Billy Joel, The Stranger (1977) Office Hours This Week: – FRI 11:45am-1:45pm – SUN 1:00-5:00 pm Class Today – Review Problem 3B – Penn Central Intro Continued – Demsetz Takings Story – Arbitrariness Analysis – 1978 – Penn Central Takings Analysis – Course Evaluations

FINAL EXAM QUESTION 3 Review Problem 3B (Oxygen) FROM EXAM QUESTION IIIE (2000) Should a state have to pay compensation to landowners whose property value is reduced significantly when the state bans production of a product or growing of a crop to prevent harmful or illegal uses of the product/crop where the product/crop in question has both legal and illegal uses; and the landowners’ methods of producing/growing of the product/crop in question cause no direct harms to the landowners’ neighbors?

DQ3.31: Penn Central & Demsetz Takings Story Reminder: This Analysis Provides Another Way to Think About Q of When Regulation Interferes Too Much w Property Rights – Who Should Bear Burden for Changing Technology and/or Values? – Though Not a Tough Question if “Change” is: “We’ve just discovered you’ve been poisoning us for years.”

Penn Central: Demsetz Takings Story Decision: Whether to alter historically significant building Old Rule: Os can do as they like. Externalities: Harm to nearby tourist businesses and tourism generally; harm to “history buffs” & civic pride Change in Circumstances: As time passes, historic buildings become more well-known/more popular/rarer Increased Externalities: Increase in [Perception of] Harms b/c more popularity; more reliance; loss of some historic buildings (Old Penn Station in 1963)

Jacqueline Kennedy Onassis: "Is it not cruel to let our city die by degrees, stripped of all her proud monuments, until there will be nothing left of all her history and beauty to inspire our children? If they are not inspired by the past of our city, where will they find the strength to fight for her future? …

Jacqueline Kennedy Onassis: "Americans care about their past, but for short term gain they ignore it and tear down everything that matters. Maybe… this is the time to take a stand, to reverse the tide, so that we won't all end up in a uniform world of steel and glass boxes."

Penn Central: Demsetz Takings Story Decision: Whether to alter historically significant building Change in Circumstances: As time passes, historic buildings become more well-known/more popular/rarer Increased Externalities: Increase in [Perception of] Harms b/c more popularity; more reliance; fewer historic bldgs Change in Rule: Passage of Historic Preservation Laws Response: Os of historic buildings might claim “Taking” b/c of interference w Property Rights: (Penn Central is first challenge)

Penn Central: Demsetz Takings Story Policy Questions For State Legislature (not you): Is Historic Preservation a Good Way to Address Growing Externalities? For Federal Takings Analysis (you): Society decided relatively recently that historic preservation is important. – Fair to Os of historic bldgs to bear financial burden? OR – Should govt pay them to preserve landmarks? Questions on Demsetz & Penn Central?

: Arbitrary? DQ3.37 (Krypton) Penn Central: Arbitrary? DQ3.37 (Krypton) Penn Central claimed designation of historical buildings arbitrarily singled out some property owners. Why Did Majority Disagree?

: Arbitrary? Penn Central: Arbitrary? DQ3.37 (Krypton) Majority: Not Arbitrary (pp ) Comprehensive Plan Here – No Singling Out: Rule applies to “vast numbers of structures” in NYC – Arbitrariness limited by judicial review of designation or decision

: Arbitrary? Penn Central: Arbitrary? DQ3.37 (Krypton) Majority: Not Arbitrary (pp ) Comprehensive Plan Here Hard to say gov’t action is “arbitrary” when PC didn’t exhaust other remedies: – Didn’t appeal designation as landmark – Didn’t appeal decision by Board to reject plans – Only tried 2 options for additional stories

: Arbitrary? Penn Central: Arbitrary? DQ3.37 (Krypton) Majority: Not Arbitrary (pp ) Comprehensive Plan Here Hard to say arbitrary gov’t action when PC didn’t exhaust other remedies: NOTE: US SCt not happy to be asked to decide constitutional Q that might be unnecessary, but Majority doesn’t reject claim for this.

