July 30, 1992 - From the July, 1992 issue

Lucas Case: U.S. Supreme Court Rules on “Total Takings”

By F. Thomas Muller, a real estate and land-use lawyer at O'Melveny &Myers. 

Continuing a trend toward in­creasing private property rights in land use cases, the U.S. Supreme Court on June 29th held that a landowner may be able to sue for damages when he is subjected to a regulation that deprives him of “all economically viable use” of his property. 

In Lucas v. South Carolina Coastal Council, U.S. Sup. Ct., No. 91-453, the Court recognized a category of regulatory takings in which all eco­nomic value is destroyed, holding that such takings nearly always require compensation, no matter how gener­ally beneficial the regulation. 

Affirming the rule first announced by the Supreme Court in First English Evangelical Lutheran Church v. County of Los Angeles in 1987, the 6-3 majority found that a property owner subjected to a regulation ultimately found to be unreasonable is entitled not only to invalidation of the regu­lation, but also to damages for inverse condemnation. Even if the agency repeals or modifies the offending regulation, the owner may be entitled to compensation for the “temporary regulatory taking.”

A Construction Ban 

In 1986 David Lucas bought the last two lots in a residential subdivi­sion on barrier island near Charleston for $975,000. An architect designed houses for the lots, but Lucas did not attempt to build them. 

Two years later the South Carolina legislature banned all building seaward of a line defined by the maximum extent of beach erosion during the past forty years. The legislation was intended to prevent further ero­sion of the state’s beaches, thereby protecting wildlife habitat and the tourist industry. Lucas freely con­ceded in the litigation that building on the beach would contribute to erosion and that the state’s goals in this area are very important.

He argued, however, that the state could not, through its regulation, re­quire him to effectively contribute his land for those goals, no matter how worthy. 

The trial court agreed, and awarded Lucas $1.2 million, the value of the property without the regulation. 

The South Carolina Supreme Court overturned the judgment, holding that the seriousness of the harm caused by beach erosion justi­fied the regulation, regardless of the effect on the property’s value. 

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A “Total Taking” 

Ultimately critical to Lucas’ case was the trial court’s acceptance of his claim that the regulation had deprived him of any “reasonable economic use” of his land (a finding that both the concurrences and dissents in the Su­preme Court’s opinion vigorously challenged).

The Supreme Court majority relied on Holmes’ often-quoted maxim in Pennsylvania Coal Co. v. Mahon that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” 

The Court noted that over the course of seventy years of takings jurisprudence this maxim had usually been applied on an ad hoc basis, based upon a balancing test weighing the importance of the public interests advanced by the regulation against the detriment to the individual land­owner and the degree to which the burden of the regulation was borne equally by similarly situated persons. 

The majority, however, detected two types of regulatory taking that have traditionally been found to be “compensable without case-specific inquiry into the public interest ad­vanced by the restraint.” The first is a regulation that permits physical in­vasions of private property. The second type — applicable in the Lucas case — is a regulation that “denies all economically beneficial or produc­tive use of land.”

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Weakening the seeming simplicity of this categorical disqualifica­tion, the Court then determined (somewhat confusingly) that if state common law would find the prohib­ited use to be a nuisance, some ad hoc weighing of public benefit may be appropriate. However, the court found it significant that Lucas’ plans to build two houses could hardly be found a traditional nuisance in light of the developed residential subdivision surrounding his lots. 

Significance of the Case 

Conservative public interest groups hailed the Lucas case as a further indication that the Court is more willing to favor the rights of individual landowners, at the expense of governments, than at any time since the 1930s. 

Environmental and municipal groups, on the other hand, fear that the case will lead to a rash of lawsuits, effectively chilling even reasonable land use controls.

In fact, the case is probably no cause for great joy or fear. It does not, for instance, redefine the amount of reduction in property value caused by a regulation that will cause that regu­lation to fall into the “total taking” category (although it does suggest that even a 95% reduction in value would not necessarily constitute a total tak­ing). 

Nor does the decision change the landmark holding in the 1987 First Lutheran case that a landowner saddled with a regulation that “goes too far” can sue for “temporary in­verse condemnation” damages, even if the regulation is later repealed. 

In sending the case back to the state courts for “proceedings not in­consistent with this opinion,” the decision offers no guidance on determining damages for a temporarily in­ valid regulation. Indeed, Justice Stevens, dissenting, argues that the case should not have been heard at all because Lucas never claimed that he would have started construction if not for the regulation, and therefore suf­fered no damages.

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The Lesson of Lucas

Local governments can take sev­eral steps to limit the impact of the Lucas and First Lutheran decisions. 

First, a land use regulation should specify some allowable economi­cally productive uses of the property to take the regulation out of the narrow “total takings” category defined by the Lucas Court. The property itself may not even need to be usable if its development rights can be trans­ferred to another property, as the Court held in the 1976 Penn Central case.

Second. establishment of a variance procedure to relieve particu­larly harsh effects of the regulation may prevent claims for damages where particular circumstances leave the property undevelopable in light of the regulation. In Lucas, the court refused to take into account a later amendment of the statute to permit individual variances, but that refusal was on procedural grounds, and the dissenters argue convinc­ingly that the variance procedure could have saved the regulation. 

Finally, honoring language in the Lucas opinion emphasizing the protection of landowners’ “invest­ment-backed expectations,” land use regulators should consider giving early, public warnings of their in­tentions to impose new land use controls. Regulators should perhaps even record notices of unusual land use restrictions in the public real property record, in order to reduce such expectations and avoid claims based upon the frustration of these expectations.

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