U.S. Supreme Court

Last term in Murr v. Wisconsin, the U.S. Supreme Court attempted, without real success, to answer the question of what is the relevant parcel or total property interest to be considered in weighing whether a regulation affecting part of it has gone “too far” so as to effect a compensable taking under the Fifth Amendment.

The decision is not all that helpful to any of the stakeholders, who are principally the pro-property rights people on one side and defenders of government regulation on the other. It is unfortunate that the Supreme Court was unable to elucidate better decision-making criteria.

The case was a good one for illustrating the problem. The Murrs, husband and wife, purchased a lot in 1960 on the St. Croix River in Wisconsin and built a cottage on it that the family has enjoyed since. In 1961, they transferred ownership of that lot to Mr. Murr’s plumbing business. In 1963, they bought an abutting lot in their own name. They purchased the lot for investment purposes, but never sold or developed it.

In 1975, the local zoning was amended to require lots to have a “net project area” of one acre. Each of the Murr lots has only about half an acre of buildable land. In one fell swoop these changes in the regulations rendered both previously legal lots nonconforming.

In 1994, the Murrs conveyed both lots to their children. Nonconforming lots like the one with the cottage on it can continue on indefinitely, but when the children wanted to sell the undeveloped lot to fund improvements to the cottage in 2004, they discovered they could not because it was legally undevelopable, undersized as a consequence of the zoning amendment.

So, quite logically, they sought variances from these provisions, arguing that when the new restrictive regulations were enacted the lots were still in separate ownership. The St. Croix County Board of Adjustment denied the variances. The Murr children sued in state court and lost at trial and lost on appeal. The U.S. Supreme Court granted review to consider whether the takings claim should consider the loss of value to just the undeveloped lot, or whether it should consider both lots as the “parcel as a whole.”

What is the relevant parcel matters, critically. If the second lot is considered alone, the Murrs win. They could not sell it, and could not develop it separately from the first lot. That kind of economic wipeout is almost always a taking. St. Croix County would have to write a check.

But if that denominator is the two lots combined, they lose. Together, the two lots provide room for the larger house and extra river frontage that most buyers want. So their value sold together is only 10 percent less than their value sold separately as two buildable lots. A 10 percent loss of value, especially given the good of preserving a wild and scenic river, does not reach the level of a taking. No check from St. Croix County.

Justice Anthony Kennedy wrote for the court, joined by Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan. The chief justice, joined by Justices Clarence Thomas and Samuel Alito dissented, and Thomas filed a separate dissent. The court affirmed the determination that the relevant parcel for purposes of the takings analysis was the two merged lots combined, and not each considered separately.

The decision misses the mark. It’s true that almost every state court in the country would have held, with the Wisconsin and Supreme Court, that the two lots should be considered together. But the court listed only three factors in deciding whether landowners would have “reasonable expectations” that their “holdings would be treated as one parcel, or, instead, as separate tracts.” The factors, the court wrote, “include the treatment of the land under state and local law; the physical characteristics of the land; and the prospective value of the regulated land.”

The court ignored two important additional factors that have been applied by almost every lower court to consider the denominator question: What was the owners’ intent with respect to the land, and how had the owners used the land? Here, the Murr parents originally bought the land for investment purposes. The 1975 regulation wiped out its investment value. But they held the lot for 13 years before that regulation, and indeed for 41 years total, before anyone even tried to sell it. In the meantime, they played volleyball on the lot, parked and barbecued there, and camped and swam on its beaches. After treating the undeveloped lot as essentially a backyard to their developed one for 41 years, do they still have a reasonable expectation to have it treated separately? But without considering their actual use of the land, can we fully evaluate what their reasonable expectations might be?

Takings law defies bright-line rules. It is the nature of the beast given the many factors that go into buying, developing, using, and selling real estate, a type of property that is unique enough that the remedy of specific performance is available in contests over ownership and possession.

Some of the blame for leaving the court without much to work with can be pinned on the attorneys for the state and the interest-group advocates representing the plaintiffs. They took extreme positions and the court had to muddle through an essentially uncharted middle ground. Failing to recognize the central importance of intent and overlooking a dozen critical factors already developed by state courts might be claimed by those on the government side as a victory, but really the decision leaves no one better off.