Fifth Amendment — Takings

Amdt5.9.1 Overview of Takings Clause

The Fifth Amendment provision barring the Government from taking private property for public use absent just compensation has its origin in common law. In his Commentaries on the Constitution of the United States, Justice Joseph Story grounded the Takings Clause in “natural equity,” describing it as “a principle of universal law” without which “almost all other rights would become utterly worthless.”¹ The Supreme Court has recognized the government’s ability to take property as inherent to its powers, stating “[t]he Fifth Amendment to the Constitution says ‘nor shall private property be taken for public use, without just compensation.’ This is a tacit recognition of a preexisting power to take private property for public use, rather than a grant of new power.”²

The Fifth Amendment requirement that just compensation be paid for the taking of private property is intrinsic to the Fifth Amendment’s objective of protecting citizens from government power.³ In its 1898 decision, Backus v. Fort Street Union Depot Co., the Supreme Court stated: “When . . . [the] power [of eminent domain] is exercised it can only be done by giving the party whose property is taken or whose use and enjoyment of such property is interfered with, full and adequate compensation, not excessive or exorbitant, but just compensation.”⁴ Half a century later, in Armstrong v. United States, the Supreme Court explained the basis for the Fifth Amendment’s just compensation guarantee further, stating that the doctrine “was designed 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.”⁵

In the Nation’s early years, the federal power of eminent domain lay dormant as to property outside the District of Columbia.⁶ It was not until the Supreme Court’s 1876 decision, Kohl v. United States,⁷ that the Court affirmed the federal government’s power of eminent domain as implied by the Fifth Amendment, noting that such authority was as necessary to the National Government as it was to the states. Three years later in Boom Co. v. Patterson, the Court confirmed that the power of eminent domain “appertains to every independent government. It requires no constitutional recognition; it is an attribute of sovereignty.”⁸ The federal power of eminent domain is, of course, limited by the grants of power in the Constitution, so that property may only be taken pursuant to a legitimate exercise of Constitutional authority,⁹ but the ambit of national powers is broad enough to enable broad objectives.¹⁰ This prerogative of the National Government can neither be enlarged nor diminished by a state.¹¹

The Fourteenth Amendment extended the Fifth Amendment constraints on the exercise of the power of eminent domain to state governments¹² Because the Fifth Amendment’s Just Compensation Clause did not explicitly apply to states,¹³ the Supreme Court at first did not recognize the Due Process Clause of the Fourteenth Amendment as extending to property owners the same protection against the states as the Fifth Amendment provided against the Federal Government.¹⁴ However, by the 1890s, the Court had rejected arguments that local law solely governed the amount of compensation to be awarded in a state eminent domain case. In Chicago, B. & Q. R.R. Co. v. City of Chicago, the Court ruled that, although a state “legislature may prescribe a form of procedure to be observed in the taking of private property for public use . . . it is not due process of law if provision be not made for compensation. . . . The mere form of the proceeding instituted against the owner . . . cannot convert the process used into due process of law, if the necessary result be to deprive him of his property without compensation.”¹⁵

While the Court has recognized the power of eminent domain to be inherent to federal and state government, federal and state governments may exercise such power only through legislation or legislative delegation. Such delegation is usually to another governmental body such as an agency or local government, although it may also be to private corporations such as public utilities, railroad companies, or bridge companies, so long as the delegation is for a valid public purpose.¹⁶ Furthermore, legislation that delegates taking authority or authorizes an agency to take property by eminent domain does not by itself constitute a taking, as “[s]uch legislation may be repealed or modified, or appropriations may fail” before the taking itself is effectuated.¹⁷

Amdt5.9.2 Public Use and Takings Clause

The Just Compensation Clause explicitly requires that the taking of private property be for a public use; the government cannot deprive anyone of their property for any reason other than a public use, even with compensation.¹ The question of whether a particular intended use is a public use is clearly a judicial one,² but the Court has always granted a high degree of deference to legislative determinations,³ stating that “[t]he role of the judiciary in determining whether that power is being exercised for a public use is an extremely narrow one.”⁴ When state action is challenged under the Fourteenth Amendment, the Court also defers to the highest court of the state in resolving such an issue.⁵ In its 1908 decision Chicago, B. & Q. R.R. v. City of Chicago, the Court noted that, “[n]o case is recalled where this court has condemned as a violation of the Fourteenth Amendment a taking upheld by the state court as a taking for public uses . . . .”⁶

In a 1946 case involving federal eminent domain power, the Court cast doubt upon the power of courts to review the issue of public use, stating “[w]e think that it is the function of Congress to decide what type of taking is for a public use and that the agency authorized to do the taking may do so to the full extent of its statutory authority.”⁷ While there is some suggestion in United States ex rel. TVA v. Welch that “the scope of the judicial power to determine what is a ‘public use’” may differ between Fifth and Fourteenth Amendment cases, with greater power in the latter type of cases than in the former,⁸ Welch also cautions great judicial restraint in evaluating “public uses” more broadly.⁹ Once it is admitted or determined that the taking is for a public use and is within the granted authority, the necessity or expediency of the particular taking is exclusively in the legislature, or the body to which the legislature has delegated the decision, and is not subject to judicial review.¹⁰

