Protecting Landowners against Targeted Downzoning

This case involves the downzoning of a parcel slated for development as a retail shopping center by plaintiff Kittery Retail Ventures, LLC, (“KRV”). In 1999, KRV started work to develop a retail shopping mall as permitted by the Kittery zoning law then in effect. That zoning ordinance permitted up to 30% of a parcel to be developed for retail purposes. Because many town citizens opposed additional retail development, the Town passed a referendum on June 13, 2000 amending the zoning bylaw to restrict development to 15% of a parcel. When anti-development forces determined that the KRV project and others were grandfathered and would continue despite the zoning change, the citizens passed a referendum making the June 13, 2000 amendment retroactive to September, 1999. Campaign literature indicated that the intent of the retroactivity referendum was to prohibit otherwise grandfathered development. After the retroactivity referendum passed, the Town rejected KRV’s application to develop the property.  KRV then appealed to Superior Court, which granted summary judgment for the Town.  KRV then appealed to the Maine Supreme Judicial Court (“SJC”).  

In an amicus brief filed in support of KRV, NELF argued that retroactive zoning specifically intended to prohibit a particular development violates the Maine and United States Constitutions’ due process and equal protection provisions. Moreover, Maine recognizes the doctrine of equitable vested rights, which applies where the municipality has exhibited bad faith by amending a zoning provision during a real estate developer’s application process but before legal vested rights could accrue under a valid building permit.
  
On May 11, 2004, the SJC affirmed the decision below, ignoring NELF’s argument that the inhabitants of the town violated KRV’s due process rights by referendum and justifying the town’s conduct based on the good faith of the town selectmen and boards.  On May 24, 2004, KRV requested reconsideration and NELF submitted an amicus letter in support of reconsideration.  The SJC denied reconsideration August 12, 2004.  Thereafter, KRV petitioned the United States Supreme Court for certiorari on January 10, 2005, and NELF filed an amicus brief in support.  On March 7, 2005, the Supreme Court denied certiorari.

Defending a Business’s Investment in a Heavily Regulated Industry

This case involved a ship owner, American Pelagic Fishing Co. (“American Pelagic”), who made a substantial investment in a large fishing ship based on a regulatory scheme that encouraged mackerel and herring fishing and obtained the required federal permits Rival fishing interests succeeded in having the regulations changed, thereby destroying the American Pelagic’s investment. American Pelagic sued the United States in the Court of Federal Claims for a regulatory taking.  It prevailed in that forum, in part because of the targeted nature of the legislation that retroactively revoked its permits.  The United States appealed this decision to the United States Court of Appeals for the Federal Circuit, and the Federal Circuit reversed primarily on the basis that because, prior to American Pelagic’s investment, the federal government already had complete sovereignty over the maritime zone at issue in the case (the “Exclusive Economic Zone”), American Pelagic had no cognizable property interest and, accordingly, is entitled to no relief.  Potentially, this decision could be read to indicate that investors in any heavily regulated industry have no protectible property interest in their investments.  

On October 7, 2004, NELF filed an amicus brief in support of American Pelagic’s request for a rehearing of this matter en banc.  NELF argued, first, that the Federal Circuit’s decision represents poor public policy, as it would discourage investment in highly regulated industries. Second, NELF argued that the panel’s decision in this case was directly contrary to the recent Federal Circuit decision in Cinega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. 2003), which held, inter alia, that “the fact that [an] industry is regulated [is not] dispositive,” and that, the mere fact of heavy regulation, “does not mean that all regulatory changes are reasonably foreseeable or that regulated businesses can have no reasonable investment-backed expectations whatsoever.” The Federal Circuit denied reconsideration en banc. American Pelagic petitioned for certiorari and NELF submitted a supportive amicus brief that focused on the Federal Circuit’s misunderstanding of the limited nature of the federal government’s sovereign rights in the Exclusive Economic Zone.  On June 27, 2005, the Supreme Court denied certiorari.

