Supreme Court Validates Open Space Preservation, Postpones Question of Inverse Condemnation

In Agins v. City of Tiburon,¹ one of the most intently awaited opinions of the 1979-80 Term, the United States Supreme Court upheld a municipal ordinance placing density restrictions on residential development for the sake of preserving open spaces in the hills surrounding San Francisco Bay. The Court ruled that the measure on its face did not constitute a taking since it promoted the public welfare by protecting the city's residents from the "ill-effects of urbanization"² and did not deprive plaintiffs' land of all "economic viability."³ In this conclusion the Court confirmed an important policy guide for land use legislation: the preservation of open space constitutes a legitimate police power objective.

The Court did not, however, address the problem that had initially drawn so much attention to the case. Having found no taking, the Court had no occasion to reach the question of a citizen's ability to challenge the validity of a zoning ordinance through a suit in "inverse condemnation." That issue was raised by the plaintiffs' demand for $2 million in damages⁴ as "just compensation" for the "taking" allegedly effected by the invalid ordinance. Traditionally, only mandamus and declaratory relief are available as remedies in suits challenging the constitutionality of legislative enactments, and Agins was anxiously awaited by those expecting the Court to issue an opinion upon the propriety of monetary awards in such actions.

Nevertheless, Agins is significant when viewed in the context of other land use cases which the Supreme Court has recently decided and docketed.⁵ The propriety of inverse condemnation is a question raising serious constitutional and political problems, issues which the Court will increasingly confront as tension mounts between municipalities attempting to stretch the police power as far as possible in conserving shrinking fiscal resources and landowners concerned with maximizing the return on their real property.

Background

In 1968 Bonnie and Donald Agins paid $50,000 for five acres of prime unimproved ridgetop land in Tiburon, California, a community located on the northern edge of [10 ELR 10126] San Francisco Bay. The Agins intended to use the land for residential development, a purpose consonant with then-existing zoning ordinances that permitted construction of a maximum of five houses on their acreage. In 1973, Tiburon was extensively re-zoned, as required by new California open-space legislation,⁶ and the Agins' land was placed in a classification designating their land as "Open Space Territory" and authorizing only single-family dwellings, open spaces, and density ranging from 0.2 to one house per acre.⁷ In order to acquire a building permit, the Agins would have had to have obtained approval of a development plan showing that the density of proposed construction would have been offset by adjacent open space and that the construction would otherwise have been compatible with the neighboring environment.

In October 1973 the Agins filed a claim with the city for $2 million, alleging that the new zoning legislation had rendered their property unmarketable and deprived it of all value. The couple had not filed an application for a construction permit, nor had they submitted a development plan. The city rejected their claim in November 1973 but filed a complaint in state court in December to acquire the property under its power of eminent domain. These proceedings were abandoned in November 1974, and the Agins were awarded $4,500 as compensation for expenses incurred in litigating the action.⁸

The Agins commenced an action against the city in 1975, alleging first that the ordinance and the city's conduct in instituting and abandoning eminent domain proceedings had "forever prevented the development for residential use or otherwise" of their property, and again demanding $2 million in compensation. Second, plaintiffs sought a declaration that the ordinance was void as an unconstitutional deprivation of property without compensation.

The trial judge granted the city's demurrer to both counts. Plaintiffs' appeals to the California Court of Appeals⁹ and the state supreme court¹⁰ were similarly unsuccessful. The California Supreme Court held that the city's precondemnation activities were in accordance with California law and did not constitute an impermissible interference with the Agins' property. It refused to credit plaintiffs' allegation that the open space ordinance destroyed the value of their land.¹¹ Since the Agins had not applied for a building permit, the court was unable to rule on the constitutionality of the ordinance as applied.