At an earlier time, the prevailing judicial view was that the term “public use” was synonymous with “use by the public” and that, if there was no duty upon the taker to permit the public as of right to use or enjoy the property taken, the taking was invalid. But the Court rejected this view.¹¹ The modern conception of public use equates it with the police power in furtherance of the public interest. No definition of the reach or limits of the power is possible, the Court has said, because such “definition is essentially the product of legislative determinations addressed to the purposes of government, purposes neither abstractly nor historically capable of complete definition. . . . Public safety, public health, morality, peace and quiet, law and order—these are some of the . . . traditional application[s] of the police power . . . .”¹² Because the legislature has authority to effectuate these matters, its power to achieve them by exercising eminent domain is established. As the Supreme Court observed, “For the power of eminent domain is merely the means to the end.”¹³ Subsequently, the Court added as an indicium of “public use” whether the government purpose could be validly achieved by tax or user fee.¹⁴

Traditionally, eminent domain has been used to facilitate transportation, the supplying of water, and the like,¹⁵ but its use to establish public parks, to preserve places of historic interest, and to promote beautification has substantial precedent.¹⁶ The Supreme Court has generally approved federal and state governments using the power of eminent domain in conjunction with private companies to facilitate urban renewal, destruction of slums, erection of low-cost housing in place of deteriorated housing, and promotion of aesthetic values as well as economic ones. In Berman v. Parker,¹⁷ a unanimous Court observed: “The concept of the public welfare is broad and inclusive. The values it represents are spiritual as well as physical, aesthetic as well as monetary. It is within the power of the legislature to determine that the community should be beautiful as well as healthy, spacious as well as clean, well-balanced as well as carefully patrolled.”¹⁸ For “public use,” then, it may well be that “public interest” or “public welfare” is the more correct phrase.¹⁹ In Hawaii Housing Authority v. Midkiff,²⁰ the Court applied Berman to uphold the Hawaii Land Reform Act as a “rational” effort to “correct deficiencies in the market determined by the state legislature to be attributable to land oligopoly.”²¹ Direct transfer of land from lessors to lessees was permissible, the Court held, as there is no requirement “that government possess and use property at some point during a taking.”²² “The ‘public use’ requirement is . . . coterminous with the scope of a sovereign’s police powers,” the Court concluded.²³

The Court’s expansive interpretation of public use in eminent domain cases may have reached its outer limit in Kelo v. City of New London.²⁴ There, a five-Justice majority upheld as a public use the government acquisition of privately owned land to be transferred to another private party for purposes of economic development, pursuant to a redevelopment plan adopted by a municipality to invigorate a depressed economy. The Court saw no principled way to distinguish economic development from the economic purposes endorsed in Berman and Midkiff, and stressed the importance of judicial deference to legislative judgment as to public needs. At the same time, the Court cautioned that condemnations of individual properties that are transferred to another private party, not as part of an “integrated development plan . . . raise a suspicion that a private purpose [is] afoot.”²⁵ A vigorous four-Justice dissent countered that, because localities will always be able to manufacture a plausible public purpose, the majority opinion leaves the vast majority of private parcels subject to condemnation when a locality desires a higher-valued use.²⁶ Revisiting the Court’s past endorsements in Berman and Midkiff of a public use/police power equation, the dissenters referred to the “errant language” of these decisions, which was “unnecessary” to their holdings.²⁷

Amdt5.9.3 Property Interests Subject to Takings Clause

If real property is condemned, the market value of that property must be paid to the owner. But there are many kinds of property and many uses of property which cause problems in computing just compensation. It is not only the full fee simple interest in land that is compensable “property,”¹ but also such lesser interests as easements² and leaseholds. If only a portion of a tract is taken, the owner’s compensation includes any element of value arising out of the relation of the part taken to the entire tract.³ Government action that does not encroach on private property does not result in a taking requiring just compensation, even if the action impairs the use of the private property.⁴

If the taking has in fact benefited the owner in some way, however, the benefit may be set off against the value of the land condemned,⁵ although any supposed benefit which the owner may receive in common with all from the public use to which the property is appropriated may not be set off.⁶ For example, when certain lands were condemned for park purposes, with resulting benefits set off against the value of the property taken, the Court held that the subsequent erection of a fire station on the property instead did not deprive the owner of any part of his just compensation.⁷ The Supreme Court has also held that civil forfeitures do not constitute a taking even if the owner of the property is not alleged to have committed a crime, as property is considered to be the offender in forfeiture actions.⁸

The Court has made clear that the prohibition on taking property without compensation extends to Indian lands held in trust by the United States government.⁹ The Court has also held that the government has a “categorical duty to pay just compensation” when it physically takes personal property, just as when it takes real property.¹⁰ For example, in Horne v. Department of Agriculture, the Court held that a raisin marketing order issued under a Depression-era statute requiring raisin growers to reserve a percentage of their total crop for the federal government to dispose of in its discretion constituted “a clear physical taking” because, even though the scheme was intended to benefit growers by maintaining stable markets for raisins, the “[a]ctual raisins are transferred from the growers to the Government.”¹¹ The Court further held the government could not avoid paying just compensation for this physical taking by providing for the return to the raisin growers of any net proceeds from the government’s sale of the reserve raisins.¹² The majority also rejected the government’s argument that the reserve requirement was not a physical taking because raisin growers voluntarily participated in the raisin market.¹³ In so doing, the Court reasoned that selling produce in interstate commerce is not a “special government benefit that the Government may hold hostage, to be ransomed by the waiver of constitutional protection.”¹⁴ In addition, the Court determined that the value of the raisins for takings purposes was their fair market value, with no deduction for the offsetting benefits of the overall statutory scheme, which was intended to maintain stable markets for raisins.¹⁵

Interests in intangible, as well as tangible property, are subject to protection under the Taking Clause. Thus compensation must be paid for the taking of contract rights,¹⁶ patent rights,¹⁷ and trade secrets.¹⁸ The franchise of a private corporation has also been deemed property that cannot be taken for public use without compensation. For example, on condemning a lock and dam system belonging to a navigation company, the government was required to compensate the company for taking its authority to take tolls as well as for the tangible property.¹⁹