Protection of Personal Property Destroyed by Administrative Orders

Rose Acre Farms is large, family-owned egg producer headquartered in Indiana. It operates eight egg farms. In 1990 and early 1991, the United States Department of Agriculture (USDA) detected signs of salmonella on three of Rose Acre Farms’ farms. The three affected farms in total had approximately 307,000 chickens in 69 “layer houses.” USDA imposed restrictions on the affected layer houses for approximately 25 months requiring the diversion of nearly 700 million healthy eggs to a lower priced alternative market, resulting in losses exceeding $9.2 million. Rose Acre contended that available screening methods could have readily distinguished healthy from salmonella-infected eggs, but the USDA chose the over inclusive method of restricting all eggs from affected layer houses. Rose Acre brought a claim for a partial regulatory taking in the Court of Federal Claims for the lost value of the healthy eggs and the court found in favor of Rose Acre Farms. Rose Acre Farms, Inc. v. United States, 55 Fed. Cl. 643 (2003). The Court of Appeals for the Federal Circuit reversed and remanded for reconsideration of several elements of the Penn Central partial regulatory takings test. Rose Acre Farms, 373 F.3d 1177  (Fed. Cir. 2004). 

A principal issue for the Federal Circuit was the definition of the affected property to be considered when conducting a Penn Central partial regulatory taking. The extent of the affected property is significant for the test because percentage diminution in value of the affected property caused by the regulation is a major aspect of the Penn Central test. The terminology from Penn Central indicates that the analysis is to be performed on the “parcel as a whole,” a phrase that gives little guidance in the area of personal property. Even in regard to real property, different courts have interpreted the phrase in different ways. The Court of Federal Claims considered the affected layer houses as the “parcel as a whole” and awarded recovery, while the Federal Circuit considered the affected farms as the “parcel of the whole” and indicated that there was little likelihood of recovery. Rose Acre petitioned the United States Supreme Court for certiorari. No. 04-1149 (U.S.).  

NELF, together with Defenders of Property Rights, the United Egg Producers, and the Iowa Poultry Association submitted an amicus brief supporting the petition.  NELF argued that the doctrinal confusion around the meaning of “parcel as a whole,” especially in regard to personal property, warrants granting certiorari to set standards for determining the extent of affected property under the Penn Central test.  On June 6, 2005, the Supreme Court denied certiorari.

 

Fighting Regulatory Takings

Rhode Island’s Coastal Resources Management Council (CRMC) determined that Anthony Palazzolo could not fill fifteen wetland acres on his property and could only build a single home on a small upland portion of the lot. Because Palazzolo acquired title in his own name following the dissolution of his solely owned corporation after CRMC’s enabling legislation was enacted, the Rhode Island Supreme Court held that his investment-backed expectations were not reasonable. The Court relied on the “post-enactment purchaser” theory — that a purchaser on notice of a regulation cannot contest its validity. The United States Supreme Court granted certiorari. 

At the United States Supreme Court, NELF filed a brief on behalf of similarly situated Rhode Island property owners, arguing that the “post-enactment purchaser” theory is contrary to sound public policy. The Supreme Court reversed and remanded, holding that acquisition of property with knowledge of existing regulations cannot bar challenges to such regulations. The Court also determined that the presence of one buildable lot on the 74-lot parcel was sufficient to deny treatment as a categorical (total) taking. The Court remanded for consideration as a partial regulatory taking under the test established in Penn Central Transportation Co. v. City of New York. On remand, NELF has undertaken direct representation of the plaintiff in the Rhode Island courts.  After briefing by the parties, the Rhode Island Supreme Court further remanded the case to the Rhode Island Superior Court for consideration of the Penn Central test and the other outstanding issues, including the state’s public trust defense and Palazzolo’s revival of the “total taking” theory in light of the State’s denial of a septic permit for the one “buildable” lot.  

Because NELF pressed the issue, the State ultimately granted Palazzolo all necessary permits for the single buildable lot, which he is now marketing.  Trial commenced in April, 2004 and concluded in June, 2004. Post-trial briefing was completed on September 15, 2004.  On July 5, 2005, the Superior Court issued a decision unfavorable to Palazzolo, who has decided not to file an appeal.

Protecting a Litigant’s Right to Federal Court Review of its Federal Rights Claims

The issue before the Supreme Court in this case was whether federal courts should create an exception to the full faith and credit statute, 28 U.S.C. § 1738, for regulatory taking claims brought under the Fifth Amendment.   This question arose because of the holding in Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), that a Fifth Amendment regulatory takings claim is not ripe for federal adjudication until the plaintiff has first sought unsuccessfully to obtain adequate compensation for the taking through all available state procedures, including state court litigation.  The San Remo hotel in San Francisco brought a takings claim in federal court contesting a city ordinance that required a $567,000 fee in 1996 to convert from a residential to a tourist hotel.  Under Williamson County, the federal case was stayed, while the matter was litigated under state law in the California courts.  The California courts, however, did not simply adjudicate San Remo’s claims under California law; they also decided that there was no viable federal constitutional claim.  Returning to the federal court, San Remo found its case dismissed under the full faith and credit statute because the matter had been fully adjudicated by the California courts.  In the Supreme Court, San Remo argued that, unless full faith and credit is interpreted to allow re-litigation of federal issues in regulatory takings cases, the result of Williamson County will be that plaintiffs in such matters will be forced to litigate their claims in state courts without any realistic possibility of review of a decision on their federal constitutional claims in a federal forum (unless certiorari were to be granted by the Supreme Court to review directly the state court’s decision).  

