Recent Developments in Regulatory Takings

by Jason (“Jay”) Talerman

Case Focus

Massachusetts is a home rule state, with 351 cities and towns governed by 351 different sets of bylaws and regulations.  For a prospective developer of land, that means navigating through 351 sets of zoning codes, subdivision regulations, and wetlands bylaws.  Furthermore, in the already highly-developed towns in eastern Massachusetts, land that is undeveloped is often marginal in quality, and therefore may implicate local land use bylaws, ordinances and regulations.  In such instances, even the most beneficial of local enactments may operate to restrict the scope of development and, in some circumstances, may even preclude a proposed development altogether.

It is in these circumstances that the specter of a regulatory taking, also known as an inverse condemnation, may become the subject of dispute between a developer and a municipality.  Unlike a more traditional affirmative exercise of eminent domain authority, a regulatory taking is a more passive consequence of the application of an otherwise legally-adopted land use regulation.

The legal landscape shaping regulatory takings in Massachusetts was recently affected by two notable decisions: (1) the decision of the Massachusetts Appeals Court in Smyth v. Conservation Commission of Falmouth, 94 Mass.App.Ct. 790 (2019), which held that there is no right to a jury trial on “the question [of liability as to] whether a particular regulatory scheme has effected a regulatory taking,” id. at 796, and (2) the decision of the United States Supreme Court in Knick v. Township of Scott, Pennsylvania, 588 U.S. ___,139 S.Ct. 2162 (2019), which held that exhaustion of state court remedies is not a prerequisite to bringing a § 1983 takings claim in federal court.  While these cases, viewed in isolation, address different issues, they may, when viewed together, affect the approach that a landowner may take when contemplating the advancement of a regulatory takings claim.

Background on Regulatory Takings

It is important to note at the outset that a claim for a regulatory taking has not traditionally been treated as a formal claim for a “taking.”  While borne from the same Constitutional Fifth Amendment guarantee against a governmental seizure of property, “a claim of regulatory taking involves a preliminary (albeit significant and complex) question whether a taking has occurred at all.”  Smyth, 94 Mass.App.Ct. at 795-96.  That is, the threshold focus of a regulatory takings case is the question of liability.  A conclusion that a regulatory taking has occurred will be justifiable where “governmental regulation [is] … so onerous that its effect is tantamount to a direct appropriation or ouster.”  Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 537 (2005).  However, not every governmental regulation that operates to preclude development effectuates a taking; and a claim of regulatory taking will only be sustained where there is either a physical invasion of property or where the regulation in question operates to “completely deprive an owner of ‘all economically beneficial use’ of her property.”  Id. at 538 (quoting Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1019 (1978) (emphasis in original).  Only once a plaintiff has prevailed in this preliminary element of a regulatory takings claim may he proceed to seek an award of damages for the taking.

Despite the Constitutional predisposition against uncompensated takings, case law reveals that it is quite difficult to prevail in a regulatory taking claim.  This is because even though a governmental regulation may sharply reduce the value of a property, a modest residual value may be sufficient to defeat a claim of regulatory taking.  In Pallazzolo v. Rhode Island, 533 U.S. 606, 631 (2001), an 18-acre parcel appraised at $3,150,000 was limited, by State regulation, to the development of a single residential lot valued at $200,000, and the Court nevertheless concluded that such residual value was sufficient to defeat a claim of inverse condemnation.  Closer to home, in Gove v. Zoning Board of Appeals in Chatham, 444 Mass. 754 (2005), the Massachusetts Supreme Judicial Court contemplated the impact of a municipal zoning regulation on a potentially lucrative residential lot along Chatham’s waterfront.  The zoning provision rendered the development of a house on the lot impossible and litigation ensued.  While various other facts considered by the Court were relevant, the Court ultimately concluded that a residual value of only $23,000 (the value of the property for assemblage purposes with adjoining properties) was sufficient to dismiss the complaint and find in favor of the town.  Id. at 763.  See also Smyth, 94 Mass.App.Ct. at 797-98 (economic impact on plaintiff a factor in determining whether regulatory taking occurred).

