By Glen C. Hansen
Lost Tree Village Corp. v. United States, ___ F.3d ___, 2013 U.S. App. LEXIS 690 (Fed.Cir. 2013). Between 1968 and 1974, Lost Tree Village Corporation (“Lost Tree”) purchased approximately 2,750 acres of property on Florida’s mid-Atlantic coast, which included a barrier island on the Atlantic Ocean. That property included 4.99 acres now known as Plat 57, which is part of the entire peninsula known as the Island of John’s Island. From 1969 through the mid-1990s, Lost Tree developed approximately 1,300 acres it purchased into the upscale gated residential community of John’s Island. The development was made in a piecemeal manner, and not as a master-planned community.
Plat 57 lies on a small peninsula on the Island of John’s Island. In the 1980s, Lost Tree developed that peninsula, but not Plat 57. Plat 57 consists of 1.41 acres of submerged lands and 3.58 acres of wetlands with some upland mounds. Although Lost Tree neither ‘stubbed out’ nor recorded Plat 57 when it developed the rest of the peninsula, an April 1986 appraisal stated that the peninsula development is “substantially completed. Lost Tree did not consider Plat 57 for development until approximately 2002, when the company learned it would obtain “mitigation credits” as a result of improvements a neighboring landowner had agreed to make as part of a development project. Lost Tree identified Plat 57 as a property that could be developed profitably to exploit the mitigation credits. Lost Tree obtained all state and local approvals to develop Plat 57 into a site for one residential home. In August 2002, Lost Tree filed an application for a § 404 wetlands fill permit from the United States Army Corps of Engineers (“USACE”). However, USACE denied Lost Tree’s § 404 permit application in August 2004, stating that less environmentally damaging alternatives were available, and that Lost Tree “has had very reasonable use of its land at John’s Island.”
Lost Tree filed an action with the Court of Federal Claims, asserting that the USACE effectively deprived Lost Tree of its property such that it is entitled to just compensation under the Fifth Amendment. The trial court held that no compensable taking had occurred. However, the Court of Appeals for the Federal Circuit reversed and remanded the case for reconsideration. The key issue on appeal was whether the trial court had properly defined the relevant parcel under the takings analysis.
The definition of the relevant parcel of land is a critical part of the regulatory takings analysis because that definition determines the extent of the economic impact wrought by the regulation. The extent of the economic impact affects two key analyses: (1) whether a particular regulation has deprived a landowner of all economically beneficial or productive options for the property’s use, and thus constitutes a categorical taking under Lucas v. S. Carolina Coastal Council, 505 U.S. 1003 (1992); and (2) whether, in light of the economic impact of the regulation on the claimant and on investment-backed expectations, a compensable taking has occurred under the alternative “ad hoc, factual inquiry” in Penn Central Transportation Co. v. New York City, 438 U.S. 104, (1978).
In this case, the Federal Circuit pointed to two “helpful guideposts” that the Supreme Court has provided to determine the relevant parcel in regulatory takings cases. First, “the property interest taken is not defined in terms of the regulation being challenged; the takings analysis must focus on ‘the parcel as a whole.’” Second, “the ‘parcel as a whole’ does not extend to all of a landowner’s disparate holdings in the vicinity of the regulated property.” The Court of Appeals further recognized that it has taken a “flexible approach” in determining the relevant parcel where the landowner holds other property in the vicinity, with the critical issue being the economic expectations of the claimant with regard to the property. One the one hand, when a developer treats several legally distinct parcels as a single economic unit, together they may constitute the relevant parcel. On the other hand, the relevant parcel may be a subset of the original purchase where the owner develops distinct parcels at different times and treats the parcels as distinct economic units.
In this case, the trial court rejected the government’s argument that the entire John’s Island community in the vicinity of Plat 57 is the relevant parcel for the takings analysis. The trial court also rejected Lost Tree’s argument that the relevant parcel was Plat 57 alone. The trial court determined that the relevant parcel is Plat 57 in combination with another adjacent developed parcel and scattered wetlands in the vicinity still owned by Lost Tree within the larger community of John’s Island. (However, because the trial court found that the USACE’s denial of the § 404 permit application diminished the value of those combined properties by approximately 58.4%, the trial court found that the diminution in value was insufficient support a takings claim.)
On appeal, the Federal Circuit concluded that the trial court erred in the definition of the relevant property for the takings analysis. The adjacent parcel of land owned by Lost Tree (which the trial court included in its analysis) was brought to grade and had water and sewer lines stubbed out to them for eventual sale as home sites. That adjacent parcel, and other wetlands owned by Lost Tree in the vicinity, were considered part of the development by Lost Tree; but not Plat 57. In fact, Plat 57 was absent from the development plans until at least seven years after the development of the entire John’s Island community was considered complete. In short, Lost Tree did not consider Plat 57 part of the same economic unit as the larger John’s Island community. The Court of Appeals concluded: “[T]he mere fact that the properties are commonly owned and located in the same vicinity is an insufficient basis on which to find they constitute a single parcel for purposes of the takings analysis.” The Court of Appeals held that the relevant parcel for the takings analysis is Plat 57 alone. Accordingly, the Federal Circuit reversed the judgment and remanded the case to the trial court to first determine the loss in economic value to Plat 57 suffered by the developer as a result of the USACE’s denial of the § 404 permit, and then to apply the appropriate framework to determine whether a compensable taking occurred.
Glen Hansen is senior counsel at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, or 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.