Billy Joel, The Stranger (1977)
Office Hours This Week:
– FRI 11:45am-1:45pm
– SUN 1:00-5:00 pm
Class Today
– Review Problem 3B
– Penn Central Intro Continued
– Demsetz Takings Story
– Arbitrariness Analysis
– 1978
– Penn Central Takings Analysis
– Course Evaluations
FINAL EXAM QUESTION 3
Review Problem 3B (Oxygen)
FROM EXAM QUESTION IIIE (2000)
Should a state have to pay compensation to
landowners whose property value is reduced
significantly when the state bans production of a
product or growing of a crop to prevent harmful or
illegal uses of the product/crop where
• the product/crop in question has both legal and
illegal uses; and
• the landowners’ methods of producing/growing of
the product/crop in question cause no direct
harms to the landowners’ neighbors?
DQ3.31: Penn Central &
Demsetz Takings Story
• Reminder: This Analysis Provides Another Way
to Think About Q of When Regulation Interferes
Too Much w Property Rights
– Who Should Bear Burden for Changing Technology
and/or Values?
– Though Not a Tough Question if “Change” is:
“We’ve just discovered you’ve been poisoning us
for years.”
Penn Central: Demsetz Takings Story
• Decision: Whether to alter historically significant
building
• Old Rule: Os can do as they like.
• Externalities: Harm to nearby tourist businesses and
tourism generally; harm to “history buffs” & civic pride
• Change in Circumstances: As time passes, historic
buildings become more well-known/more popular/rarer
• Increased Externalities: Increase in [Perception of]
Harms b/c more popularity; more reliance; loss of
some historic buildings (Old Penn Station in 1963)
Jacqueline Kennedy Onassis:
"Is it not cruel to let our city die by degrees,
stripped of all her proud monuments,
until there will be nothing left of all her
history and beauty to inspire our
children? If they are not inspired by the
past of our city, where will they find the
strength to fight for her future? …
Jacqueline Kennedy Onassis:
"Americans care about their past, but for
short term gain they ignore it and tear
down everything that matters. Maybe…
this is the time to take a stand, to reverse
the tide, so that we won't all end up in a
uniform world of steel and glass boxes."
Penn Central: Demsetz Takings Story
• Decision: Whether to alter historically significant building
• Change in Circumstances: As time passes, historic buildings
become more well-known/more popular/rarer
• Increased Externalities: Increase in [Perception of] Harms b/c
more popularity; more reliance; fewer historic bldgs
• Change in Rule: Passage of Historic
Preservation Laws
• Response: Os of historic buildings might claim
“Taking” b/c of interference w Property Rights:
(Penn Central is first challenge)
Penn Central: Demsetz Takings Story
Policy Questions
• For State Legislature (not you): Is Historic
Preservation a Good Way to Address Growing
Externalities?
• For Federal Takings Analysis (you): Society decided
relatively recently that historic preservation is
important.
– Fair to Os of historic bldgs to bear financial burden? OR
– Should govt pay them to preserve landmarks?
Questions on Demsetz & Penn Central?
Penn Central: Arbitrary?
DQ3.37 (Krypton)
Penn Central claimed designation of
historical buildings arbitrarily singled
out some property owners.
Why Did Majority Disagree?
Penn Central: Arbitrary?
DQ3.37 (Krypton)
Majority: Not Arbitrary (pp.140-42)
• Comprehensive Plan Here
– No Singling Out: Rule applies to “vast numbers of
structures” in NYC
– Arbitrariness limited by judicial review of designation
or decision
Penn Central: Arbitrary?
DQ3.37 (Krypton)
Majority: Not Arbitrary (pp.140-42)
• Comprehensive Plan Here
• Hard to say gov’t action is “arbitrary” when PC
didn’t exhaust other remedies:
– Didn’t appeal designation as landmark
– Didn’t appeal decision by Board to reject plans
– Only tried 2 options for additional stories
Penn Central: Arbitrary?
DQ3.37 (Krypton)
Majority: Not Arbitrary (pp.140-42)
• Comprehensive Plan Here
• Hard to say arbitrary gov’t action when PC didn’t
exhaust other remedies:
• NOTE: US SCt not happy to be asked to decide
constitutional Q that might be unnecessary, but
Majority doesn’t reject claim for this.
Penn Central: Arbitrary?