Takings challenges to requisitions present their own valuation challenges for the government and the courts. The Court has held that frustrating a private contract by requisitioning the entire output of a steel manufacturer is not a taking for which compensation is required,²⁰ but requisitioning from a power company all the electric power which could be produced by using water diverted through its intake canal and thereby cutting off the supply of a lessee which had a right, amounting to a corporeal hereditament under state law, to draw a portion of that water, entitles the lessee to compensation for the rights taken.²¹ When a ship builder defaulted and the government took title to the builder’s uncompleted boats pursuant to a contract, the Court found that the builder’s suppliers, who had liens under state law, had a compensable interest equal to the value the liens when the government “took” or destroyed them in perfecting its title.²²

As a general rule, there is no property interest in the continuation of a rule of law.²³ For example, even though state participation in the social security system was originally voluntary, a state had no property interest in its right to withdraw from the program when Congress had expressly reserved the right to amend the law and the agreement with the state.²⁴ Similarly, there is no right to the continuation of governmental welfare benefits.²⁵

Amdt5.9.4 Physical Takings

When government institutes condemnation proceedings directed to property, or mistakenly grants privately held property rights to third parties,¹ it “takes” such property and the Fifth Amendment requires just compensation. In contrast, where government action causes physical damage to property, limits activity on property, or otherwise deprives property of value,² determining whether such actions constitute “takings” in the Fifth Amendment sense is more complex.

In early cases, the Supreme Court considered the Fifth Amendment requirement that the government pay just compensation for property taken for public use to refer only to “direct appropriation, and not to consequential injuries resulting from the exercise of lawful power.”³ Accordingly, the Supreme Court has held a variety of consequential injuries not to constitute takings, including: damage to abutting property resulting from the authorization of a railroad to erect tracts, sheds, and fences over a street;⁴ lessening the circulation of light and air and impairing access to premises, resulting from the erection of an elevated viaduct over a street, or resulting from the changing of a grade in the street;⁵ the forced sale of cattle due to loss of grazing land due to government flooding,⁶ and a federal irrigation project that resulting in raised groundwater and lake water impacting nearby properties.⁷ Nor did the Court hold the government liable for extra expenses property owners incurred addressing the consequences of governmental actions, such as expenses incurred by a railroad in planking an area condemned for a crossing, constructing gates, and posting gatemen,⁸ or by a landowner in raising the height of dikes around his land to prevent their partial flooding consequent to private construction of a dam under public licensing.⁹

The Court has decided that the government can “take” land by physical invasion or occupation when it floods land permanently or recurrently, thereby triggering the just compensation requirement.¹⁰ In its 1947 decision United States v. Dickinson, the Court stated that “[p]roperty is taken in the constitutional sense when inroads are made upon an owner’s use of it to an extent that, as between private parties, a servitude has been acquired either by agreement or in course of time.”¹¹ The Court thus held in Portsmouth Harbor Land & Hotel Co. v. United States that the government had imposed a servitude for which it must compensate the owner on land adjoining its fort when it repeatedly fired guns at the fort across the land and established a fire control service there.¹² In two cases—United States v. Causby and Griggs v. Allegheny County—the Court held that lessees or operators of airports were required to compensate owners of adjacent land when the noise, glare, and fear of injury occasioned by low altitude overflights during takeoffs and landings made the land unfit for the use to which the owners had applied it.¹³ The Court has also held in Cedar Point Nursery v. Hassid that a law requiring employers to allow union organizers to enter a business property effectuated a physical taking, and thus was unconstitutional in the absence of just compensation.¹⁴ The term “inverse condemnation” is often used to refer to cases where the government has not instituted formal condemnation proceedings, but the property owner has instead sued for just compensation, claiming that governmental action or regulation has “taken” his property.¹⁵

The Fifth Amendment generally does not prohibit the government from collecting administrative and other fees incidental to conducting government business. For example, in United States v. Sperry Corp., the Court held that a 1% user fee deducted from awards granted by an international tribunal to cover the costs of administering that tribunal did not constitute a taking, but simply a “user fee.”¹⁶ The Court further noted that “[t]he amount of a user fee need not be precisely calibrated to the use that a party makes of governmental services.”¹⁷ The Court, however, has found other government fees to be excessive enough to constitute a taking for which there must be just compensation.¹⁸

The Court’s repeated holdings that riparian ownership is subject to Congress’s power to regulate commerce is an important reservation to the law of liability in the taking area. When government improvements to a river’s navigable capacity or to a nonnavigable river designed to affect navigability elsewhere cause damage, the Court has generally not considered such damage to be a taking of property but merely an exercise of a servitude to which the property is always subject.¹⁹ This exception does not apply to lands above the ordinary high-water mark of a stream;²⁰ hence, it is inapplicable to the damage the government may do to such “fast lands” by causing overflows, by erosion, and otherwise, consequent on erection of dams or other improvements.²¹ Furthermore, when previously nonnavigable waters are made navigable by private investment, government may not assert a navigation servitude and direct the property owners to afford public access without paying just compensation.²²

Amdt5.9.5 Early Jurisprudence on Regulatory Takings

While government may take private property, with compensation, to promote the public interest, government may also regulate property use pursuant to its police power. For years, regulation designed to secure the common welfare, especially in the area of health and safety, was not considered a “taking.” ¹

