Federal Court Holds Wetlands Mitigation Not a Taking

Norman v. U.S., 429 F.3d 1081 (Fed. Cir. 2005)

Gerald Woodward, 3L, Stetson University College of Law

The U.S. Court of Appeals, Federal Circuit has upheld a federal claims court ruling that the actions of the U.S. Army Corps of Engineers in conditioning the grant of a permit to impact wetlands on a Corps-approved mitigation plan was not an unconstitutional taking of the landowner’s property without compensation. The mitigation plan provided for the creation or restoration of other wetlands on the same site as those that could be filled under the permit. Approval of the permit had been sought, and this appeal subsequently commenced, by the developers of a 2,280-acre property in Reno, Nevada.

Background
In 1986 the Southmark Corporation purchased a 2,425-acre property in Reno, Nevada called the Double Diamond Ranch. Southmark intended to develop the property as commercial and industrial office space. Toward that end it prepared a master development plan and submitted it to the Reno City Council for approval.

In early 1987 the city council gave preliminary approval to the plan and specified a number of conditions for a grant of final approval. One of these was the requirement for a wetlands delineation approved by the U.S. Army Corps of Engineers.

The following year, Don Roger Norman and Roger William Norman entered into an agreement with Southmark to purchase a 470-acre portion of the former Double Diamond Ranch property. The Normans intended to develop the tract for commercial use in accordance with Southmark’s master plan. At about the same time another buyer, Robert Helms, purchased nearly all of the balance of the former ranch property from Southmark.

In September of 1988 the Corps issued a wetlands delineation for the property now substantially owned by Helms and the Normans. It identified a total of twenty-eight acres of jurisdictional wetlands on the property. However, the Environmental Protection Agency (EPA), the U.S. Fish and Wildlife Service, environmental groups and the general public uniformly criticized the delineation as inadequate. The Corps subsequently revoked it and in 1991 issued a new delineation developed under revised criteria. The new delineation identified a total of 230 acres of jurisdictional wetlands.

Three years later Helms went bankrupt and the Normans purchased his 1,800 acres from the bankruptcy estate. The Normans then developed a new three-phase master plan that included commercial and residential development. They applied to the Corps for a permit under section 404 of the Clean Water Act to impact fifteen of the 230 acres of delineated wetlands on the property. The permit was granted subject to mitigation in the form of new wetlands creation.

In 1998 the Normans filed for another 404 permit, this time seeking permission to impact additional wetlands that lay scattered across the property. In 1999, after considerable negotiation, the Corps of Engineers approved a second permit that allowed for up to sixty acres to be filled. The mitigation plan for this permit included the creation and transfer of 195 acres of new wetlands but allowed areas designated for storm water run-off - retention ponds - that were already provided for in the revised master plan to satisfy a considerable portion of this requirement. The plan was subsequently implemented through the transfer of approximately 221 acres of retention ponds and other newly created wetlands to a non-profit property owners’ association. However, both before and after the second 404 permit was issued the Normans had been engaged in selling portions of the property to third party developers and others. When the 1999 permit was issued the Normans retained ownership of only 716 acres of the original parcel.

Lawsuit and Subsequent Appeal
In 1995, following the approval of their first 404 permit application, the Normans brought suit in the Court of Federal Claims. The complaint charged that their 1988 purchase agreement with Southmark for 470 acres was based upon the Corps of Engineers’ 1988 delineation and that the net increase in jurisdictional wetlands between the 1988 and 1991 delineations located within that 470-acre parcel - approximately seventy acres - represented a taking.

The subsequent procedural history of the suit is long and tortuous. In 2001 the complaint was amended to include an illegal exaction claim1 that was eventually dismissed by the trial court for lack of jurisdiction. By November 2003 the case was finally ready to go to trial. The Normans then moved to retroactively amend their complaint to increase the amount of the alleged taking from seventy acres to 221 acres - the full amount they had transferred to the property owners’ association. The motion to amend was granted on the first day of trial. Following conclusion of the trial the court issued an opinion and order denying all of the Normans’ takings claims and dismissing their amended complaint.

The Normans appealed the trial court’s rulings on their takings claims as well as their illegal exaction claim to the U.S. Court of Appeals, Federal Circuit. Their appeal essentially argued that the trial court had erred by failing to consider that the Corps of Engineers’ revocation of the 1988 delineation and subsequent issuance of the 1991 delineation set into motion a chain of events that culminated in the taking of the 221 acres nearly ten years later, thus rendering their takings claims meritorious.

As to the dismissed illegal exaction claim, the Normans argued that the Corps of Engineers’ 1991 delineation had violated the Energy and Water Development Appropriations Act of 1992 (EWDA),2 which forbade the expenditure of public funds for delineations using the Corps’ 1989 Wetland Delineation Manual. Since the 1991 delineation had led, according to the Normans, “foreseeably and predictably” to the 221-acre mitigation, and since that mitigation constituted an exaction in return for the Corps’ approval of the Normans’ second 404 permit application, the exaction occurred in violation of a federal statute, thus bringing the illegal exaction claim under the subject matter jurisdiction of the Court of Federal Claims.

The Appeals Court’s Analysis
The appeals court noted from the outset of its analysis that the Normans’ takings claims did not challenge the government’s legitimate authority to require mitigation in return for granting approval to impact wetlands or waters of the U.S. over which the Corps has jurisdiction. Rather, the Normans’ essential argument was that the entire sequence of events from the issuance of the first Corps of Engineers delineation in 1988 to the transfer of the 221 acres in 1999 should be considered as a single event since the 1991 delineation directly and ineluctably caused them to lose 221 acres of property.

