Posted by: Patricia Salkin | July 19, 2020

9th Cir. Court of Appeals holds down-planning by state agency does not effect taking

This post was authored by Edward J. Sullivan, Esq.

 Bridge Aina Le’a, LLC, v. Hawai’i Land Use Commission, Nos. 18-15738 and 18-15817 (9th Cir., February 19, 2020) was a landowner equal protection and civil rights challenge to a reversion of 1060 acres from a conditional urban to its prior agricultural category.  Plaintiff was one of the landowners, who challenged the reversion administratively in the state’s Land Use Commission and thereafter brought suit in state court, in which a jury found an unconstitutional taking. The federal trial court received the jury verdict, awarded damages of $1 and denied the State’s post-judgment motion for Judgment as a Matter of Law (JMOL). Also, before the Court was a question of whether Plaintiff’s Equal Protection claim could be heard in view of an adverse state court decision on a similar claim.

 

The reclassification was the culmination of twenty-two years in which various landowners made representations to develop the site. Under Hawai’i law, Defendant Commission had jurisdiction to reclassify lands from an agricultural to an urban category and to impose conditions.  In this case, the Commission’s conditions, imposed in 1987, required the landowner to make 60% of the 1,656 units permitted affordable, but did not set any deadlines or impose penalties.  That number was reduced to 1000 units in 1989 and a third order in 1991 imposed a reversion condition if the land were not developed in accordance with the landowner’s representations.  The land was sold in 1999 to an LLC which in 2005 sought to reduce the number of affordable units to 385; however, the Commission required that all affordable units must have occupancy permits by November 17, 2010. When there was little site activity, the Commission in December 2008 entered an order to show cause why the reversion should not occur. While proceedings were pending, the landowner reported a transaction to sell the lands; however, the State Office of Planning said the November 2010 deadline could not be met and advocated for reversion, which the Commission approved on a voice vote, which was never reduced to a formal order.  The purchaser asked the Commission to stay its proceedings, which the Commission did, but required 16 affordable units to be constructed by March 31, 2010. Those units were constructed, but not habitable, as they lacked water, sewer, electricity and paved access. The Commission reopened the Order to Show Cause proceedings, at which point the sale failed and the Commission approved the reversion in 2011.

 

On the landowner’s appeal, the circuit court found violations of state statutory requirements and state and federal requirements and vacated the reversion order. On appeal, the Hawai’i Supreme Court found no constitutional violations, but did affirm the decision on the statutory grounds and remanded the matter to the Commission.

 

Plaintiff filed a complaint in state court for declaratory, injunctive, and monetary relief and raised federal and state constitutional due process, equal protection, and taking claims and seeking $35.7 million in damages, measured by the value of the land in an urban classification. The State removed the case to federal court, which dismissed the due process and equal protection claims, based on the state decision and found the commissioners had quasi-judicial immunity.  The case proceeded to trial only on regulatory taking claims, either for denial of all viable economic use under Lucas for South Carolina Coastal Commission, 505 U.S. 1003 (1992) or under the formula provided in Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978). After trial, the judge denied the JMOL and granted nominal damages for a taking.

 

On appeal, the Ninth Circuit reviewed the JMOL on a de novo basis and turned first to the Lucas claim, in which it upheld the dismissal because the land retained substantial residual value in its agricultural use classification and that the classification still allowed Plaintiff to use the land in economically beneficial ways, as Plaintiff’s expert admitted. Anything less than a total loss of productive value must be judged in light of Penn Central.

 

As to the Penn Central claim, the Ninth Circuit found that, although such claims were decided on an ad hoc basis, a jury could not have reasonably found for Plaintiff. Regarding the economic impact of the reversion on Plaintiff, the evidence presented by Plaintiff was based on a voice-vote on an order that was never effective for another two years and cannot be used as a comparison point.  The Court criticized the utility of the appraisal evidence in many other respects as well.  Moreover, Plaintiff’s evidence that a sale on a portion of the land fell through because the Commission’s voice vote interfered with its ability to borrow money to fund the purchase was problematical, because the reversion did not actually occur for another two years and the default occurred even before the Commission’s voice vote. In any event, the voice vote did not affect Plaintiff’s “reasonable investment-backed expectations” under Penn Central, as that factor focuses upon the regulatory environment when the property was acquired, which was during the controversy over whether the landowner would provide the required 385 affordable housing units, when the 1991 reversion condition was known. There was no reasonable expectation that the Commission would not enforce its own conditions. Finally, as to the “character of the governmental action” factor, the Ninth Circuit found no reason to find a taking, even if this factor were not fulfilled. Although the reversion order was remanded by the Hawai’i Supreme Court, that fact alone has no constitutional significance in this case, especially when that court found no unconstitutionality in the reversion proceedings. On balance, the Penn Central claim failed.  The Ninth Circuit concluded no taking had occurred:

 

* * *Even if we assume that the character of the government’s action weighs in favor of finding a taking, the first and second factors weigh decisively against such a finding. Because [Plaintiff’s] own evidence established a diminution in value that is proportionately too small and because the reversion did not interfere with [Plaintiff’s] reasonable investment-backed expectations for the land, no reasonable jury could conclude that the reversion effected a taking pursuant to the Penn Central analysis.

 

Moreover, the Ninth Circuit found, in the light of the final judgment on the merits on Plaintiff’s Equal Protection claim in state court, that claim could not be raised in a federal court under the doctrine of issue preclusion.  The issues were identical and Plaintiff had a full and fair opportunity to litigate.  That is all that is required.

 

The Ninth Circuit concluded that the trial court should have granted the state its JMOL, that there was no taking under either Lucas or Penn Central and that the dismissal of the Equal Protection claim should have been affirmed.

 

It is possible for a state agency to be liable under constitutional and statutory law for its classification decisions. This case shows the necessity of understanding case law requirements of timelines with respect to property acquisition in a Penn Central type case and finality of decisions.  Economic impacts on a plaintiff may be significant without being unconstitutional and much may ride on the “reasonable investment-backed expectation” factor that requires analysis of the economic and regulatory environment at the time of purchase. While a landowner might have made a fortunate purchasing decision, she might also have made an uncertain bet on future appreciation – a bet she cannot expect the state to cover.

 

Bridge Aina Le‘a, LLC, v. Hawai’i Land Use Commission, Nos. 18-15738 and 18-15817 (9th Cir., February 19, 2020).

 

 


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Categories

%d bloggers like this: