PHILADELPHIA, MONDAY, JANUARY 24, 2005
THE OLDEST LAW JOURNAL IN THE UNITED STATES
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Lingle and Other Cases Put
Takings Tests in Spotlight
Supreme Court Watch:
BY MARTIN DOYLE
AND DAVID FELDER
Special to the Legal
T
he U.S. Supreme Court surprised
observers recently by granting certiorari in yet another “takings” case
for its current term. On Dec. 10, 2004, the
Supreme Court granted a writ of certiorari
to review San Remo Hotel, L.P. v. City and
County of San Francisco, a case concerning a governmental ordinance restricting
the use of a property as a hotel.
Previously, the court had agreed to hear
two other takings cases: Kelo vs. City of
New London, a case concerning the authority of a governmental entity to take nonblighted private properties by eminent
domain solely for economic development
activities, and Lingle v. Chevron USA, Inc.,
which is the subject of this article.
With San Remo on the docket, the court
is now slated to hear more takings cases
than any year since 1987, when it issued
Keystone Bituminous Coal Association v.
Debenedictis, First English Evangelical
Lutheran Church v. County of Los Angeles
and Nollan v. California Coastal
Commission. Lingle is surprising for
another reason, because it represents the
second 9th U.S. Circuit Court of Appeals
decision in recent months upholding a
property owner’s takings claims. The 9th
Circuit is normally considered highly
unsympathetic to such claims.
Lingle represents an appeal of the 9th
Circuit case of Chevron USA Inc. v.
Bronster, decided in April 2004. The
Chevron case initially arose following the
DOYLE
FELDER
MARTIN DOYLE and DAVID FELDER are
members of Saul Ewing’s real estate department in
the firm’s Philadelphia office. Both have worked on
a number of major real estate transactions and have
been involved in all aspects of real estate development, sales, finance and leasing. Doyle received a
law degree, cum laude, from the University of
Pennsylvania Law School. Felder received his J.D.
degree, cum laude, from Harvard Law School.
1997 enactment in Hawaii of Act 257, a
law ostensibly designed to reduce the high
cost of gasoline to
retail
consumers.
Among other things,
Act 257 imposed a
limit on the maximum
rent that an oil company could charge its
dealers who lease their
service stations from
the company. Under
the act, an oil company could not charge
lessee-dealers rent in
excess of the sum of 15 percent of the dealer’s profit on gasoline sales, 15 percent of
the dealer’s gross sales revenue from other
products, and a factor based upon increas-
es in ground rents the oil company may be
required to pay.
At the time of the case, Chevron leased
64 service stations to independent dealers.
Chevron had historically charged its dealers rent based upon estimated gasoline
sales, but in 1997 instituted a nationwide
rental program that restructured the rent
calculation method. Under the new program, rents would have exceeded those
allowed under Act 257 and were therefore
capped.
Consequently, the act had the impact of
reducing these dealers’ rents, though not
Chevron’s ground rents where applicable.
Moreover, the act did not implicate either
the ability of the dealer to sell its (rent-controlled) leasehold for a premium, or the
ability of Chevron to exact a “transfer fee”
in connection with the granting of its consent to any such transfer. Chevron filed a
claim in the U.S. District Court for the
District of Hawaii,
asserting that Act
257 effected an
unconstitutional
regulatory taking
without compensation.
The
Takings
Clause of the Fifth
Amendment of the
U.S. Constitution
holds that private
property may not
“be taken for public use, without just compensation.” Over time, the Supreme Court
has come to distinguish “physical” takings
from “regulatory takings,” the latter being
Chevron asserted that Act
257 effected an
unconstitutional
regulatory taking without
compensation.
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cases where, though no property is actually
taken, governmental regulation alone is
alleged to go “so far” as to itself constitute
a taking requiring compensation to effected
parties.
The district court cited several Supreme
Court cases for the proposition that a land
use regulation will be found to be a taking
if it does not “substantially advance a legitimate state interest.” The court then held
that the relevant state goals of protecting
independent dealers and reducing gasoline
prices were not substantially advanced,
since dealers selling their businesses could
capture (and thus impose upon their successors) the value of the rent cap premium, and
oil companies could offset rent losses with
increased wholesale gasoline prices. The
court found the act’s impact to be similar to
rent control provisions previously struck by
the 9th Circuit in Richardson v. City and
County of Honolulu. The court consequently granted Chevron summary judgment,
holding that the act, failing to substantially
advance legitimate state interests, was
unconstitutional, violating the Fifth
Amendment on its face.
