the loss and its extent are still unknown or unproveable.

In deciding Palazzolo v. Rhode Island, the Supreme Court rejected the established precedent that a purchaser of property who had notice of an earlier-enacted restriction is barred from making a claim for compensation. The Court reasoned that such a rule would work a “critical alteration to the nature of property,” stripping the newly regulated landowner of the ability to market or sell the interest owned prior to the restriction.

Still, some lower state and federal courts have in many cases continued to pay heed to the so-called Notice Rule, setting the stage for Guggenheim v. City of Goleta and CRV Enterprises v. United States, which seek to obtain clarity and uniformity of law.

In Guggenheim, the City of Goleta passed a new mobile home park rent control ordinance, after plaintiff Guggenheim purchased a trailer park knowing a prior rent control ordinance was in effect. When the landowner sought compensation for the negative impact caused to the property by the new ordinance, the Federal Courts followed the Notice Rule and rejected that claim. Guggenheim has requested review by the Supreme Court, urging that the old ordinance was irrelevant to his claims.

In the CRV case, the U.S. Environmental Protection Agency issued a written decision announcing the likelihood that it would one day implement various clean-up actions in a navigable body of water (a slough), but took no action for years, while pondering what actions it ultimately would take.

After that written decision was issued, but before any action taken, the landowner (CRV) purchased property adjoining the slough to develop a marina, for which the slough was essential. Years later, the EPA blocked maritime access to the slough by stringing a log boom across its mouth, rendering the property useless as it no longer had adequate maritime access.

When the owner sued, the EPA argued the owner had no rights to do so, because CRV had knowledge of EPA’s intent before it purchased the property, and did not own the property when EPA issued its written decision. Again, following the logic of the Notice Rule, the Federal Courts rejected CRV’s claim for compensation, and CRV has requested review by the Supreme Court.

Both CRV and Guggenheim are awaiting decision as to whether review will be granted.

These cases point out the complexity involved when government actions change over time for any of a variety of factors. It can be a real challenge to determine which act or combination of acts created the impact, and when any such act did so. And those challenges are only made more difficult when property rights are being transferred among private owners as that process evolves.

Property owners facing governmental restrictions on the use of their properties need to address these issues promptly, and analytically, regardless of when those restrictions take effect. Professional input at an early stage can make all the difference in the world to protecting those rights.

Patton & Sullivan LLC is a firm of experienced professionals and trial attorneys, dedicated to producing results and protecting our clients’ rights in complex situations.

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John H. Patton, a partner at Patton & Sullivan LLC, specializes in business and real estate law at the trial and appellate levels. He is also co-counsel of record in CRV v. United States. 

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