U.S. Supreme Court Pronounces Factors to be Considered By Courts in Regulatory Taking Cases

On June 23, 2017, the U.S. Supreme Court issued its decision in the eminent domain case of Murr, et al. v. Wisconsin, et al., 582 U.S. ____ (2017). In Murr, the Court addressed whether two legally-distinct, but contiguous, commonly owned parcels should be treated as a single parcel in determining whether a regulatory taking has been effected. The Court rejected the different formalistic approaches suggested by the parties. Instead, the Court held that a multifactor test should be used that examines: (1) how state and federal law defines the property; (2) the physical characteristics of the property; and (3) the prospective value of the regulated land.

In Murr, the landowners were two brothers and two sisters who owned two adjacent lots along the St. Croix River in Troy, Wisconsin. The first lot, "Lot F," was improved with a cabin. The second lot, "Lot E," was vacant. The landowners planned to move the cabin to a different location on Lot F and sell Lot E to pay for the project. However, under state and county law a "merger provision" prevented the use or sale of adjacent lots under common ownership unless combined they had at least one acre of land suitable for development. The landowners in Murr had only 0.98 acres of buildable area due to the St. Croix River's waterline and other topographical conditions. As such, the lots could not be used or sold separately under the law.

The landowners sought and were denied a variance from the county to allow the separate sale or use of the lots. Eventually, the landowners filed suit alleging that the "merger provision" under state and county law affected a regulatory taking by depriving them of all or practically all of the use of their property. The landowners lost at the state court level, and appealed to the U.S. Supreme Court.

In a 5-3 decision, the U.S. Supreme Court held that the landowners' property should be evaluated as a single parcel, not as two separate and distinct parcels. The Court arrived at this conclusion by employing a multifactor test. The Court held that several factors should be considered, including (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.

With respect to the first factor, the Court stated that a reasonable restriction (e.g., land use regulations, state and local law, etc.) predating a property owner's acquisition of land is an objective factor that the property owner should reasonably consider in forming fair expectations about the property. Concerning the second factor, the Court looked at "the physical relationship of ... distinguishable tracts, the parcel's topography, and the surrounding human and ecological environment." Finally, the third factor assesses "the value of the property under the challenged regulation, with special attention to the effect of [the] burdened land on the value of other holdings."

Applying these factors, the Court held that the landowners' lots should be evaluated as a single parcel. The Court considered the "merger provision" under state and local law and found that the property was subject to this law due to the landowners' (or their predecessors') voluntary act of bringing the property under common ownership. The Court considered the physical characteristics of the lots, specifically their rough terrain and narrow shape, and found that the facts supported treating the lots as a single parcel. Finally, the Court considered the prospective value that Lot E brings to Lot F. While state and local law prohibits the sale of the lots separately, the Court found there were benefits to using the lots jointly, such as increased privacy, recreational space, and the ability to locate improvements in their best location on the lots. Additionally, the Court found that the combined value of the lots ($698,300) exceeded their value as separate parcels (Lot E - $40,000; Lot F - $373,000).

After determining that "Lot E" and "Lot F" should be deemed a single property unit, the Court then determined whether a regulatory taking occurred. The Court found no regulatory taking because the landowners were able to make an economically viable use of the property as a residence and that the combined value of the lots decreased by less than 10 percent due to the challenged regulation (i.e, the "merger provision"). Additionally, the Court found that the merger provision was a reasonable land-use regulation, adopted as part of a combined federal, state and local effort, to protect and preserve the river and immediate properties.

While the outcome of this case is specific to its own facts and circumstances, when faced with a regulatory taking challenge involving multiple adjacent lots, local governments should make a reasonable effort to apply the multifactor test set forth in Murr to make the initial determination of what constitutes the property that is being regulated. This initial analysis will then assist local governments in determining the bigger question of whether the application of the regulation to the property constitutes a regulatory taking.

Aimee Lane is a partner, and Brendan Healy is an associate with Walter | Haverfield's Public Law Group.