Supreme Court Upholds Tests for Takings Cases in Lingle

On May 23, 2005, the Supreme Court announced its opinion in Lingle v. Chevron, U.S.A., Inc., 544 U.S. ___ (2005), the first of three takings decisions issued this term.  In an opinion for a unanimous Court, Justice O’Connor confirmed the proper tests for proving a Fifth Amendment “taking” of property when land owners are due “just compensation” from government regulators.  The Lingle decision provides much needed clarification for property owners who litigate takings claims and deserve monetary compensation when they are subject to hyper-land use regulation that has gone “too far.”

The facts of Lingle did not concern the uses of real estate.  At issue was a Hawaii statute that imposed rent control limits that oil companies may charge to dealers who lease service stations owned by the companies. The government’s stated purpose to impose the rent cap law was to reduce gas prices at the pump. In fact, evidence showed that the retailers still bore the same expenses, and were pocketing the difference; gas prices were not actually lowered, so there was no benefit to the ultimate consumer. Chevron thus sued for a taking, arguing that the rent cap statute failed to “substantially advance a legitimate state interest” in controlling retail prices.  Chevron won at the 9th Circuit Court of Appeals.

In Lingle, the Court clarified that there are four independent tests that a property owner can use to obtain compensation from the government for a taking:

(1)     A physical invasion by the government (such as an appropriated public easement demanded from a property owner);

(2)    A “total,” categorical taking where a regulation deprives a property owner of all economically beneficial uses of property (such as requiring a parcel to be set aside as open space in its entirety);

(3)    A balancing analysis to be conducted where government regulations restrict the use of property to a degree (but does not wipe-out all uses), that considers the land owner’s expectations for investment and development, and the economic impact of the regulation on the land owner; and 

(4)    Where the government imposes unconstitutional conditions as an approval on a development project in exchange for a permit. Under the doctrine of unconstitutional conditions, “the government may not require a person to give up a constitutional right — here, the right to receive just compensation when property is taken for public use — in exchange for a discretionary benefit (that is, a permit) conferred by the government where the benefit” is not connected or proportionate to the condition imposed.

Of concern in this case is that in reaching its decision, the Court would remove, or weaken, Category 4.  To the contrary; the Lingle decision makes it absolutely clear that unconstitutional conditions can still be subject to Fifth Amendment takings challenges. Thus, a legal theory frequently used by property owners and builders has been further enshrined in Supreme Court doctrine.

The Lingle Court did, however, remove one test from the takings landscape.  In its own past decisions, the Court stated that regulation which “fails to substantially advance a legitimate government interest” amounts to a taking.  The Court declared that the “substantially advance[s]” test is no longer appropriate for a takings analysis.  However, Justice O’Connor also made clear that a property owner could still assert a due process violation when government fails to advance its own interests through regulation.

Justice O’Connor believed that the “substantially advance[s]” test is an improper takings test because it does not address the effect of a regulation on property, but rather solely concerns whether the underlying regulation itself is valid.  The Takings Clause, however, is not concerned with the validity of underlying regulation.  Rather, the Takings Clause is concerned with whether the effect of a regulation unfairly singles-out certain groups (such as builders and developers) and requires them to disproportionately saddle the costs for societal benefits (like open space, infrastructure, environmental preservation) that should more appropriately be shared by the public fisc.  Accordingly, because Chevron couched its takings claim under the substantial advancement theory - which the Court now confirmed is not a takings test any longer - it dismissed Chevron’s claim.

For more information, please contact Duane Desiderio, Staff Vice President - Legal Affairs at NAHB, via e-mail at ddesiderio@nahb.com or call him at 800-368-5242 x8146.

For the complete opinion, please visit the U.S. Supreme Court web site at:  http://a257.g.akamaitech.net/7/257/2422/23may20051130/www.supremecourtus.gov/opinions/04pdf/04-163.pdf.

  [ return to top ]