Though the court found that the Agins had no right to relief, it went on to consider the question of appropriate remedies. Its conclusion was that awards of money damages are unavailable in cases challenging regulatory measures as takings except under extraordinary circumstances, thus adopting the position of the New York Court of Appeals.¹² According to the court, to allow suits in inverse condemnation in challenges to regulatory measures, would, in effect, transmute an excessive and therefore invalid exercise of the police power into a lawful taking for which just compensation had to be paid,¹³ an outcome to be avoided on both constitutional and policy grounds. The court reasoned that it would otherwise become unnecessarily involved in the essentially legislative function of allocating municipal budgets. Noting further that cities are finding it increasingly difficult to meet demands upon their financial resources, the court deemed it best not to subject local governments to million-dollar damage suits and thereby exert a severe chilling effect upon regulatory activity that could conceivably be construed as excessive. The court concluded that it would instead confine plaintiffs to the remedy of invalidation, leaving municipalities the choice of condemnation or outright purchases if they still wished to devote the property to public use.

Supreme Court Decision

A unanimous Supreme Court affirmed the California court's holding that the challenged ordinance did not constitute a taking. Before proceeding with the takings analysis, Justice Powell carefully delineated the scope of the opinion, emphasizing that the Court was confined to considering the constitutionality of the ordinance on its face since no concrete controversy had yet arisen concerning its application. He reiterated the California court's finding that the ordinance had not necessarily deprived the Agins of any development rights as they had not even attempted to obtain approval of a development plan.

The Court's formulation of the test to determine whether the enactment of the ordinance constituted a taking was relatively simple. Any such measure will be deemed unconstitutional if it either does not rationally advance legitimate state interests or if it deprives the landowner of "the economically viable use of his land." Justice Powell denied that any precise formula can be used to determine when a taking has occurred. Instead, courts must balance the magnitude of the state interest served by the ordinance against the economic value left to the owner.¹⁴

Applying this analysis to the Agins case, Justice Powell first found that the ordinance rationally advanced a legitimate state interest. Municipal measures to protect citizens from the ill-effects of urbanization have long been recognized as furthering the public welfare, he noted, and thus constitute a legitimate exercise of the police power. Quoting from both the state enabling legislation and the [10 ELR 10127] Tiburon ordinance,¹⁵ the Court found that the contested enactment furthered an objective no different from those that it has previously endorsed.

Turning to consider the countervailing force in the balancing process — the private rights of landowners affected by the ordinance — the Court found no violation of the requirement that the Agins be left with an economically viable use of their land. Justice Powell cursorily referred to two of the tests that have been used to determine whether a government action infringes so heavily upon individual rights that it constitutes a taking and found that on its face that ordinance neither deprived the Agins of the best use of their land¹⁶ nor extinguished a fundamental attribute of ownership.¹⁷ Since they had neither proposed a particular development plan nor had one rejected, the Agins could identify no tangible costs entailed by compliance with the zoning measure they were challenging. Finally, Justice Powell adverted to the theory of reciprocity, observing that the benefits accruing to all landowners from comprehensive zoning offset, to some extent, the costs imposed upon individuals such as the Agins.

The Court dismissed in a brief footnote the plaintiffs' argument that the city's precondemnation activities constituted a taking, finding no indication that the city had acted in bad faith or that the proceedings regarding the property had been "unduly burdensome" or "marked by extraordinary delay."¹⁸ Justice Powell pointed out that the Agins were free to sell their property once the condemnation proceedings were terminated, implying that the reimbursement for costs incurred during litigation fully compensated plaintiffs for any losses suffered as a result of the abortive regulatory activity. Even if for some reason the property had suffered a permanent decline in market value, this would not give rise to liability on the part of the city, he added, emphasizing that fluctuations in the value of property during the governmental decision-making process must simply be accepted as "incidents of ownership."¹⁹

Analysis

Open Space Preservation

In establishing the validity of zoning ordinances aimed specifically at open space preservation, Agins marks a further widening of the scope of permissible police power objectives in the area of local land use regulation. Though the Court downplayed this expansion with the statement that the protection of citizens from the illeffects of urbanization has long been recognized as a legitimate governmental purpose, it had never before directly considered the validity of open space preservation as an end in itself.²⁰

Agins represents an extension of the doctrine, first enunciated by the Supreme Court in Berman v. Parker,²¹ that the public welfare encompasses "spiritual as well as physical, aesthetic as well as monetary" values that are properly pursued by the states when exercising their power of eminent domain.

