Daily Development for Monday, March 5, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

This is a long one, folks, but I think most will find there is honey all the way to the bottom. Note that there are two reports on different aspects of the same case.

CONSTITUTIONAL LAW; TAKINGS; REGULATORY TAKINGS; RIPARIAN LANDS: When ownership of riparian lands is coupled with a requirement that adjacent upland property remain in common ownership, a regulatory taking that affects only the riparian land is not compensable (1) because the upland property has value; and (2) because the state always retains the right to regulate riparian lands.

Karam v. State of New Jersey, Department of Environmental Protection, 157 N.J. 187, 723 A.2d 943 (1999).

Although the cite is to the New Jersey Supreme Court opinion affirming the lower appeals court decision, the Supreme Court did nothing more than adopt as its own the lower court's opinion, which appears at 705 A.2d 1221.

In 1924, plaintiff's predecessor obtained certain riparian land from a state agency with a condition that it be used only for construction of a dock or recreational pier and that the riparian property always be linked to ownership of upland property then owned by the grantee. In 1987, the State declared this area of the river a "special restricted area" because it had a high concentration of uncontaminated shellfish. The plaintiff aquired both the upland and riparian property in 1993. At that time, the designation as a special restricted area was a matter of public record. When the plaintiff sought state approval for construction of a pier, the New Jersey Department of Environmental Protection (DEP) denied the permit, and the owner brought an inverse condemnation action.

Viewing the riparian land as a parcel separate from the upland property, the Chancery Division granted summary judgment in favor of the owner after finding that the DEP's denial of a permit deprived the owner of all viable economic use of the property. Note that the property was restricted to use as a dock or recreational pier, uses specifically prohibited by the regulation.

The Appellate Division disagreed. It recited the history of "takings" law under the Fifth and Fourteenth Amendments, and then stated that the diminution of land value, the impairment of marketability, and restrictions on use do not result in a taking unless the regulatory scheme denies an owner all viable economic use of the land. The Appellate Division found that the classification of the land as being within a "special restricted area" and the subsequent denial of a construction permit destroyed the only beneficial use of the riparian property. If the upland and riparian lands were considered as a single unit, the owner's claim would fail because the regulation would only affect a minor "stick in the plaintiff's overall bundle of rights."

Thus, the Court determined the operative question to be whether all contiguous acreage under the same ownership should be considered in determining how much land was taken, or whether the amount taken was to be based solely on the parcel subject to the restriction. After citing state and federal decisions on both sides of the debate, it concluded that the upland and the riparian land must be considered a single property unit. This decision was based on the premise that the riparian grant itself required that both properties be commonly owned and that the grant was to be voided if this contingency was not satisfied. Additionally, both lots were bought and sold as a single unit and were assessed for tax purposes as a single lot. Thus, the Appellate Division concluded that this particular denial of a development permit did not amount to a taking.

However, these cases involved large tracts of acreage that had been segmented into smaller parcels for development at different times, and either because of the configuration of the property or its history, the divided parcels had been considered as separate and distinct entities or units. Here is some of that analysis:

"Applying a "flexible approach, designed to account for such factual nuances," Loveladies Harbor, Inc. v. United States, 28 F.3d at 1181, the respective courts found it logical to treat each parcel separately for determining whether the particular regulation affected a "taking" requiring just compensation. See Quirk v. Town of Boston, 140 N.H. 124, 13031, 663 A.2d 1328, 133233 (1995).

Recognizing the factsensitive question before us, we are convinced that the adjoining upland and riparian lands must be considered a single property unit. As we noted earlier, the riparian grant requires that the uplands and tideflowed property be commonly owned. Indeed, the riparian grant was contingent upon common ownership and was to be "voided" or forfeited if the contingency was not satisfied. Moreover, the right permitted under the riparian grant, the erection of a dock, was a mere incident to use of the upland property. So too, as the [original] tract was subdivided over the years, the upland and riparian properties were always bought and sold as a single unit. Plaintiffs purchased both properties in a single contract of sale, and sold the land to the present owners as a single unit. Finally, the properties are assessed for tax purposes as a single lot. In both law and fact, the properties are inextricably intertwined. We, thus, conclude that the Chancery Divi! sion erred when it considered the riparian land as a separate parcel, wholly distinct from the uplands portion."

Comment: Let's get this straight. The state sold only the riparian parcel to the original grantees and the state imposed the condition that the riparian parcel be transferred only in conjunction with the upland parcel. Now, the state uses that condition to establish that its destruction of all the value in the riparian parcel that the state originally created is not actionable because of that requisite relationship.

Maybe there is theory to support this. But it looks like the landowner got "jerked around" to use the popular Supreme Court terminology - at least on this score. Another aspect of the case is discussed under the heading: "Constitutional Law; Takings; Regulatory Takings; Public Trust Doctrine." The analysis discussed in the second report would render the holding here moot. But this holding nevertheless is an important contribution to the question of how to define a parcel for purposes of a taking - sometimes referred to (as in the case) as the "denominator issue."

