1 Eminent Domain in United States Constitutional Law Investment Treaty Forum Conference British Institute of International and Comparative Law 5 May 2006 Gary B. Born Wilmer Cutler Pickering Hale and Dorr LLP

2 Fifth Amendment Takings Clause Takings Clause: “... nor shall private property be taken for public use, without just compensation.” Due Process Clause – Fifth Amendment: “No person shall... be deprived of life, liberty, or property, without due process of law...” Due Process and Equal Protection Clauses – Fourteenth Amendment: “... nor shall any State … deny to any person within its jurisdiction the equal protection of the laws.”

3 Historical Origins of Takings Clause “Fifth Amendment... [is] designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public...” Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 123 (1978) (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960)). Relatively limited use of Takings Clause for more than 100 years after adoption

4 Origin of “Regulatory Takings” Doctrine Takings historically limited to direct expropriation / eminent domain Pennsylvania Coal Co. v. Mahon: Takings Clause requires just compensation for so-called regulatory takings

5 Origin of “Regulatory Takings” Doctrine Justice Brandeis’ dissent: “[R]estriction imposed to protect the public health, safety or morals from dangers threatened is not a taking. The restriction here in question is merely the prohibition of a noxious use. The property so restricted remains in the possession of its owner.... [W]here the police power is exercised, not to confer benefits upon property owners but to protect the public from detriment and danger, there is in my opinion, no room for considering reciprocity of advantage.” Mahon, 260 U.S. at 422.

6 Justice Holmes’ majority: Origin of “Regulatory Takings” Doctrine “As applied in this case, the statute is admitted to destroy preexisting rights of property and contract. The question is whether the police power can be stretched so far. Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law.... The general rule at least is that while property may be regulated to a certain extent, if regulation goes too far it will be recognised as a taking.” 260 U.S. at 413. Court holds that statute’s essentially complete destruction of the mineral rights reserved by the coal company constituted a taking

7 Overview of Contemporary Takings Law Lack of clear rules under Takings Clause, particularly in regulatory takings analysis U.S. Supreme Court has repeatedly said that there is no “set formula,” Goldblatt v. Town of Hempstead, 369 U.S. 590, 594 (1962); Takings analysis depends largely on “essentially ad hoc, factual inquiries.” Penn Central, 438 U.S. at 124.

8 Overview of Contemporary Takings Law  Doremus, Takings and Transitions, 19 J. Land Use & Envtl. L. 1, 1-2 (2003) (regulatory takings law “famously incoherent”)  Bell & Parchomovsky, Takings Reassessed, 87 Va. L. Rev. 277, 278 (2001) (“Takings jurisprudence is replete with inconsistent distinctions that provide scant guidance for courts and policymakers.”)  Schroeder, Never Jam To-day: On the Impossibility of Takings Jurisprudence, 84 Geo. L.J. 1531, 1531 (1996) (Takings jurisprudence is a “top contender for the dubious title of ‘most incoherent area of American law.’”)  Farber, Public Choice and Just Compensation, 9 Const. Comment. 279, 279 (1992) (“[T]akings doctrine is a mess.”)

9 Overview of Contemporary Takings Law  Peterson, The Takings Clause: In Search of Underlying Principles, 77 Cal. L. Rev. 1301, 1304 (1989) (“[I]t is difficult to imagine a body of case law in greater doctrinal and conceptual disarray.”)  Rose, Mahon Reconstructed: Why the Takings Issue is Still a Muddle, 57 S. Cal. L. Rev. 561, (1984) (Takings jurisprudence is “[b]y far the most intractable constitutional property issue.”)  Epstein, The Seven Deadly Sins of Takings Law, 26 Loy. L.A. L. Rev. 955, 956 (1993) (“[M]ak[ing] sense of the Takings Clause... is complicated enough when the constitutional text stands alone, but it has been made more formidable still by the grotesque judicial gloss on the clause that now passes for constitutional interpretation.”)

10 Overview of Contemporary Takings Law Despite a general absence of clear rules, it is possible to derive a few principles, even in the field of regulatory takings:  Eminent Domain - acquisition of title or formal expropriation virtually always requires just compensation – United States v. Gen. Motors Corp. (1945);  Permanent physical occupation of property virtually always requires just compensation - Loretto v. Teleprompter Manhattan CATV Corp. (1982);  Total (100%) destruction of property value generally requires just compensation, subject to general nuisance doctrine - Lucas v. South Carolina Coastal Council (1992);  Ordinary Regulatory Takings Claims Generally Subject to Multi-Factor Analysis - Penn Central Transp. Co. v. City of New York (1978); Tahoe- Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency (2002).