The court found this argument unconvincing. It pointed out that the appellants did not even acquire the majority of the 221 acres set aside under the 1999 mitigation plan until 1994. The court expressed the opinion that “[t]he causal relationship between the revocation of the 1988 Delineation and the appellants’ alleged loss is simply too attenuated to support the weight the Normans place on it.”3 This conclusion alone, according to the court, was sufficient to dispense with the bulk of the appellants’ takings claims.
Nevertheless, the court proceeded to provide a detailed analysis of the Normans’ arguments - and why they had to fail. First, the court considered the Normans’ claim that the 1999 permit constituted a physical taking because it required the Normans to transfer title to the 221 acres to a third party. In fact, the permit did not specifically require such a transfer; it only required the Normans to record the formation of a “Corps approved funding mechanism for the long term maintenance of the mitigation and preserve areas.” Transferring the property to a conservation group or non-profit property owners’ association was one such mechanism that the Corps approved. There were other options available to the Normans; they voluntarily chose to transfer the property. Thus it was plainly evident to the court that the transfer could not be the basis for a successful physical takings claim.

Continuing with its analysis, the court opined that even if the transfer could be characterized as a physical taking, the Normans’ claim for compensation would fail since the U.S. Supreme Court has held that a land use regulation “does not effect a taking if it substantially advances legitimate state interests and does not deny an owner economically viable use of his land” provided that there is an “essential nexus” between the permit condition and the legitimate state interest.4 The appeals court here agreed with the lower court that in this case “the public interest served…relate[d] directly to the condition imposed.”5

Moreover, since the property conveyed was essentially all earmarked as storm water run-off storage areas by the Normans’ master development plan, the transfer of that property did not impact its “economically viable use” to any appreciable degree.6 As to the appellants’ categorical takings claim, the court cited binding and persuasive precedent that a regulatory taking becomes categorical “only if the owner is deprived of all beneficial use of the parcel as a whole.”7 Since the trial court had considered the entire 2,280 acres to constitute the “parcel as a whole,” and since the Normans’ appeal had not challenged the trial court’s analysis on this point, “appellants cannot dispute that court’s conclusion that the facts here do not sustain a categorical takings claim.”8

The court considered the Normans’ regulatory taking claim arguments under the three factor balancing test provided by the U.S. Supreme Court in Penn Central Transp. Co. v. New York City.9 In Penn Central the Supreme Court defined these three factors as: “(1) the extent to which the regulation has interfered with…reasonable investment-backed expectations; (2) the economic impact of the regulation on the claimant; and (3) the character of the governmental action at issue.”10 Reviewing the trial court’s findings of fact under the deferential “clearly erroneous” standard, the appeals court here found that the trial court was correct in its conclusion that the Normans had a reasonable investment-backed expectation with respect to only four of the 221 acres in dispute. Moreover, although a takings claim “is not barred by the mere fact that title was acquired after the effective date of the state-imposed restriction,” the fact that the Normans were actually and constructively aware of the restrictions imposed by the 1991 delineation prior to their purchase of the other 1,800 acres of property made it difficult to show that they had “bought their property in reliance on a challenged regulatory scheme.”11 Here too the court found the appellants’ arguments of regulatory taking to be unpersuasive.

Finally, in considering the appellants’ illegal exaction claim the court found that the lower court lacked subject matter jurisdiction based on the fact that the EWDA was merely an appropriations act and that, as such, the supposed exaction could not have been “due to a misapplication” of the statute as required by the controlling case law.12 The court also observed that invoking federal claims court jurisdiction in these circumstances was conditioned on a demonstration by the appellants that the supposed exaction occurred “as a direct result of the application of” the EWDA, a showing that the Normans failed to make with sufficient verity.13 Even if the Normans could have successfully demonstrated that an illegal exaction had occurred as a direct result of the misapplication of the EWDA, that statute does not provide, either directly or by implication, any cause of action for its violation with a remedy for money damages.

Conclusion
The Court of Appeals, Federal Circuit upheld the Court of Federal Claims ruling that the conditions on the Normans’ wetlands fill permit did not constitute a physical, categorical, or regulatory taking of their property by the government, and that the Court of Federal Claims did not have subject matter jurisdiction over appellant’s claim that the property conveyed constituted an illegal exaction.

ENDNOTES
1. An exaction is a “wrongful demand of a reward or fee for an official service performed in the normal course of duty.” Black’s Law Dictionary 238 (Bryan A. Garner ed., pocket ed., West 1996).
2. Pub. L. No. 102-104 (1991).
3. Norman v. U.S., 429 F.3d 1081, 1088 (Fed. Cir. 2005).
4. Id. at 1090 (citing Nollan v. California Coastal Commn., 483 U.S. 825, 834 (1987), and Dolan v. City of Tigard, 512 U.S. 374, 386 (1994)).
5. Id.
6. Id. (citing Norman v. U.S., 63 Fed. Cl. 231, 261 (Fed. Cl. 2004)).
7. Id. (citing cases).
8. Id.
9. 483 U.S. 104 (1978). Unlike a physical taking, in which the government takes actual physical control of property, a regulatory taking is merely a reduction in the value of a property resulting from a government regulation.
10. Id. at 124.
11. Norman, 429 F.3d at 1093 (citing Cienega Gardens v.U.S., 331 F.3d 1319, 1345-46 (Fed. Cir. 2003)).
12. Id. at 1095 (internal citations omitted).
13. Id. at 1096.

University of Mississippi