The Effect of Palazzolo v. Rhode Island on Takings and Environmental Land Use Regulation
Cordes, Mark W.
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This article reviews the state of regulatory takings law after Palazzolo, with particular attention to controls on environmentally sensitive land. Part II briefly examines regulatory takings law prior to Palazzolo, first discussing development of the two-prong takings test currently used by the Court and then analyzing how the issue of notice of restrictions had been handled prior to Palazzolo. Part III then examines Palazzolo itself, focusing primarily on the central issue of notice. It demonstrates how the Palazzolo Court rejected a notice preclusion rule, predicated on two rationales: (1) regulations that are takings when enacted cannot become valid by the mere passage of time; and (2) rejection of a notice rule was necessary to protect a prior owner's right to transfer. These rationales suggest the rights of a purchaser of land taken with notice of a regulation are derived from constitutional claims of predecessors, and must be analyzed from that perspective. Parts IV and V examine the status of regulatory taking claims after Palazzolo. Part IV discusses the Lucas categorical taking standard in light of Palazzolo. Palazzolo affirms the more extreme nature of this type of taking, with the focus on remaining economic potential rather than on lost development opportunities. Thus, courts should find a taking only in very rare circumstances. This part also demonstrates that concerns voiced by some that rejection of a notice rule will permit landowners to "strategically manufacture" Lucas type claims, are unfounded. Finally, Part V explores the status of Penn Central takings after Palazzolo. After briefly discussing the Penn Central standard, the section examines three basic regulatory scenarios reflecting development potential at the time of investment and at the time of regulation: (1) where there is low development potential both when the property is acquired and regulated; (2) where there is low development potential when property is acquired, but the development potential of the land, along with its value, rises significantly prior to regulation; and (3) where someone purchases property at a price reflecting permitted development opportunities, which is then down-zoned resulting in substantial economic loss. This article argues that takings under Penn Central should never occur under the first scenario and only rarely under the second. Even the third scenario, which presents the strongest case for a taking under Penn Central, will usually not rise to the level of an unconstitutional taking. In such situations the Court has noted that landowners must anticipate newly enacted restrictions that will diminish land values, which necessarily form the reasonableness of any investment-backed expectations landowners have. For that reason, courts have typically required diminution in value of a property far exceeding fifty percent, and closer to ninety percent, before takings are found.