It is within the power of the legislature to determine that the community should be beautiful as well as healthy, spacious as well as clean, well-balanced as well as carefully patrolled.²²

The Court expanded on this thesis in Village of Belle Terre v. Boraas,²³ where it upheld a zoning ordinance restricting occupancy to a single family per dwelling on the grounds that it furthered the broad concept of the "public welfare" established in Berman.²⁴ In Penn Central Transportation Co. v. City of New York²⁵ the Court reaffirmed the legitimacy of land use controls that burden private property interests to obtain intangible benefits for the community as a whole:

Enactment of land use restrictions or controls to enhance the quality of life by preserving the character and desirable aesthetic features of a city [is permissible] ….²⁶

In validating yet another public welfare objective, Agins represents a further step in this progression. What Belle Terre and Penn Central accomplished for social and historical facets of environmental quality, Agins accomplished for the natural and scenic attributes. The preservation of open space — like family life and historical landmarks — is now visibly stamped as a legitimate police power objective.

It is noteworthy, however, that the ordinance challenged in Agins did permit a substantial degree of [10 ELR 10128] development, up to one house per acre. A more difficult case is presented by San Diego Gas & Electric v. City of San Diego,²⁷ in which certiorari was granted the week after Agins was handed down. In San Diego the plaintiff utility purchased 412 acres of land for use as a power plant site. Subsequently, the city placed half the land in an "open space" zoning category. Although the utility was ultimately denied relief, since industrial development seems almost per se inconsistent with its current obligation,²⁸ the utility seems to have a stronger case than the Agins for arguing that its property was deprived of substantial economic value by the adoption of the open space ordinance. In deciding San Diego, it is unlikely that the Supreme Court will be able to conclude, as it did in Agins, that the city's conduct left plaintiffs "free to pursue their reasonable investment expectations."²⁹ Upcoming cases promise to reveal far more clearly than Agins the extent to which the Supreme Court is willing to give weight to open space preservation as a legitimate police power objective.

Deprivation of Economic Value

Agins will undoubtedly be scrutinized carefully for indications of the quantum of hardship a landowner may be forced to endure before a regulatory scheme will be declared overly burdensome. Unfortunately, the decision does not offer much insight into the Court's thought on this issue since the facts in Agins did not permit a close weighing of the costs and benefits of the Tiburon scheme.

In general, an inquiry into the validity of a land use regulation focuses upon the impact that it has upon the rights of the landowner. The Supreme Court first articulated this basic limitation upon the police power in Pennsylvania Coal Co. v. Mahon: "The general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking."³⁰

The central problem arising in this area is how the court is to determine when regulation has gone "too far." Courts have approached this question both quantitatively, i.e., reduction in market value, and qualitatively, i.e., deprivation of certain specific property rights. For example, in Penn Central the Court stated that it would uphold land use laws that, assuming they are otherwise valid, do not deprive the owner of a "reasonable return" on the property.³¹ Elsewhere, the threshold has been expressed as the point at which the owner loses the "beneficial use" of the land.³² Where the Court has employed qualitative indicia it has invalidated governmental actions leading to physical invasion of private property³³ or destroying essential components of ownership.³⁴ Since in Agins the Court found that plaintiffs were not necessarily deprived of any rights by the contested ordinance, it did not engage in a close analysis of the problem of public infringement with private rights. Rather, it referred to several tests in a cursory fashion which offers little added insight into the nature of the analysis that the Court currently favors.

Availability of Compensatory Damages

The novel question raised by Agins is whether a person whose land has been "taken" through the enactment of zoning ordinances is limited to the remedies of mandamus and declaratory relief or may instead obtain a money judgment. Though the Supreme Court did not reach this question in Agins, it merits consideration in light of the Court's apparent interest in the issue.