Regulation, however, may deprive an owner of most or all beneficial use of his property and may destroy the values of the property for the purposes to which it is suited.² While early cases denied compensation for this diminution of property values,³ the Court changed direction in its 1922 decision, Pennsylvania Coal Co. v. Mahon. In Mahon, the Court established as a general principle that “if regulation goes too far it will be recognized as a taking.”⁴ The majority in Mahon held unconstitutional a state statute prohibiting subsurface mining in regions where it presented a danger of subsidence for homeowners. The homeowners had purchased land, the deeds of which reserved to coal companies ownership of subsurface mining rights and held the companies harmless for damage caused by subsurface mining operations. The statute thus enriched the homeowners and deprived the coal companies of the entire value of their subsurface estates. The Court observed that “[f]or practical purposes, the right to coal consists in the right to mine,” and that the statute, by making it “commercially impracticable to mine certain coal,” had essentially “the same effect for constitutional purposes as appropriating or destroying” the subsurface estate.⁵ The regulation, therefore, in precluding the companies from exercising any mining rights whatever, went “too far.”⁶ However, when presented sixty-five years later with a similar restriction on coal mining, the Court upheld it, pointing out that, unlike its predecessor, the newer law identified important public interests, and that the plaintiffs had not sufficiently demonstrated diminution of their property interests.⁷

The Court had long been concerned with the government imposing on one or a few individuals the costs of furthering the public interest.⁸ This issue has frequently arisen in disputes over zoning regulations. The Court’s first zoning case, Village of Euclid v. Ambler Realty Co., involved a real estate company’s allegation that a comprehensive municipal zoning ordinance prevented development of its land for industrial purposes and thereby reduced its value from $10,000 an acre to $2,500 an acre.⁹ Acknowledging that zoning was of recent origin, the Court, applying substantive due process analysis instead of takings-based analysis, observed that it must be justified by police power and evaluated by the constitutional standards applied to exercises of police power. After considering traditional nuisance law, the Court determined that the public interest was served by segregating incompatible land uses and the ordinance was thus valid on its face. Instead, a zoning regulation that diminished property values would be unconstitutional only if it were “clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare.”¹⁰ A few years later in Nectow v. City of Cambridge, the Court, again relying on due process rather than takings law, invalidated application of a zoning ordinance to a tract of land, finding that the tract would be rendered nearly worthless and that exempting the tract would not impair a substantial municipal interest.¹¹ The Court gave additional attention to this issue in the 1970s as states and municipalities developed more comprehensive zoning techniques.¹²

As governmental regulation of property has expanded over the years—in terms of zoning and other land use controls, environmental regulations, and the like—the Court has avoided a “set formula to determine where regulation ends and taking begins.”¹³ The Court has observed that, “[i]n the near century since Mahon, the Court for the most part has refrained from elaborating this principle through definitive rules”¹⁴ and “[t]his area of the law has been characterized by ‘ad hoc, factual inquiries, designed to allow careful examination and weighing of all the relevant circumstances.’”¹⁵ Nonetheless, the Court has articulated general principles that guide many of its decisions in the area.¹⁶ These principles are often referred to as the “Penn Central” framework.

Amdt5.9.6 Regulatory Takings and Penn Central Framework

In its 1978 decision, Penn Central Transportation Co. v. City of New York,¹ the Court, while cautioning that regulatory takings cases require “essentially ad hoc, factual inquiries,” nonetheless provided general guidance for determining whether a regulatory taking had occurred. The Court emphasized that the degree to which a government action interfered with a property owner’s interest in his property—whether the interference amounted to a “physical invasion” or only reflected an “adjusting of benefits and burdens”—indicated whether a taking had occurred. The Court explained:

The economic impact of the regulation on the claimant and, particularly, the extent to

which the regulation has interfered with distinct investment-backed expectations are

. . . relevant considerations. So too, is the character of the governmental action. A

‘taking’ may more readily be found when the interference with property can be

characterized as a physical invasion by government than when interference arises

from some public program adjusting the benefits and burdens of economic life to

promote the common good.²

Penn Central concerned New York City’s landmarks preservation law, pursuant to which the City denied approval to construct a fifty-three-story office building atop Grand Central Terminal. The Court denied Penn Central’s takings claim by applying the principles set forth above. Considering the economic impact on Penn Central, the Court noted that the company could still make a “reasonable return” on its investment by continuing to use the facility as a rail terminal with office rentals and concessions, and the City specifically permitted owners of landmark sites to transfer to other sites the right to develop those sites beyond the otherwise permissible zoning restrictions, a valuable right that mitigated the burden otherwise to be suffered by the owner. As for the character of the governmental regulation, the Court found the landmarks law to be an economic regulation rather than a governmental appropriation of property, the preservation of historic sites being a permissible goal and one that served the public interest.³ Penn Central’s economic impact standard also left room for Justice Oliver Wendell Holmes’s observation in Mahon that “[g]overnment hardly could go on if to some extent values incident to property could not be diminished without paying for every . . . change in the general law.”⁴ Thus, the Court has held that a mere permit requirement does not amount to a taking,⁵ nor does a simple recordation requirement.⁶

Several times the Court has relied on the concept of “distinct [or, in later cases, ‘reasonable’] investment-backed expectations,” which it introduced in Penn Central, to analyze whether a taking had occurred. In Ruckelshaus v. Monsanto Co.,⁷ the Court used this concept to determine whether the government’s disclosure of trade secret information submitted with applications for pesticide registrations resulted in a taking. The Court reasoned that disclosing data that had been submitted from 1972 to 1978, a period when the statute guaranteed confidentiality and thus “formed the basis of a distinct investment-backed expectation,” would have destroyed the property value of the trade secret and constituted a taking.⁸ Following 1978 amendments setting forth conditions of data disclosure, applicants who voluntarily submitted data in exchange for the economic benefits of registration had no reasonable expectation of additional protections of confidentiality.⁹

