Palazzolo v. Rhode Island

PALAZZOLO v. RHODE ISLAND ET AL.

Certiorari to the Supreme Court of Rhode Island.

No. 99-2047. Argued February 26, 2001 — Decided June 28, 2001.

746 A. 2d 707, affirmed in part, reversed in part, and remanded.

KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and O'CONNOR, SCALIA, and THOMAS, JJ., joined, and in which STEVENS, J., joined as to Part II-A. O'CONNOR, J., post, p. 632, and SCALIA, J., post, p. 636, filed concurring opinions. STEVENS, J., filed an opinion concurring in part and dissenting in part, post, p. 637. GINSBURG, J., filed a dissenting opinion, in which SOUTER and BREYER, JJ., joined, post, p. 645. BREYER, J., filed a dissenting opinion, post, p. 654.

James S. Burling argued the cause for petitioner. With him on the briefs was Eric Grant. Sheldon Whitehouse, Attorney General of Rhode Island, argued the cause for respondents. With him on the brief were Michael Rubin, Assistant Attorney General, Brian A. Goldman and Richard J. Lazarus. Malcolm L. Stewart argued the cause for the United States as amicus curiae urging affirmance.

The report occupies pages 606 through 655 of volume 533 of the United States Reports. The opinion of the Court begins at page 611 and ends at page 632; the separate opinions follow at pages 632, 636, 637, 645, and 654.

[533 U.S. 606] “In order to acquire the waterfront parcel of Rhode Island land that is here at issue, petitioner and associates formed Shore Gardens, Inc. (SGI), in 1959. After SGI purchased the property petitioner bought out his associates and became the sole shareholder. Most of the property was then, and is now, salt marsh subject to tidal flooding. The wet ground and permeable soil would require considerable fill before significant structures could be built. . . . First, in 1971, the State created respondent Rhode Island Coastal Resources Management Council (Council) and charged it with protecting the State's coastal properties. . . . Second, in 1978, SGI's corporate charter was revoked, and title to the property passed to petitioner as the corporation's sole shareholder.”

[533 U.S. 607] “Held: 1. This case is ripe for review. Pp. 617-626.”

[533 U.S. 607] “(a) A takings claim challenging application of land-use regulations is not ripe unless the agency charged with implementing the regulations has reached a final decision regarding their application to the property at issue. Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City, 473 U. S. 172, 186. A final decision does not occur until the responsible agency determines the extent of permitted development on the land. MacDonald, Sommer & Frates v. Yolo County, 477 U. S. 340, 351. Petitioner obtained such a final decision when the Council denied his 1983 and 1985 applications.”

[533 U.S. 608] “2. Petitioner's acquisition of title after the regulations' effective date did not bar his takings claims. This Court rejects the State Supreme Court's sweeping rule that a purchaser or a successive title holder like petitioner is deemed to have notice of an earlier-enacted restriction and is barred from claiming that it effects a taking. Were the Court to accept that rule, the postenactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable. A State would be allowed, in effect, to put an expiration date on the Takings Clause. This ought not to be [533 U.S. 609] the rule. Future generations, too, have a right to challenge unreasonable limitations on the use and value of land.”

[533 U.S. 609] “3. The State Supreme Court did not err in finding that petitioner failed to establish a deprivation of all economic use, for it is undisputed that his parcel retains significant development value. Petitioner is correct that, assuming a taking is otherwise established, a State may not evade the duty to compensate on the premise that the landowner is left with a token interest. This is not the situation in this case, however. A regulation permitting a landowner to build a substantial residence on an 18-acre parcel does not leave the property ‘economically idle.’ Lucas, supra, at 1019.”

[533 U.S. 610] “4. Because petitioner's claims under the Penn Central analysis were not examined below, the case is remanded. Pp. 616, 632.”