DQ3.37 (Krypton)
Majority: Not Arbitrary (pp.140-42)
• Comprehensive Plan Here
• PC didn’t exhaust remedies
• Not “arbitrary” just b/c falls more heavily on
some landowners: regulatory burdens don’t have
to be evenly distributed (citing Miller;
Hadacheck; Euclid)
Penn Central: Arbitrary?
DQ3.37 (Krypton)
Majority: Not Arbitrary
•
•
•
•
Same result on this claim as Hadacheck & Miller
Reminder: Arbitrariness won’t be an issue for you.
Leaves us with real Takings Question
First Some Historical Context
The Blizzard of ‘78
1978: Births & Deaths
BORN:
Louise Brown: 1st test tube baby
Clay Aiken * Kobe Bryant
Nelly Furtado * Josh Hartnett
Ashton Kutcher * Dirk Nowitzki
Chase Utley * Reggie Wayne
DIED
Hubert Humphrey
Margaret Mead
Golda Meir
Keith Moon
Norman Rockwell
1978: Entertainment (Bonus Slide)
• John Travolta
– Saturday Night Fever (Grammy for album)
– Grease (movie)
• Vietnam movies (5 yrs after fall of Saigon)
– Deer Hunter (best picture)
– Coming Home (best actor & actress)
• Premieres: Dallas; Evita; Garfield
1978: Songs (Bonus Slide)
•
•
•
•
•
Just the Way You Are (Billy Joel)
Copacabana (Barry Manilow)
Three Times a Lady (Commodores)
Sailing (Christopher Cross)
Paradise by the Dashboard Light (Meat Loaf)
1978: International
• Camp David Accords: Peace treaty between
Israel & Egypt
• Unrest in Iran & Nicaragua anticipates
revolutions of ’79
• US agrees to formally recognize People’s
Republic of China
• Panama Canal Treaties ratified by Senate; will
end US control of Canal as of end of ’99
1978: California
•
•
•
•
I arrive at Stanford mid-September
Calif. Propositions 13 & 6 (11/7)
Jonestown Mass Suicide (11/18)
Killing of Harvey Milk/George Moscone by Dan
White (11/27)
1978: Other Memorable
•
•
•
•
1st US casinos outside Nevada open in Atlantic City
Affirmed wins Triple Crown (not happened since)
Red Sox & Yankees: Bucky Dent
Pope Paul VI  Pope John Paul I  (53 Days) 
Pope John Paul II
1978: U.S. Supreme Court
• Regents of the Univ. of California v. Bakke
(affirmative action)
• Tennessee Valley Authority v. Hill (snail darter)
• Penn Central Transportation Co. v. City of New
York (Grand Central Station)
Penn Central: Takings Analysis
Structure of Penn Central Takings Analysis
1.
2.
3.
4.
5.
Overview
Relatively Clear Instances of Takings
Arguments from Purpose
Arguments re Harm to Property Owner
Means/End Testing
Penn Central: Takings Analysis
Big Qs Left Open by Penn Central
A. Noxious Use
B. Meaning of Distinct Invest-Backed
Expectations (DIBE)
C. Denominator Q
D. DIBE & Hadacheck
E. Heightened Scrutiny for Takings?
Penn Central: Takings Analysis
KEYS TO COLOR OF TEXT
Greens = Arguments of Claimant PC
Blues = Points Made by Majority
Reds = Points Made by Dissent
Purple = Points Made by Prior Authorities
Black = Commentary from Me
Yellow/Gold: Open Qs After Penn Central
Penn Central: Takings Analysis
Structure of Penn Central Takings Analysis
1. Overview
2.
3.
4.
5.
