by Joel Ellinwood, AICP and Janell M. Bogue

In May the Supreme Court announced a unanimous decision that changes 25 years of Fifth Amendment jurisprudence, eliminating the “substantially advances” test for determination of whether a government regulation results in a taking of property. In Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005), the Court said that the test first laid out in Agins v. City of Tiburon, 447 U.S. 255 (1980) was not appropriate for determining whether a government regulation requires compensation. This clarifies what was until now a somewhat murky and muddled area of law.

At issue in Lingle was a state regulation which limited the amount of rent that an oil company could charge the lessee of a company owned gas station. Hawaii’s legislature passed the statute in an attempt to regulate the effects of market concentration on gasoline prices. After the statute passed, Chevron sued the state. It claimed that the statute was unconstitutional as a taking of the company’s property.

The Fifth Amendment Takings Clause, made applicable to the states through the Fourteenth Amendment, states that private property shall not be taken for public use without just compensation. A taking is not limited to just physical invasion. Since Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922), the Court has held that government regulation of private property may also constitute a “regulatory taking” of the property because the government regulation is so onerous that its effect is tantamount to a direct appropriation requiring compensation. However, no clear rule was established to determine when this would be required other than a case by case factual analysis. In Agins, the Court announced a two part test for determining when a regulation had gone too far. It said that the regulation becomes a taking if the law “does not substantially advance legitimate state interests, or denies an owner economically viable use of his land.”

In Lingle, the Court reviewed that test and determined that it was not the correct analysis for takings questions. It said that the “substantially advances” language was actually a due process based question because it asked whether the regulation was justified, not whether it was excessively burdensome. A takings question presumes that the regulation is a proper exercise of government power and that the regulation was enacted with a valid public purpose. The Court said,

“the ‘substantially advances’ inquiry reveals nothing about the magnitude or character of the burden a particular regulation imposes upon private property rights. Nor does it provide any information about how any regulatory burden is distributed among property owners. In consequence, this test does not help to identify those regulations whose effects are functionally comparable to government appropriation or invasion of private property…”

The Court also indicated that there are significant practical difficulties in application of the Agins formula. Its application would mean heightened judicial scrutiny of many state and federal regulations, a job which the courts have neither the time nor the expertise to do properly. “It would empower–and might often require–courts to substitute their predictive judgments for those of elected legislatures and expert agencies.” The Court said that judicial deference to legislative judgments regarding needed regulation was well established.

Though the Court held that the Agins “substantially advances” formula was not appropriate for takings questions, the remaining takings tests have not changed. There are two categories where a regulation will be deemed a per se taking. First, when the regulation requires a permanent physical invasion, regardless of the scope or size of the invasion, compensation will be required. See Loretto v. Telemprompter Manhattan CATV Corp., 458 U.S. 419 (1982). Second, when a regulation completely deprives the landowner of “all economically beneficial use” of the land, then compensation is required. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). When the regulation is less than a total deprivation of use, a series of factors will be used to evaluate whether the regulation has gone too far and has become a taking. These factors were laid out in Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978). They include the economic impact on the landowner and whether the “regulation has interfered with any distinct investment-backed expectations.” Finally, when the government requires an exaction affecting real property interests as a condition of obtaining a development permit, it cannot violate the “essential nexus” and “rough proportionality” doctrines of Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994).

With Lingle, the Court clarified the area of regulatory takings by declaring that the Agins “substantially advances” test is no longer a suitable one. By focusing the inquiry on “effects [that] are functionally comparable to government appropriation or invasion of private property,” utilizing the Penn Central factors, the Court may have taken some of the wind out of the sails of the burgeoning property rights movement. It remains to be seen, though, how future courts implement it and how this decision affects future takings claims.

The Court said that application of the Agins test had not been critical to the holdings of any of its subsequent takings rulings, but this may not be true of the many state decisions that adopted and applied the Agins test. In California, at least 50 cases decided in the past 25 years since Agins cited the “substantially advances” test. That body of law must now be re-examined in light of this sea change in takings jurisprudence.

Joel Ellinwood, AICP is a senior associate and Janell Bogue is a law clerk with Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, environmental and planning issues contact Abbott & Kindermann at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.