Regulatory "Takings": The Remarkable Resurrection of Economic Substantive Due Process Analysis in Constitutional Law

Patrick C. McGinley

Editors' Summary: The theory that a land use regulation may "go too far" and deny to the landowner the use of his or her property in derogation of the Takings Clause of the Constitution has long been an inexact, even confused, doctrine. In the term just ended, the Supreme Court was presented with three cases in which a land use regulation was alleged to have exceeded the police power and "gone too far," but in deciding the individual cases the Court did not successfully clarify the underlying theory. In this Article, Professor McGinley traces the development of the regulatory takings doctrine, and argues that the present-day confusion stems from a fundamental misunderstanding of Justice Holmes' teachings in Pennsylvania Coal Co. v. Mahon. The result of this confusion has been a resurrection of the long-discredited "economic substantive due process" analysis in this area. Professor McGinley argues that Justice Holmes was in fact advancing a consistent and cogent constitutional formula to determine whether a land use regulation had indeed "gone too far," and concludes that the freewheeling Lochner-style takings analysis currently employed should be scrapped as a threat to fundamental constitutional values.

Mr. McGinley is Professor of Law at West Virginia University College of Law. He specializes in constitutional law, environmental law, land use planning, and natural reosurces issues. He received his J.D. from Duke University School of Law, and his A.B. from Dickinson College.

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Lawyers whose practice focuses on environmental law know first hand the perplexing confusion surrounding constitutional "taking" analysis as it relates to land use and other environmental regulation.

One wonders how many law firm word processors are primed with pleadings and briefs explaining how one environmental regulatory initiative or another contravenes the Fifth Amendment's admonition that "private property [shall not] be taken for public use, without 'just compensation.'"¹ Such claims allege what has come to be known as "regulatory taking" of private property.

The following discussion traces the development of the regulatory taking doctrine to its roots in the now disfavored use of constitutional "economic substantive due process" analysis, and the contemporary argument that this taking doctrine may be used as a vehicle for invalidating environmental, land use, and other "police power" regulatory initiatives. Interestingly, the extent to which the conflicting maze of taking law parallels the discredited economic substantive due process mode of judicial review has been little noted.

This discussion is most timely, for the Supreme Court recently has decided a case that offered an appropriate opportunity for the Court to recognize the substantive due process origins of "regulatory taking" theory. The legal and factual components of that case, Keystone Bituminous Coal Ass'n v. DeBenedictis,² are substantially similar to those considered by the Court in its leading case on "regulatory taking," Pennsylvania Coal Co. v. Mahon,³ decided more than five decades ago. The Court found that the more recent statute "presents the same type of environmental concern that has been the focus of so much federal, state and local regulation in recent decades."⁴ Both Mahon and Keystone involved Pennsylvania statutes regulating surface land subsidence caused by underground coal mining. Although the Keystone case seemed "on all fours" with Mahon, a law similar to the one invalidated by the Court in Mahon was upheld in Keystone.

In Keystone, the Court had an opportunity to either modify its current approach to "regulatory takings" as a misdirected application of long-rejected constitutional principles, or recognize its similarity to economic substantive due process and place its approving imprimatur on it. As discussed below, the Court did neither.

The Legacy of Mahon

The focal point of any consideration of a regulatory taking [17 ELR 10370] issue must start with the statement in Mahon that "[t]he general rule at least is, that while property may be regulated to a certain extent, if it goes too far it will be recognized as a taking."⁵ In the half century since it was penned, this oft-cited statement of Justice Holmes has become a central feature of constitutional "taking" jurisprudence and is now the basic tenet of the "regulatory taking" model.

Although much maligned by the commentators, Mahon continued to be the analytical vortex around which was gathered the swirling winds of controversy that have consumed the confusing debate between and among the bar, scholars, and jurists. The focus of this debate was on the question posed by Holmes: at what point does a particular exercise of police power go "too far" and thus must be "recognized as a taking"?

Rhetorical exasperation with the Supreme Court's "taking" jurisprudence is legion in the scholarly writing on the subject. One commentator rather aptly observed that "[i]n truth, the collected decisions of the Supreme Court, and all other courts, leave the subject as disheveled as a ragpicker's coat."⁶ Justice Blackmun, writing for a majority of the Court in a recent case, echoed this sentiment when he noted that "[t]he attempt to determine when regulation goes too far that it becomes, literally or figuratively, a 'taking' has been called 'the lawyer's equivalent of the physicist's hunt for the quark.'"⁷

Criticism of the Supreme Court's constitutional taking jurisprudence is not surprising in light of the Court's inability to set forth a workable analytical framework to bring rationality and consistency to the discourse. Neither rationality nor consistency could possibly flow from decisions marked by statements like that of Justice Brennan in Penn Central Transportation Co. v. City of New York:⁸ "[T]his court, quite simply, has been unable to develop any 'set formula' for determining when 'justice and fairness' require that economic injuries caused by public action be compensated by the government, rather than remain disproportionately concentrated on a few persons."⁹