It is crucial to clarify the fact that the Agins were demanding monetary relief for two distinct types of governmental activity. They alleged that the city had diminished the value of their property both by instituting and abandoning the eminent domain proceedings and by enacting the open space ordinance. The former is widely accepted as grounds for monetary relief, but its award is dependent upon a finding that the municipality's conduct was prompted by "bad faith,"³⁵ Compensatory damages [10 ELR 10129] are awarded pursuant to a finding that the city's activity irreversibly diminished the value of plaintiff's property. In Agins the lower court specifically found no element of bad faith in Tiburon's behavior.³⁶

In demanding that the city compensate them for the loss in value inflicted upon their property by the mere enactment of the zoning ordinance, the Agins were treading on shakier ground. Courts have very rarely offered more than the traditional remedy of invalidation in cases where legislative enactments have been successfully challenged on constitutional grounds.³⁷ Such an approach avoids what is perceived to be a potential threat to the financial sovereignty of the legislature, since the citizen who wins an inverse condemnation award forces a municipality to pay for land that it assumed it was regulating free of charge.³⁸ Yet, while invalidation of an enactment will generally suffice to make whole an injured land-owner, it may be, as the New York Court of Appeals has observed, that in some cases the owner's loss is irreversible and should be compensated with monetary damages.³⁹ In some instances, policy considerations that militate against awarding damages against a government may be deemed to be outweighed by the need to do equity and check abuses of the regulatory process.

Conclusion

The validity of open space zoning is an issue that will undoubtedly become increasingly important as tension mounts between skyrocketing property values and overcrowding in urban areas. Pressure placed upon state and local treasuries by measures such as tax reform will compel governments increasingly to resort to regulation rather than acquisition in ensuring open space preservation. Ironically, their fiscal plight accentuates the threat posed by the prospect of money damage awards being available to plaintiffs successfully challenging excessive police power enactments. The highest courts in several states have recognized the serious "chilling effect" that such a remedy might have upon a wide spectrum of local regulatory activity, declaring them unavailable both on policy grounds and to avoid the constitutional problem posed by extensive involvement of the courts with allocation of municipal budgets.⁴⁰

The Supreme Court has yet to take a definitive stand on the property of suits in inverse condemnation in challenges to regulatory enactments, though it is highly probable that its decision to grant certiorari in Agins rested upon its determination to address the issue. Once the Court examined the case closely, however, it discovered that the factual setting would not permit it to reach the question of appropriate remedies except through dicta and chose not to approach such an important issue in that fashion. Nevertheless, San Diego seems to present an appropriate vehicle for addressing this matter. It is quite likely that the Court will establish next Term whether, and if so under that circumstances, money may be recovered from governments guilty of excessive regulation.

1. 48 U.S.L.W. 4700, 10 ELR 20361 (June 10, 1980).

2. 48 U.S.L.W. at 4701, 10 ELR at 20362.

3. Id.

4. 48 U.S.L.W. at 4700, 10 ELR at 20361.

5. See United States v. Clarke, 48 U.S.L.W. 4258 (March 18, 1980) (25 U.S.C. § 357, which provides that lands allotted in severalty to Indians may be "condemned" for any public purpose under the lawsof the state where located, does not authorize a government to "condemn" through inverse condemnation, i.e., a physical occupation followed by suit by landowner to recover just compensation); San Diego Gas & Electric Co. v. City of San Diego, Civ. 16277 (Cal. Ct. App. June 26, 1979) (rezoning of land owned by public utility from industrial to part light industrial and part open space does not constitute compensable taking), cert. granted, 48 U.S.L.W. 3820 (June 16, 1980) (No. 79-678).Petitioner in San Diego demands inverse condemnation as a remedy for the allegedly excessive municipal regulatory activity, see 48 U.S.L.W. at 3392.

6. CAL. GOV'T CODE §§ 6950-54, 65560-63, 65566-67, 65910-12 (West Supp. 1980).

7. City of Tiburon, Cal. Ordinance No. 124 N.S.

8. City of Tiburon v. Agins, No. 69070 (Marin County Super. Ct. May 20, 1975).

9. 145 Cal. Rptr. 476 (Cal. App. 1978).

10. 24 Cal. 3d 266, 598 P.2d 25, 157 Cal. Rptr. 372, 9 ELR 20260 (Cal. 1979).

11. Though plaintiffs' allegation of a total loss of value was uncontroverted, under California law the court was permitted to take judicial notice of the ordinance in considering defendant's demurrer. Since 124 N.S. allowed construction of from one to five residential units on the Agins' property, the court rejected the allegation that it prevented all development.

12. See Fred F. French Investing Co., Inc. v. City of New York, 39 N.Y.2d 587, 350 N.E.2d 381, 6 ELR 20810 (N.Y. Ct. App. 1976) (landowner who successfully challenges the constitutionality of a land use regulation is limited to the remedy of declaratory relief invalidating the regulation).

