On June 28, the U.S. Supreme Court rendered its much-anticipated decision in the case of Palazzolo v. Rhode Island, 121 S.Ct. 2448 (2001), which involved a landowner's claim that the state agency's denial of a permit to fill and develop an area of tidal marsh wetlands within his 20-acre parcel effected a total regulatory taking of the property under the principles of Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). Although many in the mainstream media headlined the decision as a "loss for the landowner" because the Supreme Court ultimately affirmed the state courts' finding that no total taking had occurred, the Court’s conclusion on that particular point was not surprising. Because Mr. Palazzolo concededly would have been allowed to build at least one residence on the upland portion of his property, he could not demonstrate that he had been denied all economically viable use of the entire property, as required to recover for a total regulatory taking under Lucas.

     In the course of reviewing the Rhode Island Supreme Court’s decision, however, the U.S. Supreme Court found it necessary to address several significant issues of regulatory takings law that have become the subject of intense controversy—(a) the extent to which the “ripeness” doctrine requires landowners to continue submitting successively less ambitious permit applications before an agency’s repeated denial becomes final action for purposes of rendering the claim justiciable; (b) the effect of regulations that exist at the time when landowners acquire title on their right to claim that the application of such regulations constitutes a taking; and (c) the ability of landowners who cannot claim a total deprivation of use under Lucas to recover for a partial regulatory taking of their property based on the ad hoc factual analysis of Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978). A reading of Justice Kennedy's majority opinion reveals that, on each of those issues, the Court ruled favorably to the private landowners' position.

The Factual Background

     The lands at issue, a 20-acre parcel consisting mostly of tidal marsh, were originally purchased by Palazzolo in 1959 through a corporation, of which he eventually became the sole shareholder. During the 1960s, Palazzolo subdivided the property into 74 lots and filed several applications for permission to fill the wetlands, but the Rhode Island Department of Natural Resources, after initially assenting, withdrew its approval. By the time Palazzolo acquired title to the property in his own name in 1978 and renewed his efforts to develop the property in 1983, the state had enacted legislation creating the Rhode Island Coastal Resources Management Council, and the Council had promulgated regulations effectively prohibiting the filling of salt marshes, unless the applicant qualified for a special exception by showing that the proposed use would serve a compelling public purpose providing benefits to the public as a whole rather than to private interests.

     In 1983, Palazzolo applied for a permit to fill and develop the entire 18 acres of marsh area; the Council rejected that application, and he did not appeal. In 1985, he submitted a new application, seeking to fill 11 acres of the marsh for purposes of building a private beach club. The Council again denied the permit, finding that the project did not meet the standards for a special exception. After his administrative appeal of that order failed, Palazzolo filed an inverse condemnation action in the Rhode Island state court, claiming that denial of the permit deprived him of all economically viable use, and thus resulted in a total regulatory taking of his property under Lucas for which he should be compensated.

     The trial judge rejected Palazzolo’s claim, and the Rhode Island Supreme Court affirmed the judgment against him on three grounds, ruling that (1) his takings claim was not ripe for adjudication, because the Council’s denial of his permit applications did not finally resolve whether some reduced level of development might be allowed if he requested a use that would involve filling less wetlands; (2) the fact that the Council’s wetlands regulations were in effect when Palazzolo took title in his own name barred him from challenging the application of those regulations as either a total or partial taking, because the preexisting regulation was a limitation on land use rights that was inherent in his title as a background principle of state law under the Lucas analysis, and because his acquisition of title with notice of the regulatory restriction negated any reasonable investment-backed expectations for such use under the Penn Central analysis; and (3) the claim for a deprivation of all economically beneficial use was precluded by the undisputed fact that he could build a residence worth $200,000 on the upland portion of the property.

The Supreme Court’s Decision

     On Palazzolo’s petition for certiorari, the Supreme Court agreed with the conclusion that the permissible use of the upland acreage to build a residence of substantial value foreclosed any claim of a total taking under Lucas; but the majority rejected the state courts’ reasoning on all other points. First, the Court ruled that the takings claim was ripe for review, notwithstanding that the landowner had not filed further applications to ascertain precisely how much development of the property might be allowed. Finding that the unequivocal terms of the regulations and the agency’s application of those regulations in twice denying Palazzolo a permit left no doubt that filling of the wetlands would not be permitted for any ordinary private land use, the Court declared that “[f]urther permit applications were not necessary to establish this point.”

