The Obama Administration has had a bad time recently in property rights cases. In particular, three cases, Arkansas Game & Fish Commision v. United States, Koontz v. St. Johns River Water Management District, and Sackett v. EPA, were big losses for the government and big wins for the private property owners who are increasingly subject to unconstitutional attempts to take land. Last week, Cato, along with the National Federation of Independent Business and the Chapman Center for Constitutional Jurisprudence, filed a brief asking the Supreme Court to review a circuit court decision that could have far‐reaching implications for property owners everywhere.
The Fifth Amendment’s Takings Clause guarantees that private land cannot be taken for public use without “just compensation.” But apparently, according to the Federal Circuit, this right has an expiration date. Specifically, the Federal Circuit ruled that Mike Mehaffy purchased his land too late to claim that the government regulated away most of his property value. Mehaffy should’ve known, said the court, that the Clean Water Act had been passed and degraded the value of the land he had purchased. This is called the “Notice Rule,” and it leaves Mehaffy without a claim, unable to recoup most of his property investment.
While the Supreme Court has never given specific guidance on how a court should balance whether a regulation that takes or lowers the value of property should be compensated, in Palazzolo v. Rhode Island the Court was very specific about one thing: no one factor should decide. Despite this admonition, the Federal and Ninth Circuits focus solely on notice to effectively bar anyone from bringing suit if they bought land too late. Cato’s brief argues that Nollan v. California Coastal Commission implicitly recognized that a challenge can be brought despite the fact that property was obtained after the regulatory act in question. Later, in Palazzolo, the Court unmistakably drove this point home: “[A takings claim] is not barred by the mere fact that title was acquired after the effective date of the state‐imposed restriction.” To do so, said the Palazzolo Court, would “put an expiration date on the Takings Clause” and would absolve the state of its duty to defend its actions, no matter how unreasonable.
Despite the Supreme Court’s clear rejection of a test based solely on the Notice Rule, the Federal and Ninth Circuits circumvented the Supreme Court’s holding in Palazzolo and revived the Notice Rule. This is especially far reaching, as so many takings claims are brought in the Court of Federal Claims where the Notice Rule now controls. Moreover, by solely looking at the issue of notice, the Federal Circuit gave federal agencies an incentive to run out the clock, as once all the land has been transferred, no owner can bring a takings suit. The takings problem is compounded by difficulties in determining if land is subject to the Clean Water Act in the first place—a new owner might find himself newly regulated under changing interpretations of the Clean Water Act, and yet be denied remedy by application of the Notice Rule. Most modest landowners won’t have the means to take such a case to the government but also can’t sell the property without extinguishing their claim. This manipulates the property market, with some owners avoiding transactions that might destroy their takings claims, while most will be forced to sell at a significantly depreciated rate. This burden will likely fall most heavily on groups without the time or resources to fight, like the elderly.
The Notice Rule’s resurrection is plainly at odds with the Supreme Court’s precedent, creates a near total ban on those takings claims that are economically viable, and whittles away property rights. Cato urges the Supreme Court to enforce its own precedent, and make it clear that that there is no ban on pursuing “just compensation” simply because they purchased their property a little too late.