Rejecting an assertion that reasonable investment backed-expectations had been upset in Connolly v. Pension Benefit Guaranty Corp.,¹⁰ the Court upheld the government’s retroactive imposition of liability for pension plan withdrawals. The Court reasoned that employers had at least constructive notice that Congress might buttress the legislative scheme to accomplish its legislative aim that employees receive promised benefits. However, where a statute imposes severe and “substantially disproportionate” retroactive liability based on conduct several decades earlier, on parties that could not have anticipated the liability, a taking (or violation of due process) may occur. On this rationale, the Court in Eastern Enterprises v. Apfel¹¹ enjoined applying the Coal Miner Retiree Health Benefit Act requirement that companies formerly engaged in mining pay certain miner retiree health benefits to a company that had spun off its mining operation in 1965, before collective bargaining agreements included an express promise of lifetime benefits. In 1998, the Court, however, sustained a federal ban on selling artifacts made from eagle feathers as applied to the existing inventory of a commercial dealer in such artifacts, while not directly addressing the ban’s interference with investment-backed expectations.¹² The Court merely noted that the ban served a substantial public purpose in protecting the eagle from extinction, that the owner still had viable economic uses for his holdings, such as displaying them in a museum and charging admission, and that he still had the value of possession.¹³

The Court has made plain that, in applying the economic impact and investment-backed expectations factors of Penn Central, courts should compare what the property owner has lost through the challenged government action with what the owner retains. Discharging this mandate requires a court to define the extent of plaintiff ’s property—the “parcel as a whole”—that sets the scope of analysis.¹⁴ In Murr v. Wisconsin, the Court stated that, “[l]ike 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.”¹⁵

In Murr, the owners of two small adjoining lots, previously owned separately, wished to sell one of their lots and build on the other. The landowners were prevented from doing so by state and local regulations, enacted to implement a federal Act, which effectively merged the lots when they came under common ownership prior to their purchase by the plaintiffs, thereby barring the separate sale or improvement of the lots. The plaintiff landowners therefore sought just compensation, alleging a regulatory taking of their property. In ruling against the landowners, the Supreme Court set forth a flexible multi-factor test for defining “the proper unit of property” to analyze whether a regulatory taking has occurred,¹⁶ whereby the boundaries of the parcel determine the “denominator of the fraction” of value taken from a property by a governmental regulation, which in turn can determine whether the government has “taken” private property.¹⁷ Under this formula, regulators have an interest in a larger denominator—in the Murr case, combining the two adjoining lots—to reduce the likelihood of having to provide compensation, while property owners seeking to show that their property has been taken have an interest in the denominator being as small as possible. The Murr Court instructed that, in determining the parcel at issue in a regulatory takings case, “no single consideration can supply the exclusive test for determining the denominator. Instead, courts must consider a number of factors,” including (1) “the treatment of the land under state and local law”¹⁸; (2) “the physical characteristics of the land”¹⁹; and (3) “the prospective value of the regulated land.”²⁰

In Penn Central, the Court rejected the principle that no compensation is required when regulation bans a noxious or harmful effect of land use. The principle, the City contended, followed from several earlier cases, including Goldblatt v. Town of Hempstead.²¹ In that case, the town enacted an ordinance that in effect terminated further mining at a site owned by the plaintiff. Declaring that no compensation was owed, the Court stated that “[a] prohibition simply upon the use of property for purposes that are declared, by valid legislation, to be injurious to the health, morals, or safety of the community, cannot, in any just sense, be deemed a taking or an appropriation of property for the public benefit. Such legislation does not disturb the owner in the control or use of his property for lawful purposes, nor restrict his right to dispose of it, but is only a declaration by the State that its use by anyone, for certain forbidden purposes, is prejudicial to the public interests.”²² In Penn Central, however, the Court clarified the test on which prior cases had turned, stating “These cases are better understood as resting not on any supposed ‘noxious’ quality of the prohibited uses but rather on the ground that the restrictions were reasonably related to the implementation of a policy—not unlike historic preservation—expected to produce a widespread public benefit and applicable to all similarly situated property.”²³ In Lucas v. South Carolina Coastal Council,²⁴ the Court further explained “noxious use” analysis as merely an early characterization of police power measures that do not require compensation. The Court noted, “[N]oxious use logic cannot serve as a touchstone to distinguish regulatory ‘takings’—which require compensation—from regulatory deprivations that do not require compensation.”²⁵

Amdt5.9.7 Per Se Takings and Exactions

Penn Central is not the only guide to when an inverse condemnation has occurred; other criteria have emerged from other cases before and after Penn Central. The Court has long recognized a per se takings rule for certain physical invasions: when government permanently¹ occupies property (or authorizes someone else to do so), the action constitutes a taking regardless of the public interests served or the extent of damage to the parcel as a whole.² One modern case dealt with a law that required landlords to permit a cable television company to install its cable facilities upon their buildings; although the equipment occupied only about one and a half cubic feet of space on the exterior of each building and had only a de minimis economic impact, a divided Court held that the regulation authorized a permanent physical occupation of the property and thus constituted a taking.³ The Court further sharpened the distinction between regulatory takings and permanent physical occupations by declaring it “inappropriate” to use case law from either realm as controlling precedent in the other.⁴

