| "We're going to have to be more cautious and get more information if we are going to proceed on a takings claim." | |
| Grover Fugate, Rhode Island Coastal Resources Management Council |
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A recent decision by the U.S. Supreme Court on a Rhode Island takings claim appears to be at best a slight victory for coastal resource regulatory programs around the country, or at worst a draw with property rights advocates. But managers of coastal programs in both Rhode Island and South Carolina say that no matter how you view the decision, it's going to mean more work for program staff and attorneys.
"It's going to cause us to spend more time looking at when a piece of property was bought and the regulations that were in effect at the time of purchase," says Grover Fugate, executive director of the Rhode Island Coastal Resources Management Council. "We're going to have to be more cautious and get more information if we are going to proceed on a takings claim."
"I think it's clear that the U.S. Supreme Court is moving away from categorical directives, tests, or boxes," notes Mary Shahid, chief counsel with the Office of Ocean and Coastal Resource Management Division of the South Carolina Department of Health and Environmental Control. "We're going to have to look at all the facts and circumstances of a case to determine whether or not a taking occurred."
While the U.S. Supreme Court did not find a taking in the Palazzolo v. Rhode Island case, it did reverse a Rhode Island Supreme Court's ruling that landowners could not challenge a regulation as a taking if they had purchased their property after a regulation was enacted. This "bright line" rule has been widely used by many coastal management programs—and state courts—in determining takings claims.
At the same time, the justices were divided over when it was "reasonable" for a property owner to challenge a pre-existing regulation. The U.S. Supreme Court then remanded the case to Rhode Island's court for a determination as to whether a taking had in fact occurred.
Just the Facts
According to Brian A. Goldman, legal counsel to the Rhode Island Coastal Resources Management Council, the history of the Palazzolo case dates back more than 40 years. It begins back in 1959 when Anthony Palazzolo was president and sole shareholder of Shore Gardens, Inc., which purchased a piece of land in Westerly, Rhode Island, for about $8,000. The property lies along the shore of a 460-acre saltwater coastal estuary called Winnapaug Pond, and Goldman notes that much of the property is under water.
Between 1959 and 1961, Shore Gardens sold off six upland lots, which Goldman says were built upon with only minor, if any, filling of wetlands. Shore Gardens retained a 20-acre remnant, 18 acres of which are occupied by tide-flow marshland. The area serves as a refuge and feeding ground for fish, shellfish, and birds, provides a buffer against flooding, and absorbs and filters runoff into the pond.
In 1962, 1963, and 1966, Shore Gardens filed applications with the state to fill all 18 acres of salt marsh, but gave no particular purpose. All of these applications were denied.
From 1965 through 1977, state regulations governing alterations to coastal wetlands were growing stronger. The Rhode Island Coastal Resources Management Council was created in 1971, and by 1977 it "became clear that the filling of wetlands would be prohibited without a special exception, which is rarely granted to an individual," Goldman says.
Shore Gardens' corporate charter was revoked by the Rhode Island secretary of state in 1978, and Palazzolo took control of all of its holdings.
In 1983, the Rhode Island Coastal Resources Management Council denied an application Palazzolo filed "that was basically identical to his 1966 application," Goldman says. Palazzolo filed another application in 1985 to fill 11 acres of the wetlands so he could create a private beach club.
After this application was denied, Palazzolo filed the takings lawsuit, seeking more than $3.1 million in damages, which he based on the appraised value of the property if all the wetlands were filled and developed.
A Rhode Island trial judge found that Palazzolo's case was not ripe for review by the court because he never filed a meaningful application with the state. The court also ruled that Palazzolo was not denied economic use of the property because at least one to six upland lots could be fully developed, with a minimum value of $200,000.
Palazzolo appealed to the Rhode Island Supreme Court, which affirmed the lower court's ruling. The court also found that when Palazzolo acquired the property himself in 1978 he had knowledge of the regulations that were in effect and this prohibited him from developing the property.
The Pacific Legal Foundation, a nonprofit organization dedicated to the defense of private property rights, volunteered to represent Palazzolo if he took the case to the U.S. Supreme Court.
Taking It to the High Court
The case was argued before the U.S. Supreme Court in February 2001. Goldman says the court confronted four issues: 1) if the case was ripe for review; 2) whether Palazzolo was denied economic use of his property; 3) if a person who acquires land after a regulation is enacted can claim a taking; and 4) whether you have to look at the whole property when assessing the impact of government actions.
