Michael Rikon
Michael Rikon ()

On June 23, 2017, the U.S. Supreme Court issued its decision in Murr v. Wisconsin, 137 S.Ct. 1933 (2017), 582 U.S. __ (2017). The decision was the most important property rights case of the term. The court agreed with the state’s holding that two lots adjacent to the St. Croix River should be considered as one parcel for a regulatory takings analysis. The majority decision was written by Justice Anthony Kennedy who began his decision by noting that “the classic example of a property taking by the government is when the property has been occupied or otherwise seized.” In Murr, the petitioners contended that governmental entities took their real property, a vacant lot, not by some physical occupation, but instead by enacting burdensome regulations that forbid its improvement or separate sale because it is classified as substandard in size. The state, on the other hand, argued that there was no regulatory taking because petitioners own an adjacent lot. It argued that the regulations, in effecting a merger of the property, permit the continued residential use of the property including for a single improvement to extend over both lots.

The facts are not that complicated. The Murrs own two 1.25 acre waterfront lots. The first lot, Lot F, was purchased in 1960 by the Murr parents, and then transferred into the ownership of the family business in 1961. The second lot, Lot E, was purchased in the name of the Murrs’ parents in 1963. The family built a cabin on Lot F, but Lot E remained as vacant land.

In 1975, the City passed regulations that prohibited an owner from developing or selling parcels that had a “net project area” of less than 1 acre. Lot E did not meet this requirement since it had a steep terrain which prevented building on part of the 1.25 acre parcel. The local law prohibited the sale or development as separate lots unless the same size requirement was complied with.

In 1994, ownership of Lot F was transferred to the Murr petitioners. In 1995, ownership of Lot E was also transferred to them. In 2004, the Murrs wanted to move the cabin on Lot F to a different portion of the lot and attempted to sell Lot E to finance the cost. The 1975 regulation prevented the separate sale of Lot E. A variance was applied for but was denied. At this point, the Murrs filed an inverse condemnation claim arguing that the 1975 regulation constituted a taking of their private property and they were owed just compensation. The state court granted the state’s motion for summary judgment holding that in order to conduct a takings review, the two lots must be considered as one parcel. It noted that there were “several available options for the use and enjoyment of their property.” Justice Kennedy reviewed the history of the concept of regulatory takings, noting that it was not until Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922), that the court’s regulatory takings jurisprudence was initiated. But, the justice noted that the Mahon court did not formulate more detailed guidance for determining when this limit is reached. It was stated that “[t]his area of the law has been characterized by ‘ad hoc, factual inquiries, designed to allow careful examination and weighing of all the relevant circumstances.’”

The court has stated two relevant guidelines for determining when government regulation is so onerous that it constitutes a taking. First, “with certain qualifications … a regulation which ‘denies all economically beneficial or productive use of land’ will require compensation under the Takings Clause.” Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001). Second, when a regulation impedes the use of property without depriving the owner of all economically beneficial use, a taking still may be found based on “a complex of factors,” including (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the government action. Palazzolo, 533 U.S. at 617 (citing Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978)).

After reviewing this precedent, Justice Kennedy stated: “A central dynamic of the Court’s regulatory takings jurisprudence, then, is its flexibility.” The court would not consider discrete segments as the parcel at issue, but instead would look at the parcel as a whole. It also stated that the view of the property rights under the Takings Clause should be coextensive with those under state law. In other words, there is no bright line rule to determine the parcel size, “[n]o single consideration can supply the exclusive test for determining the denominator.”

First, as noted above, courts should give “substantial weight” to the treatment of land under state and local law. Second, with regard to physical characteristics, courts should look at the topography, relationship between lots, and the surrounding environment. Third, a court should assess the value of the property under the challenged regulation, in particular considering the impact of the burdened land on other holdings.

The Supreme Court held that in applying these rules, the property should be considered as one single parcel. State and local regulations weighed in favor of this determination, as the 1975 law merged the two properties. The court also noted that the Murrs brought the parcels under one ownership years after the regulation was adopted. It is worth considering that this might have been a critical mistake. The law was previously amended and posed a critical concern. Had the parcel remained in its original corporate name, the shares to the corporation could have been simply transferred to the siblings who then could have taken advantage of the grandfather savings provision.

The majority reasoned that the Murrs’ parcel was subject to the merger rule only because of their “voluntary conduct in bringing the lots under common ownership after the regulations were enacted, thereby diminishing their legitimate development and use expectations.”

The decision unfortunately creates a vague multifactor balancing test. The factors to be considered “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.” The factors appear difficult to interpret or measure. As the dissent written by Chief Justice John Roberts noted, regulatory takings jurisprudence already includes a conceptual muddle in the Penn Central test for determining whether a given regulation restricts property rights severely enough to qualify as a taking. The Chief Justice would have resolved the definitional question in a “more straight forward” way, by defining the regulated property by reference to state law definitions of the boundaries of distinct units of land “in all but the most exceptional circumstances.”

The Chief Justice noted: [F]ollowing state property lines is also entirely consistent with Penn Central. Requiring consideration of the ‘parcel as a whole’ is a response to the risk that owners will strategically pluck one strand from their bundle of property rights—such as the air rights at issue in Penn Central—and claim a complete taking based on that strand alone. That risk of strategic unbundling is not present when a legally distinct parcel is the basis of the regulatory takings claim. State law defines all of the interests that come along with owning a particular parcel, and both property owners and the government must take those rights as they find them.

In other words, it would have been far better for the court to rule that each parcel should be treated separately.

Justice Clarence Thomas joined the dissent authored by Chief Justice Roberts, but also signed a separate dissent, in which he noted, “[i]n my view, it would be desirable for us to take a fresh look at our regulatory takings jurisprudence, to see whether it can be grounded in the original public meaning of the Takings Clause of the Fifth Amendment or the Privileges or Immunities Clause of the Fourteenth Amendment.”

The Murr decision is unlikely to provide any great guidance to ascertain when a regulation goes too far that it constitutes a taking. Murr leaves us with no single factor that is determinative requiring, at best, the same ad hoc approach on a case-by-case analysis. But because of the uncertainty of the majority’s balancing test, Murr will certainly lead to litigation.