A second per se taking rule is of more recent vintage. In Agins v. City of Tiburon, the Court stated that land use controls constitute takings if they do not “substantially advance legitimate governmental interests,” or if they deny a property owner “economically viable use of his land.”⁵ The Court later erased the Agins “substantially advances” test, explaining that regulatory takings law concerns the magnitude, character, and distribution of burdens that a regulation imposes on property rights.⁶ The second Agins criterion, however, has persisted as a categorical rule: when the landowner “has been called upon to sacrifice all economically beneficial uses in the name of the common good, that is, to leave his property economically idle, he has suffered a taking.”⁷ The only exceptions, the Court explained in Lucas v. South Carolina Coastal Council, are for those restrictions that come with the property as title encumbrances or other legally enforceable limitations in place prior to acquisition of the property. Regulations “so severe” as to prohibit all economically beneficial use of land, the Court stated, “cannot be newly legislated or decreed (without compensation), but must inhere in the title itself, in the restrictions that background principles of the State’s law of property and nuisance already place upon land ownership. A law or decree with such an effect must, in other words, do no more than duplicate the result that could have been achieved in the courts—by adjacent land owners (or other uniquely affected persons) under the State’s law of private nuisance, or by the State under its complementary power to abate [public] nuisances . . . , or otherwise.”⁸

The “or otherwise” reference, the Court explained in Lucas,⁹ was principally directed to cases holding that in times of great public peril, such as war, spreading municipal fires, and the like, property may be taken and destroyed without necessitating compensation. Thus, in United States v. Caltex, Inc.,¹⁰ the Court held owners of property destroyed by retreating United States armies in Manila during World War II were not entitled to compensation, and in United States v. Central Eureka Mining Co.,¹¹ the Court held that a federal order suspending the operations of a nonessential gold mine for the duration of the war in order to redistribute the miners, unaccompanied by governmental possession and use or a forced sale of the facility, was not a taking entitling the owner to compensation for loss of profits. Similarly, in Juragua Iron Co. v. United States,¹² the Court found that the destruction of a U.S. company’s property within enemy territory, done to prevent the spread of yellow fever, did not constitute a taking. The Court noted that property held by domestic interests in enemy territory is considered enemy property and thus not entitled to the protections of the Constitution.¹³ Finally, the Court held that when federal troops occupied several buildings during a riot in order to dislodge rioters and looters who had already invaded the buildings, the action was taken as much for the owners’ benefit as for the general public benefit and the owners must bear the costs of damage inflicted on the buildings subsequent to the occupation.¹⁴

With the investment-backed expectations factor of Penn Central, many lower courts employed a “notice rule” under which a taking claim was absolutely barred if it was based on a restriction imposed under a regulatory regime predating plaintiff ’s acquisition of the property. In Palazzolo v. Rhode Island,¹⁵ the Court forcefully rejected the absolute version of the notice rule. Under such a rule, it said, “[a] State would be allowed, in effect, to put an expiration date on the Takings Clause.”¹⁶ Whether any role is left for pre-acquisition regulation in the takings analysis, however, the Court’s majority opinion did not say, leaving the issue to dueling concurrences from Justice Sandra Day O’Connor (who argued that prior regulation remains a factor) and Justice Antonin Scalia (who would have held that prior regulation is irrelevant). Less than a year later, Justice O’Connor’s concurrence was reflected in the Court’s extended dicta in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency,¹⁷ though the decision failed to elucidate the factors affecting the weighting to be accorded the pre-existing regime.

A third type of inverse condemnation, in addition to regulatory and physical takings, is the exaction taking. An “exaction” is a government-imposed requirement that a project developer provide certain public benefits to offset the impacts of the project on the public. A two-part test has emerged to evaluate alleged exaction takings. The first part debuted in Nollan v. California Coastal Commission¹⁸ and holds that in order not to be a taking, an exaction condition on a development permit approval must substantially advance a purpose related to the underlying permit. There must, in short, be an “essential nexus” between the two; otherwise the condition is “an out-and-out plan of extortion.”¹⁹ The second part of the exaction-takings test, announced in Dolan v. City of Tigard,²⁰ specifies that the condition, to not be a taking, must be related to the proposed development not only in nature, per Nollan, but also in degree. Government must establish a “rough proportionality” between the burden imposed by such conditions on the property owner and the impact of the property owner’s proposed development on the community—at least in the context of adjudicated (rather than legislated) conditions. To the argument that nothing is “taken” when a permit is denied for failure to agree to a condition precedent, the Court stated that what is at stake is not whether a taking has occurred, but whether the right not to have property taken without just compensation has been burdened impermissibly.²¹

Nollan and Dolan occasioned considerable debate over the breadth of what became known as the “heightened scrutiny” test. Where heightened scrutiny applies, it lessens the traditional judicial deference to local police power and places the burden of proof as to rough proportionality on the government. In City of Monterey v. Del Monte Dunes at Monterey, Ltd.,²² the Court unanimously confined the Dolan rough proportionality test, and, by implication, the Nollan nexus test, to the exaction context that gave rise to those cases. The Court did not resolve in Monterey, however, whether Dolan applies to exactions of a purely monetary nature, or only to physically invasive dedication conditions.²³ The Court clarified this uncertainty in Koontz v. St. Johns River Water Management District by holding that monetary exactions imposed under land use permitting were subject to essential nexus/rough proportionality analysis.²⁴

The Court’s announcement following Penn Central of the per se rules in Loretto (physical occupations), Agins and Lucas (total elimination of economic use), and Nollan and Dolan (exaction conditions) prompted speculation that the Court was replacing its ad hoc Penn Central approach with a more categorical takings jurisprudence. Such speculation was put to rest, however, by three decisions from 2001 to 2005 expressing distaste for categorical regulatory takings analysis. These decisions endorsed Penn Central as the dominant mode of analysis for inverse condemnation claims, confining the Court’s per se rules to the “relatively narrow” physical occupation and total loss of value circumstances, and the “special context” of exactions.²⁵