: Arbitrary? Penn Central: Arbitrary? DQ3.37 (Krypton) Majority: Not Arbitrary (pp ) Comprehensive Plan Here PC didn’t exhaust remedies Not “arbitrary” just b/c falls more heavily on some landowners: regulatory burdens don’t have to be evenly distributed (citing Miller; Hadacheck; Euclid)

: Arbitrary? Penn Central: Arbitrary? DQ3.37 (Krypton) Majority: Not Arbitrary Same result on this claim as Hadacheck & Miller Reminder : Arbitrariness won’t be an issue for you. Leaves us with real Takings Question First Some Historical Context

The Blizzard of ‘78

1978: Births & Deaths BORN: Louise Brown: 1st test tube baby Clay Aiken * Kobe Bryant Nelly Furtado * Josh Hartnett Ashton Kutcher * Dirk Nowitzki Chase Utley * Reggie Wayne DIED Hubert Humphrey Margaret Mead Golda Meir Keith Moon Norman Rockwell

1978: Entertainment (Bonus Slide) John Travolta – Saturday Night Fever (Grammy for album) – Grease (movie) Vietnam movies (5 yrs after fall of Saigon) – Deer Hunter (best picture) – Coming Home (best actor & actress) Premieres: Dallas; Evita; Garfield

1978: Songs (Bonus Slide) Just the Way You Are (Billy Joel) Copacabana (Barry Manilow) Three Times a Lady (Commodores) Sailing (Christopher Cross) Paradise by the Dashboard Light (Meat Loaf)

1978: International Camp David Accords: Peace treaty between Israel & Egypt Unrest in Iran & Nicaragua anticipates revolutions of ’79 US agrees to formally recognize People’s Republic of China Panama Canal Treaties ratified by Senate; will end US control of Canal as of end of ’99

1978: California I arrive at Stanford mid-September Calif. Propositions 13 & 6 (11/7) Jonestown Mass Suicide (11/18) Killing of Harvey Milk/George Moscone by Dan White (11/27)

1978: Other Memorable 1st US casinos outside Nevada open in Atlantic City Affirmed wins Triple Crown (not happened since) Red Sox & Yankees: Bucky Dent Pope Paul VI  Pope John Paul I  (53 Days)  Pope John Paul II

1978: U.S. Supreme Court Regents of the Univ. of California v. Bakke (affirmative action) Tennessee Valley Authority v. Hill (snail darter) Penn Central Transportation Co. v. City of New York (Grand Central Station)

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1.Overview 2.Relatively Clear Instances of Takings 3.Arguments from Purpose 4.Arguments re Harm to Property Owner 5.Means/End Testing

Penn Central: Takings Analysis Big Qs Left Open by Penn Central A.Noxious Use B.Meaning of Distinct Invest-Backed Expectations (DIBE) C.Denominator Q D.DIBE & Hadacheck E.Heightened Scrutiny for Takings?

Penn Central: Takings Analysis KEYS TO COLOR OF TEXT Greens = Arguments of Claimant PC Blues = Points Made by Majority Reds = Points Made by Dissent Purple = Points Made by Prior Authorities Black = Commentary from Me Yellow/Gold: Open Qs After Penn Central

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1.Overview 2.Relatively Clear Instances of Takings 3.Arguments from Purpose 4.Arguments re Harm to Property Owner 5.Means/End Testing

Penn Central Takings Analysis: Overview Majority Makes Clear: No Easy Answers – no “set formula” – “depends on particular circumstances” – essentially ad hoc factual inquiries – several relevant factors

Penn Central Takings Analysis: Overview Majority Makes Clear: No Easy Answers Not every case where gov’t action adversely affects property value (PV) is a Taking (p ) a.Taxing Power b.Economic harm insufficiently tied to claimant’s reasonable expectations to be called “property” (e.g., from closing military bases) c.Police Power cases like Miller & Hadacheck (more on later)

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1.Overview 2.Relatively Clear Instances of Takings 3.Arguments from Purpose 4.Arguments re Harm to Property Owner 5.Means/End Testing

