For those readers not familiar with the concept, the implementation of a wetlands regulation can constitute a regulatory taking and require that just compensation be paid pursuant to the Fifth Amendment. Wetlands cases can be complex, but generally fall into a few categories for analysis. . The first type is analyzed under Penn Central Transportation Co v New York City, 438 US 104 (1978). The Penn Central case utilized a three factor test to determine whether a regulation goes “too far” (meaning it would be considered a taking under the Fifth Amendment (see Pa Coal Co v Mahon, 260 US 393 (1922)). These factors are (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. 438 US 104, 124 (1978). For a thorough discussion on Penn Central’s recent application, we recommend our blog post on the Appellate Division’s affirmance in Matter of City of New York, Lawrence N. Paolella v City of New York.
However, there are two other types of regulatory takings that require just compensation “without case-specific inquiry into the public interest advanced in support of the restraint” (Lucas, 505 US at 1015), and without consideration of the landowner’s investment-backed expectations. (Palm Beach Isles Assocs v United States, 231 F.3d 1354, 1357 (Fed Cir. 2000). The first type involves a physical invasion. The second type deprives a landowner of “all economically beneficial uses in the name of the common good,” leaving the landowner with “economically idle” property. Lucas, 505 US at 1019.Lost Treeis of the latter variety.
Which brings us back to the case at hand. The facts are as follows: Claimant owned a plot of land (Plat 57) it sought a permit to fill. To give you an idea of the type of property at issue, the plat consisted of “submerged lands and wetlands that have been disturbed by upland mounds vegetated by an invasive pepper species and by ditches installed for mosquito control.” In August of 2002, Lost Tree submitted its application to the Town of Indian River Shoes and a corresponding application for a wetlands fill permit under section 404 of the Clean Water Act. The Town approved Lost Tree’s application but the Army Corp of Engineers denied their 404 fill permit because it determined that Lost Tree could have “pursued less environmentally damaging alternatives” and because it had “adequately realized its development purpose” through development of nearby lots it owned.
Lost Tree brought suit against the government in the Court of Federal Claims, alleging that the government’s denial constituted a taking under the Fifth Amendment. The lower court originally determined the loss in value in connection with other lots Lost Tree owned, but was reversed on appeal and the case was remitted to the lower court with instructions to apply the appropriate taking framework.
On remand the trial court determined that the permit denial diminished Plat 57′s value by 99.4%. Because of this loss in value, the trial court held that the permit denial constituted a per se taking under Lucas awarded Claimant $4,217,887.93 (Plat 57′s as permitted value minus Plat 57′s nominal value), plus interest. The government appealed.
The question on appeal was whether the residual value arising from non-economic uses precluded application of Lucas and required the application of Penn Central‘s balancing test. Lucas requires total loss in economic value, and the trial court explained that Plat 57′s residual value did not “reflect any economic use” but stemmed from environmental value as wetlands. The government strenuously argued that Lucas is about value, regardless of its source, and that the property was not without value because it could be sold. Lost Tree argued that Lucas is about use: if a regulation deprives a landowner o fall land use, Lucas’s per se treatment is appropriate. In relying on Loveladies Harbor, Inc v United States, the Court determined that Lucas’s per se treatment is appropriate where the remaining value of the property after the regulation is “de minimis”- where the relevant parcel is deprived of all economically feasible use.”
The Court rejected the government’s argument that the landowners ability to sell the parcel precluded application of Lucas. First, the Court noted that the government did not produce evidence that Lost Tree could sell its property which was left with “isolated hummock and stagnant eutrophic pools” due to mosquito abatement measures. Further, even assuming, arguendo, that Plat 57 could be sold, the court disagreed that all sales qualify as economic uses. “Typical economic uses enable a landowner to derive benefits from land ownership rather than requiring a land owner to sell the affected parcel,” the court noted.
Finally, the court refuted the government’s argument that the court’s holding would allow property speculators to abuse the process, noting that the Court’s precedent allows for a flexible approach designed to account for factual nuances.
A full copy of the decision can be found by clicking below. We recommend it to anyone interested in learning more about wetlands valuation analysis in the context of a Fifth Amendment takings case.