Amdt5.9.8 Calculating Just Compensation

The Supreme Court has held that the Fifth Amendment’s just compensation requirement provides for “a full and perfect equivalent for the property taken.”¹ Just compensation is measured “by reference to the uses for which the property is suitable, having regard to the existing business and wants of the community, or such as may be reasonably expected in the immediate future, . . . [but] ‘mere possible or imaginary uses or the speculative schemes of its proprietor, are to be excluded.’”² The general standard thus is the market value of the property, i.e., what a willing buyer would pay a willing seller.³ If fair market value does not exist or cannot be calculated, resort must be had to other data which will yield a fair compensation.⁴ However, the Court has resisted alternative standards, having repudiated reliance on the cost of substitute facilities.⁵ Just compensation is especially difficult to compute in wartime, when enormous disruptions in supply and governmentally imposed price ceilings totally skew market conditions. In an early case concerning a takings case under the Pennsylvania constitution, the Court required that the equivalent be in money, not in kind,⁶ but in its 1974 decision, Regional Rail Reorganization Act Cases, the Court provided for greater flexibility in the form of compensation recognized.⁷

In two postwar decisions, the Court held that the rule of market value applies even where value is measured by a government-fixed ceiling price. Thus, owners of cured pork and of black pepper could recover only the ceiling price for their commodities despite findings by the Court of Claims that the products had value in excess of their regulatory price ceilings.⁸ However, the Court has also ruled that the government was not obliged to pay the market value of a tug when the present value had been greatly enhanced as a consequence of the government’s wartime needs, instead requiring the government only to pay the value prior to the events that necessitated its use.⁹

The difficulties in applying the fair market standard of just compensation are illustrated by two cases decided in the same year by 5-4 votes, one in which compensation was awarded and one in which it was denied. One decision held that a company was entitled to compensation for the value of improvements on leased property for the life of the improvements and not simply for the remainder of the term of the lease that had no renewal option, because the company occupied the land for nearly fifty years and had every expectancy of continued occupancy under a new lease. Just compensation, the Court said, required taking into account the possibility that the lease would be renewed, inasmuch as a willing buyer and a willing seller would certainly have placed a value on the possibility.¹⁰ However, when the Federal Government condemned privately owned grazing land of a rancher who had leased adjacent federally owned grazing land, it was held that the compensation owed need not include the value attributable to the proximity to the federal land. The result would have been different if the adjacent grazing land had been privately owned, but the general rule is that government need not pay for value that it itself creates.¹¹

Amdt5.9.9 Consequential Damages

The Fifth Amendment requires compensation for the taking of “property;” it does not require payment for losses or expenses incurred by property owners or tenants incidental to or as a consequence of the taking of real property, if those losses or expenses are not reflected in the market value of the property taken.¹ The Court has stated that when the government takes property by eminent domain it must compensate the property owner “for what is taken, not more; and [the property owner] must stand whatever indirect or remote injuries are properly comprehended within the meaning of ‘consequential damage’ as that conception has been defined in such cases. Even so the consequences often are harsh. For these whatever remedy may exist lies with Congress.”² The Court held, for example, that business owners may not recoup diminution of the value of their business attributed to a taking,³ that the government was not required to incorporate the value of an unused right to exercise eminent domain to seize neighboring acreage when taking the underlying property,⁴ and that a state law barring utilities from incorporating into their rates certain costs associated with construction of non-operational nuclear power facilities did not constitute a taking.⁵

The Court has on occasion carved out exceptions of sorts to this strict rule. For example, in Kimball Laundry Co. v. United States, the government seized a tenant’s laundry plant for the duration of the war, which turned out to be less than the full duration of the lease, and, having no other means of serving its customers, the laundry suspended business during the military occupancy. The Court narrowly held that the government must compensate for the loss in value of the business attributable to the destruction of its “trade routes,” that is, for the loss of customers, whose patronage the laundry had developed over the years.⁶ Another exception to the general rule occurs with a partial taking, in which the government takes less than the entire parcel of land and leaves the owner with a portion of what he had before; in such a case compensation includes any diminished value of the remaining portion (“severance damages”) as well as the value of the taken portion.⁷

Amdt5.9.10 Enforcing Right to Just Compensation

Ordinarily, the government takes property under a condemnation suit upon paying a money award, and no interest accrues.¹ If, however, the government takes property before making payment, just compensation includes an increment which, to avoid use of the term “interest,” the Court has called “an amount sufficient to produce the full equivalent of that value paid contemporaneously with the taking.”² If the owner and the government enter into a contract which stipulates the purchase price for lands to be taken, with no provision for interest, the Fifth Amendment is inapplicable and the landowner cannot recover interest even though payment of the purchase price is delayed.³ Where property of a citizen has been mistakenly seized by the government and converted into money which is invested, the property owner is entitled to recover compensation that incorporates increases to the property value during the period of seizure.⁴

