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DON'T TREAD ON ME, OR MY LAND BEFORE I OWNED IT (posted 6-1-02) What may have been the most important land use opinion decided by the Super Supremes this term is also the most controversial. Landowner acquires land after the local government adopts an ordinance restricting its use. Landowner sues the local government for "taking" his land without compensation, which is alleged to be $3.15 million. In all lower courts, the local government wins, because the landowner knew of the restrictions when he took title to this land. First in time, first with rights. But the Super Supremes knew better and shocked the real estate world by ruling that the landowner's lawsuit could proceed. Click the headline to get familiar with the "rest of the story." Palazzolo v. Rhode Island, Case No. 99-2047, U. S. Supreme Court, decided June 28, 2001. In 1959, Palazzolo and two other men formed Shore Gardens, Inc. Shortly thereafter, SGI bought just over 20 acres of land near the Atlantic coastline of Rhode Island. This land was mostly a marsh wetland subject to tidal flooding, with a few acres of upland dry land. This tract of land was bordered on the South by a road, and then the beach and the ocean, to the North by Winnapaug Pond, an intertidal inlet, and by beachfront homes to the East and West. Palazzolo bought out his co-owners and continued with plans to develop this tract into 80 lots. SGI managed to sell 6 lots, leaving it with 74 planned lots on approximately 20 remaining acres. The problem was, this being such a marshy tract, it would require up to 6 feet of fill before any structures could be built on it. SGI filed several development plans for this tract, but all were rejected for various reasons. So SGI sat on its investment. Then, in 1971, the state of Rhode Island created the Rhode Island Coastal Resource Management Program, and charged its newly appointed Council with the duty to protect the status of the state's coastal properties. The Council promptly did so, adopting a development code which, despite its name, was decidedly anti-development. Later, during 1978, SGI's corporate charter was revoked for failure to pay corporate income taxes, and so title to this land passed by operation of law to the shareholder of SGI, Palazzolo. By 1983, Palazzolo was ready to realize some profit from his investment, and so he prepared and filed a development plan with the Council. His first proposal was to build a wooden bulkhead along the shores of Winnepaug Pond and fill the entire marsh area. The Council rejected this plan. Palazzolo's second proposal was more detailed and limited. Plus, he hired a lawyer to help him put this together. This turned out to be a particularly shrewd move. This proposal called for the construction of a private beach club facility. Not bad so far. But it also included plans to fill 11 acres with gravel to accommodate 50 cars with boat trailers, a dumpster, port-a-johns, picnic tables, concrete barbeque pits, and other trash receptacles. Not exactly Martha's Vineyard. And perhaps not surprisingly, the Council rejected this proposal too. Palazzolo and his lawyer appealed this rejection to district court, which ruled in favor of the Council. But then, Palazzolo and counsel filed a lawsuit against the Council and claimed that the state wetlands regulations, as applied by the Council to his land, resulted in a "taking" of his property without compensation, which is prohibited by the 5th amendment to the U.S. Constitution. And here Palazzolo hit an unexpected jackpot. The Rhode Island courts ruled for the Council on the basis, among other things, that Palazzolo acquired title to this land after the Council had adopted their regulations, and so, he basically took the land subject to those regulations, with no ability to challenge them. The person owning the land at the time the regulations were adopted was the proper party for such a challenge. And most of the professional real estate community agreed with this position, given prior rulings by the Super Supremes. The rule we all thought would apply to this case comes from a Super Supremes case from 1978 known as the "Penn Central" case. The Penn Central rule is this: A regulation which denies all economically beneficial or productive use of land will require compensation. Where a regulation places limit actions on land that fall short of eliminating all economically beneficial use, a taking nonetheless may have occurred, depending on a complex of factors including the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investment backed expectations, and the character of the government action. The purpose of this rule of "regulatory takings" is to prevent the government from forcing some people alone to bear public burdens which, in all fairness, should be borne by the public as a whole. A substantial number of real estate professionals thought that Palazzolo had no chance because he could not have had any reasonable investment backed expectations, since he acquired title to the property after the land had been affected by the land development restrictions. In the words of Rhode Island, a purchaser or successive title holder is deemed to have notice of an earlier-enacted restriction and is barred from claiming that it effects a taking. But the Super Supremes said "not so" in a 5-4 decision. In hindsight, the majority opinion makes all the sense in the world, with one huge exception that will have to be dealt with in the future. The Major Super Supremes said that unreasonable restrictions do not become less so through the passage of time. The rule proposed by Rhode Island would establish the functional equivalent of an expiration date on the takings clause, and there cannot be any expiration date on the takings clause. Future generations must have the right to challenge unreasonable limitations on the use and value of land. Such a rule could operate to strip a newly regulated landowner of the ability to transfer the interest which the landowner possessed prior to the regulation. Furthermore, the Majors pointed out, a person who was wealthy enough to fight the regulation would fare differently than a person who could not afford the fight, having to sell the property instead. Likewise for someone young enough to have the time for the fight, as opposed to an elderly owner whose end was near. All of these scenarios were too haphazard for the Major Supremes. And so the Supremes ruled that the right to fight unreasonable land use regulations passes from owner to owner along with title to the land. Any successor owner can challenge land use regulations, and be compensated, even for regulations that were in effect before the landowner acquired title. The one remaining issue is this: what if one owner successfully recovers a money judgment against a city for an unreasonable land use regulation which "takes" their property, and then later sells the property. Does the next owner have the same ability to recover a money judgment from the same city for the same unreasonable land use regulation? How about the tenth owner, or the fiftieth owner? Under the majority's rationale, the answer may very well be yes, subsequent owners have the right to sue and recover money as well. And that will put cities and other land use regulatory bodies under incredible pressure to loosen land use regulations and change any regulation found to be unreasonable. Close
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