Another Bleak Day for Property Owners

Property owners have long suffered under the Supreme Court’s erratic rulings. It got worse today. In Murr v. Wisconsin, the Court ruled against the owners, 5-3, with Justice Kennedy writing for the majority, Chief Justice Roberts writing a dissent, joined by Justices Thomas and Alito, Thomas writing a separate dissent, and Justice Gorsuch taking no part. The problem isn’t simply with the majority’s holding and opinion, it’s with the dissent as well. Only Thomas points in the right direction.

This was a regulatory takings case arising under the Fifth Amendment’s Takings Clause, which prohibits government from taking private property for public use without just compensation. In separate conveyances in 1994 and 1995, the Murrs, four siblings, inherited two contiguous lots on the St. Croix River that their parents had purchased in 1960 and 1963. The parents had built an ancestral home on the first lot. They bought the second for investment purposes.

The trouble began in 2004 when the Murrs sought to sell the second lot, valued at $410,000, and use the proceeds to upgrade the ancestral home. But they were blocked by a 1975 local zoning ordinance that treated the two lots as one, even though they had long been deeded and taxed separately. Under the ordinance they had to sell the lots together or not at all. Out $410,000, the Murrs sued, claiming that the ordinance had deprived them of their right to sell their property.

Here it gets complicated. In a 1992 decision, Lucas v. South Carolina Coastal Council, a 5-4 Court held that David Lucas was entitled to compensation after an ordinance prohibiting him from building on his property effectively wiped out all of its value. The problem with this “wipeout” rule, of course, is that most regulations leave at least some value in the property. When Justice Stevens called the rule “arbitrary” since “the landowner whose property is diminished in value 95% recovers nothing,” Justice Scalia, writing for the Court, responded tersely, “Takings law is full of these ‘all or nothing’ situations.”

In so writing, Scalia was citing a 1978 decision, Penn Central v. New York, which gave us a balancing test that nobody understands, least of all Justice Brennan who crafted it.  There that Court held that its test must be applied to “the parcel as a whole,” not to some portion of it. Combined with Lucas, that makes all the difference in the world for the Murrs. If their lots are treated separately, as they have always been except for this ordinance, virtually all value in the second has been wiped out and the Murrs, under Lucas, are entitled to compensation for the taking. But with the two lots combined as one, value remains, so the state can escape paying the Murrs any compensation. Thus, the question before the Court was whether the state could do that simply by treating the two lots as one.

Thomas joined the dissent because, as he wrote, “it correctly applies this Court’s regulatory takings precedents, which no party has asked us to reconsider.” But he went on to say that “it would be desirable for us to take a fresh look at our regulatory takings jurisprudence, to see whether it can be grounded in the original public meaning of the Takings Clause of the Fifth Amendment or the Privileges or Immunities Clause of the Fourteenth Amendment.” Why take a fresh look? Because the Court “has never purported to ground [its] precedents in the Constitution as it was originally understood.”

Justice Kennedy begins his opinion for the Court with Justice Holmes’s famous 1922 remark, that if a regulation goes “too far” it constitutes a taking—and the opinion goes downhill from there, a mass of confusions. Roberts does a tolerable job of dissecting it, concluding that “today’s decision knocks the definition of ‘private property’ loose from its foundation on stable state law rules and throws it into the maelstrom of multiple factors” for determining when a taking occurs. Correct, but Roberts himself does little better. In fact, he writes that the Court’s holding “that the regulation does not constitute a taking that requires compensation … does not trouble him.” (emphasis added) It’s only the Court’s reasoning that’s troubling (and rightly so). Roberts would have vacated the judgment below and remanded for the court to identify the relevant property using ordinary principles of Wisconsin property law.

But there, precisely, is the problem. State law defined the property. There were two lots, deeded and taxed separately, and that continued to the present. But then state law redefined the property. It was the later local ordinance that combined the lots, effectively taking one of the most basic rights an owner has, the right to dispose of (sell) that distinct second lot, bought for investment purposes. That was when the taking occurred, even though it wasn’t realized until the Murrs tried to sell the lot. The rest of the analysis coming from Penn Central’s multi-factor balancing test—like whether the Murrs retained value in “the parcel as a whole”—is just so much distraction from the core issue. And even if that were the question, it takes us back to Lucas’s error. Roberts’ invokes the metaphor that treats property like a “bundle of sticks,” signifying all the rights that go with property. Lucas held, wrongly, that compensation is due only after the last stick is taken—the wipeout rule. No, a taking occurs with the first stick taken. The stick the Murrs lost was the right to sell that lot. It’s no more complicated than that—unless the decision turns on a long line of mistaken precedents. One can only hope that Justice Thomas will one day have an opportunity to write the opinion that sets this sorry record straight.