The legislature has discretion over the nature and character of the tribunal to determine compensation and may select a regular court, a special legislative court, a commission, or an administrative body.⁵ The Government brings proceedings to condemn land for the benefit of the United States in the federal district court for the district in which the land is located.⁶ The Fifth Amendment does not establish a right to a jury to estimate just compensation; a judge, commission, or other body may make such determinations.⁷ Federal courts may appoint a commission in condemnation actions to resolve the compensation issue.⁸ If a body other than a court is designated to determine just compensation, its decision must be subject to judicial review,⁹ although the legislature may limit the scope of review.¹⁰ When a state court’s judgment to the amount of compensation is questioned, the Court’s review is restricted. The Court has stated: “All that is essential is that in some appropriate way, before some properly constituted tribunal, inquiry shall be made as to the amount of compensation, and when this has been provided there is that due process of law which is required by the Federal Constitution.”¹¹ The Court has also recognized that “[T]here must be something more than an ordinary honest mistake of law in the proceedings for compensation before a party can make out that the State has deprived him of his property unconstitutionally.”¹² Unless, by its rulings of law, the state court prevented a complainant from obtaining substantially any compensation, the Court will not overturn the state court findings as to the amount of damages on appeal, even though, as a consequence of error therein, the property owner received less than he was entitled to.¹³

Following Penn Central, the Court grappled with the appropriate remedy for property owners impacted by land use regulations.¹⁴ Regulations that go “too far” in reducing the value of property or which do not substantially advance a legitimate governmental interest present constitutional issues. Courts may invalidate such regulations as denying due process, or they may require compensation, at least for the period in which the regulation was in effect. In First English Evangelical Lutheran Church v. County of Los Angeles, the Court held that when land use regulation constitutes a taking, compensation is due for the period of implementation prior to the holding.¹⁵ The Court recognized that, even though government may elect in such circumstances to discontinue regulation and thereby avoid compensation for a permanent property deprivation, “no subsequent action by the government can relieve it of the duty to provide compensation for the period during which the taking was effective.”¹⁶ Outside the land-use context, however, the Court has recognized a limited number of situations where invalidation, rather than compensation, remains the appropriate takings remedy.¹⁷

The applicability of the ripeness doctrine to takings claims is an area the Court has developed extensively since Penn Central. In Williamson County Regional Planning Commission v. Hamilton Bank,¹⁸ the Court announced a two-part ripeness test for takings actions brought in federal court, although the Court subsequently overturned the second part of this test in Knick v. Township of Scott.¹⁹ The Williamson County two-part ripeness test provided, first, for an as-applied challenge, the property owner must obtain from the regulating agency a “final, definitive position” regarding how it will apply its regulation to the owner’s land²⁰ and, second, when suing a state or municipality, the owner must exhaust any possibilities for obtaining compensation from the state or its courts before coming to federal court.²¹ Thus, in Williamson County, the Court found the claim unripe because the plaintiff had failed to seek a variance (first prong of the Williamson County test), and had not sought compensation from the state courts in question even though they recognized inverse condemnation claims (second prong of the Williamson County test).²² Similarly, in MacDonald, Sommer & Frates v. County of Yolo,²³ the Court found a final decision lacking where the landowner was denied approval for one subdivision plan calling for intense development, but the possibility of approval for a scaled-down (though still economic) version remained. In a somewhat different context, the Court considered a taking challenge to a municipal rent control ordinance “premature” in the absence of evidence that a tenant hardship provision had been applied to reduce what would otherwise be considered a reasonable rent increase.²⁴

Beginning with Lucas in 1992, however, the Court’s ripeness determinations have displayed an impatience with formalistic reliance on the Williamson County “final decision” rule, while nonetheless explicitly reaffirming it. In Palazzolo v. Rhode Island,²⁵ for example, the Court did not require the landowner to apply for approval of a scaled-down development of his wetland, since the regulations at issue permitted no development of the wetland. The Court stated: “[O]nce it becomes clear that the agency lacks the discretion to permit any development, or the permissible uses of the property are known to a reasonable degree of certainty, a takings claim is likely to have ripened.”²⁶ Facial challenges dispense with the Williamson County “final decision” prerequisite, although unless claimants have pursued administrative remedies, they often lack evidence that a statute has the requisite economic impact on his or her property.²⁷

As noted previously, the Supreme Court eliminated the second prong of the Williamson County test, which required litigants to exhaust state remedies before bringing a federal takings claim,²⁸ because the “exhaustion requirement” had significant consequences for plaintiffs.²⁹ In San Remo Hotel, L.P. v. City & County of San Francisco, the plaintiffs lost an inverse condemnation claim in state court after a federal court dismissed their earlier attempt to file in federal court, citing Williamson County’s exhaustion requirement.³⁰ When the litigants attempted to return to federal court, the court dismissed their claim, holding that the legal doctrine of issue preclusion prevented the court from relitigating the claim.³¹ Under common-law preclusion doctrines, which are “implemented by” the federal full faith and credit statute,³² federal courts are, in some circumstances, required to abide by state court decisions that have already resolved the issues presently before the federal court.³³ In San Remo, the Supreme Court held that these preclusion doctrines barred the plaintiffs’ takings claim, declining to create any special exceptions in the context of the Takings Clause.³⁴ Thus, as the Court later described this outcome, “[t]he adverse state court decision that . . . gave rise to a ripe federal takings claim simultaneously barred that claim.”³⁵

The Court overruled Williamson County’s exhaustion requirement in Knick v. Township of Scott,³⁶ holding that property owners have a “Fifth Amendment right to full compensation” and a concomitant right to bring a federal suit at the time the government takes their property, “regardless of post-taking remedies that may be available to the property owner.”³⁷ The Court said its cases had long established that a right to compensation “arises at the time of the taking,” and that Williamson County’s conclusion otherwise had rested on a misunderstanding of precedent.³⁸ The Supreme Court concluded that Williamson County was wrongly decided and that stare decisis considerations did not preclude it from overruling the exhaustion aspects of that decision.³⁹ In its 2021 decision, Pakdel v. City & County of San Francisco, the Court confirmed that property compensation need not exhaust avenues for compensation in state court prior to bringing a claim in federal court.⁴⁰