The state of Hawaii appealed the decision, and the 9th Circuit, in its first hearing
of the case, vacated, finding that genuine
issues of material fact existed concerning
whether or not Act 257 failed to substantially advance its purpose of lowering retail
gasoline prices. On remand, the district
court again held that Act 257 was unconstitutional, issuing findings of fact and conclusions of law.
The court made a fact finding that Act
257 would actually have the result of
increasing retail gasoline prices, rather than
causing them to decrease, concluding that
oil companies will increase wholesale
prices to offset lost rents, thereby increasing
retail gas prices; that Act 257 will enable
dealers to sell their stations as a premium,
increasing required investment to enter the
market; and that Act 257 will discourage oil
companies from investing in new stations,
thereby decreasing the number of dealerlessees (and reducing competition).
Following the district court’s second
decision, the state of Hawaii again
appealed, this time arguing that the district
court should have analyzed Chevron’s
claim under the Due Process Clause, rather
than the Takings Clause; that the court misapplied the requirement that the act substantially advance a legitimate state interest; and that it erred in finding that the act
does not actually substantially advance a
legitimate state interest. In its April 15,
2004, opinion, the 9th Circuit rejected these
arguments.
First, the court noted that the “law of the
case doctrine” requires that the decision of
an appellate court on an issue must be followed in all subsequent proceedings in the
same case. Having determined in the first
rehearing that the “substantially advances
test” applied to this case, the court refused
to reconsider whether the more deferential
due process test should be applied.
In so doing, the 9th Circuit opined that
the “substantially advances” test for regulatory takings has survived the disparate
Supreme Court opinions of Eastern
Enterprises v. Apfel, reasoning that the
questions posed in that case were narrow
and different than those posed in Chevron
and many other regulatory takings cases.
The court further noted that Supreme Court
opinions subsequent to Eastern Enterprises,
specifically Tahoe Sierra Preservation
Council, Inc. v Tahoe Regional Planning
Agency and City of Monterey v. Del Monte
Dunes supported the vitality of the substantially advances test in takings cases.
The court also rejected Hawaii’s argument
that the applicable analysis was not “will the
act accomplish its stated purpose?” but
rather “could Hawaii rationally have
believed that the act could have substantially
advanced a legitimate government purpose?”
The court, citing Nollan and other cases,
noted that while due process claims can be
analyzed under this “reasonable relationship” framework, the Supreme Court has
specifically rejected this standard in regulatory takings cases.
Takings cases which are properly analyzed
under more deferential standards normally
involve physical takings and are situations in
which the government is presumed to be willing to pay compensation for the property it
takes. Finally, the Chevron court rejected the
state’s argument that the district court’s findings of fact were in error.
Chevron affirms the perceived vitality of
the “substantial advancement test,” which
stands in contrast to the analysis for such
cases set out in 1997 Supreme Court case of
Penn Central Transportation Co. v. City of
New York.
Penn Central laid down a much more qualitative balancing test, holding that a whether a
regulation imposed on land constitutes a taking is dependent upon a variety of factors —
generally, including the character of the governmental action, the actual economic impact
on a property owner and the extent to which
the regulation interferes with “investmentbacked expectations.”
This less stringent test is viewed as helpful
to the government in takings cases. In cases
like Chevron, however, opponents of governmental regulations are provided with another
(and in the right cases, more powerful) arrow
in their quiver. A plaintiff may therefore
choose its attack, and should consider its
claim in light of each test to determine the
most compelling case. In any event, it has
been noted that, in light of cases such as
Chevron, parties drafting regulations must
now be more careful to ensure that those regulations, if open to a takings claim, not only
assert a public interest, but can also satisfy the
test of substantially advancing legitimate state
interests.
The three cases which the Supreme
Court has agreed to hear in its current term
— Lingle, San Remo and Kelo, may do a
great deal to clarify the court’s developing
views concerning the proper approach to
disposition of regulatory takings cases. The
stakes are large and these cases should be
watched with interest, as their impact may
be felt in many a wide range of areas.
Lingle and Kelo are currently scheduled to
be heard Feb. 22. San Remo will be heard
in March. •
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