by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

CONSTITUTIONAL LAW; TAKINGS; "PROPERTY;" OPTIONS: If state law does not create a protected interest in optioned real estate, then optionee is not entitled to compensation when the optioned property is taken under eminent domain Pro-Eco v. Bd. of Com'rs of Jay County Ind. 57 F.3d 505 (7th Cir. 1995). In 1991, Corporation acquired an option to buy certain land for purposes of installing a landfill. The land was in a county area in a county that had not adopted a comprehensive land use plan (and had no such plan under active consideration.) The county adopted a moratorium ordinance, prohibiting the construction of landfills for three years or until the county had adopted a comprehensive plan addressing the issue of landfills. Corporation successfully challenged the moratorium as a violation of Indiana zoning law, which prohibited zoning decisions without the development of a comprehensive land use plan. The court viewed the moratorium, under the circumstances, as in and of itself a zoning decision. 956 F.2d 635 (7th Cir. 1992)

Corporation, following the moratorium, but before the judicial reversal of the moratorium, exercised its option and acquired the property. Here it seeks damages for the Constitutional injury resulting from the delay in carrying out its landfill project due to the moratorium and litigation.

The Corporation raised a variety of colorable Constitutional claims. Perhaps the most provocative was the notion that the delay was a "temporary taking" without just compensation. County argued that Corporation had not sufferred any "taking" of its property because the option right that it owned at the time the moratorium was declared did not amount to a property right. The Corporation cited Nollan v. California Coastal Comm'n, 107 S.Ct. 3141 (1987), where the Supreme Court found a taking when the Coastal Zone Commission exacted an access easement as a condition of issuing a building permit. In Nollan, Corporation pointed out, the landowners also had an option right at the time of the original events. As in this case, the landowners exercised the option during the course of litigation.

The Seventh Circuit rules here that Indiana law, unlike California law, does not treat options as interests in property, but merely as a species of contract right (at best.) Consequently, because state law does not define the Corporation's interest as property, the Corporation had no claim that its property was taken. The court cited Indiana authority that does not recognize an option as a compensable property interest in eminent domain, and asserted also (without citation) that Indiana law does not recognize a recorded option as establishing a property interest as against a subsequent bona fide purcahser.

Although the Corporation later became a landowner, the court concludes that this does not change the takings claim, since at that time it knew that the property was subject to moratorium and cannot claim special injury from the county when the Corporation "ran into [the County's] fist." The Corporation's claim must stand or fall on the status of its interest at the time of the moratorium.

The court also dismisses Corporation's claim of a breach of the Due Process clause, although it acknowledges that that clause may protect a wider range of interests that the Takings Clause. The court concludes that there was no denial of procedural due process because the action in question was addressed to landfills in the county generally, and not to any particular plot of land, therefore making it "quasi-legislative" in character, and diluting procedural due process rights. As to substantive due process claims, the court concludes that county action regulating landfill activity, even though the action might violate state law, is not "irrational," but based upon legitimate concerns of public health and safety.

Comment: There is plenty in this case for Constitutional and planning mavens to chew on. The notion that states may create or destroy potential takings claims based upon how they define "property" is an interesting notion that probably has received less attention from state legislatures than it should.

Another interesting issue is the question of the status of "mere" contract rights versus property rights in the Constitutional takings area. How do servitudes come out? Are there state law differences in the recognition of easements and land use covenants as "property?" Will the new Restatement on Servitudes affect this analysis? In what way?

For a recent case on an analogous point, see Board of Education, Gadsden Ind. School. Dist. No. 16 v. James Hamilton Const. Co., 891 P.2d 556 (N.Mex. App. 1994) (right to purchase in land sale agreement is not a compensable property right in eminent domain proceeding when the purchaser has not placed any significant value at risk as a consequence for nonperformance.)

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 five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. Contact Shawn Kaminsky at the ABA. (312) 988 5260.

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.