In an amicus brief jointly filed with the Defenders of Property Rights, NELF argued that San Remo provided the Court with an opportunity to reconsider the complex and expensive ripening process mandated under Williamson County.  NELF argued that the Fifth Amendment should not require prior, duplicative state court litigation and that the more appropriate ripeness requirement for regulatory takings would permit a federal case to be brought once a state or local government renders a final decision restricting the full use of private property, without contemporaneously providing compensation.  

The Supreme Court was not persuaded by San Remo’s arguments and on June 20, 2005 issued a decision  unanimously affirming the lower court’s dismissal of the takings claim under the full faith and credit statute.  However, in a separate concurrence joined by Justices O’Connor, Kennedy, and Thomas, Chief Justice Rehnquist suggested that Williamson County may not have been correctly decided, referring specifically to NELF’s brief in a footnote.   Noting that the courts below had not addressed this issue and that neither party had asked the Court to reconsider Williamson, Justice Rehnquist stated his view that, in an appropriate case, the Court should reconsider Williamson.

Opposing Duplicative State Regulation of a National Bank Subsidiary

At issue in this case was the claim by Connecticut’s Banking Commissioner that the Connecticut-based Wachovia Mortgage Corp. (“Wachovia Mortgage”) is subject to state regulation even though it is a wholly-owned subsidiary of Wachovia Bank (“Wachovia”), which is a national bank.  Connecticut’s position is directly contrary to 12 C.F.R. § 7.4006, a federal regulation promulgated by the Office of the Comptroller of the Currency, which provides that “[u]nless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.”  Since state laws do not apply to national banks, under this regulation they also do not apply to a national bank’s wholly owned subsidiary.  

In this case, Wachovia Mortgage was initially a partially-owned subsidiary of Wachovia and, as such, it complied with Connecticut’s state licensing, inspection and reporting procedures.  When Wachovia Mortgage became a wholly-owned subsidiary on January 1, 2003, it notified the Connecticut Banking Commission and claimed exemption from state regulation under § 7.4006 and the Supremacy Clause.  The Commissioner responded by threatening to issue a cease and desist order, prohibiting Wachovia Mortgage from doing business in Connecticut unless it renewed its state license.  Wachovia and Wachovia Mortgage then initiated a declaratory judgment in the federal district court in Connecticut, obtaining a judgment that Wachovia Mortgage is exempt from state regulatory oversight. Wachovia Bank, N.A. v. Burke, 319 F. Supp. 2d 275 (D. Conn. 2004).  The Connecticut Banking Commissioner appealed to the U.S. Court of Appeals for the Second Circuit.  

Consistent with NELF’s longstanding support for rational administrative procedures that provide adequate oversight without burdening business with conflicting mandates, NELF filed an amicus curiae brief on November 8, 2004, in the Court of Appeals for the Second Circuit appeal in support of Wachovia.  In its brief, NELF concentrated its argument on the reasonableness prong of the federal preemption analysis of Chevron, USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), in order to counteract the Banking Commissioner’s public policy argument that state regulation of national banks’ mortgage subsidiaries is required to prevent abuses like “predatory lending.”  NELF argued that (1) duplicative state and federal regulation is economically inefficient and (2) constitutional history demonstrates the importance of the Supremacy Clause and federal preemption as part of the system of checks and balances in the United States federal system.  

n its decision issued on July 11, 2005, the Court of Appeals affirmed the district court, agreeing with Wachovia and NELF “that federal law preempts state regulation of a national bank operating subsidiary to the same extent that it preempts regulation of the parent national bank.”

Trying to Put Teeth Back Into the “Public Use” Requirement of the Fifth Amendment’s Eminent Domain Power 

The question before the Supreme Court in Kelo v. City of New London was whether New London acted constitutionally when it permitted a private development corporation to use eminent domain to condemn petitioners’ homes as part of a large-scale, largely private development.  New London asserted on the basis of vague projections that the development would increase jobs and tax revenues.  On this basis, New London had prevailed in the Connecticut Supreme Court.  In the U.S. Supreme Court, petitioners argued that New London’s taking of their homes for the purpose of private development violated the Fifth Amendment’s requirement that private property may only be taken for a “public use.” 