This is not to suggest that there have not been attempts to derive a "set formula" that the courts could apply to instances where litigants claim that the constitutional taking proscription has been violated. On the contrary, judges and legal scholars have spent great energy and time developing and discussing a plethora of such "formulas." From this effort have evolved theories relating to "noxious use," "distinct investment backed expectations," "reciprocity of benefits," "diminution of value," "physical invasion," "presumptive" and "per se takings," "spillover effects," and other analytical approaches.¹⁰

Indeed, Justice Brennan himself has in recent years set about to design such a formula to be applied in cases involving certain attributes of land use regulation.¹¹ Notwithstanding these efforts, this area of the law has not been clarified and the courts continue to generate contradictory opinions utilizing various aspects of the extant "formulas," none of which have garnered anything approaching a consensus in the view of bench, bar, and academe.

In the recently decided Keystone case, the Court did make certain observations about taking jurisprudence that suggest the Court may be open-minded about reconsidering Mahon's influence on regulatory taking jurisprudence. For example, the Court observed that a substantial portion of Holmes' opinion was "advisory," and that Holmes had not disputed Justice Brandeis' dissenting view in Mahon that "the state had an absolute right to prohibit land use that amounts to a public nuisance."¹² Thus the Keystone Court emphasized that:

Long ago it was recognized that "all property in this country is held under the implied obligation that the owner's use of it shall not be injurious to the community," and the Takings Clause did not transform that principle to one that requires compensation whenever the State asserts its power to enforce it.¹³

Despite these indications that the meaning of Mahon is still open to scrutiny by the Court, Keystone contains the now almost boilerplate references to "regulatory takings," "diminution of value," "distinct investment backed expectations," and similar phrases that have become the confusing talismans of post-Mahon taking jurisprudence.

Constitutional Text and the Taking Debate

Obviously, constitutional jurisprudence is based, at least at the initial level of analysis, on an interpretation of the document's text and the fair implications that can be drawn therefrom; the taking debate is no different. The focus in this controversy rests upon three separate constitutional considerations: the Fifth Amendment's "Due Process" and "Just Compensation" (Eminent Domain) Clauses and the implied "police power" inherent in the governance of a sovereign state.

The "Just Compensation" Eminent Domain Clause

When one speaks of "taking" jurisprudence, the most obvious reference is to that portion of the Fifth Amendment [17 ELR 10371] that literally makes use of the word as a central consideration of this Bill of Rights protection afforded citizens: "nor shall private property be taken for public use, without just compensation."¹⁴

This clause of the Fifth Amendment does not mention the power of eminent domain — the inherent sovereign power to take private property for public uses such as a road, a government building, or a park. However, the "Taking" clause has been generally accepted as a "tacit recognition of a pre-existing power to take private property for public use." Thus, the requirement that compensation be paid when private property is taken for a public use suggests that the framers accepted such usurpation of private property rights as a legitimate exercise of governmental power if the property owner received fair payment for the property taken.¹⁵

The Due Process Clause

A second clause of the Fifth Amendment is also relevant to "taking jurisprudence." The Due Process Clause provides in pertinent part that "[n]o person shall be … deprived of life, liberty, or property, without due process of law …."¹⁶

An emerging theory asserts that in many cases references to "takings" are not references to the Just Compensation/Eminent Domain Clause, but rather are metaphoric illusions to the Due Process Clause.¹⁷

It is the Due Process Clause that was primarily used in the first 30 years of the 20th century by the Supreme Court to strike down legislation that "took" the value of private property as an incident to regulation of private conduct. This use of now discredited "substantive due process" analysis had its genesis in regulatory rate cases, such as Munn v. Illinois,¹⁸ and industrial regulation cases, including Lochner v. New York.¹⁹ Commentators who support this theory suggest that the source of confusion in constitutional "taking" analysis has been the judicially fueled doctrinal convergence and intertwining of the Due Process and Just Compensation/Eminent Domain Clauses.²⁰

The Police Power

Like the power of eminent domain, the "police power" is not a term grounded in the express language of a particular clause of the Constitution. Rather, in this context, it is a short-hand term referring to the inherent power that lies at the heart of democratic government — the broad power to enact and enforce legislation intended to protect public health and advance public safety and the general welfare.

In a classic statement outlining the scope of the police power, Ernst Freund observed:

The state places its corporate and proprietary resources at the disposal of the public by the establishment of improvements and services of different kinds; and it exercises its compulsory powers for the prevention and anticipation of wrong by narrowing common-law rights through conventional restraints and positive regulations which are not confined to the prohibition of wrongful acts. It is this latter kind of state control that constitutes the essence of the police power.²¹

Whether a "taking" allegation is founded on the Just Compensation/Eminent Domain Clause or the substantive content of the Due Process Clause of the Fifth or Fourteenth Amendments, the central issue in every taking case is whether there has been a constitutionally permissible exercise of the police power.