Massachusetts Appeals Court Decision in Smyth

In a traditional takings action, where a municipality (or other authorized governmental subdivision) takes property under General Laws c. 79, a jury will determine damages.  In the calculation and award of damages, it is not uncommon for Massachusetts juries to award in excess of the amount at which the municipality originally valued the property in a taking (known as a pro tanto award).  Accordingly, a practitioner may conclude that a jury may possibly be more sympathetic than a judge when evaluating a regulatory takings claim.  However, in Smyth, which contemplated the preclusive effect of a local wetland bylaw, the Appeals Court foreclosed the availability of a jury trial when pursuing the initial question of liability under a regulatory takings claim.  The Court held that, in Massachusetts, “the right to a jury trial is established by Article 15 of the Massachusetts Declaration of Rights which has been construed as preserving the right to a trial by jury in actions for which [such a right] was recognized at the time the Constitution of the Commonwealth was adopted [in 1780] … .”  Smyth, 94 Mass. App. Ct. at 793 (internal citations omitted).  This meant that, in an “ordinary claim of regulatory taking”, “the question whether the plaintiff is entitled to a jury trial … depends on whether it is analogous to a common-law claim entitled to a trial by jury in 1780 or whether it is a wholly new cause of action.”  Id. at 794.  Emphasizing that the facts alleged did not warrant a conclusion that the taking was analogous to an action in common-law tort such as trespass, id. at 794, the Court ultimately concluded that “the question of liability in a regulatory taking claim is a ‘wholly new’ cause of action, to which the right to a jury trial does not attach.”  Id. at 796.  Thus, while consideration of what may constitute “just compensation” is a question that is appropriately put to a jury, the underlying liability question remains the province of the trial court judge, who is charged with applying the balancing test as detailed in Smyth and the cases cited therein.  Id. at 797-98.

U.S. Supreme Court Decision in Knick

The U.S. Supreme Court’s decision in Knick marks a significant departure from the pre-existing process for pursuing a claim for a regulatory taking in federal court.  In a 5-4 decision, the Supreme Court reversed a long line of cases that required plaintiffs with a regulatory takings claim to pursue their actions in state court before pursuing a Fifth Amendment claim under 42 U.S.C. § 1983 in federal court.  588 U.S. at ___, 139 S.Ct. 2177-79.  Viewing the right to seek damages as accruing at the instant the governmental regulation proscribed a proposed development, the Supreme Court ruled that there was no exhaustion prerequisite to seeking relief in federal court.  Id.  Accordingly, in the post-Knick landscape, a disgruntled developer may choose, at its discretion, to skip state court altogether and seek compensation for a regulatory taking in one fell swoop in federal court under § 1983.

Practice Implications of Smyth and Knick

While a door for plaintiffs seemingly was shut – in most instances –  by virtue of the Smyth decision, it likely swung wide open with the U.S. Supreme Court’s decision in Knick.  In Knick, the Supreme Court did not address the question of whether a jury trial attaches to a regulatory taking action, as discussed in Smyth.  However, while all actions under 42 U.S.C. § 1983 are not automatically entitled to be heard by a jury, the right to a jury in a regulatory taking claim sounding in § 1983 was firmly established in Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687, 721 (1999).  Accordingly, when read together with prior precedent, Knick stands for the proposition that a Massachusetts plaintiff may, at its option, skip a bench trial in  Massachusetts court and pursue a regulatory claim before a jury in United States District Court.  As a consequence, the main thrust of the Smyth decision will not affect a plaintiff that opts for a federal court forum.

Despite the holding of Knick, not all regulatory takings claims are well-suited for a federal court where, as noted by the dissent, complex review of a municipal regulatory scheme must be undertaken.  588 U.S. at ___, 139 S.Ct. at 2187-88.  This is especially so where a federal court would have to delve into the intricacies of a detailed local zoning wetland bylaw.  However, following the Knick decision, a well-resourced litigant that feels it would benefit from a jury rather than a trial before a state court judge steeped in experience interpreting local regulation, may choose to bring their original action in federal.  Conversely, a litigant that may not have the resources to navigate through a federal court jury trial may choose the nuanced review that occurs at the state trial court level.  Only time will tell if the results of these two paths are disparate.  Until then, there will be significant speculation as to whether verdicts and awards by a federal jury will change the calculus for landowners that are contemplating suit for a regulatory taking.

 

Jason (“Jay”) Talerman is a founding partner of Mead, Talerman & Costa, LLC which primarily represents municipalities and select private clients in municipal and land use matters. Jay has been practicing municipal law for more than two decades. Jay’s firm serves as Town Counsel and Special Town Counsel for dozens of Massachusetts municipalities.