Relatively Clear Instances of Takings
Arguments from Purpose
Arguments re Harm to Property Owner
Means/End Testing
Penn Central Takings Analysis:
Overview
• Majority Makes Clear: No Easy Answers
–
–
–
–
no “set formula”
“depends on particular circumstances”
essentially ad hoc factual inquiries
several relevant factors
Penn Central Takings Analysis:
Overview
• Majority Makes Clear: No Easy Answers
• Not every case where gov’t action adversely
affects property value (PV) is a Taking (p.137-38)
a. Taxing Power
b. Economic harm insufficiently tied to claimant’s
reasonable expectations to be called “property” (e.g.,
from closing military bases)
c. Police Power cases like Miller & Hadacheck (more
on later)
Penn Central: Takings Analysis
Structure of Penn Central Takings Analysis
1. Overview
2. Relatively Clear Instances of Takings
3. Arguments from Purpose
4. Arguments re Harm to Property Owner
5. Means/End Testing
Penn Central Takings Analysis:
Relatively Clear Instances of Takings
• More likely a Taking if there is a physical
invasion of property by or because of gov’t
(p.137)
– Note: Based on type of interference rather than
purpose or extent
– Arguably Michelman reasons: Likely high
demoralization costs for physical invasions
Penn Central Takings Analysis:
Relatively Clear Instances of Takings
• More likely Taking if physical invasion
• Gov’t actions that may be characterized as
acquisitions of resources to permit or facilitate
uniquely public functions (Sax Enterprisers)
(p.138)
Penn Central Takings Analysis:
Relatively Clear Instances of Takings
• More likely Taking if physical invasion
• Gov’t actions that may be characterized as acquisitions
of resources to permit or facilitate uniquely public
functions. (Sax Enterprisers)
• US v. Causby (DQ3.38) arguably both:
– Very low airline overflights invaded airspace
– Use by military completely destroys value of farm
Penn Central Takings Analysis:
Relatively Clear Instances of Takings
• US v. Causby (DQ3.38): Taking where …
– Very low airline overflights invaded airspace
– Use by military completely destroys value of farm
• Maj: Causby distinguishable from PC (pp.141-42)
– No physical invasion of airspace by NYC
– No appropriation of property by NYC for gov’t use or
exploitation for gov’t purposes
– Harm to PC not arising from gov’t entrepreneurial
operations
Penn Central Takings Analysis:
Relatively Clear Instances of Takings
• DQ3.38: Majority treatment of Causby suggests
endorsement of Sax with narrow view of
“Enterpriser”
– Majority Characterizes PC: No appropriation of
property [by NYC] for gov’t use or exploitation for
gov’t purposes.
– Arguable if “Enterpriser” read broadly (see
application of Sax to PC in earlier slides)
Penn Central: Takings Analysis
Structure of Penn Central Takings Analysis
1. Overview
2. Relatively Clear Instances of Takings
3. Arguments from Purpose
4. Arguments re Harm to Property Owner
5. Means/End Testing
Penn Central Takings Analysis:
Arguments from Purpose
Purpose: Where Were We Before Penn Central?
• Hadacheck & Mahon: Can regulate to stop public
nuisance.
• Miller: To save one type of property, can limit or destroy
another type
• Sax & Epstein both think purpose is important
• Indirectly enters into Michelman b/c affects people’s
perception of situation and thus may be relevant to both
Demoralization Costs & Fairness Principle
Penn Central Takings Analysis:
Arguments from Purpose
Majority’s Discussion of Zoning (p.137-38)
• US SCt had previously “upheld land-use regulations that
destroyed or adversely affected recognized real property
interests” where
– State gov’t “reasonably concluded”
– that forbidding particular land use
– would promote HSWM
• Reaffirms Hadacheck & Miller; gives many examples of
permissible regulations
Penn Central Takings Analysis:
Arguments from Purpose
PC Tried to Distinguish Hadacheck/Miller, etc.
• Argued laws upheld in these cases all designed to stop
“noxious uses” (essentially public nuisances) (see fn 30)
• This is plausible reading of earlier cases :
– Stopping public nuisance/noxious use = no Taking
– Different rules for other kinds of gov’t actions.
– E.g., BDS in Mahon dissent re public harm v. public benefit
Penn Central Takings Analysis:
Arguments from Purpose
Dissent Agrees with PC: Providing Benefit
Different From Stopping Harm
• “[T]he gov’t can prevent a property owner from using his
property to injure others without having to compensate
the O for the value of the forbidden use.” (p.145)
• Describes Hadacheck & Miller as noxious use cases
(fn8 p.145)
• NOTE: Even the most Conservative Justices in 1978
don’t question results in Hadacheck & Miller
Penn Central Takings Analysis:
Arguments from Purpose
Dissent Apparently Would Adopt Position Later
Articulated By Epstein (Taking unless Public
Nuisance or Reciprocity)
• Dissent Sees Neither Here
• DQ3.40: As I argued earlier, could see some reciprocity
in tourist $$$ flowing to PC; neither opinion recognizes
(although Judge in NY Ct. App. had noted)
• Important: Majority Implicitly Rejects Epstein Position
by Disagreeing w Dissent
Penn Central Takings Analysis:
Arguments from Purpose
[DQ3.39] (n.30): Majority seems to reject distinction
between preventing harm & providing benefit.