Penn Central Takings Analysis: Relatively Clear Instances of Takings More likely More likely a Taking if there is a physical invasion of property by or because of gov’t (p.137) – Note: Based on type of interference rather than purpose or extent – Arguably Michelman reasons: Likely high demoralization costs for physical invasions

Penn Central Takings Analysis: Relatively Clear Instances of Takings More likely Taking if physical invasion Gov’t actions that may be characterized as acquisitions of resources to permit or facilitate uniquely public functions (Sax Enterprisers) (p.138)

Penn Central Takings Analysis: Relatively Clear Instances of Takings More likely Taking if physical invasion Gov’t actions that may be characterized as acquisitions of resources to permit or facilitate uniquely public functions. (Sax Enterprisers) US v. Causby (DQ3.38) arguably both: – Very low airline overflights invaded airspace – Use by military completely destroys value of farm

Penn Central Takings Analysis: Relatively Clear Instances of Takings US v. Causby (DQ3.38): Taking where … – Very low airline overflights invaded airspace – Use by military completely destroys value of farm Maj: Causby distinguishable from PC (pp ) – No physical invasion of airspace by NYC – No appropriation of property by NYC for gov’t use or exploitation for gov’t purposes – Harm to PC not arising from gov’t entrepreneurial operations

Penn Central Takings Analysis: Relatively Clear Instances of Takings DQ3.38: Majority treatment of Causby suggests endorsement of Sax with narrow view of “Enterpriser” – Majority Characterizes PC: No appropriation of property [by NYC] for gov’t use or exploitation for gov’t purposes. – Arguable if “Enterpriser” read broadly (see application of Sax to PC in earlier slides)

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1.Overview 2.Relatively Clear Instances of Takings 3.Arguments from Purpose 4.Arguments re Harm to Property Owner 5.Means/End Testing

Penn Central Takings Analysis: Arguments from Purpose Purpose: Where Were We Before Penn Central? Hadacheck & Mahon: Can regulate to stop public nuisance. Miller: To save one type of property, can limit or destroy another type Sax & Epstein both think purpose is important Indirectly enters into Michelman b/c affects people’s perception of situation and thus may be relevant to both Demoralization Costs & Fairness Principle

Penn Central Takings Analysis: Arguments from Purpose Majority’s Discussion of Zoning (p ) US SCt had previously “upheld land-use regulations that destroyed or adversely affected recognized real property interests” where – State gov’t “reasonably concluded” – that forbidding particular land use – would promote HSWM Reaffirms Hadacheck & Miller; gives many examples of permissible regulations

Penn Central Takings Analysis: Arguments from Purpose PC Tried to Distinguish Hadacheck/Miller, etc. Argued laws upheld in these cases all designed to stop “noxious uses” (essentially public nuisances) (see fn 30) This is plausible reading of earlier cases : – Stopping public nuisance/noxious use = no Taking – Different rules for other kinds of gov’t actions. – E.g., BDS in Mahon dissent re public harm v. public benefit

Penn Central Takings Analysis: Arguments from Purpose Dissent Agrees with PC: Providing Benefit Different From Stopping Harm “[T]he gov’t can prevent a property owner from using his property to injure others without having to compensate the O for the value of the forbidden use.” (p.145) Describes Hadacheck & Miller as noxious use cases (fn8 p.145) NOTE: Even the most Conservative Justices in 1978 don’t question results in Hadacheck & Miller

Penn Central Takings Analysis: Arguments from Purpose Dissent Apparently Would Adopt Position Later Articulated By Epstein (Taking unless Public Nuisance or Reciprocity) Dissent Sees Neither Here DQ3.40: As I argued earlier, could see some reciprocity in tourist $$$ flowing to PC; neither opinion recognizes (although Judge in NY Ct. App. had noted) Important: Majority Implicitly Rejects Epstein Position by Disagreeing w Dissent

Penn Central Takings Analysis: Arguments from Purpose [DQ3.39] (n.30): Majority seems to reject distinction between preventing harm & providing benefit. In Hadacheck & Miller, uses lawful at time of regulation [relevance: Os not bad actors meriting punishment?] Cases don’t turn on “noxious use” but that restrictions were “reasonably related” to implementing a policy “expected to produce a widespread public benefit” Plus destruction of historic landmark is public harm.

