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Federal Circuit Tweaks Takings Clause Analysis

Walcek v. United States, 303 F.3d 1349 (Fed. Cir. 2002).

Jason Dare, J.D.

The Federal Circuit Court recently decided a case regarding how to determine the value of private property involved in a "takings" claim. The U.S. Supreme Court has determined that a physical invasion or the loss of all economically beneficial use of private property is a "taking" in violation of the Fifth Amendment of the U.S. Constitution. When a property is affected by a government regulation that falls short of a physical invasion or total loss, the effect of the regulation on the property's value must be determined. In order to determine this, a court can look at the entire parcel of property or only the portion of the property affected by the regulation.

The Federal Cir-cuit applied a 2002 decision by the U.S. Supreme Court holding that a court properly look at the "parcel as a whole" for purposes of regulatory takings analysis.

Background
In 1971, Dolores, Stan-ley and Albert Walcek, and Regina Ammons (the “Walceks”) purchased a 14.5 acre tract of land near Bethany Beach, Delaware. They purchased the property with the intent to develop it for $117,731. The property was subject to various regulations at the time of the purchase: it was zoned as residential, between 4.5 and 5.2 acres are designated state wetlands by Delaware which would require a permit to develop, and a portion falls below the mean high water mark, triggering regulation by the Corps of Engineers under § 10 of the Rivers and Harbors Act.

In 1972, with the passage of the Clean Water Act (CWA), 13.2 acres of the Walceks’ property became subject to federal regulation under § 404 of the CWA. Section 404 gives the Army Corps of Engineers (“Corps”) permit authority over discharged dredge or fill material when the dumping is to fill waters of the U.S., including wetlands.1 A § 404 permit is for a federal action that affects water quality and triggers § 401 of the Clean Water Act, which requires developers to obtain state water quality certification for the action.2 Section 404 also requires that the Walceks obtain Coastal Zone Management Consistency Certification from Delaware.

In 1987, after receiving notification from the Corps that the aforementioned regulations applied to their property, the Walceks began filling and developing their property for a 77-lot residential development. When the Corps discovered these actions it issued a cease and desist order requiring the halt of the Walceks’ operation until they acquired the requisite permits. On February 22, 1988, the Walceks applied to the Corps and the Delaware Depart-ment of Natural Re-sources and Environ-mental Control for a § 404 permit and various state certifications. In 1993, the Corps denied the Walceks’ permit application and offered alternate ideas to their development plans. The Walceks appealed the decision to the Court of Federal Claims. After the complaint was filed, the Corps issued a permit to the Walceks authorizing some development of the property.3

The Walceks alleged the Corps had committed a permanent taking of their property by denying their permit request in 1993. The Walceks claimed that the permit denial rendered their property economically useless. Upon review, the Court of Federal Claims determined that the denial of the permit failed to rise to the level of a per se taking because it allowed for the development of 2.2 acres, out of 13.2 wetland acres, which was not a denial of “all economically beneficial or productive use of [the] land.”4 Additionally, the court held no taking had occurred because the regulation caused “merely a noncompensable diminution in value” of the Walceks’ property.5 The Walceks appealed this decision to the Federal Circuit.

Regulatory Takings
The Fifth Amendment to the U.S. Constitution states that “private property [shall not] be taken for public use, without just compensation.”6 The Supreme Court, in Penn Central Transp. Co. v. New York City, set out three factors for courts to review when a landowner alleges a taking has resulted because of federal regulation. These are: “(1) the regulation’s economic effect on the landowner; (2) the extent to which the regulation interferes with reasonable, investment-backed expectations; and (3) the character of the government action.”7
The Walceks argued that the Court of Federal Claims erred by reviewing the relevant parcel as the entire 14.5 acres, instead of just the 13.2 acres of wetlands. The question of the “relevant parcel” has been litigated for years,8 but the Supreme Court recently decided in Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency that the “parcel as a whole” approach was proper in a regulatory takings analysis.9 Moreover, the Federal Circuit previously used the “parcel as a whole” approach in the wetland regulation context.10 Therefore, the Federal Circuit held that the lower court committed no error when it included all of the Walceks 14.5 acres of property in the Penn Central analysis, instead of merely the 13.2 acres of wetlands. The impact of the regulation must be analyzed in light of the parcel as a whole. Because the Walceks could develop 2.2 acres of their property, they were not deprived of “all economically viable use” of their land and, therefore, no taking occurred.

Inflation Adjustment
The Walceks also argued that the lower court erred when it calculated the value of the property. According to the Walceks, if the court had adjusted the property value for inflation, the calculation would have produced a $93,000 loss. The Court determined the parcel would generate a $305,000 profit. The Federal Circuit held that when the fair market value was calculated, the “impact of inflation” was “inherently factor[ed] in.”11 Therefore, in the Penn Central analysis, the “fair market value at the time of the alleged taking” is compared to the original cost.12 This reduces any speculation that may occur through calculations of inflation and deflation.

Conclusion
When determining whether a regulatory taking has occurred, courts should review the claimant’s entire property, and not just what the claimant alleges was taken. Furthermore, instead of using inflation and deflation calculations to determine whether the alleged taken property can generate a profit, courts should only use the fair market value of the property at the time of the alleged taking.

ENDNOTES
1. 33 U.S.C. § 1344 (2002).
2. 33 U.S.C. § 1341 (2002).
3. The Walceks could build a 28-lot residential development, rather than the 77-lot development originally planned, and fill up to 2.2 acres of wetlands if 4.4 acres of wetlands were created or restored elsewhere.
4. Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1015 (1992). When a permit “denies all economically beneficial or productive use of land,” it is an automatic taking under the Lucas Rule, and requires no other analysis. The Walceks appealed this decision, alleging that the court should have reviewed the 11 acres of wetlands (13.2 acres minus 2.2 acres) that they could do nothing with, instead of the entire 13.2 acres of wetlands. The Federal Circuit held that since the Walceks had not raised this argument in the lower court, it could not be considered on appeal. Walcek v. United States, 303 F.3d 1349, 1355 (Fed. Cir. 2002).
5. Walcek, 303 F.3d 1349, 1354 (Fed. Cir. 2002).
6. U.S. Const. amend. V.
7. Penn Central Transp. Co. v. N.Y.C., 438 U.S. 104, 124 (1978).
8. See Keystone Bituminous Coal Ass’n v. DeBenedicts, 480 U.S. 470 (1987) (reviewing claimant’s entire property); Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922) (reviewing only area in question).
9. Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 122 S. Ct. 1465, 1481-84 (2002).
10. See Tabb Lakes, Ltd. v. United States, 10 F.3d 796, 802 (Fed. Cir. 1993).
11. Walcek, at 1356.
12. Id.

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University of Mississippi