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It is All a Matter of Perspective in “Takings” Jurisprudence

Posted on: February 18th, 2016

By: Coleen Hosack

Imagine having title for decades to prime undeveloped lake-front property that is buildable in all respects, but the land use ordinance forbids building on it and “Takings” law says the government does not have to compensate you for it. This is what happened to the Murr family in Wisconsin. In 1959, when the lot was created, it complied with the land use laws. Mr. Murr purchased the lot and the lot adjacent to it, and built a lake house on the adjacent lot that the family enjoyed for decades. The vacant lot (Lot E) was titled in Mr. Murr’s plumbing business and the lake house lot (Lot F) was titled in Mr. Murr’s name.  Eventually, the two lots were re-titled in the name of the Murr family siblings.

In 1975, the county adopted new development regulations that when applied to Lot E, meant the lot was not legally buildable. Despite this, a grandfather clause would allow the lot to still be developed. However, this clause only applied if the lot “is in separate ownership from abutting lands.”  Since the Murr siblings owned both lots, they could not take advantage of the grandfather clause. The ordinance also precluded the Murrs from selling Lot E to anyone else unless it combined it with Lot F. The Murrs sought a variance to allow them to use Lot E as a separate building site arguing that the grandfather clause should apply because when the 1975 regulation was adopted, the two lots were under separate ownership. But the county and the Wisconsin state courts rejected this interpretation.

 The Murrs filed suit alleging an uncompensated taking of Lot E. They contended that without the ability to sell or develop the lot, it is rendered economically useless, similar to that which occurred in Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), a case where the Supreme Court held that a South Carolina state law as applied to two beach front lots rendered the lots economically valueless requiring compensation. The Wisconsin Court of Appeals rejected the Murr’s claim by defining the relevant parcel as not just Lot E, but also Lot F.  Thus, the only reason the claim was rejected was because the Murr family siblings owned the adjacent parcel. Since the two lots were contiguous and happened to be owned by the same people, the Supreme Court’s “parcel as a whole” rule from Penn Central Transp. Co. v. New York City, 438 U.S. 104, 130-31 (1978) required combining the parcels for purposes of valuing the claim from a “Takings” perspective.

The “parcel as a whole rule” means that in valuing a property interest in a regulatory takings case (a case where the application of a statute or rule to a property interest makes that interest less valuable in some respect), the court does not separate out distinct property interests. If the property viewed “as a whole” has value, then there is no regulatory taking and therefore, no compensation despite the application of the regulation to the property. This rule has been applied in various factual context like a “air rights” at an airport, a temporary interest, commercial transactions, and pillars of coal; however, never before has this concept been analyzed within the factual context of a fee simple interest in land by individuals involving traditional parcels of common residential lots.

The relevant parcel from the Murr’s perspective is Lot E. The lot was held by their parents for decades as an investment and eventually deeded to the six Murr siblings as gift, along with Lot F, also a gift. When the investment ripened, the plan was to develop Lot E separately from Lot F or sell it to a third party. The relevant parcel from a “Takings” perspective is not just Lot E, but Lot E and Lot F combined.  This “defining of the relevant parcel” business was central to the Wisconsin court’s decision that there was no regulatory taking at all.  Applying the “parcel as a whole” rule to the two lots, it was very easy for the Wisconsin court to find no taking as a matter of law, as the Wisconsin court stated: “[T]he Murr’s property, viewed as a whole, retains beneficial and practical use as a residential lot.”

On January 15, 2016, the Supreme Court granted certiorari to answer the question “In a regulatory taking case, does the “parcel as a whole” concept as described in Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 130-31 establish a rule that two legally distinct, but commonly owned contiguous parcels, must be combined for takings analysis purposes? (Murr petition for certiorari; Murr opposition brief; Murr reply in support of petition for certiorari).

Of interest will be how the Supreme Court applies the “parcel as whole” concept to this regulatory takings claim. A conservative bench is more likely to view the relevant parcel like the Murrs do – separate in and of itself and requiring compensation to the extent the local laws will not allow the Murrs to build on it. A more liberal bench is more likely to view the relevant parcel as the State of Wisconsin does – bundled with the other parcel and not requiring compensation to the extent the local laws allow at least one lake house on property commonly owned. With Justice Scalia no longer on the bench and the parties finishing briefing by mid-June of 2016, it is difficult to predict how the Murrs will fare, especially if an opinion is entered before the swearing in of a ninth Justice. This is one to watch.

 For questions or for additional information, please contact Coleen Hosack at [email protected].

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