NELF filed an amicus brief supporting petitioners on behalf of itself and two New London citizens’ groups that had proposed alternative development plans which didn’t require destruction of petitioners’ homes.  NELF argued, first, that the taking was not for a “public use” under the Fifth Amendment, since the property was going to be privately developed, principally for private or undetermined uses.  NELF noted that the Supreme Court had only permitted the taking of property for private development under exigent circumstances not present in this case (such as the redevelopment of a blighted urban area that was a threat to public health and safety).  For these reasons NELF argued that the Fifth Amendment’s requirements were not satisfied and the development corporation could not take petitioners’ homes.   

In a 5-4 decision issued on June 23, 2005, the Supreme Court majority disagreed, holding that New London’s justification satisfied the “public use” requirement because it was part of a comprehensive economic development plan adopted by the city government to benefit the community as a whole, which the Supreme Court would not second-guess.  In so deciding, as Justice Kennedy states in his concurring opinion, the majority has established a rational basis test for “public use” under the Fifth Amendment:  if the taking is rationally related to a duly adopted plan for beneficial economic development, it will satisfy the Fifth Amendment.  Justice O’Connor’s vigorous dissent (joined by Justices Rehnquist, Scalia and Thomas) echoed each of NELF’s concerns in pointing out the errors of the majority’s approach, which in effect reads the “public use” requirement out of the Fifth Amendment.  She predicted (as did Justice Thomas in a separate dissent) that property owners without political influence (as in this case) or in economically disadvantaged communities would suffer most from the Court’s ruling, which arguably removes any constitutional obstacle to redevelopment of such areas so long as the government asserts a plausible common good.  A public outcry followed the Court’s ruling and NELF submitted a motion in support of Kelo’s petition for rehearing.  The Supreme Court denied the petition for rehearing, but adverse public reaction to the decision has resulted in proposals for legislative nullification in many jurisdictions on the state and local level.  Absent such measures, the Court’s decision means that small businesses and individuals will have a harder time challenging municipalities and developers that push for a free hand in remaking existing communities.  The focus of any future constitutional challenge to such activities will now be limited to the second requirement of the Fifth Amendment’s Takings Clause, whether the property owner has received “just compensation.”

Resisting an Unwarranted Extension of the NPDES Permitting Process

The question raised in this case was whether the owners of a shopping mall parking lot located in South Burlington, Vermont, should be required to obtain a National Pollution Discharge Elimination System (“NPDES”) permit under the Clean Water Act (“CWA”) for the storm water runoff from the parking lot even though neither the federal Environmental Protection Agency (“EPA”) nor the delegated state agency, the Vermont Agency for Natural Resources (“VANR”) has required the owners to obtain such a permit.  Under the broad definitions of the CWA, the storm water runoff is a point source that discharges pollutants into United States waters (in this case, Lake Champlain). 

At issue were the interpretation of the 1987 amendments to the CWA and the regulations promulgated by the EPA under those amendments.  Hannaford’s position—which was supported by the EPA—was that the EPA and the delegated state authority (the VANR) have residual authority under the CWA to require that a storm water runoff permit be obtained upon a determination that it is necessary. Absent such a determination, the owners in this case are not required to obtain a permit.  CLF, on the other hand, argued that Congress’s amendment of the CWA did not alter the CWA’s original requirement that all storm water runoffs that discharge pollutants into the nation’s waters are illegal absent an NPDES permit.  After having its complaint dismissed by the Federal District Court in Vermont, CLF appealed to the Second Circuit. 

On October 29, 2004, NELF filed an amicus brief in support of Hannaford’s opposition to CLF’s appeal, presenting to the Second Circuit its members’ concern that, if CLF prevailed in the case, it would mean that all owners of storm water runoffs that discharge into federal waters, from large and small businesses to individual home owners, would be required to go through the complicated permitting process even though the agencies charged with carrying out the mandate of the CWA have not determined that this is necessary.  This would involve potentially huge expense and inconvenience that NELF argued would have a negative effect on land development and the New England economy in general.  

On July 22, 2005, the Court of Appeals, agreeing with Hannaford and NELF, entered a Summary Order affirming the District Court’s decision dismissing CLF’s complaint.