11 Permanent Physical Occupation: Loretto New York statute requiring land owner to permit installation of cable television cable and directional taps on private rental property U.S. Supreme Court held that statute effected a regulatory taking: “[A] permanent physical occupation authorized by government is a taking without regard to the public interests it may serve”; “a physical intrusion [is] a property restriction of an unusually serious character for purposes of the Takings Clause … when the physical intrusion reaches the extreme form of a permanent physical occupation, a taking has occurred.” Loretto, 458 U.S. at 426.

12 Total Destruction of Economic Value: Lucas South Carolina Beachfront Management Act - no construction within specified distance from beachfront “[W]e have found categorical treatment appropriate... where regulation denies all economically beneficial or productive use of land.” Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992). 100% loss of value required for categorical treatment; NOT 90%

13 Lucas Exception: Nuisance Law Lucas exception: Background principles of nuisance law “where the State seeks to sustain regulation that deprives land of all economically beneficial use, we think it may resist compensation only if the logically antecedent inquiry into the nature of the owner's estate shows that the prescribed use interests were not part of his title to begin with”; “must inhere in the title itself, in the restrictions that background principles of the State's law of property and nuisance already place upon land ownership” Lucas, 505 U.S. at 1027.

14 Lucas Exception: Nuisance Law Examples:  zoning restrictions - Village of Euclid v. Ambler Realty (1926)  industrial uses prohibited - Hadacheck v. Sebastian (1915) (brickyard plant operations in urban areas); United States v. Central Eureka Mining Co. (1958) (non-essential gold mine); Mugler v. Kansas (1887) (brewery)  height restrictions - Welch v. Swasey (1909)  health/crop restrictions - Miller v. Schoene (1928) (destruction of ornamental cedars)

15 “Ordinary” Regulatory Takings Claims: Penn Central Factors In contrast to the categorical per se rules under Loretto and Lucas, most regulatory takings claims are subject to ad hoc, case-by-case analysis. Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978): NY Court of Appeals held that there could be no taking “since the [Landmarks Preservation Law] had not transferred control of the property to the city, but only restricted appellants’ exploitation of it.” US Supreme Court held that, for alleged regulatory taking, the Fifth Amendment required “essentially ad hoc, factual inquiries,” with “several factors that have particular significance.”

16 Three Penn Central factors:  “economic impact of the regulation on the claimant”  “the extent to which the regulation has interfered with distinct investment-backed expectations”  “the character of the governmental action” – “A ‘taking’ may more readily be found when the interference can be characterised as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good” “Ordinary” Regulatory Takings Claims: Penn Central Factors

17 Penn Central held that permit denial was NOT a taking:  other uses of property, including profitable use, are permitted by statute;  no interference with present uses of property by statute, including historic use as a terminal (not office building);  development rights available for claimants with regard to their other properties;  possibility for application for different office tower, which might be approved;  comprehensive, city-wide scheme, which did not single out claimants or Grand Central Terminal;  positive impact of legislation on property values; “Ordinary” Regulatory Takings Claims: Penn Central Factors

18 “Ordinary” Regulatory Takings Claims After Penn Central Supreme Court has not clarified the Takings Clause materially since Penn Central Numerous, sharply-divided opinions; ideological divide A few generalizations may be made:  Magnitude of Economic Harm (Lucas)  Interference with "Distinct Investment Backed Expectations" Correlates with Greater Likelihood of Taking (Lingle v. Chevron, U.S.A., Inc.)  Departure from Settled Custom (Eastern Enterprises v. Apfel)

19 “Ordinary” Regulatory Takings Claims After Penn Central  Magnitude of Interference with Private Rights/Control (Eureka and Pewee)  Magnitude of Temporal and Spatial Intrusion (Tahoe)  Magnitude of Physical Invasion (United States v. Causby)  “Singling Out,” Particularly of Disfavoured Parties (Lucas)

20 “Ordinary” Regulatory Takings Claims After Penn Central  Violation of Government Assurances / Promises (United States v. Winstar Corp.)  Government Actions Must Be Logically Related and Proportional to the Stated Government Objectives (Nollan v. Calif. Coastal Comm'n; Dolan v. City of Tigard)  No Reciprocity of Advantages (Village of Euclid)

21 Conclusion CAFTA Chapter 10 (Investments) Annex 10-C, para. 4: “ 4.The second situation addressed by Article is indirect expropriation, where an action or series of actions by a Party has an effect equivalent to direct expropriation without formal transfer of title or outright seizure. (a)The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors: (i)the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; (ii)the extent to which the government action interferes with distinct, reasonable investment backed expectations; and (iii)the character of the government action. (b)Except in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations. ”