Due Process, Eminent Domain and the Police Power: The First Century of Constitutional Interpretation

Just Compensation and Eminent Domain

In the most comprehensive and widely recognized historical analysis of the issue to date, it was found that

the concept of "taking" originally referred to the seizure of lands by the government, and that it retained this meaning through the time it was incorporated into our constitution and for a century thereafter. Only around the turn of the Twentieth Century — a period of conflict between freewheeling growth and expansion and an emerging concern that government regulation was needed — did the courts begin to expand the meaning of "taking" beyond the original conception.²²

Thus, contrary to the current view, there was once a "set formula" to determine whether there had been an unconstitutional taking: "It seems to be settled that, to entitle the owner to protection under this clause the property must actually be taken in the physical sense of the word …."²³

An unconstitutional taking, then, was originally limited by the literal terms of the Just Compensation Clause of the Fifth Amendment. When the government physically took private property with the intention or the effect of putting it to some public use, the private property owner either had to be fairly compensated or the government confiscation would be judicially nullified.

The Police Power

It was clear at the end of the 19th century that a legitimate exercise of the police power and a government physical confiscation of private property were conceptually quite different. An exercise of the power of eminent domain mandated the payment of just compensation; a valid exercise of the police power never required compensation, [17 ELR 10372] even though property values might be diminished. In Mugler v. Kansas,²⁴ the leading case setting forth this perspective, the first Justice Harlan observed that the police power is not burdened with requirements that compensation be paid:

The exercise of the police power by the destruction of property which is itself a public nuisance, or the prohibition of its use in a particular way, whereby its value becomes depreciated, is very different from taking property for public use…. In the one case, a nuisance is abated; in the other, unoffending property is taken away from an innocent owner.²⁵

In clear and unequivocal language the Court brushed aside the argument that has been advanced as the core of "regulatory taking" analysis: "A prohibition simply upon the use of property for purposes that are declared, by valid legislation to be injurious to the health, morals or safety of the community, cannot, in any just sense, be deemed a taking or an appropriation of property for the public benefit."²⁶ Mugler dealt a devastating, but not a fatal blow to the theory that when a diminution of private property values occurs as a result of enforcement of police power legislation, a compensable taking had occurred.

Notwithstanding Justice Harlan's emphatic statements, the general supremacy of the police power over rights of property was not resolved by Mugler and similar cases of the late 19th century. Other forces were at work in American life that set the course of constitutional analysis of due process, police power, and eminent domain on a collision course.

Due Process

The Fifth and the Fourteenth Amendments speak of due process. The Due Process Clause in each provides some measure of protection of life, liberty, and property from government deprivation.

In Munn v. Illinois,²⁷ the Supreme Court considered state-imposed maximum rates that the owner of a grain warehouse or elevator could charge for grain storage. The owners contended that the Due Process Clause of the Fourteenth Amendment prohibited states from setting rates in such a way as to deny them the full profit they might gain in a free market.

The Supreme Court made short shrift of these arguments in Munn, emphasizing, as it did a few years later in Mugler v. Kansas, the breadth of the police power, and the limits of the due process and just compensation guarantees. Said Chief Justice Waite:

Under these [police] powers the government regulates the conduct of its citizens one toward another, and the manner in which each shall use his own property, when such regulation becomes necessary for the common good…. [W]e think it has never yet been successfully contended that such legislation came within any of the constitutional prohibitions against interference with private property.²⁸

Flatly rejecting the grain warehouse owners' substantive due process argument, the Court denied even that a judicial remedy was available: "We know that this is a power which may be abused; but that is no argument against its existence. For protections against abuses by legislatures the people must resort to the polls, not to the courts."²⁹

Just one year later, in 1878, in the course of sustaining a special assessment against property owners, the Court underscored this point when it expressed surprise at the "strange misconception" that the Due Process Clause was a means to challenge the merits of legislation.³⁰

Thus, until the close of the 19th century the Supreme Court had no problem identifying a "set formula" for distinguishing valid exercises of the police power from unconstitutional "takings" of property without payment of just compensation. The rules were clear. If regulation of land, personal property, or business activities went "too far," citizens had recourse to the legislature, but not the courts. Only when the government actually occupied land, physically took, or otherwise confiscated private property, was compensation required.³¹

The Industrial Revolution, The Demise of an Agrarian Economy and the Ascendency of Substantive Due Process

At the time Mugler v. Kansas and Munn v. Illinois were decided, America was poised on the crest of a new economic tide that within three decades would radically change the way Americans lived and worked. It would also wreak havoc with the clearly defined constitutional doctrines explained so definitively in those cases.

