Update: U.S. Supreme Court Announces New Test for Defining “the Parcel” in a Regulatory Taking

On March 22, 2017, we blogged about the importance of the United States Supreme Court’s looming decision in Murr v. Wisconsin – a regulatory takings case that was poised to resolve a key question long left unanswered by the Court’s takings jurisprudence: how do you define the relevant parcel in determining a regulation’s impact on “the parcel as a whole?” On June 23, 2017, the Court issued its ruling, and in a 5-3 decision answered definitively that it depends.

Sometimes a regulation may go so far as to effect a “taking” of one’s property. In determining when a regulation has gone so far, the Court has previously instructed that reviewing courts must consider the regulation’s interference with property rights “in the parcel as a whole.” But the precise boundaries of “the parcel” are not always clear and, in many cases, may prove to be dispositive of whether there was a taking at all. The Court described the problem in Keystone Bituminous Coal Assn. v. DeBenedictis, explaining that because the regulatory takings analysis requires a comparison between the value taken from the property to the value which remains, “one of the critical questions is determining how to define the unit of property whose value is to furnish the denominator.”

In Murr, the Court was presented with a number of approaches to defining the parcel. On one extreme, the Murrs – who owned two adjacent, under-sized lots that were merged into a single lot by a county ordinance in the 1970s – offered a very simple approach: look to the lot lines established under state law. On the other, the State of Wisconsin advocated for a similarly simple approach, but which defined the parcel with full deference to the body of state property law as a whole. In the former view, nothing mattered but the established lot lines. In the latter, a broader view of state property law was permitted, but state law would nonetheless serve as the sole source for defining the parcel in a given case.

The Court opted instead to chart a middle course and, in an opinion drafted by Justice Kennedy, announced a new multi-factor analysis that endeavors to discern “whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead as separate tracts.” The Murr Court instructs that, in making this determination, future courts should consider: (1) the treatment of the land under state and local law; (2) the physical characteristics of the land; and (3) the prospective value of the regulated land. Thus, while state laws, including lot lines, are an important factor, there are also other considerations which will impact a property owner’s “reasonable expectations” about his or her property from case to case. In short, the Court’s approach emphasizes maximum flexibility, a feature it describes as the “central dynamic” of regulatory takings jurisprudence.

Murr adds yet another layer of complexity to an already byzantine area of the law. Chief Justice Roberts, among other criticisms leveled in his dissent, challenged the majority’s “stand against simplicity.” He argued that the concerns implicit in the majority’s multi-factor analysis of “reasonable expectations about property ownership” could just as easily be treated within the Court’s existing framework, and without muddying traditional understandings about private property. Relying entirely on state property lines to identify the relevant parcel, the Chief Justice then drove the point home by reasoning his way to essentially same outcome as the majority.

Murr seeks to fill a glaring hole left open by previous decisions, but it is not immediately clear if the standard announced by the Court will dramatically affect outcomes. Functionally, the decision merely adds another fact-specific determination to an analysis that already hinges on a court’s interpretation of the same, unique facts; it is a more flexible version of an analysis that is already intensely flexible.

In the end, Murr’s impact will only be understood with time. As the decision begins to take shape in lower courts, the attorneys in Gibbons Real Property & Environmental Department will continue to monitor matters closely and will continue to provide updates.