On a fine June day in 1990, the City of New York dumped dirt on top of 2400-square feet of land used by Mrs. Soon Duck Kim for a service station and car wash in Queens. The city needed the dirt to support a roadway that it raised by four feet. Was Mrs. Kim entitled to compensation for land that was buried? When Joseph Gazza was denied a permit to build a home on Long Island by the New York Department of Environmental Conservation, leaving his lot worthless in a developed neighborhood in exclusive Quogh, Long Island, was he entitled to compensation? And when the Town of Southampton, also on Long Island, decided to condemn a lot owned by Dorothy Basile, was she entitled to just compensation for the full fair market value of her property?

On February 18, 1997, the New York Court of Appeals, that state’s highest court, said "no," "no," and "no" to each of these landowners. In what has become a distressing trend from courts across the nation, the promise to property owners embodied in Lucas v. South Carolina Coastal Council has been abandoned through a judicial sleight of hand. Unless the United States Supreme Court acts, the rule of New York could undo the protection that the Fifth Amendment provides to private property owners against government abuse.

For years it had been the unequivocal holding of the United States Supreme Court that, whenever the government physically invades private property, say by dumping truckload after truckload of dirt on it, it is an undisputed taking. Observers of the Court also thought that the United States Supreme Court held in Lucas that, when government denies a landowner the right to make economically beneficial use of private property there has been a taking, and the owner is entitled to just compensation. Thus when South Carolina passed a statute forbidding David Lucas the right to build a home on his property, which he had bought before the law was passed, the Court found that so long as he had the right to build a home in the first place, he was entitled to the land’s fair market value if the state denied permission to build. The Supreme Court also recited the obvious principle that a court in a regulatory takings case must first identify the property right at issue. After all, the Court said, if a person does not have a right in the first place to build a nuclear power plant on the San Andreas fault, then that person is not entitled to just compensation when government denies a permit to build the plant.

If Lucas is the law of the land, how can New York get away with ignoring it? The answer is by the lawyerly art of twisting the logic of the law like a pretzel. First, New York points out that David Lucas bought his property before the law was passed that prevented him from building. Second, New York’s lawyers note that Lucas requires that the property right at issue be identified in a takings case. This has led clever government attorneys in New York and elsewhere to suggest that there is no property right in the ability to use property in a manner that is contrary to a statute, local zoning ordinance, or mere permit requirement that was adopted before the current owner purchased the property.

In other words, suppose Mr. Jones owns several acres in 1960. In 1970, a new wetlands law is passed and the property is declared wetlands and unbuildable without a permit. Mr. Jones lacks the money to apply for a permit, so he sells the property to Mrs. Smith in 1980. Mrs. Smith applies for a permit and it is denied in 1990. Can she sue for a taking? According to the New York court, the answer is no, only Mr. Jones could have sued for a taking. Thus when Mrs. Smith bought the property in 1980 she did not buy the right to build in a manner contrary to the then-existing regulations. Of course, Mr. Jones cannot now sue either because (1) he no longer owns the property, (2) the statute of limitations has run, and (3) the United States Supreme Court has already held that it is nearly impossible ("an uphill battle") to prevail in a takings case unless one first applies for a permit (and one cannot apply for a permit to use property that has already been sold to a third party.) The net result is that government has acquired the development rights for nothing simply because the original owner was not able to sue for a taking when the regulation was passed.

In its February massacre of property rights, the New York court turned first to Mrs. Kim. The court noted that in 1962 the City of New York adopted an ordinance that said that property owners had a duty of providing "lateral support" for city roads. This seemed harmless enough as it has always been the law that property owners cannot dig next to roads in a way that causes them to collapse. But New York interprets this ordinance to place an affirmative duty on landowners to actually provide the dirt to support a roadway that is raised. Then, in 1978, the city filed a map somewhere in the local Borough president’s office showing that it would raise the grade of the road next to Mrs. Kim’s property by four feet. Mrs. Kim bought her property in 1988. With this chronology in hand, the New York court was able to find that Mrs. Kim never had a right to complain when the city dumped dirt on 2400 square feet of her property. Nor, apparently, did she have a right to complain when the City sent her a bill for the dirt!

Having taken down Mrs. Kim, Joseph Gazza was an easy target. He bought his lot after it had already been declared wetlands and after the prior owner was not able to get a permit. Gazza applied for another permit and sued when it was denied. But since he knew the property was a wetland he had no right to sue for a taking even if the entire economic value of the property was destroyed.

Mrs. Basile came last. She also bought her wetlands lot after an ordinance was passed requiring an owner to get a permit before developing on wetlands. The prior owner had also agreed in writing that he would have to get permits before he could build. When the town decided to condemn her property so it could be included in a wildlife refuge, it reasoned that there was no way it would have ever given Mrs. Basile a permit. Therefore the property was virtually worthless, and certainly not worth the price of a developable lot. And the New York court agreed that she was entitled to only a nominal amount when the town condemned her property.

Fortunately, not every court that has considered this issue has decided to bulldoze the Takings Clause. The Federal Circuit Court of Appeals ruled in a case called Preseault v. United States that just because the federal government began to regulate railroads in the 1920s it did not mean that the owner of a railroad right of way was not entitled to compensation when the United States turned the right of way into a public hiking trail. A New Jersey court ruled that a purchaser of property "steps into the shoes" of the prior owner, meaning the new owner has the same right to sue for a regulatory taking as the original owner. The Massachusetts Supreme Court has ruled on both sides of the issue. And the Michigan Supreme Court is presently hearing an appeal in a case where a developer won a lawsuit for a taking when the state denied a wetland permit. The landowner was a family corporation that acquired the land from family members who had purchased it years before the regulations were adopted. The lower Michigan court held that the "timing of the regulation and the transfer of the land do not dictate that plaintiffs are not entitled to just compensation."

If the New York rule were to prevail, owners of regulated property would be in a terrible bind. They would be forced to go through the trouble and expense of trying to develop their land just so they wouldn’t lose the right to sue for a taking. Sales of regulated property would evaporate as prospective purchasers began to realize that there could be no relief if permits were denied. Neighbors would have different rights in otherwise identical property, as those who purchased before regulations were passed would have more rights than those who purchased later. And because governments tend to pass new regulations with the frequency of the tides, the government could acquire some new property interest virtually every time property changes hands.

As this article was going to press, the U.S. Supreme Court on Monday, October 6th, refused to hear the appeal on all three cases. This means that a regulatory nightmare will follow for property owners in those states adopting the New York rule. However, until the Supreme Court accepts its responsibility to enforce the Fifth Amendment by taking up this issue, it is guaranteed that landowners will continue to knock on the Court’s door.