[533 U.S. 626] “When the Council promulgated its wetlands regulations, the disputed parcel was owned not by petitioner but by the corporation of which he was sole shareholder. When title was transferred to petitioner by operation of law, the wetlands regulations were in force. The state court held the postregulation acquisition of title was fatal to the claim for deprivation of all economic use, 746 A. 2d, at 716, and to the Penn Central claim, 746 A. 2d, at 717. . . . the two holdings together amount to a single, sweeping, rule: A purchaser or a successive title holder like petitioner is deemed to have notice of an earlier-enacted restriction and is barred from claiming that it effects a taking.”

[533 U.S. 626] “The theory underlying the argument that postenactment purchasers cannot challenge a regulation under the Takings Clause seems to run on these lines: Property rights are created by the State. See, e. g., Phillips v. Washington Legal Foundation, 524 U. S. 156, 163 (1998). So, the argument goes, by prospective legislation the State can shape and define property rights and reasonable investment-backed expectations, and subsequent owners cannot claim any injury from lost value. After all, they purchased or took title with notice of the limitation.”

[533 U.S. 627] “The State may not put so potent a Hobbesian stick into the Lockean bundle. The right to improve property, of course, is subject to the reasonable exercise of state authority, including the enforcement of valid zoning and land-use restrictions. See Pennsylvania Coal Co., 260 U. S., at 413 (‘Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law’). The Takings Clause, however, in certain circumstances allows a landowner to assert that a particular exercise of the State's regulatory power is so unreasonable or onerous as to compel compensation.”

[533 U.S. 627] “Were we to accept the State's rule, the postenactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable. A State would be allowed, in effect, to put an expiration date on the Takings Clause. This ought not to be the rule. Future generations, too, have a right to challenge unreasonable limitations on the use and value of land.”

[533 U.S. 627] “The State's rule would work a critical alteration to the nature of property, as the newly regulated landowner is stripped of the ability to transfer the interest which was possessed prior to the regulation. The State may not by this means secure a windfall for itself.”

[533 U.S. 629] “It is asserted here that Lucas stands for the proposition that any new regulation, once enacted, becomes a background principle of property law which cannot be challenged by those who acquire title after the enactment.”

[533 U.S. 629] “We have no occasion to consider the precise circumstances when a legislative enactment can be deemed a background principle of state law or whether those circumstances are present here. It suffices to say that a regulation that other- [533 U.S. 630] wise would be unconstitutional absent compensation is not transformed into a background principle of the State's law by mere virtue of the passage of title.”

[533 U.S. 630] “A regulation or common-law rule cannot be a background principle for some owners but not for others. The determination whether an existing, general law can limit all economic use of property must turn on objective factors, such as the nature of the land use proscribed. . . . A law does not become a background principle for subsequent owners by enactment itself. Lucas did not overrule our holding in Nollan, which, as we have noted, is based on essential Takings Clause principles.”

[533 U.S. 632] “The court did not err in finding that petitioner failed to establish a deprivation of all economic value, for it is undisputed that the parcel retains significant worth for construction of a residence. The claims under the Penn Central analysis were not examined, and for this purpose the case should be remanded.”

[533 U.S. 632] “The judgment of the Rhode Island Supreme Court is affirmed in part and reversed in part, and the case is remanded for further proceedings not inconsistent with this opinion.”

[533 U.S. 632] “It is so ordered.”

[533 U.S. 632] “I join the opinion of the Court but with my understanding of how the issues discussed in Part II-B of the opinion must be considered on remand.”

Editorial note. Justice O'Connor, concurring, emphasised that the timing of the acquisition of title, while not a bar, remains relevant to the reasonableness of investment-backed expectations under Penn Central, and that the inquiry demands careful examination and weighing of all the relevant circumstances rather than any single rule. That passage became the framework adopted by the Court in Tahoe-Sierra.

Editorial note. Justice Scalia, concurring, replied that the reasonableness of expectations cannot turn on the fortuity of when title changed hands, since a regulation that unconstitutionally burdens land does not gain validity by remaining in force long enough to be inherited.