In an especially enlightening discourse on the post-Munn-Mugler-era, which saw the meteoric rise and fall of substantive due process analysis, Professor Stephen Siegal observed that the time was "a period of controversy and change in American constitutional law. During that period, economic forces challenged and ultimately overthrew traditionally accepted social beliefs and legal doctrines."³² Siegal's work traces the evolution of the American economy from its small-scale, generally agrarian-oriented roots, to large-scale industrial enterprises, which could dominate the market because of, rather than in opposition to, market forces. This radically changing economic base caused a rethinking of many traditional legal concepts.³³

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For example, legislatures turned from subsidizing to regulating railroads. Railroads concentrated power and wealth; within a few decades they became virtually the lifeblood of the new industrial economy and had garnered sufficient power to hold the farm economy and new large scale industrial enterprises hostage to railroad haulage rates.³⁴

The railroads abused their economic power mainly by imposing exorbitant rates and discriminating among customers.³⁵ An alarmed public clamored for reform, and the legislatures responded by setting maximum rates in a variety of commercial enterprises. Munn involved rate regulations for grain storage, for example, but its holding controlled six other railroad rate cases as well. These cases are known collectively as the Granger Cases.³⁶

The broad interpretation of the police power and the sweeping rejection of the substantive due process attack on legislative ratemaking in Munn and the Granger Cases soon came under fire. Like Justice Field, who vigorously dissented in Munn,³⁷ they feared the legislative exercise of a police power unbridled by judicial review.³⁸ Munn's expansive view of the police power was seen as a threat to the property interests of the new "corporate America."³⁹

Jurists and commentators who shared this concern about the breadth of the holding in Munn cast about for some theory that would limit legislative exercise of the police power. Their search led to theories such as that of Justice Brewer, in which regulatory initiatives that set rates so low that a "fair return" on investment could not be realized ought to be judicially rejected as the virtual equivalent of physical confiscation of property.⁴⁰

After two decades of controversy and analytical gestation, in Smyth v. Ames⁴¹ the Supreme Court announced a test that stood for 40 years as the rule by which rate regulation could be distinguished from confiscation. The touchstone of Smyth v. Ames was a "fair return" on the "fair value" of a railroad's property.⁴²

It was only a short conceptual step from Smyth v. Ames to Lochner v. New York,⁴³ the landmark case which launched the era of intrusive judicial application of substantive due process analysis to legislative exercise of the police power. In Lochner, the New York legislature had enacted a law limiting the hours of work of persons employed in bakeries.⁴⁴ The Lochner Court declared the New York law unconstitutional, professing a deep-rooted concern for the freedom of the working man and woman to freely contract for their labor.⁴⁵

Thus the Court held that the right of a person "to make a contract in relation to his business is part of the liberty of the individual protected by the fourteenth amendment."⁴⁶ The Court emphasized that there were, of necessity, limits to the police power: "[o]therwise the … States would have unbounded power, and it would be enough to say that any piece of legislation was enacted to Conserve the morals, the health or the safety of the people; such legislation would be valid no matter how absolutely without foundation the claim might be."⁴⁷

The great deference shown in the Munn v. Illinois⁴⁸ and Mugler v. Kansas⁴⁹ was vitiated by the Court's refusal to imbue legislative exercises of the police power with a presumption of validity. The authority of the states to act to protect the public welfare through the police power was severely curtailed.

To the author of Mugler, the first Justice Harlan, [17 ELR 10374] Lochner's disregard of majoritarian principles was anathema.⁵⁰ Justice Harlan was not, however, the only dissenter in Lochner. Justice Holmes identified the source of such a radical departure from precedent as the evolving economic theory that had developed in unison with the transformation of America from a small enterprise agrarian-based economy to the world of industrial giants and corporate domination of the marketplace. To Holmes, this dramatic change in the machinations of the marketplace was no cause to recast well-established constitutional principles:

This case is decided upon an economic theory which a large part of this country does not entertain…. But a Constitution is not intended to embody a particular economic theory, whether paternalism and the organic relation of the citizen to the state or laissez faire.⁵¹

Justice Harlan predicted that Lochner would "involve consequences of a far reaching and mischievous character," for it would "seriously cripple the inherent power of the States to care for the lives, health and well-being of their citizens."⁵² Passage of time proved how prescient Harlan was; from 1905, when Lochner was decided, until the mid-1930s the Supreme Court invalidated nearly 200 police power regulations on substantive due process grounds.⁵³

The Misreading of Holmes' Opinion in Mahon

The preceding discussion noted that Justice Holmes categorically rejected the judicially crafted limitations on legislative police power initiatives. How then can one explain Holmes' opinion in Pennsylvania Coal v. Mahon, where the Court struck down a statute that typified state police power enactments?

