by Diane G. Kindermann and Robert T. Yamachika

The United States Supreme Court on April 23, 2002 decided in Tahoe- Sierra Preservation Council v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002) that temporary, government-imposed development moratoria do not automatically amount to a regulatory taking of private property requiring just compensation.

The controversy began in 1981 when the Tahoe Regional Planning Agency (“TRPA”) imposed the first of two moratoria on development in the 501 square mile Lake Tahoe Basin (“Basin”) while TRPA formulated a comprehensive land use plan for the Basin. The second moratorium in 1983 completely suspended all project reviews and approvals until a new regional plan was adopted in 1984. These two moratoria prohibited all construction on sensitive lands in the entire Basin for 32 months. Landowners affected by the moratoria filed suit, claiming that TRPA’s actions constituted a taking of their property without just compensation, in violation of the Fifth Amendment. The trial court found that the moratoria constituted a “categorical” taking as defined in Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). In Lucas, the Supreme Court held that a regulation that deprives a landowner of all economically viable use of his land constitutes a “categorical taking.” Relying on Lucas, the trial court held that a regulatory taking occurred because the moratoria temporarily deprived the landowners of all economically viable use of their land.

The Ninth Circuit disagreed, holding that the moratoria had only a temporary impact on the landowners, because the landowners had not been permanently deprived of all economically viable use of their land and therefore no categorical taking had occurred. The Lucas facts were distinguishable because Lucas was denied all economically beneficial uses of his land as the statute wholly eliminated the value of his fee simple title, and the court’s holding was limited to “the extraordinary circumstances when no productive or economically beneficial use of the land is permitted.” Id. at 1017. Consequently, in Tahoe-Sierra, the Ninth Circuit concluded where anything less than a complete elimination of value or a total loss were to occur, as in the 32 month prohibition on development imposed by TRPA, the case by case balancing test established by the Supreme Court in Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978) should be applied.

The balancing test was established in Penn Central when the Supreme Court candidly admitted that it “quite simply, has been unable to develop any ‘set formula’ for determining when ‘justice and fairness’ require that economic injuries caused by public action be compensated by the government . . .” and that “whether a particular restriction will be rendered invalid by the government’s failure to pay for any losses proximately caused by it depends largely “upon the particular circumstances [in that] case” Id. at 124. Thus, a court should determine a regulatory takings issue on an ad hoc basis, characterized by factual inquiries designed to allow careful examination and weighing of all relevant circumstances in any given case.

In a 6-3 ruling, the Supreme Court agreed with the Ninth Circuit. The Supreme Court rejected Petitioner’s argument that whenever the government imposes a deprivation of all economically viable use of property, no matter how brief in duration, it effects a taking, and should be compensated under Lucas as a categorical taking. Petitioners presented what the Supreme Court coined as a “conceptual severance” argument, under which they sought to bring the case under the rule announced in Lucas, by arguing that the Court should sever the 32-month segment from the remainder of each landowner’s fee simple estate, and then ask whether that segment has been taken in its entirety by the moratoria.

The Supreme Court rejected Petitioner’s conceptual severance argument because it entirely ignored Penn Central‘s admonition that in regulatory takings cases, a court should focus on “the parcel as a whole.” “Takings jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, this Court focuses rather both on the character of the action and on the nature and extent of the interference with the rights in the parcel as a whole . . .” Penn Central ,438 U.S. at 130-131. “Thus, the District Court erred when it disaggregated petitioner’s property into temporal segments corresponding to the regulations at issue and then analyzed whether petitioners were deprived of all economically viable use during each period.” Tahoe-Sierra.

The Supreme Court further stated that it will not adopt per se rules in cases involving partial regulatory takings, preferring to examine a number of factors rather than a simple mathematically precise formula. “The Penn Central analysis involves ‘a complex of factors including the regulations’s economic effect on the landowner, the extent to which the regulation interferes with reasonable investment-backed expectations, and the character of the government action.'” Palazzolo v. Rhode Island,533 U.S. 606, 617 (2001). The court held that when evaluating the property interest as a whole, the duration of the restriction is but one of the important factors that a court must consider in the appraisal of a takings claim. Under this rational, a permanent deprivation of the owner’s use of the entire area is a taking of the parcel as a whole, as in Lucas, whereas a temporary restriction that merely causes a diminution in value is not. The court found that the property subject to the moratoria was not permanently deprived of all economically viable use because the property will recover its value when the moratorium is lifted.

The Supreme Court noted that the consensus in the planning community appears to be that moratoria, or interim development controls, are an essential tool of successful development to preserve the status quo while formulating a more precise development strategy. It also pointed out that petitioners’ suggested categorical rule requiring compensation for any deprivation of all economic use, no matter how brief, would open a Pandora’s Box because it would apply to numerous “normal delays in obtaining building permits, changes in zoning ordinances, variances and the like . . .[s]uch a rule would undoubtedly require changes in numerous practices that have long been considered permissible exercises of the police power.” The court stated that “[a] rule that required compensation for every delay in the use of property would render routine government processes prohibitively expensive or encourage hasty decisionmaking. Such an important change in the law should be the product of legislative rulemaking rather than adjudication.”

Property rights advocates view the Tahoe-Sierra decision as a substantial step backwards for property owners and development, while others have hailed Tahoe-Sierra as the best news from the Supreme Court on takings law in more than 20 years. Whatever your viewpoint, it is clear that after Tahoe-Sierra, a permanent deprivation of all economically viable use of one’s land may have to be demonstrated to establish a taking.

Diane Kindermann is a partner and Rob Yamachika is an associate 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. Copies of the cases discussed in this article can be obtained for free at FindLaw.

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.