13. 24 Cal. 3d at 273, 598 P.2d at 28, 157 Cal. Rptr. at 375, 9 ELR at 20261.

14. 48 U.S.L.W. at 4701, 10 ELR at 20362.

15. See, e.g., CAL. GOV'T CODE § 65561(a) (West Supp. 1980): [The State recognizes that the preservation of open space is necessary] "for the assurance of the continued availability of land for the production of food and fiber, for the enjoyment of scenic beauty, for recreation and for the use of natural resources," See also Tiburon, Cal. Ordinance No. 124 N.S. 1(c), quoted at 48 U.S.L.W. at 4701 n.8, 10 ELR at 20362 n.8.

16. See United States v. Causby, 328 U.S. 256, 262 n.7 (1946).

17. See Kaiser Aetna v. United States, 100 S. Ct. 383 at 393, 10 ELR 20042 at 20046 (1979).

18. 48 U.S.L.W. at 4702 n.9, 10 ELR at 20363 n.9.

19. Id.

20. The Ninth Circuit reached a similar holding in 1975. See Construction Industry Ass'n v. City of Petaluma, 522 F.2d 897, 909, 5 ELR 20519, 20523 (9th Cir. 1975) ("The concept of the police power is sufficiently broad to uphold plaintiff's desire to preserve its small town character, its open spaces and low density of population, and to grow at an orderly and deliberate pace." (emphasis added)).

21. 348 U.S. 26 (1954).

22. 348 U.S. at 33.

23. 416 U.S. 1, 4 ELR 20302 (1974).

24. The Court observed in Village of Belle Terre v. Boraas, 416 U.S. 1, 4 ELR 20302 (1974), that

A quiet place where yards are wide, people few and motor vehicles restricted are legitimate guidelines in a land-use project addressed to family needs. The goal is a permissible one… The police power is not confined to elimination of filth, stench and unhealthy places. It is ample to lay out zones where family values and the blessings of quiet seclusion and clean air make the area a sanctuary for people.

Id. at 9, 4 ELR at 20304. While Berman v. Parker, 348 U.S. 26 (1954) involved the District of Columbia's eminent domain power, Belle Terre involved a regulatory enactment promulgated pursuant to New York's police power. Nevertheless, for purposes of defining the limits of permissible legislative objectives, the distinction between the sources of the sovereign's authority appear to have no significance. Aesthetically-aimed regulatory measures will be sustained in either case.

25. 438 U.S. 104, 8 ELR 20528 (1978).

26. Id. at 129, 8 ELR at 20534.

27. Civ. 16277 (Cal. Ct. App. 1979), cert. granted, 48 U.S.L.W. 3820 (June 16, 1980) (No. 79-678).

28. Agricultural or residential uses were precluded by the fact that the land was located in a saline flood plain. See San Diego Gas & Electric Co. v. City of San Diego, 146 Cal. Rptr. 103 at 111 n.3, 113 (Cal. App. 1978) (redetermined by California Court of Appeals by unpublished opinion dated June 26, 1979, see n.5, supra).

29. 48 U.S.L.W. at 4702, 10 ELR at 20363.

30. 260 U.S. 393, 415 (1922).

31. 438 U.S. at 129, 8 ELR at 20534.

32. See Hadacheck v. Sebastian, 239 U.S. 394 (1915) (87.5% reduction in property value held not to constitute a taking); accord, Goldblatt v. City of Hempstead, 269 U.S. 590 (1962) (closure of sand and gravel excavation operation).

33. See Michelman, Property, Utility and Fairness, 80 HARV. L. REV. 1165, 1184 (1967): "The modern significance of physical occupation is that courts, while they sometimes do hold nontresspassory injuries compensable, never deny compensation for a physical takeover." See, e.g., United States v. Causby, 328 U.S. 256 (1946).

