Regulatory Taking - Evolution of Modern Regulatory Takings Law - Palazzolo

Palazzolo

On June 28, 2001, the Court issued a significant chapter in the saga of regulatory takings with Palazzolo v. Rhode Island, 533 U.S. 606 (2001). Palazzolo addressed three issues that have been bedeviling the litigation of regulatory takings: When is a takings claim ripe? When does notice of a preexisting regulation destroy the right to challenge the application of that regulation? And how much use and value may a regulation destroy before compensation is due? For over forty years, Anthony Palazzolo owned, directly or indirectly, a valuable parcel of property in the ocean resort town of Westerly, Rhode Island. Shore Gardens, Inc. (Shore Gardens), acquired the property in 1959 and 1960. Mr. Palazzolo became the sole owner of Shore Gardens in 1960. The property consists of roughly eighteen acres of wetlands and a small indeterminate amount of uplands. The land was divided into seventy-four parcels in two subdivision map filings that occurred in 1936 and 1959. Just north of the property is Winnapaug Pond, an intertidal pond with an outlet to the Atlantic Ocean. According to the state’s biologist, “and uses of Winnapaug Pond/Atlantic Beach area are moderate-to-heavy density seasonal development, residential and commercial; development directly adjacent to this site is moderate density seasonal dwellings.” At the time of his application, the vicinity of Mr. Palazzolo’s property was developed with vacation homes, mostly on the northern, western, and eastern boundaries of the pond and along the neighboring ocean beach. Mr. Palazzolo’s property is bisected by a gravel road and there are several homes in the immediate vicinity; the road and homes were built on fill prior to the 1970s. Like the neighboring homes, the only way to develop Mr. Palazzolo’s land is to raise the grade with fill.

In 1971, the Rhode Island Legislature authorized the Coastal Resources Management Council (CRMC) to regulate the filling of coastal wetlands. The CRMC promulgated regulations requiring that any filling of coastal salt marsh, such as that found on Mr. Palazzolo’s property, meet certain public interest requirements. CRMC had ruled that private housing, and even low-income public housing, does not meet this public interest requirement. Prior to the adoption of this regulatory regime, Mr. Palazzolo applied twice to utilize the property, in 1963 and in 1966, to the Department of Natural Resources (DNR) seeking permission to dredge Winnapaug Pond in order to develop the property. The State approved both applications in April 1971, finding that neither application would “‘have any significant effect on wildlife.’” Shortly thereafter, however, the State withdrew the approval, and Mr. Palazzolo did not appeal.

Mr. Palazzolo had an interest in the property through the 1960s and early 1970s as the sole shareholder of Shore Gardens. Eventually, Mr. Palazzolo let the corporation lapse, and its charter was revoked in 1978. At this point, the property “pass by operation of law to Palazzolo, its sole shareholder.” After that time, Mr. Palazzolo, now as the owner of the property in his individual capacity, twice more applied for permits to CRMC to fill the property. The first application, filed in 1983, like the one filed in 1963, was to fill approximately eighteen acres of the property. Unlike the original applications, this involved no dredging. Mr. Palazzolo expected that approval of this application would allow him to proceed with the development of homes on the seventy-four lots that had been previously subdivided, although the 1983 application was only for the preliminary step of filling the wetlands, not the development of homes. CRMC denied this application on July 12, 1984, and Mr. Palazzolo did not appeal the denial.

In 1985 Mr. Palazzolo applied to fill 11.4 acres (46,000 m2); like his 1966 application to DNR, he intended to prepare the site to make it suitable for a family beach recreational area. The plan called for the construction of a fifty-car parking lot with room for boat trailers and the provision of picnic tables, concrete barbecue pits, and portable toilets. This plan was rejected in 1986. CRMC found that, in its natural state, Mr. Palazzolo’s property provided the public benefits of “refuge and feeding areas for larval and juvenile finfish and shellfish and for migratory waterfowl and wading birds,” “access of auna . . . to cover areas,” and that the property facilitates “the exchange of nutrient/waste products,” and allows “sediment trapping,” “flood storage,” and “nutrient retention.” Furthermore, the proposal failed to meet various regulatory criteria outlined in CRMC’s CRMP regulations. For example, it found that Mr. Palazzolo’s beach club was in “conflict” with CRMP Section 130(A)(1) because the proposed beach club did not serve “a compelling public purpose which provides benefits to the public as a whole as opposed to individual or private interests.” Mr. Palazzolo unsuccessfully appealed the denial of the permit.