Penn Central Takings Analysis: Arguments from Purpose DQ3.39: Does Footnote 30 alter earlier cases? If “noxious use” category gone, would seem to mean that readings of Hadacheck & Miller that rest on public nuisance idea are incorrect. I’m skeptical that category is completely gone. You’d think preventing greater harms ought to give state more leeway to regulate land use.

Big Qs Left Open by Penn Central Penn Central: Takings Analysis Big Qs Left Open by Penn Central A.Noxious Use B.Meaning of Distinct Invest-Backed Expectations (DIBE) C.DIBE & Hadacheck D.Denominator Q E.Heightened Scrutiny for Takings?

Big Qs Left Open by Penn Central Penn Central: Takings Analysis Big Qs Left Open by Penn Central Noxious Use Should we read Footnote 30 literally to mean that harm/ benefit distinction is irrelevant to Takings analysis and there’s no special treatment for “noxious uses”? —OR— Can we still argue that gov’t gets more leeway to limit property rights when stopping harm to others or when purpose is otherwise very important?

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1.Overview 2.Relatively Clear Instances of Takings 3.Arguments from Purpose 4.Arguments re Harm to Property O a.Distinct Investment-Backed Expectations b.Denominator Q 5.Means/End Testing

Penn Central Takings Analysis: Arguments re Harm to Property Owner Majority rejected claimant’s argument that any significant loss in value is a Taking. (Last Class) However, says (p.137) that a significant factor in Takings analysis is the “extent to which the regulation has interfered with distinct investment-backed expectations” (DIBE) Opinion is not explicit about what DIBE means or its relationship to the facts or to prior cases

Penn Central Takings Analysis: Arguments re Harm to Property Owner [DQ3.34] Not significant interference with DIBE in Penn Central (pp ) No interference w primary expectations re parcel. – Can still use in way intended (RR Stn) – Can still make reasonable rate of return (RRR) on investment Claimant exaggerates impact on “air rights” – No indication that can't build anything above. – Can transfer air rights in any event (suggests can consider TDRs in doing valuation)

Penn Central Takings Analysis: Arguments re Harm to Property Owner [DQ3.34]: DIBE: My Read from Majority Expectations = – Refers to owner’s expectations at time of purchase (or relevant subsequent investment) – Expectations presumably must be plausible/lawful at time = implicit requirement of reasonableness

Penn Central Takings Analysis: Arguments re Harm to Property Owner [DQ3.34]: DIBE: My Read from Majority Distinct: expectations re property right affected must be – Specific: Not vague like “someday I might develop more” or “I want as much profit as I can get” – Separate from Whole (where relevant): Look for evidence showing O considered right in Q separately at time purchased

Penn Central Takings Analysis: Arguments re Harm to Property Owner [DQ3.34]: DIBE: My Read from Majority Investment-Backed? – Evidence that distinct property right specifically paid for (e.g., separate price or negotiation) – Rewards good lawyering in drafting transaction documents (e.g., separately pricing “air rights” “mineral rights” “support rights” etc.)

Penn Central Takings Analysis: Arguments re Harm to Property Owner [DQ3.34]: My Read of DIBE Expectations = O’s at time of investment (reasonable) Distinct: Specific v. Vague; Separate from Whole Investment-Backed? Specifically paid for Penn Central – Air Rights not focus of deal: not distinct or investment-backed – DIBE in RR Station: No significant interference b/c RRR

Penn Central Takings Analysis: Arguments re Harm to Property Owner [DQ3.34]: My Read of DIBE Expectations = O’s at time of investment (reasonable) Distinct: Specific v. Vague; Separate from Whole Investment-Backed? Specifically paid for Exam Note: – Owner generally had some DIBE at purchase (intended uses) – Check if right affected is specific part of DIBE – Check if interference w DIBE is significant (e.g., no RRR)