If one accepts the conventional wisdom, Mahon is a "taking" case that stands for the proposition that it is within judicial discretion to determine when an exercise of the police power goes "too far" and will be declared a compensable taking. However, the Court's opinions in the last 50 years reflect the uncertainty engendered by a misapprehension of Holmes' statement in Mahon that if a regulation of property "goes too far, it will be recognized as a taking."⁵⁴

The conventional view of Mahon as a "taking" case, grounded in the Fifth Amendment's Just Compensation/Eminent Domain Clause, has recently been the target of cogent and compelling criticism. State cases from California and New York⁵⁵ reject the extant interpretation of Mahon, arguing instead that Mahon's reference to a "taking" was merely a metaphor for a substantive due process violation.

Having observed Holmes' stinging rebuke of the Court's economic substantive due process analysis in his Lochner dissent, this interpretation of Mahon suggests that rather than rewriting the Constitution, as some critics suggest,⁵⁶ Holmes' position is entirely consistent with his dissent in Lochner and his repeated reliance on Munn v. Illinois and Mugler v. Kansas in cases spanning his tenure on the Court.

In a recent, concise, and most persuasive discussion of "regulatory takings" it was argued that there has been a pervasive judicial misreading of Holmes' words in Mahon:

According to [the Court] the source of the regulatory taking theorem is Justice Holmes' opinion in Pennsylvania Coal: "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." An objective look at the opinion in Pennsylvania Coal, however, shows that this statement does not support [this] hypothesis. A careful reading of the opinion shows that Holmes used the word "taking" not to describe an event requiring payment of just compensation, but as a shorthand description of an invalid regulation.⁵⁷

Upon reflection, it appears obvious that Holmes did not mean that when police power regulation goes "too far" it becomes an exercise of eminent domain by the state; as noted above, a compensable eminent domain "taking" had always meant a physical occupation or confiscation of property for public use. When a police power regulation diminishes the value of private property in furtherance of public health, welfare, and safety one cannot seriously contend that such a regulation is also an exercise of the power of eminent domain absent some actual governmental occupation or use.

The point Holmes was really making with his observation about a regulation going "too far" was that even though the breadth of the police power is exceedingly wide and entitled to great judicial deference, on some rare occasions its effect on an individual is so egregious that it [17 ELR 10375] cannot be upheld unless the government compensates the person for his or her loss. In Pennsylvania Coal Holmes emphasized precisely this point:

[S]ome values are enjoyed under an implied limitation and must yield to the police power. But obviously the implied limitation must have its limits or the contract and due process clauses are gone. One fact for consideration is the extent of diminution. When it reaches a certain magnitude, in most if not all cases there must be an exercise of eminent domain and compensation to sustain the act.⁵⁸

Holmes' intent is clear. There must be some limits to the police power — certainly not the type of substantive due process limits Holmes had decried in his dissent in Lochner — but some limits that would vindicate the interests protected by the Due Process and Contract Clauses. When those limits were exceeded in a given case, the government could have its way nonetheless — by compensating the property owner for losses incurred. In this way compensation would "sustain" the otherwise invalid regulation.

If such an interpretation of Holmes' words in Mahon is doubted, one need only look to a contemporaneous Holmes opinion:

All the elements of a public interest justifying some degree of public control are present. The only matter that seems to us open to debate is whether the statute goes too far. For just as there comes a point at which the police power ceases and leaves only that of eminent domain, it may be conceded that regulations of the present sort pressed to a certain height might amount to a taking without due process of law.⁵⁹

Given Holmes' serious and deeply rooted objections to the Court's open-ended use of substantive due process to attack police power regulations, it is apparent that the Justice was articulating what he believed to be a viable alternative to a Lochnerian analysis. A careful reading of the cases suggests that Holmes' concerns were directed at maintaining the integrity of important constitutional principles: the need to uphold majoritarian judgments expressed in police power regulations and the protection of individual rights afforded citizens by virtue of the Due Process and Contract Clauses.

The great weight Holmes placed on upholding majoritarian values is evidenced by his recognition that even in those rare instances when the constitutional presumption of validity of a police power initiative is overcome, the government can still have its way if it fairly compensates the individual for the loss of his or her property. Indeed, rather than suggesting limits on majoritarian rule by limiting legislative exercise of the police power, Holmes opted for an even broader view of that governmental prerogative. By paying a citizen when a regulation placed too heavy a burden on him or her (i.e., had gone "too far"), government could avoid any due process concerns and advance its police power goals.

By suggesting that due process deprivations of property interests could essentially be cured by paying compensation, Holmes sought to accomplish a variety of interrelated objectives. Each objective relates to an integral component of the complex constitutional balance between personal rights, and the ability of government to advance the interests of the community.

Thus, it was Holmes' ingenious goal in Mahon and other cases to validate the Due Process Clause as a limited, rather than open-ended, guarantee of individual rights, to protect the interests advanced by the Contract Clause, and to give recognition to the need of democratic government to adhere to the will of the electorate.