Based on the four denials over the span of twenty-three years, Mr. Palazzolo sued in 1988 for inverse condemnation, alleging that the property had a net value of $3,150,000. The trial court ruled against Mr. Palazzolo and the Rhode Island Supreme Court upheld the trial court’s decision. The court’s first ground for affirming the trial court decision was that Mr. Palazzolo’s claim was not ripe because he failed to apply for “less ambitious development plans.” It found that the 1963 and 1983 applications sought to fill the entire 18 acres (73,000 m2) of wetlands and (mistakenly) that the beach club applications sought to “fill all of the wetlands except for a fifty-foot strip.” The court concluded that Mr. Palazzolo should have filed another application to fill fewer acres of wetlands or to utilize just the upland area of the property.

The state Supreme Court also provided two other alternative bases for affirming the trial court decision. It held that because Mr. Palazzolo acquired the property in 1978 by virtue of the dissolution of Shore Gardens, he had acquired the property after the adoption of the regulations restricting the filling of wetlands and thus “had no reasonable investment-backed expectations.” Put another way, “the right to fill wetlands was not part of the title he acquired.” The court also found that Mr. Palazzolo “had not been deprived of all beneficial use of his property” because had he developed the upland portion of the land he could have realized some value from the property (approximately $200,000 compared to Palazzolo’s estimate of a $3.1 million net value). Alternatively, he could have realized “value in the amount of $157,000 as an open-space gift.”

The Supreme Court reversed. As a preliminary issue the Supreme Court addressed the question whether Palazzolo's case was "ripe" for review by the Courts. In other words, had Palazollo done everything he could do to work through the regulatory system to avoid his loss. The central question, the Court found, was whether Palazollo had obtained a final decision from the Council determining the permitted use for the land. A number of previous cases have established "the important principle that a landowner may not establish a taking before a land-use authority has the opportunity, using its own reasonable procedures, to decide and explain the reach of a challenged regulation:"

Under our ripeness rules a takings claim based on a law or regulation which is alleged to go too far in burdening property depends upon the landowner's first having followed reasonable and necessary steps to allow regulatory agencies to exercise their full discretion in considering development plans for the property, including the opportunity to grant any variances or waivers allowed by law. As a general rule, until these ordinary processes have been followed the extent of the restriction on property is not known and a regulatory taking has not yet been established. See Suitum, supra, at 736, and n. 10, 117 S.Ct. 1659 (noting difficulty of demonstrating that "mere enactment" of regulations restricting land use effects a taking). Government authorities, of course, may not burden property by imposition of repetitive or unfair land-use procedures in order to avoid a final decision. Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687, 698, 119 S.Ct. 1624, 143 L.Ed.2d 882 (1999).

A final decision does not occur until the responsible agency determines the extent of permitted development on the land. MacDonald, Sommer & Frates v. Yolo County, 477 U.S. 340, 351. But the landowner "obtained such a final decision when the Council denied his 1983 and 1985 applications. The State Supreme Court erred in ruling that, notwithstanding those denials, doubt remained as to the extent of development the Council would allow on petitioner's parcel due to his failure to explore other uses for the property that would involve filling substantially less wetlands. This is belied by the unequivocal nature of the wetland regulations at issue and by the Council's application of the regulations to the subject property."

Since Mahon, we have given some, but not too specific, guidance to courts confronted with deciding whether a particular government action goes too far and effects a regulatory taking. First, we have observed, with certain qualifications, that a regulation which "denies all economically beneficial or productive use of land" will require compensation under the Takings Clause. Agins v. City of Tiburon, 447 U.S. 255 (1980). Where a regulation places limitations on land that fall short of eliminating all economically beneficial use, a taking nonetheless may have occurred, depending on a complex of factors including the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investment-backed expectations, and the character of the government action. Penn Central, supra, at 124, 98 S.Ct. 2646. These inquiries are informed by the purpose of the Takings Clause, which is to prevent the government from "forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Armstrong v. United States, 364 U.S. 40 (1960)