In June 2001, the justices issued their ruling. In a five to four decision, the court found that the case was ripe for review. "They basically said under the facts of the case Mr. Palazzolo had filed sufficient applications with the state, and it was clear he was not going to be able to fill the wetlands," Goldman says. "This is not a change in the law."
Shahid says that the ruling may mean that if regulators deny an application but would be willing to permit a proposal with less environmental impacts, they may have to "spell out in the denial letter" what they might permit. "We're going to have to help the property owner out a little, and not place the whole burden on the property owner to come back with a relevant proposal." This would mean additional work for staff who may be "put in the position of having to do some design work for applicants," she says.
The justices ruled unanimously that there was the potential for sufficient return on Palazzolo's investment, and therefore he was not denied all economic use of his property. This affirms the previous U.S. Supreme Court decision in Lucas v. South Carolina, where the court said if you have a situation where the value of property is diminished 100 percent, then you have a taking, Goldman says.
That's important for land use regulators in any state because it allows you to regulate land and prohibit uses that are going to be harmful to the environment, and still allow some economic use of the property," he explains.
In a five to four decision, the justices reversed the state court's invocation of a "per se rule" that a regulation in effect before someone acquires a piece of property automatically bars a takings claim. The court's opinion reads in part, "Future generations, too, have a right to challenge unreasonable limits on the use and value of land." However, Justices Sandra Day O'Connor and Antonin Scalia wrote separate disagreeing opinions on when it was "reasonable" for a property owner to challenge a pre-existing regulation.
It means there will be a lot more litigation on that issue," Goldman notes. "This was a wash for everybody."
Finally, the court was presented with whether a piece of property must be looked at as a whole, or if an owner can claim a taking if regulations prohibit development on a portion of the land. The court did not rule on the issue, meaning "this doctrine is still intact for regulators, which is a good thing," Goldman says.
Making Sense of It All
"Initially, I know a lot of people were concerned about this decision and its impact on the regulatory and environmental community," Goldman says. "Once you dissect it and look at it, it really doesn't change a whole lot, and it leaves a lot in place." He believes the ruling "amounts to a net gain for environmental regulators."
Shahid thinks, "Everybody walked away losing a little something and gaining a little something." The ultimate test, she says, will be how courts will rule on future takings cases in light of the Palazzolo decision. "I'll know in the next six months if this is good news or bad news for us. I hope it will be a draw."
To view the U.S. Supreme Court's decision in Palazzolo v. Rhode Island, point your browser to the Legal Information Institute at http://supct.law.cornell.edu/supct/. For information on the state's case, contact Brian A. Goldman at (401) 274-1300 or goldman_biafore@msn.com. For information on the Lucas v. South Carolina decision, contact Mary Shahid at (843) 744-5838 or shahidmd@chastn86.dhec.state.sc.us. For information on the Pacific Legal Foundation, point your browser to www.pacificlegal.org.
Lucas v. South Carolina, Important in Palazzolo Case
The bottom line of the U.S. Supreme Court's decision in the Palazzolo v. Rhode Island case is that the court did not find a taking. This decision was based in part on an earlier takings case, Lucas v. South Carolina.
The Lucas case was "huge with regards to the impact it had on regulatory takings law," says Mary Shahid, chief counsel for the Office of Ocean and Coastal Resource Management Division of the South Carolina Department of Health and Environmental Control.
In 1988, the South Carolina Legislature passed an amendment to the state's Coastal Zone Management Act that prohibited new structures seaward of a beachfront jurisdictional line established by the state for permitting purposes. This jurisdictional baseline was intended to reflect where the highest point of erosion occurred along the state's beaches over the previous 40 years, and reflected the state's "policy of retreat."
After developing a waterfront residential project on the Isle of Palms, an eroding and accreting barrier island, David Lucas purchased the remaining two lots with the intention of building single-family residences on them. The Lucas lots were seaward of the baseline, and the state prohibited him from building on them.
Lucas brought a lawsuit claiming an unconstitutional taking, which was appealed to the U.S. Supreme Court. In 1992, the higher court ruled that when a regulation eliminates all viable economic uses of a property, then the state must pay, Shahid says. This is the categorical directive known as the total takings rule.
