A survey of the two lots in question. Source: Pacific Legal Foundation.

In a 5-4 decision announced today, the U.S. Supreme Court held that Wisconsin could prohibit development of a subdivision lot—while allowing development on an adjacent lot owned by the same family—without paying just compensation.  The Court’s decision is a victory for states and local governments and a loss for property rights advocates.

We reported on the case of Murr v. Wisconsin earlier this year, prior to oral argument.  The underlying facts from that post are copied here:

Two parcels of property located along Lake St. Croix in Wisconsin are the subject of Murr.  The two waterfront parcels, each of which are just over an acre in area, were platted in 1959.  The Murr family purchased one of the parcels (Lot F), and subsequently purchased the other parcel (Lot E) in 1963.  The Murrs built a family cabin on Lot F, and Lot E has remained vacant ever since.  The Murrs held title to Lot F in their family business, while they held title to Lot E under their personal names.  In 1994, the family business conveyed Lot F to their six children, and in 1995, Lot E was also conveyed to the children.  Four of the Murr children are now the owners of both Lots E and F.  When the children sought to sell Lot E for development in order to fund improvements to Lot F, they were surprised to learn that Lot E could not be developed under county regulations.

In 1975, St. Croix County adopted regulations requiring that there be a net project area of at least one acre for a new residential project.  Lot E is 1.25 acres, but the net project area is 0.5 acres—after subtracting floodplains, slope areas, road right-of-ways, and wetlands as required by the ordinance.  Thus, Lot E is not developable under current county regulations.  The 1975 law also provided that a lot existing before January 1, 1976 could be developed as a single-family residence, but only if the lot “is in separate ownership from abutting lands.”  Because the Murr family owns an abutting lot, they cannot take advantage of the grandfathering provision.  Moreover, the ordinance prohibits the Murr family from selling Lot E separately from Lot F.

The Murrs sought a variance from the ordinance, arguing that, because the lots were actually in separate ownership—i.e. the family business owned one, while the family owned the other—in 1976, the grandfathering provision should apply to them.  The county denied the variance request, and the Wisconsin Court of Appeals affirmed.  The Wisconsin Supreme Court denied review.  The Murrs then filed a regulatory taking claim in Wisconsin state court.

In an opinion authored by Justice Anthony Kennedy and joined by four other justices, the Supreme Court determined that Lots E and F should be treated as a single parcel in considering whether a regulatory taking had occurred.  A court’s consideration of what property constitutes the “whole” is significant in regulatory takings cases such as Murr.  To determine whether a regulatory taking has occurred, a court considers whether regulation has deprived the owner of use or value of the entire property.  If the Supreme Court treated only Lot E as the subject “whole” property in this case, it would be more likely that there was a total taking of Lot E.  But because the Supreme Court treated Lots E and F together as the “whole,” the denominator used in considering the effect of the regulation was much larger, and thus less of the property’s use or value had been confiscated.

The Court’s opinion outlines a complex, three-factor approach to determining what constitutes the total property in a regulatory takings analysis.  Justice Kennedy suggests that courts should consider (1) “the treatment of the land under state and local law”; (2) “the physical characteristics of the land”; and (3) “the prospective value of the regulated land” in determining what constitutes the property that is the subject of the alleged taking.  In so doing, courts “should determine whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts.”

Applying this methodology, the Court found that Wisconsin law treated the Murrs’ property as a single parcel, and that the Murrs had subjected their property to the regulation “only because of voluntary conduct in bringing the lots under common ownership after the regulations were enacted.”  The Court also found that the property’s physical character—the lots shared a long, common boundary and were located on similar topography along the St. Croix River—supported the conclusion that the property should be treated as one.  Third, the Court noted that considering the property as one parcel actually enhanced the combined value of the two parcels, dictating toward common treatment of the property.

Dissenting from the majority, Chief Justice John Roberts, joined by Justices Samuel Alito and Clarence Thomas, disagreed with Justice Kennedy’s three-factor analysis.  In Chief Justice Roberts’s view, the determination of what constitutes the total property should not be based on a complex, multi-factor analysis, and instead should be based on predictable ways in which state law divides the parcel through subdivision regulation.  Chief Justice Roberts argued that, while the commonality of the two parcels could be considered in determining whether a taking occurred, it should not be considered in determining the scope of the total property in question.  The dissenters would have remanded the case to the Wisconsin courts to determine whether, consistent with state law, the two parcels were legally distinguishable.  Only after that determination, in the dissenters’ eyes, could the court properly consider whether a taking had occurred.

Justice Thomas dissented separately, implying that the Court’s regulatory takings jurisprudence should be revisited with respect to whether regulatory takings cases should properly arise under the Fifth Amendment.

The Court’s decision makes a regulatory takings claim by a private property owner more difficult in cases where the property owner complains that one of multiple subdivision parcels in the owner’s possession has been confiscated by a regulation.  Conversely, state and local governments can now take comfort that regulatory action that deprives a portion of a landowner’s holdings of use or value is less likely to constitute a taking requiring the payment of just compensation.  Unfortunately, however, the Court’s introduction of a complex, multi-factor analysis does little to provide a predictable “measuring stick” by which landowners and governmental entities can determine the consequences of regulation under the Takings Clause.  It will likely take years of lower court litigation to determine the extent to which Murr has impacted landowners’ rights and governments’ obligations.

 

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Photo of Brian J. Connolly Brian J. Connolly

Brian Connolly represents public- and private-sector clients in matters relating to zoning, planning, development entitlements and other complex regulatory issues.  Brian’s practice encompasses a broad range of land use matters including zoning compliance, rezonings and other regulatory amendments, planned-unit developments, development agreements, private covenants and restrictions, land use and zoning litigation, initiatives and referenda associated with land use approvals, and real estate transactions.  Brian additionally specializes in the First Amendment and land use issues associated with outdoor sign and advertising regulation, and fair housing matters in local planning and zoning.