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REGULATORY TAKINGS CLAIMS: Lessons from Palazzolo v. Rhode Island CHRISTOPHER J. DIETZEN Until quite recently, a cause of action for regulatory takings — cases where a Subsequently, Palazzolo commenced an inverse condemnation action assert- government regulation significantly affects the value and use of pnvate property ing that the wetland regulations, as applied to his parcel, resulted in a taking —was nearly impossible to maintain,and the law itself was rife with uncertainty. of his property. The Rhode Island court ruled against Palazzolo,holding that 1] Last summer, in the landmark case of Palazzolo v. Rhode Island, the United his taking claim was not"npe,"2] he had no right to challenge regulations pre- States Supreme Court clarified regulatory takings law and in doing so made dating his ownership of the property, and 3] he was not depraved of all claims much more attainable than they had been in years. More specifically, economically beneficial use of the property. the Court lessened the burden on the property owner to make his claim npe, held that one could still assert a claim even if the regulation was in place pnor On appeal,the U.S.Supreme Court first considered the issue of npeness,which to his acquisition of the property, and held that a property owner need not generally means that the property owner must obtain a final decision from the prove that the regulation had denied virtually all use of the property,but rather government showing what the regulation would allow Reversing the state could prevail under the far less onerous factual inquiry of the so-called Penn supreme court,the U.S. Supreme Court held that the Council's application of Central factors. the regulations to the subject property on multiple occasions made it clear that no wetlands could be filled,and that Palazzolo was not required to continue to make futile applications. The Minnesota and U S. Constitutions prohibit the government from taking As a second basis, the state supreme court denied Palazzolo's taking claim private property for public use without just compensation. The most obvious because it concluded that his post-regulation acquisition of title was fatal to the form of taking occurs when the government actually physically takes pnvate claim for deprivation of all economic value under Lucas,and interfered with property for its own use. In 1922,the Supreme Court recognized that a taking reasonable investment-backed expectations under Penn Central. The U.S. may occur even if there is no physical invasion of the property. In Justice Supreme Court reversed,holding that notice of the state-imposed regulation is Holmes'well-known formulation,the Court stated,'While property may be reg- not a bar to recovery for a taking. ulated to a certain extent, if a regulation goes too far, it will be recognized as a Ong' Hence,a cause of action for a regulatory taking was born. In a hollow victory for the government, the U.S. Supreme Court held that Palazzolo could not establish a Lucas taking because the regulation permitted The Supreme Court has formulated two tests to analyze whether a regulation him to build a residence on the 18-acre parcel,which therefore meant that the has gone so far as to constitute a regulatory taking. First,in the Supreme Court's property was not"economically idle' But, in a significant victory for the prop- 1978 decision in Penn Central Transp.Co.v.New York City,the Court identified erty owner,the Supreme Court held that,even if a property owner cannot show several factors to determine a taking which includes, inter alia,the economic that the regulation has taken substantially all value or use from the property,the impact of the regulation on the property, the extent to which the regulation owner may still prevail under the Penn Central factors. interferes with distinct invest'r rent-backed expectations of the owner, and the character of the governmental action (Penn Central taking). Second,in 1980, On the issue of ripeness,the Palazzolo case might not have much impact in the Court indicated that a zoning regulation affects a taking if the ordinance Minnesota. The thorny issue of how many applications,variance or otherwise, does not substantially advance a legitimate state interest, or if it denies the are necessary before a locality has made a final decision determining the per- owner economically viable use of the property. This has also been referred to matted use of the land on a reasonable vanance request continues to be murky. as a categoncal taking(or a Lucas taking). These two closely-timed decisions Although Palazzolo did not specifically answer that question,its holding that the caused a lack of clarity in regulatory takings and have caused some state courts case was ripe may compel application of a less stringent npeness standard. to treat regulatory takings law as requinng proof of a Lucas taking, ignoring the Penn Central factors. Palazzolo,however,resolved this confusion. Additionally,the holding that acquisition after enach I lent of the regulation is not a bar to a claim is significant in that it eliminates an absolute defense to a regulatory takings claim. The majority opinion clearly rejects notice of the reg- ulation as an absolute bar to a Lucas claim,but the relevance of notice is less In 1959, Shore Gardens, Inc (SGI) purchased waterfront property located in clear in a Penn Central-type claim. Westerly,Rhode Island. Most of the property was salt marsh that would require considerable fill before structures could be built on it In 1962,SGI submitted a - proposal to develop the property. That application was denied,as were two later proposals. Subsequently,regulations were enacted designating the salt marshes Perhaps the most significant holding of Palazzolo is its treatment of the Penn as protected"coastal wetlands" After these regulations were passed,SGI's cor- Central claim. The Palazzolo case may well revive regulatory takings claims in rate charter was revoked and title to the property passed to Palazzolo. Minnesota. Because the Palazzolo case held that regulatory takings claims 0 must be analyzed separately under Penn Central,courts must now conduct the i 1983, Palazzolo submitted a new application to the Rhode Island Coastal very specific factual inquiry mandated by Penn Central. For example,analysis Resources Management Council(Council)similar to SGI's 1962 submission. It of whether the economic impact of the regulation has interfered with distinct was rejected. Palazzolo submitted a new application in 1985 to build a private investment-backed expectation is a fact-laden inquiry that will require consider- beach club,which was also denied. ation of the evidence.