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Nobska Point Lighthouse in Falmouth. A recent Falmouth case shows property owners face big odds if they try to bring a lawsuit over a “regulatory taking.” Photo courtesy of Clara S. / CC BY-SA 2.0
The United States Constitution and the Massachusetts Declaration of Rights both require payments of “just compensation” when governments take private property by eminent domain. If private property is taken for public use, property owners are clearly entitled to compensation.
Eminent domain cases sometimes arise when governments, for the sake of the public good, impose land use regulations that render property undevelopable. These situations, known as “regulatory takings” or “inverse condemnations,” can drastically reduce a property’s development potential and value, without the government physically taking the property.
Disgruntled property owners in such cases sometimes sue the government for compensation. An early example of this is Pennsylvania Coal Co. v. Mahon, a 1922 case where the U.S. Supreme Court considered a state law preventing a coal company from exercising its mining rights. The Supreme Court ruled that the law was a regulatory taking without just compensation. Despite the Pennsylvania Coal decision, regulatory taking lawsuits are usually unsuccessful, as shown in last month’s Appeals Court decision of Smyth v. Falmouth Conservation Commission.
Janice Smyth inherited an unimproved lot with wetlands from her parents, who had purchased the lot in 1975 for $47,000. She applied for an order of conditions and variances in 2012, under the Wetlands Protection Act and the local wetlands bylaw, to build a house on the lot. The local conservation commission denied her variance requests, leaving Smyth with an undevelopable lot worth $60,000. She sued in Superior Court, demanding that a jury determine whether the town’s wetlands bylaw operated as a regulatory taking that entitled her to compensation.
The town argued that a judge, not a jury, should decide whether a regulatory taking had occurred. The Superior Court judge disagreed and allowed the issue to go to the jury. Smyth’s appraiser opined at trial that the lot was worth $700,000 as a house lot. The jury sympathized with her plight and awarded her $640,000. The town appealed.
Court Opposes Jury Trial
The Appeals Court first considered whether juries can properly decide if a regulatory taking occurred.
The court noted that the right to a jury trial is available for traditional tort lawsuits, which have been part of American common law for centuries. The court distinguished regulatory taking claims as a relatively new development in American jurisprudence and noted that they require a “highly nuanced balancing of multiple factors.” The court was unwilling to commit such highly nuanced balancing to a jury. It ruled that the right to a jury does not attach to regulatory taking claims, except to determine the just compensation after judges find regulatory takings.
The Appeals Court next considered whether Smyth suffered a regulatory taking as a matter of law.
The court listed guidelines developed in 1978 by the U.S. Supreme Court in Penn Central Transportation Co. v. New York City. In that case, New York City designated Penn Central Station as an architectural landmark, preventing future development there. The owners sued the city for a regulatory taking, but the Supreme Court ruled against them. The Supreme Court listed three factors as significant to the regulatory taking issue; namely, the economic impact of the regulation, the extent of the regulatory action’s interference with “investment-backed expectations,” and the character of the government action.
Lot Held to Have Value
The Appeals Court applied this analysis to Smyth’s situation. On the economic impact factor, the court observed that the undevelopable lot was worth $60,000, which is more than the $49,000 that Smyth’s parents paid for it in 1975. The court also noted that the undevelopable lot still had value as a park or an expansion of an abutter’s property.
As to Smyth’s investment-backed expectations, the court noted that she inherited the property and spent little on exploring its development potential. The court regarded any regulatory taking compensation payable to Smyth under these circumstances as a windfall.
Christopher R. Vaccaro
After rejecting Smyth’s arguments on economic effects and expectations, the court discussed the last factor, the character of the governmental action. The court noted that the wetlands bylaw applied to all properties with wetlands, without singling out Smyth’s property. The bylaw was not a regulatory taking under these circumstances.
The court reversed the Superior Court judgment awarding $640,000 to Smyth and ruled that she would recover nothing from the town.
There are two lessons here if you are considering bringing a regulatory taking suit against a municipality. First, a jury of your peers will not be deciding the regulatory taking issue. Second, the judge who decides the issue is unlikely to rule in your favor.
Christopher R. Vaccaro, Esq. is a partner at Dalton & Finegold, LLP in Andover. His email address is cvaccaro@dfllp.com.