CONSTITUTIONAL LAW; TAKINGS; REGULATORY TAKINGS; PUBLIC TRUST DOCTRINE: State may prohibit development of docks in river ways, even on property it sold restricted to dock usage, on grounds that of riparian banks fall with the "public trust" and thus development rights never form part of the expectation of property rights that a landowner owns.

Karam v. State of New Jersey, Department of Environmental Protection, 157 N.J. 187, 723 A.2d 943 (1999), also discussed under the heading: "Constitutional Law; Takings; Regulatory Takings; Riparian Lands."

The Court had already determined, due to the method it chose to determine the affected property, that there had not been a 100% destruction of value, and that therefore there could be no takings claim. Although the case appeared settled, the Court went on to discuss other factors used in determining whether a taking has occurred, in particular whether the owner had any distinct "investment-backed expectations" at the time of acquiring the property that were destroyed by the regulation.

The Court cited an 1892 United States Supreme Court decision for the proposition that ownership of, and sovereignty over, riparian land belongs to the state as part of the "public trust" and that even though a state may convey riparian grants to private parties, the state never waives its right to regulate the use of that kind of property. Illinois Central R.R. Co. v. Illinois, 146 U.S. 387 (1892). Accordingly, the owner did not have the absolute right to construct a dock free of regulatory intervention.

Here, not only was the restriction against development a matter of public record before it was purchased, but, because the restriction was passed by the legislature, "and heralded by the Governor with great fanfare," the Court found that the owner in this case had constructive notice of the restriction. Accordingly, the Appellate Division concluded that the owner could not have reasonably expected to have unfettered discretion to do as it pleased with its land.

Comment 1: The fact that the landowner in question had notice of the regulation doesn't mean that there is no taking, only that the present owner can't make the claim. We have discussed before the question of whether takings claims transfer when title is transferred. DIRTer Steve Eagle has written a piece critical of the New York Court of Appeals cases denying "transferability" of takings claims: "The 1997 Regulatory Takings Quartet: Retreating From the Rule of Law," 42 N.Y.L. Sch. L. Rev. 331 (1998)

There is some authority, at least in Michigan, recognizing that takings claims pass with the land. Robyns v Dearborn, 341 Mich 495; 67 NW2d 718 (1954). See also Kropf v Sterling Hts, 391 Mich 139; 215 NW2d 179, 184 (1974), and Guy v Brandon Twp, 181 Mich App 775; 450 NW2d 279 (1989), appeal denied, 437 Mich 876 466 NW2d 281 (1990).

We have recommended that there be a "boiler plate" assignment of any regulatory takings rights in connection with fee transfers in order to alleviate this problem, but at least one case permits a nunc pro tunc assignment if the parties didn't get it done at the time of transfer. Something like that might have worked in this case. See the DD 3/27/98, Drabek v. City of Norman, 946 P.2d 658 (Okla. 1996). (Vendee of real estate can recover in inverse condemnation against public agency for takings occurring prior to purchase if prior owner assigns recovery rights to vendee, even where assignment is eight years after the original assignment and after vendee has commenced the inverse condemnation action.)

Comment 2: In addition to the transferability issue, this case stands for the proposition that there is no "takings" liability for property held in the "public trust." Is such a conclusion consistent with Lucas, where the court held that for the state to regulate the value of land down to zero, the regulation must be to prohibit a "common law nuisance?"

The editor isn't all that uncomfortable with the notion that navigable waterways ought to be viewed as within the regulatory power of the State - that seems a necessary and traditionally accepted codicil to private property notions. The editor is more uncomfortable with the state court here concluding that the State implicitly preserved the power to regulate docks and piers on property that it sold specifically for the purpose of such docks, and nothing else.

Comment 3: Further, there is the question of how far the "public trust" notion ought to take us. Some pro-planning advocates have argued that the notion of "public trust" could expand to cover all environmental, historical and cultural preservation actions of the state, rendering regulation in furtherance of those objectives outside the scope of the "just compensation" clause.

Furthermore (the argument goes) the question of what falls within the "public trust" is something for each state to determine, permitting states to avoid takings liability simply by declaring a form of public trust immunity.

UMKC Law Professor Julie Cheslik, our zoning maven, suggests that such arguments don't adequately take into account the recent U.S. Supreme Court decision in Drye v. U.S., the DIRT Daily Development for December 9, 1999. There the high Court determined that, although the state of Arkansas, in the first instance, could define by statute whether an inherited interest that had been rejected constituted "property" in the hands of the heir, federal law would define whether that interest, by any definition, was subject to a federal tax lien. Will the Supreme Court use reasoning like Drye to pay "lip service" to the notion that states can define property but still provide protection from overreaching definitions of the public trust?

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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