Editorial note. Justice Stevens, concurring in part and dissenting in part, agreed that the claim was ripe but argued that the right to compensation belonged to whoever owned the land at the moment the regulation took effect, so that a subsequent purchaser could not sue for a taking that had already accrued to a predecessor.

Editorial note. Justice Ginsburg, joined by Justices Souter and Breyer, dissented on ripeness, reasoning that the Council had never been asked to decide what development it would allow on a proposal smaller than filling the whole marsh, so the extent of permitted use remained unsettled. Justice Breyer, dissenting separately, agreed on ripeness and added that the date of acquisition should bear on, though not foreclose, the Penn Central analysis.

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Editorial note. In 1959 Anthony Palazzolo and associates formed Shore Gardens, Inc., which bought waterfront land at Winnapaug Pond in Westerly, Rhode Island; he later became sole shareholder. Most of the roughly eighteen acres was salt marsh subject to tidal flooding, requiring substantial fill before significant construction. Applications to develop were refused in the 1960s. In 1971 the State created the Coastal Resources Management Council, whose programme designated such salt marshes protected coastal wetlands on which development was greatly limited. In 1978 the corporate charter was revoked and title passed to Palazzolo personally. The Council refused his 1983 application to build a bulkhead and fill the whole marsh, and his 1985 application to fill eleven of the eighteen wetland acres for a private beach club, holding that the proposal served no compelling public purpose.

Editorial note. Palazzolo brought an inverse condemnation action in the Rhode Island Superior Court seeking $3,150,000, the appraised value of a seventy-four-lot subdivision. The Superior Court ruled against him and the Rhode Island Supreme Court affirmed, 746 A. 2d 707 (2000), holding the claim unripe, holding that he could not challenge regulations predating his 1978 acquisition of title, and holding that some $200,000 of remaining upland development value defeated any claim of total deprivation. The Supreme Court affirmed in part, reversed in part, and remanded.

Editorial note. Three holdings. The claim was ripe, the Council's refusals having settled the extent of permitted development. Acquisition of title after the regulation took effect did not bar the claim, since a regulation does not become a background principle of state property law merely because title has since changed hands. But the claim of deprivation of all economically beneficial use failed, because a parcel on which a substantial residence may still be built is not economically idle; the Penn Central claim, never examined below, was remanded.

Editorial note. On ripeness, Justice Kennedy reasoned that once the permissible uses of land are known to a reasonable degree of certainty, further and futile applications are unnecessary; the Council's regulations were unequivocal and its rulings made plain that no filling would be allowed.

Editorial note. On the notice theory, the Court reasoned that property rights, though defined by state law, are not held at the pleasure of the legislature: to make enactment itself a background principle would let the State validate an unreasonable restriction simply by outlasting the owner who might have challenged it, would prejudice owners at the time of enactment whose successors could not sue, and would strip the regulated owner of the power to transfer what he held. Background principles must rest on the objective nature of the use proscribed, not on the accident of who holds title.

Editorial note. Palazzolo fixes two rules for the treatise: a takings claim runs with the land rather than expiring with the owner who first suffered the restriction, and the background-principles defence of Lucas is confined to limitations that inhere in the title, not to every enactment that precedes a conveyance. Justice O'Connor's concurrence, treating the date of acquisition as one circumstance among many under Penn Central, supplies the analysis later adopted by the Court.

Editorial note. Followed. Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002), adopted Justice O'Connor's concurring approach for temporary restrictions. Murr v. Wisconsin, 582 U.S. 383 (2017), relied on Palazzolo in framing the parcel and the role of state law in defining the property interest. Knick v. Township of Scott, 588 U.S. 180 (2019), overruled the state-litigation requirement of Williamson County on which the ripeness analysis in part depended.

Editorial note. Read with U.S. Const. amend. V (Takings Clause) and the treatise chapters on regulatory takings, on wetlands and coastal regulation, and on the transfer of interests subject to restriction.