U.S. Supreme Court Takes Another Look at Regulatory Takings
The landmark 1994 U.S. Supreme Court decision of Dolan v. City of Tigard established the "rough-proportionality" test for determining whether government regulation of land is so intrusive as to constitute a taking for which compensation must be made.
In May, the Supreme Court revisited this test in City of Monterey v. Del Monte Dunes at Monterey, Ltd., et al. The case held that the test does not extend beyond the context of requirements imposed by a municipality on a landowner to situations involving the denial of a landowner’s development plans without municipal exactions.
The History of Dolan
Prior to Dolan, the Supreme Court made it clear that regulatory takings occur when landowners are deprived of all economically viable uses of their land or when the regulation fails to substantially advance a legitimate public interest. In Dolan, the Supreme Court expanded the test for takings in situations that require dedications of property for public use.
The Dolans had attempted to obtain approval from the city of Tigard, Ore., to replace their existing plumbing and electrical supply store with a new one. As a condition of its approval, the city required that the Dolans dedicate approximately 10 percent of their land for open space and pedestrian and bicycle pathways. The Dolans objected and sued the city.
Dolan culminated with a Supreme Court decision that established a three-pronged test to determine whether a landowner should be compensated for land taken by the government. First, the government regulation of the land must be deemed a taking. Next, the regulation must serve a legitimate public interest. Finally — the test at issue in Del Monte Dunes — the exaction must be roughly proportional to the government’s legitimate interest. If all three conditions are satisfied, the property owner is not entitled to compensation.
Del Monte Dunes
The Supreme Court’s recent Del Monte Dunes decision ended more than 10 years of litigation and nearly two decades of controversy regarding the development of a 37.6-acre oceanfront parcel in Monterey, Calif. The property previously had been used by an oil company as a terminal and tank farm.
One of the plants still remaining on the property was buckwheat, the natural habitat of an endangered butterfly, which must land on a mature, flowering buckwheat plant to survive.
The landowners originally submitted an application to develop the property in 1981. Although zoning requirements allowed the development of more than 1,000 residential units for the entire parcel, the landowners’ plans limited development to 344 units. In 1982, the city’s planning commission denied the application but stated that a proposal for 264 units would be considered favorably.
The landowners revised their proposal, but in late 1983 the planning commission again denied the application, this time noting that it favorably would receive a plan for 224 units. The landowners appealed the decision to the City Council, which overruled the planning commission’s denial but referred the project back to the commission with instructions to consider a proposal for 190 units.
Once again, the landowners revised their proposal, reducing the number of units to 190, and provided four separate, detailed site plans. Even so, in late 1984, the planning commission again rejected their proposal. Once more, the landowners appealed to the City Council, which overruled the commission and approved one of the four site plans subject to various conditions. The city also issued an 18-month conditional-use permit.
Over the next year, the landowners finalized their plans and took steps to address the city’s conditions.
The landowners’ final plan, which was submitted in 1985, devoted nearly half of the property to public open space. This included a public beach, areas for restoration and preservation of the buckwheat, an additional 8 acres for open areas, and 6.7 acres for public and private streets, including public parking. Ultimately, the landowners were left with only 5.1 acres of the 37.6-acre parcel allocated for the development of buildings and patios.
Nevertheless, in January 1986 — less than two months before the expiration of the conditional-use permit — the planning commission denied the development plan.
The landowners appealed to the City Council and requested a 12-month extension of the conditional-use permit. The permit was extended until a City Council hearing in June 1986. After the hearing, the City Council denied the final plan, declined to specify measures the landowners could take to satisfy the council’s concerns, and refused to extend the permit.
Through the Courts
After five years, the landowners decided that the city would not allow development of the property under any circumstances. They filed suit against the city, claiming, among other things, that denial of the final development proposal constituted an uncompensated regulatory taking.
A federal district court jury found for the landowners on the taking claim and awarded them $1.45 million. The federal appellate court upheld the jury’s verdict, so the city petitioned the Supreme Court to consider whether the appellate court erred in assuming that the rough-proportionality standard established in Dolan applied to this case.
The Del Monte Dunes decision was not a total victory for landowners. The Court stated that the rough-proportionality test is confined to situations involving exactions as a condition to development. As Justice Anthony Kennedy noted in the majority decision, "We have not extended the rough-proportionality test of Dolan beyond the special context of exactions — land-use decisions conditioning approval of development on the dedication of property to public use. It was not designed to address, and is not readily applicable to, the much different questions arising where, as here, the landowner’s challenge is based not on excessive exactions but on denial of development."
Instead, the test of whether the city’s denial of the final proposal reasonably was related to a legitimate public purpose was found to be applicable to the question of whether a municipality’s denial of development constituted a taking requiring compensation. On the basis of that test, the jury’s award to the landowners was upheld.
Despite the apparent victory for the landowner in Del Monte Dunes, the Supreme Court’s decision not to expand the application of Dolan’s rough-proportionality test marked a victory for municipalities as a whole, rather than developers.