• In Hadacheck & Miller, uses lawful at time of regulation
[relevance: Os not bad actors meriting punishment?]
• Cases don’t turn on “noxious use” but that restrictions
were “reasonably related” to implementing a policy
“expected to produce a widespread public benefit”
• Plus destruction of historic landmark is public harm.
Penn Central Takings Analysis:
Arguments from Purpose
DQ3.39: Does Footnote 30 alter earlier cases?
• If “noxious use” category gone, would seem to mean
that readings of Hadacheck & Miller that rest on public
nuisance idea are incorrect.
• I’m skeptical that category is completely gone. You’d
think preventing greater harms ought to give state more
leeway to regulate land use.
Penn Central: Takings Analysis
Big Qs Left Open by Penn Central
A. Noxious Use
B. Meaning of Distinct Invest-Backed
Expectations (DIBE)
C. DIBE & Hadacheck
D. Denominator Q
E. Heightened Scrutiny for Takings?
Penn Central: Takings Analysis
Big Qs Left Open by Penn Central
Noxious Use
Should we read Footnote 30 literally to mean that harm/
benefit distinction is irrelevant to Takings analysis and
there’s no special treatment for “noxious uses”?
—OR—
Can we still argue that gov’t gets more leeway to limit
property rights when stopping harm to others or when
purpose is otherwise very important?
Penn Central: Takings Analysis
Structure of Penn Central Takings Analysis
1. Overview
2. Relatively Clear Instances of Takings
3. Arguments from Purpose
4. Arguments re Harm to Property O
a.
Distinct Investment-Backed Expectations
b.
Denominator Q
5. Means/End Testing
Penn Central Takings Analysis:
Arguments re Harm to Property Owner
• Majority rejected claimant’s argument that any
significant loss in value is a Taking. (Last Class)
• However, says (p.137) that a significant factor in Takings
analysis is the “extent to which the regulation has
interfered with distinct investment-backed expectations”
(DIBE)
• Opinion is not explicit about what DIBE means or its
relationship to the facts or to prior cases
Penn Central Takings Analysis:
Arguments re Harm to Property Owner
[DQ3.34] Not significant interference with DIBE in
Penn Central (pp.142-43)
• No interference w primary expectations re parcel.
– Can still use in way intended (RR Stn)
– Can still make reasonable rate of return (RRR) on investment
• Claimant exaggerates impact on “air rights”
– No indication that can't build anything above.
– Can transfer air rights in any event (suggests can consider
TDRs in doing valuation)
Penn Central Takings Analysis:
Arguments re Harm to Property Owner
[DQ3.34]: DIBE: My Read from Majority
• Expectations =
– Refers to owner’s expectations at time of purchase (or relevant
subsequent investment)
– Expectations presumably must be plausible/lawful at time =
implicit requirement of reasonableness
Penn Central Takings Analysis:
Arguments re Harm to Property Owner
[DQ3.34]: DIBE: My Read from Majority
• Distinct: expectations re property right affected
must be
– Specific: Not vague like “someday I might develop
more” or “I want as much profit as I can get”
– Separate from Whole (where relevant): Look for
evidence showing O considered right in Q separately
at time purchased
Penn Central Takings Analysis:
Arguments re Harm to Property Owner
[DQ3.34]: DIBE: My Read from Majority
• Investment-Backed?
– Evidence that distinct property right specifically paid
for (e.g., separate price or negotiation)
– Rewards good lawyering in drafting transaction
documents (e.g., separately pricing “air rights”
“mineral rights” “support rights” etc.)
Penn Central Takings Analysis:
Arguments re Harm to Property Owner
[DQ3.34]: My Read of DIBE
•
•
•
•
Expectations = O’s at time of investment (reasonable)
Distinct: Specific v. Vague; Separate from Whole
Investment-Backed? Specifically paid for
Penn Central
– Air Rights not focus of deal: not distinct or investment-backed
– DIBE in RR Station: No significant interference b/c RRR
Penn Central Takings Analysis:
Arguments re Harm to Property Owner
[DQ3.34]: My Read of DIBE
•
•
•
•
Expectations = O’s at time of investment (reasonable)
Distinct: Specific v. Vague; Separate from Whole
Investment-Backed? Specifically paid for
Exam Note:
– Owner generally had some DIBE at purchase (intended uses)
– Check if right affected is specific part of DIBE
– Check if interference w DIBE is significant (e.g., no RRR)