34. See Kaiser Aetna v. United States, 100 S. Ct. 383, 10 ELR 20042 (1979). Traditionally, in this area of the law courts have not regarded property rights as a bundle of sticks, some of which are so sacrosanct that their seizure automatically constitutes a taking. The favored position is that in each case one must quantify the cost of the restrictions, weighing the entire bundle before and after to determine whether too much value has been lost. This point was made explicitly in Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 8 ELR 20528 (1978): "Takings analysis does not divide a single parcel into discrete segments to determine whether rights in a particular segment have been abrogated." 438 U.S. at 130-31, 8 ELR at 20534; accord, Andrus v. Allard, 100 S. Ct. 318 at 327, 9 ELR 20791 at 20794 (1979): "At least where an owner possesses a full 'bundle' of property rights, the destruction of one 'strand' of the bundle is not a taking, because the aggregate must be viewed in its entirety." Yet in Kaiser Aetna the Court did seem to isolate the right to exclude the public as an inviolable attribute of property ownership, observing that it is "one of the most essential sticks in the bundle of rights that are commonly characterized as property…." 100 S. Ct. at 391, 10 ELR at 20045. But cf. Prune Yard Shopping Center v. Robbins, 48 U.S.L.W. 4650 at 4653 (June 9, 1980) (the private owners "failed to demonstrate that the 'right to exclude others' is so essential to the use or economic value of their property that the State-authorized limitation of it amounted to a 'taking'").

35. Courts finding "strong and convincing evidence that the government … abused its condemnation powers" have traditionally awarded damages equal to the decline in value attributable to the city's precondemnation activity. Donohoe Construction Co., Inc. v. Montgomery City Council, 567 F.2d 603 (4th Cir. 1977). An example of governmental bad faith would be the public announcement of intent to acquire the property in order to prolong unreasonably eminent domain proceedings and thereby render the land commercially useless. See Klopping v. City of Whittier, 8 Cal. 3d 39, 500 P.2d 1345, 104 Cal. Rptr. 1 (1972).

36. 48 U.S.L.W. at 4702, 10 ELR at 20363.

37. In HFH, Inc. v. Superior Court, 15 Cal. 3d 508, 542 P.2d 237, 125 Cal. Rptr. 365, 6 ELR 20062 (1975), the California Supreme Court rejected the proposition that the mere enactment of an ordinance could constitute grounds for compensatory relief. Referring to the state statute granting immunity to governmental bodies for injuries caused by "adopting or failing to adopt an enactment" (CAL. GOV'T CODE § 818.2), the court rejected plaintiff's damage claim: "[B]oth constitutional and institutional understandings require that legislative acts, even if improper, find their judicial remedy in the undoing of the wrongful legislation, not in money damages awarded against the state" (citations omitted). 15 Cal. 3d at 519, 542 P.2d at 245, 125 Cal. Rptr. at 373, 6 ELR at 20066. The court in HFH did not find, however, that the regulation at issue had effectuated a taking of complainant's property. Indeed, it "left for another day" the question of "entitlement to compensation in the event a zoning regulation forbade substantially all use of the land in question." 125 Cal. 3d at 518, 542 P.2d at 244, 125 Cal. Rptr. at 372, 6 ELR at 20065 n.16.

38. Thus, the North Dakota Supreme Court observed:

We agree that the potential consequences of an action for inverse condemnation militate against its availability to challenge the constitutionality of governmental regulation. If actions for inverse condemnation loom in the future, land-use planning might be stymied, the fiscal-budgetary process drastically affected, and the financial burdens on the community staggering. Most important, authorization of such an action would enable North Dakota courts to sit as legislative bodies doling out the state and local fisc. Eck v. City of Bismarck, 283 N.W.2d 193 at 200-201 (N.D. 1979).

39. See Fred F. French Investing Co., Inc. v. City of New York, 39 N.Y.2d 587, 6 ELR 20810 (N.Y. Ct. App. 1976), where the court observed that one of the few cases where an award of declaratory relief would be inadequate may be found where a regulatory measure had "already caused the government to encroach on the land with tresspassory consequences that are largely irreversible." 385 N.Y.2d at 9, 6 ELR at 20811. Such a result is consistent with Bivens v. Six Unknown Agents, 403 U.S. 388 (1971) where compensatory damages were awarded for violations of constitutional rights after injunctive relief was deemed utterly inadequate to remedy harm already done.

40. See supra nn.37-40.