Government Must Pay If It Wants to Stop Us from Rebuilding

A few days before the mudslide, my neighbor Curtis Skene moved his 104-year old mother out of their home on East Valley Lane. Around 4 am on the day of the mudslide, he heard crashing sounds, looked out the bedroom window, and saw giant boulders fly by. He hopped out of bed and ran outside. He stood on a four-foot square island in his pajamas for four hours while the debris flow missed him by “that much.”

Curtis and his family have lived in Montecito for a long time. Old Paramount newsreels show his father, Robert, a world-famous polo player, riding a horse and swinging a mallet nearby, in 1939. But the Skene home was destroyed, and now some people suggest that Curtis shouldn’t be allowed to rebuild.

Santa Barbara County officials “red-tagged” 246 properties. Two months later, 210 of these are still unsafe to enter. The remains of destroyed homes stand on many lots, but demolition can’t begin until the Federal Emergency Management Agency (FEMA) does a geological risk survey to determine whether it is safe for homeowners to rebuild — a survey that will take months to complete.

County supervisor Das Williams has said that the County faces “very hard questions now that waterways have shifted [and] that some of the properties may be unsafe to rebuild on.” Williams and other officials have raised the idea of creating a memorial park on some of the parcels they may deem too dangerous to rebuild on.

This raises an important question – what if the County rezones a residential area as parkland or flood zone and prohibits residents from rebuilding on their own land?

The answer lies in the Fifth Amendment to the U.S. Constitution. You’ve heard of people “taking the Fifth” against self-incrimination. But the Fifth Amendment also includes protection for private property owners. It expressly requires the government to pay “just compensation” when it acquires private property for a public use. The government can take property either by physical occupation and invasion (for example, by causing a landslide that injures private property) or by enforcing a regulation that restricts or prohibits the productive use of private property.

The property owner who has experienced a regulatory taking has to sue the government to recover just compensation. The property owner’s claim is called inverse condemnation, which I discussed in the first article in this series (Volume 24, Issue 4), in the context of a physical (as opposed to regulatory) taking of private property. When the government sues to take private property, it’s called eminent domain or direct condemnation, but when the property owner sues the government, that’s called inverse condemnation.

The Supreme Court first recognized the doctrine of regulatory takings in 1922. In a brief opinion, the court invalidated a Pennsylvania statute that barred underground coal mining to protect the owners of property above ground from subsidence. The Court said that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.”

The Supreme Court took another look at the regulatory takings doctrine more than 55 years later in the Penn Central case, which involved New York City’s designation of Grand Central Station, owned by Penn Central, as a historical monument. The City rejected Penn Central’s plan to cantilever a 50-story office tower over the train station.

The court said that there is no set formula for determining when a regulation “goes too far.” However, the court did identify several factors that must be analyzed: (1) the economic impact of the regulation on the property owner; (2) the extent to which the regulation interferes with the property owner’s distinct, investment-backed expectations; and (3) the character of the governmental action.

Penn Central didn’t have much of a case. It continued to use the property as it had always been used (for a train station), and it was continuing to make a reasonable return on its investment. The Court told Penn Central to come back to court only if the economics got so bad that its use of the property was no longer economically viable.

Because the U.S. Supreme Court did not actually find a regulatory taking in the Penn Central case, it didn’t get to decide whether the government must pay compensation when a taking is accomplished by regulation rather than by physical invasion. The court finally decided the compensation question in the First English case, which was argued by my old boss, Michael M. Berger who, at age 75, remains the nation’s pre-eminent appellate lawyer on land use and condemnation issues.

In First English, Los Angeles County sought to keep land surrounding a natural drainage course free of structures so the channel could smoothly collect surface waters and convey them to a reservoir. The County declared the area surrounding the channel a flood hazard and barred owners of the land from building on it. The County refused to compensate the landowners.

The U.S. Supreme Court said that the County violated the property owners’ constitutional rights by refusing to pay compensation, stating: “We realize that even our present holding will undoubtedly lessen to some extent the freedom and flexibility of land-use planners and governing bodies of municipal corporations when enacting land-use regulations. But such consequences necessarily flow from any decision upholding a claim of constitutional right; many of the provisions of the Constitution are designed to limit the flexibility and freedom of governmental authorities, and the Just Compensation Clause of the Fifth Amendment is one of them.”

Government agencies routinely defend confiscatory regulations because they are designed to do some public good. They miss the point.

First English reaffirmed that the Fifth Amendment is not designed to limit government’s ability to interfere with property rights per se, but rather to secure compensation for property owners when the interference “goes too far” and amounts to a taking. The question is, when the government fulfills its obligation to protect the public interest, may the cost of obtaining that public benefit fall solely upon the affected property owner, or should it to be shared by the community at large? The answer is the latter.

Quick war story. Decades ago, the State of California told the Pacific Lumber Company in Scotia, California, that it couldn’t cut valuable old growth redwoods, because an endangered species of small seabirds, the marbled murrelet, lived in the canopy of those magnificent trees. We told Pacific Lumber to let the government have its way. Then we filed a complaint in the U.S. Court of Claims explaining the Fifth Amendment, and the government agreed to pay more than $400 million to turn the Headwaters Forest into a nature preserve of bird habitat. Everyone went home happy, including the environmental community, the marbled murrelets, and the owners of Pacific Lumber.

Back to Montecito. If the County rezones, let’s say, East Valley Lane as a park or a blue line stream, and the owners can’t rebuild their homes, they would lose all economically viable use of their land. Under First English, the residents should recover “just compensation” for the taking of their properties. The residents have strong investment-backed expectations in being able to live and develop on their properties. They’ll need new homes, and naturally they would build them on the land they still own.

Regulatory taking cases are fascinating but not easy. Retired U.S. Supreme Court justice John Paul Stevens had a point when he said, “Even the wisest of lawyers would have to acknowledge great uncertainty about the scope of this Court’s takings jurisprudence.” You will find many examples in the case law where the Court figuratively throws up its hands and confesses that no hard and fast rules exist. The Court has frequently noted that each case must be decided ad hoc, on its own facts.

Maybe the County “powers that be” won’t want Curtis Skene and his neighbors to rebuild their habitat, but I think that once they understand the financial cost to taxpayers, they’ll allow private property owners to make their own decisions.

This is the sixth in a series of articles about the law and the Montecito mudslides. You can read the first five articles on montecitojournal.net, volume 24, issues 4, 5, 6, 8, and 9, or email: blum@blumcollins.com.