When read in this light, the consistency of Holmes' position is apparent. Rather than attempting to "rewrite the constitution" as Bosselman, Callies, and Banta suggest in their widely cited work, The Taking Issue,⁶⁰ Justice Holmes' jurisprudence exhibits the external and internal consistency and faith in the basic good sense of the framers that has made him one of the foremost American jurists of the 20th century.

Conclusion

Reduced to its essence, Mahon is simply a case where, on the facts, the state law at issue had the effect of destroying the entire value of a coal company's property without advancing any important public interest. Notwithstanding the view of numerous judicial and scholary commentators, Mahon does not suggest that an invalid exercise of the police power requires compensation under the Just Compensation Clause of the Fifth Amendment.⁶¹ Pather, Holmes' opinion in Mahon kept faith with the Court's recognition of the importance of majoritarian rule expressed in cases like Mugler v. Kansas and Munn v. Illinois. Contrary to the contemporary confusion of the Supreme Court's taking jurisprudence, these cases contained widely accepted "set formulas" to deal with cases where due process and eminent domain issues were involved. Pennsylvania Coal Co. v. Mahon was never intended to depart from the consistency and analytical integrity of the Court's prior decisions.

The misreading of Holmes' opinion in Mahon has led to a jurisprudence devoid of logic that threatens fundamental constitutional values. This threat lies in the resurrection of a substantive-due-process-like approach to judicial review in the guise of "taking" arguments. This [17 ELR 10376] approach has been advanced in large measure by those whose profit and balance sheet is adversely affected by legislative attempts to further public health, safety, and welfare.

Thus, corporations' and individuals' challenges to environmental and public safety regulations, as in Keystone, are commonly on grounds that their "investment backed expectations" have been upset.⁶² For example, in one case, Ruckelshaus v. Monsanto,⁶³ a claim was made that chemical formulas for the manufacture of toxic materials were valuable trade secrets that the government could not acquire and disclose as part of its effort to regulate toxics, without paying compensation to the company possessing the formula. Keystone may signal a step away from the continuing viability of this sort of challenge; although the Court acknowledged that there was some upset of the "investment backed expectations," the degree of infringement shown did not materially affect those expectations.⁶⁴

Given the substantial public interest in identifying toxic chemicals and tracking them as they are manufactured, used, and disposed, claims of constitutional violation such as that asserted in Monsanto, would seem patently absurd — were it not for the tortured and confused "taking" jurisprudence that has evolved in the wake of the misreading of Mahon.⁶⁵ Were such claims couched in terms of substantive due process rather than as a taking, they would be rejected as emphatically as was the company's position in Williamson v. Lee Optical Company:

The Oklahoma law may exact a needless, wasteful requirement in many cases. But it is for the legislature, not the Courts, to balance the advantages and disadvantages of the new requirement.

The day is gone when this Court uses the Due Process Clause … to strike down state laws, regulatory of business and industrial conditions, because they are unwise, improvident, or out of harmony with a particular school of thought. We emphasize again what Chief Justice Waite said in Munn v. Illinois, … "for the protection against abuses by legislatures the people must resort to the polls, not to the courts."⁶⁶

Indeed, economic substantive due process never offered foes of majoritarian democratic rule a tool as potentially disruptive of democratic government as is advanced in the context of contemporary taking analysis. Somehow the Supreme Court's taking jurisprudence has been turned on its head; Justice Holmes, an arch foe of the Lochner line of economic substantive due process cases, has been transformed into the doctrinal guru of a taking analysis that is perhaps more pernicious than its conceptual twin.

What is needed is a return to the logic and consistency of Munn v. Illinois, Mugler v. Kansas, and, as was observed above, the intent of Justice Holmes in Mahon. There are "set formulas" clear enough to excise the confusion from the bottomless swamp of current "regulatory taking" discourse if the Court will but recognize the wisdom of an earlier time as articulated by some of the wisest of American jurists: Holmes, Brandeis, and the first Justice Harlan.

Once again the concept of eminent domain compensation would be restricted to its proper and obvious role; as a limitation on government occupation and use of private property for public purposes and as a vehicle to legitimize by compensation those unusual legislative initiatives that go "too far" in placing society's burdens on an individual.

The Due Process Clause would also serve an important yet limited function. It would not be used, as in Lochner, as a means for courts to strike down legislation enacted to advance public health, safety, and welfare; rather it would be utilized only as a limit on those particular exercises of government power that benefit the public while placing an "inordinate and fundamentally unfair" burden on innocent individuals.

The Court would then have interred the aberrant "takings" analysis of the last half century where it belongs: in the mausoleum of discarded and discredited constitutional doctrine where its conceptual twin, economic substantive due process, was buried 60 years ago.

1. U.S. CONST. amend. V. The Fifth Amendment acts as a limitation on the power of the federal government. The Just Compensation Clause has been made applicable to the states through the Due Process Clause of the Fourteenth Amendment. See Chicago Burlington & Quincy R.R. Co. v. Chicago, 106 U.S. 226 (1897).

