On May 23, 2005, the U.S. Supreme Court issued its decision in Lingle v. Chevron U.S.A., No. 04-163 (U.S. May 23, 2005), the first of three property rights rulings expected from the Court this term. In doing so, the Court partially overturned its 1980 opinion in Agins v. City of Tiburon, 447 U.S. 255 (1980), which held that the Fifth Amendment’s Takings Clause is violated by a land use regulation that either (1) does not substantially advance legitimate state interests, or (2) denies a landowner economically viable use of its land. According to the Lingle court, the "substantially advances" prong of the Agins test "prescribes an inquiry in the nature of a due process, not a takings, test, and it has no proper place in our takings jurisprudence." Although this new decision does not expand the substantive definition of what constitutes a taking, it does clarify the legal tests applied when determining whether a taking has occurred.
At issue in Lingle was Chevron’s claim that a1997 Hawaii law limiting the amount of rent that an oil company may charge gas-station lessees to fifteen percent of the lessee’s gross profits from gasoline sales plus fifteen percent of gross sales of products other than gasoline affected a taking of Chevron’s property. The District Court accepted Hawaii’s argument that the rent cap was intended to maintain the viability of independent gasoline dealers and protect consumers from high prices, both legitimate state interests. After applying the Agins test, however, the District Court held that the law did not substantially advance such state interests because it would not actually reduce lessee costs or retail prices. According to the District Court, incumbent lessees could recoup rent reductions through the transfer of gas-station occupancy rights, at a premium, to incoming lessees, thus rendering cost savings illusory. The Ninth Circuit Court of Appeal held that the District Court had applied the correct legal standard to Chevron’s taking claim, but vacated the District Court’s grant of summary judgment on the ground that a genuine issue of material fact remained as to whether the law would benefit consumers.
At the heart of Lingle is the notion that the compensatory purpose of the Takings Clause is at odds with the means-ends inquiry implicit in Agins’ "substantially advances" test, which is chiefly concerned with the underlying validity of the challenged government action. As stated by the Lingle court,
such an inquiry is logically prior to and distinct from the question whether a regulation effects a taking, for the Taking Clause presupposes that the government has acted in pursuit of a valid public purpose. The [Takings] Clause expressly requires compensation where government takes private property "for public use." It does not bar government from interfering with property rights, but rather requires compensation "in the event of otherwise proper interference amounting to a taking." Conversely, if a government action is found to be impermissible - for instance because it fails to meet the "public use" requirement or is so arbitrary as to violate due process - that is the end of the inquiry. No amount of compensation can authorize such action.
Although the Lingle court invalidated Agins’ "substantially advances" test as an independent basis for a compensable takings claim, the Court was careful to note that this form of test nevertheless retains some vitality in the context of a due process challenge. As stated by the Court, "a regulation that fails to serve any legitimate governmental objective may be so arbitrary or irrational that it runs afoul of the Due Process Clause."
The Court reaffirmed that a compensable taking may occur in four circumstances: (1) where there is a direct appropriation of private property, such as in Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982); (2) where a regulation completely deprives an owner of all "economically beneficial use" of the owner’s property, such as in Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992); (3) where a regulation does not completely deprive an owner of all economically beneficial use, but, nevertheless, has a sufficient degree of economic impact to raise to the level of a compensable taking, such as in Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978); and (4) where an adjudicative land use exaction is imposed on a project in the absence of either an essential nexus or a rough proportionality between the degree of such exaction and the project’s impacts, such as in Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994).
In addition to the Lingle decision, the Supreme Court is expected this term to issue opinions affecting property rights in both Kelo v. City of New London, 268 Conn. 1 (2004) (cert. granted, 125 S. Ct. 27 (2005)), and San Remo Hotel v. City and County of San Francisco, 364 F.3d 1088 (2004) (cert. granted, 125 S. Ct. 685 (2005)). The question presented in Kelo is whether the Fifth Amendment's public use requirement provides protection for individuals whose property is condemned for the sole purpose of "economic development" that will perhaps increase tax revenues and improve the local economy. San Remo Hotel explores whether a Fifth Amendment takings claim is barred by issue preclusion in federal court based on a state court judgment denying compensation solely under state law. These cases will be the subject of future client advisories.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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