United States: Minnesota Constitution Provides Greater Protection Against A Regulatory Taking Than The Federal Constitution

While the United States Constitution provides that private property shall not be "taken" without just compensation, the Minnesota Constitution ensures that just compensation must be paid not only when private property is taken, but also when it is "destroyed or damaged." The Minnesota Supreme Court has earlier held that the state's constitutional protection extends further than that afforded by the federal constitution, but in its most recent regulatory taking decision in 2007, Wensmann Realty, Inc. v. City of Eagan, it refused to decide the state law issue because it had not been raised by the plaintiff landowner. Now, the Minnesota Court of Appeals has expressly addressed the breadth of Minnesota's protection of private property rights, particularly in light of the Wensmann decision, and confirmed that the state's guarantee exceeds that offered by the United States constitution.

Interstate v. City of Bloomington

Gordon Galarneau and Penny Galarneau separately own two Bloomington parcels of property, both of which were impacted by the construction of a new runway at the Minneapolis-St. Paul International Airport. Interstate Cos., Inc. v. City of Bloomington, 790 N.W.2d 409 (Minn. App. 2010). Interstate leases the properties, paying $62,000 and $34,000 per month to Mr. Galarneau and Ms. Galarneau, respectively. Interstate distributes parts, and services, repairs, and sells diesel engines from the properties.

Metropolitan Airports Commission built a new runway about 2,500 feet from buildings on the properties. Noise from this runway disrupted Interstate's business, but even after the runway opened, Interstate's profits, and its rent payments to the Galarneaus, increased. Moreover, MAC's Joint Airport Zoning Board adopted an amended ordinance in connection with the new runway. While the properties had been regulated under the former ordinance, the amended ordinance placed the properties in a more restrictive zone. The new regulations permitted the present use of the properties, but it limited structure heights, resulting in a denial of the Galarneaus' application to build a hotel.

The new runway and the amended ordinance caused the combined value of the properties to plummet from $10.8 million to $5.035 million, according to the owners' expert. Interstate and the Galarneaus sued MAC and Bloomington alleging, among other claims, that the amended ordinance constituted a regulatory taking of their property and that the business disruptions caused an inverse condemnation. The trial court granted summary judgment to the government, dismissing these claims.

Minnesota's Constitutional Guarantee

The Court of Appeals reversed the trial court, finding that it had not adequately analyzed the Minnesota constitution and improperly resolved factual issues. Under both the federal and state constitutions, courts recognize that although property rights must yield to valid exercises of government power, when regulation of private property "goes too far," the government must compensate the owner. Some regulations unfairly burden a few landowners while benefitting the public generally and, in those select situations, both constitutions require that the owners receive compensation. To determine whether a regulation effects a taking of private property under either constitution, courts consider several factors, including the regulation's (a) economic impact on the landowner; (b) interference with distinct investment-backed expectations; and (c) character. Generally, if the government decision or regulation maintains the status quo of the property and any reasonable, economically-viable use of the property remains, then courts deny that a regulatory taking has occurred. This is the usual, though not exclusive, outcome of disputes concerning historic preservation laws as well as ordinances implementing a comprehensive plan. The trial court in Interstate analyzed the facts under these standards. It rejected the appraisal showing the 50% drop in the value of the property, deciding that the properties had not been taken and that the owners were not entitled to compensation.

Pursuant to Minnesota's constitution, however, a property owner may also prove a taking in an alternative manner, under a less-difficult standard. If an owner can establish that a regulatory action benefits a specific public or governmental enterprise and caused its property's market value to substantially and measurably decline, then it is entitled to compensation. Minnesota law recognizes airport ordinances in this "enterprise" category, and a regulation designed to maintain a few parcels of private property as parkland or green space would likely also qualify as benefitting a public enterprise. The Minnesota Supreme Court refused to decide the impact of this line of decisions in Wensmann, leaving courts since then struggling with whether Minnesota's constitution continues to ensure that owners receive compensation for regulations benefitting public enterprises that reduce the burdened property's value while nonetheless allowing reasonable uses. Consistent with Minnesota's guarantee, however, the Courts of Appeals in Interstate held that, even though the amended ordinance permitted the properties to be reasonably used, evidence showing that the government's actions reduced the value of the properties by 50% may be sufficient to prove a regulatory taking.

Conclusion

When a government regulation or decision impacts a property's value or interferes with an owner's reasonable, investment-backed expectations, both the state and federal constitutions may entitle the owner to compensation. Because the courts refuse to identify hard and fast rules for taking claims, every regulatory taking dispute depends on its unique facts. But if the government's action maintains the status quo and allows an economically-viable use of the property, courts usually decline to find a taking. Under Minnesota's constitution, however, a regulation benefitting a public or government enterprise and causing a substantial and measurable decline in value requires the government to compensate the owner even if a reasonable use of the property remains.

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