2. 17 ELR 20440 (U.S. Mar. 9, 1987). For a review of the issues in this case see Comment, The Supreme Court: 1985-86 Term in Review and a Look Ahead, 16 ELR 10325, 10329 (1986). The case was argued before the Court on November 10, 1986, and decided March 9, 1987. Keystone is the first of a trilogy of important land-use cases decided in the Supreme Court's 1986-87 term involving the regulatory takings issue. The second case, First Evangelical Lutheran Church of Glendale v. County of Los Angeles, 17 ELR 20797 (U.S. June 9, 1987), held that a so-called "temporary" regulatory taking, in which the landowner is denied all use of his or her property for a time, is not different in kind from a permanent taking. Accordingly, the landowner must be compensated for the value of the property during the time in which the property was taken. The third regulatory takings case, decided just prior to the end of the term, Nollan v. California Coastal Comm'n, 17 ELR 20918 (U.S. June 26, 1987), held that a governmental requirement that landowners along a beach-front allow the public access across their private beach as a condition of a building permit is an uncompensated government taking. The Court noted that conditioning the permit on the grant of a public easement would be a lawful land use regulation if the easement substantially furthered "public purposes"; however, the regulation at issue in Nollan failed in this regard. Both First English Lutheran Church and Nollan relied on Mahon as the analytical touchstone for determining whether a taking had occurred, and neither departed significantly from the traditional, and somewhat muddled, takings principles. See First English Lutheran Church, 17 ELR at 20790 (quoting Mahon, 260 U.S. at 415), and Nollan, 17 ELR at 20919-20.

3. 260 U.S. 393 (1922).

4. Keystone, 17 ELR at 20441.

5. Mahon, 260 U.S. at 415.

6. Stoebuck, Police Power, Takings and Due Process, 37 WASH. & LEE L. REV. 1057, 1059 n.11 (1980).

7. Williamson Co. Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. __, __, 105 S. Ct. 3108, 3124 (1985), citing C. HAAR, LAND USE PLANNING 766 (3d ed. 1976).

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

9. Id. at 124, 8 ELR at 20533.

10. See, e.g., B. ACKERMAN, PRIVATE PROPERTY AND THE CONSTITUTION (1977); N. BOWIE, TOWARDS A NEW THEORY OF DISTRIBUTIVE JUSTICE (1971); R. EPSTEIN, TAKINGS, PRIVATE PROPERTY AND THE POWER OF EMINENT DOMAIN (1985); Costonis, Presumptive and Per Se Takings: A Decisional Model For The Taking Issue, 58 N.Y.U. L. REV. 465 (1983); Humbach, A Unifying Theory for the Just-Compensation Cases: Takings, Regulation and Public Use, 34 RUTGERS L. REV. 243 (1982); Sax, Takings, Private Property and Public Rights, 81 YALE L. REV. 149 (1971); Sax, Takings and the Police Power, 74 YALE L. REV. 30 (1964); Stoebuck, A General Theory of Eminent Domain, 47 WASH. L. REV. 553 (1972).

11. See, e.g., San Diego Gas & Electric Co. v. City of San Diego, 450 U.S. 621, 636, 11 ELR 20345, 20351 (1981) (Brennan, J., dissenting).

12. Id. at 20443, 20444. Justice Stevens, writing for the five-Justice majority in Keystone noted that Holmes had disputed Brandeis' conclusion that the 1921 Pennsylvania law was a legislative attempt to abate a public nuisance. Holmes had said in Mahon that "this is the case of a single private house … the damage is not common or public." Id. at 20443 (quoting Mahon, 260 U.S. at 413-14). Stevens went on to observe the "Court's hesitance to find a taking when the state merely restrains uses of property that are tantamount to public nuisances…. Under our system of government," said Stevens, "one of the state's primary ways of preserving the public weal is restricting the uses individuals can make of their property." Keystone, 17 ELR at 20445.

13. 17 ELR at 20445 (citations omitted) (quoting Mugler v. Kansas, 123 U.S. 623, 665 (1887)).

14. U.S. CONST. amend. V.

15. See United States v. Carmack, 329 U.S. 230, 241-42 (1946); F. BOSSELMAN, D. CALLIES & J. BANTA, THE TAKING ISSUE (1973); Kratovil & Harrison, Eminent Domain — Policy and Concept, 42 U. CAL. L. REV. 596 (1954).

16. U.S. CONST. amend. V (emphasis added).

17. See Williamson County Regional Planning Commission, 473 U.S. at __ n.15, 105 S. Ct. at 3124 n.15 (citing commentators who espouse this view). See also Fred F. French Investing Co. v. City of New York, 39 N.Y.2d 587, 594, 6 ELR 20810, 20811 (1976).

18. 94 U.S. 113 (1877).

19. 198 U.S. 45 (1905). See also Allgeyer v. Louisiana, 165 U.S. 578 (1897).

