United States: U.S. Supreme Court: State Law Merging Lots In Common Ownership Not A Regulatory Taking

Barbara A. Adams is Senior Counsel in our Holland & Knight Chicago office.

HIGHLIGHTS:

  • Eight U.S. Supreme Court justices agreed in the case of Murr v. Wisconsin that state regulations making two adjoining lots held in common ownership into a single parcel did not violate the Takings Clause of the Fifth Amendment of the U.S. Constitution.
  • The case regarding the two lots in a scenic and recreational area of the Lower St. Croix River resulted in three different opinions, offering some variations in legal reasoning. However, all three agreed with the ultimate conclusion that the two lots must be considered a single parcel for Takings Clause analysis and that no regulatory taking had occurred.
  • The Murr decision should be reviewed by developers, landowners, local governments and agencies as they consider various zoning and other decisions.

In an interesting twist, eight members of the U.S. Supreme Court agreed on June 23, 2017, in the case of Murr v. Wisconsin, No. 15-214, that state regulations making two adjoining lots held in common ownership into a single parcel did not violate the Takings Clause of the Fifth Amendment of the U.S. Constitution. The much-watched case regarding the two lots in a scenic and recreational area of the Lower St. Croix River resulted in three different opinions, offering some variations in legal reasoning, but all three agreeing with the ultimate conclusion that the two lots must be considered a single parcel for Takings Clause analysis and that no regulatory taking had occurred. Justice Neil Gorsuch did not participate.

Many local governments in Illinois and other states have similar provisions providing for the merger of adjacent substandard lots held in common ownership, and this update on the Murr decision should be reviewed as developers, landowners and governments consider various zoning, subdivision and other decisions.

The River Lots

The two lots along the Lower St. Croix River in Wisconsin were originally purchased by the parents of the petitioners, the Murrs. Lot F had a small cabin on it, and was purchased by the Murrs' parents in 1960, then transferred to their plumbing company in 1961. In 1963, the Murrs' parents purchased the adjacent Lot E, which they held in their own names. Each of the lots had less than 1 acre of developable land due to the steep terrain along the river, and there was a total combined area of developable land on both lots of just 0.98 acres.

The Challenged Regulations

In 1976, Wisconsin Department of Natural Resources rules became effective that established a minimum developable land area requirement of 1 acre, but excepting lots in separate ownership on or before Jan. 1, 1976 from a requirement to combine substandard lots in common ownership. The Murrs' parents transferred title in the two lots to the Murrs in 1994 and 1995. By operation of law, this rule made Lots E and F into a single parcel under the rules. The Murrs requested variations from this requirement and were turned down.

When the Murrs pursued possible development of the property 10 years later, they learned that they could not divide and sell a portion of their two-lot property, and again sought variations in order to move an existing cabin from one lot to another. The variations were denied, and the Murrs filed their complaint in Wisconsin state court. A Wisconsin trial court found for the State of Wisconsin, and the Wisconsin Court of Appeals affirmed. The Wisconsin Supreme Court denied discretionary review, but the U.S. Supreme Court granted certiorari and agreed to review the case in 2016.

The Majority Opinion

Written by Justice Anthony Kennedy, with votes also from Justices Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, the majority opinion concluded that Lots E and F together comprised a single parcel for analysis under the Takings Clause of the Fifth Amendment. The majority was unwilling to conclude from prior precedent that they should rely on those parcels established under state law, but instead undertook an extensive analysis of factors that must be considered in determining what is the parcel to be considered, including:

  • Treatment of land and how it is bounded or divided under state and local law. This includes whether the acquirer of land has reasonable expectations regarding subsequent use and disposition of the property, including whether reasonable restrictions were in place before or after acquisition of the land. The Court concluded that the fact that state and local law said the property should be considered as one parcel was significant, and the Murrs voluntarily took ownership of the lots with the merger rule already on the books.
  • Physical characteristics of the property, including the physical relationship of the tracts of land, their topography, and surrounding human and ecological environment. The Court noted that the lots are contiguous along their longest edge, and that the narrow lots with rough terrain mean it is reasonable to expect uses might be limited.
  • Value of the property under the challenged regulation, "with special attention to the effect of burdened land on the value of other holdings." The Court found that the value of the combined lots is $698,300, which is much higher than the sum of the two lots separately (Lot E at $40,000 and Lot F at $373,000).

The Court rejected Wisconsin's proposed "formalistic" view that the state law provision merging the two lots should control the determination of what is the "private property" to be evaluated, and also rejected the Murrs' position that lot lines must determine what is the "private property" in every instance. In particular, the Court rejected the Murrs' analysis because it would cast "doubt on the many merger provisions that exist nationwide today." Reliance solely on lot lines would create "the risk of gamesmanship" by landowners seeking to alter lot lines in anticipation of a coming regulation.

The Minority Opinions

Justice John Roberts' minority opinion, joined by Justices Samuel Alito and Clarence Thomas, agrees with the "bottom-line" conclusion of the majority that the Wisconsin regulation does not constitute a taking requiring just compensation. But the minority disagrees with the manner in which the majority reached that conclusion.

The minority opinion's view is that the court should determine three questions in sequence: 1) is the property "private property" and, if yes, 2) whether it has been "taken" for "public use," and, if the answers to the first two questions are yes, then 3) determine the amount of "just compensation" to be paid to the property owner.

In determining what is private property, the minority would rely almost entirely on state law determination of boundaries "in all but the most exceptional circumstances." The minority disagrees with the majority's consideration of the multiple factors in its analysis in this definitional effort, claiming that this allows the factors to be improperly considered twice – in determining what is private property and also in whether it is a taking. The minority would consider these factors only on the second question of whether it is actually a taking.

Justice Thomas also wrote a separate dissent, arguing for a "fresh look at our regulatory takings jurisprudence."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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