      In effect, this ruling should restore the ripeness doctrine to its proper role as a principle of restraint invoked by courts to prevent the premature adjudication of regulatory taking claims, and should curtail its abuse by agencies as a means of evading liability to landowners through the deliberate forestalling of a “final” determination regarding the permissible use of property. As the  majority observed: "While a landowner must give a land-use authority an opportunity to exercise its discretion, once it becomes clear that the agency lacks the discretion to permit any development, or the permissible uses of the property are known to a reasonable degree of certainty, a takings claim is likely to have ripened. ...[The] [r]ipeness doctrine does not require a landowner to submit applications for their own sake." The Court’s decision on this point will benefit landowners by making it more difficult for agencies to employ the "ripeness" requirement as an artifice for delaying--often to the point of defeating--regulatory takings claims by sheer attrition.

     Turning to the merits of the taking claim, the Court flatly rejected the state's argument that all regulations in effect at the time when landowners acquire property operate as absolute limitations on their land use rights, and thus bar any claim that such pre-existing regulatory restrictions effect a taking. The majority recognized that unreasonable regulations “do not become less so through passage of time or title,” explaining.

Were we to accept the State’s rule, the postenactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable. A State would be allowed, in effect, to put an expiration date on the Takings Clause. This ought not to be the rule. Future generations, too, have a right to challenge unreasonable limitations on the use and value of land.

The Court further reasoned that the state’s theory would strip current landowners of the ability to transfer the interest they possessed prior to the regulation, and would unfairly deny future heirs or successors the right to compensation for regulations that may have been adopted before they acquired title but never applied to their predecessors, thus conferring a windfall on the state.

     Perhaps most significantly, the majority emphasized that its previous affirmation of this principle in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), was not overruled by the recognition in Lucas that a landowner’s right to be compensated for a deprivation of use is limited by the restrictions that background principles of the State’s property and nuisance law already impose. The Court reasoned that a regulation “is not transformed into a background principle of the State’s law by mere virtue of the passage of title,” because “[a] regulation or common-law rule cannot be a background principle for some owners but not for others.” While leaving open the question of whether there are circumstances under which a legislative enactment might be regarded as a background principle of state property or nuisance law, the Court concluded that “[a] law does not become a background principle for subsequent owners by enactment itself.

     This ruling represents a major victory for landowners, because it puts to rest the position lately advocated by governmental agencies and environmental groups that all preexisting regulations should, in effect, be treated as the kind of restrictions that “inhere" in the landowner's title based on the "background principles of the State's property and nuisance law" that were deemed immune to takings claims under Lucas. Although some laws or regulations that are rooted in the “common, shared understandings of permissible limitations derived from a State’s legal tradition” may qualify for the Lucas exception, the mere fact that a regulation existed at the time a landowner purchased or inherited the land does not mean that the state can impose that regulation to deny the use of the property without being subject to a regulatory taking claim.

     In separate concurring opinions, Justices O'Connor and Scalia disagreed about the effect of existing regulations on the element of the Penn Central analysis that requires courts to consider how a regulation interferes with the owner's "reasonable investment-backed expectations." Nonetheless, neither took issue with the clear holding of the majority that the mere existence of a regulatory restriction at the time the land was acquired does not necessarily negate the owner’s reasonable investment-backed expectations, and thus cannot automatically bar any regulatory taking claim. On that particular point, even Justice Breyer (who dissented on ripeness grounds) agreed. Moreover, in what can only be viewed as an emphatic repudiation of a theory that has recently become popular with governmental agencies and environmental advocates, Justice O'Connor declared that the Rhode Island Supreme Court "erred in elevating what it believed to be [petitioner's] lack of reasonable investment-backed expectations to dispositive status.

     Finally, in disposing of the case, the Court confirmed that even though the landowner had not established a total taking under Lucas, he was nonetheless entitled upon remand to have the state courts address the question of whether he had suffered a partial regulatory taking based on the ad hoc, multifaceted analysis prescribed by Penn Central. As the majority observed, "a State may not evade the duty to compensate on the premise that the landowner is left with a token interest." Thus, the fact that an agency agrees to permit some minimal economical use of a parcel does not mean that the landowner has not suffered some compensable taking, though only partial. While the federal judiciary has generally recognized the right of landowners to seek compensation for partial regulatory takings, Florida courts have been decidedly unreceptive to such claims. In light of Palazzolo, however, the prospects for Florida landowners being afforded this remedy in state court should improve.

Conclusion

     The Palazzolo decision does not significantly enlarge the rights or remedies of landowners who seek compensation for a regulatory taking of their property; but it reinforces the rights previously recognized, and facilitates the enforcement of those rights, by rejecting various theories that government agencies have advanced in an effort to defeat claims for just compensation. To that extent, the Court’s decision must be regarded by landowners as a favorable development, and a welcome relief from the recent trend of rulings that have threatened to undermine the foundations of regulatory takings law.