20. For a discussion of this perspective, see Williamson County Planning Commission, 105 S. Ct. at 3122-23.

21. E. FREUND, THE POLICE POWER (1904); see also Noble State Bank v. Haskel, 219 U.S. 104 (1911).

22. F. BOSSELMAN, D. CALLIES & J. BANTA, supra note 15, at 51.

23. T. SEDGWICK, A TREATISE ON THE RULES WHICH GOVERN THE INTERPRETATION AND CONSTRUCTION OF STATUTORY AND CONSTITUTIONAL LAW 519-20 (1st ed. 1857). See also Commonwealth v. Alger, 66 Mass. (7 Cush.) 53 (1853).

24. 123 U.S. 623 (1887).

25. Id. at 668-69.

26. Id.

27. 94 U.S. 113 (1877).

28. Id. at 125.

29. Id. at 134.

30. Davidson v. New Orleans, 96 U.S. 97, 104 (1878).

31. In Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982), the Court held that any permanent physical occupation authorized by the government is a taking, regardless of the public interest it may serve. This holding is consistent with the clear language of the Just Compensation/Eminent Domain Clause of the Fifth Amendment.

It has been suggested, however, that this decision rejected the development of a "unified taking analysis" wherein due process and eminent domain principles could be combined. Thus, according to one commentator, the Court has "further muddied the water of taking jurisprudence." Note, Lorretto v. Manhattan CATV Corp., Permanent Physical Occupation As A Taking, 62 N.C.L. REV. 153, 161 (1983). Such a view ignores the obvious; the Due Process Clause and the Just Compensation/Eminent Domain Clause deal with separate and distinct constitutional concerns. Each clause expresses independent concerns of the framers; these considerations should be recognized and given weight by courts rather than being subsumed in some theoretical "unified taking theory."

32. Siegal, Understanding The Lochner Era: Lessons From The Controversy Over Railroad and Utility Rate Regulation, 70 VA. L. REV. 187 (1984).

33. Siegal concisely describes this development:

With the appearance of self-sustaining, large scale industrial concerns at the end of the nineteenth century, economic theory reversed itself and began to teach that economic concentration was inevitable. Modern technology, it was said, had undermined the validity of traditional economic thought about defacto monopolies. Modern technology involved the efficiencies of scale and the economics of sunk costs that allowed large-scale de-facto monopolies to defend themselves successfully against competition.

Siegal, supra note 32, at 203. See also R. LUSTING, LIBERALISM, THE ORIGINS OF MODERN AMERICAN POLITICAL THEORY 1890-1920, at 128 (1982).

34. It has been observed that in America it was the railroads that first drew public attention to the abuses that could accrue from combination of corporate power and wealth:

[T]o a greater extent than any other segment of the economic system, railroads and utilities achieved the large scale, concentrated, and interdependent form that … brought forth government intervention. The regulation of railroads and utilities … represented the cutting edge of the struggle between rights of property and the emergent administrative state. Both the function and the scale of railroad and utility undertakings meant economic and political power, power which was exercised and misused without hesitation. Corruption of public officials and discrimination among customers was endemic.

Siegal, supra note 32, at 188.

35. Id. at 194.

36. Stone v. Wisconsin, 94 U.S. 181 (1877); Winona & St. P. R.R. v. Blake, 94 U.S. 180 (1877); Chicago M. & St. P. R.R. v. Ackley, 94 U.S. 179 (1877); Lawrence v. Chicago & Nw. Ry., 94 U.S. 164 (1877); Piek v. Chicago & Nw. Ry., 94 U.S. 164 (1877); Chicago, B. & Q. R.R. v. Iowa, 94 U.S. 155 (1877).

37. Munn, 94 U.S. at 136.

38. For a review of commentary critical of Munn, see 2 C. WARREN, THE SUPREME COURT IN UNITED STATES HISTORY 574-96 (1922).

39. In a companion case to Munn, Justice Field voiced the concern that

so long as that decision [Munn] remains, it will be a waste of words to discuss the questions [raised] in these cases. That decision, in its wide sweep, practically destroys all the guarantees of the constitution and of the common law invoked … for the protection of the rights of the railroad companies. Of what avail is the constitutional provision that no state shall deprive any person of his property except by due process of law, if the state can, by fixing the compensation which he may receive for its use, take from him all that is valuable in the property?

Stone v. Wilson, 94 U.S. 181, 186 (1877).

40. See Reagan v. Farmers' Loan & Trust Co., 154 U.S. 362, 399, 410 (1894). In this case, Justice Brewer argued that the Just Compensation/Eminent Domain Clause protected railroads from rates that had been set too low by government regulators to cover costs of operation and other inherent expenses of doing business — interest charges on loans, mortgages, and the like. Justice Brewer's analysis and other theories like the "prudent investment" and "reproduction cost" theories competed for acceptance among the critics of the sweeping holding of Munn.

41. 169 U.S. 466 (1898).

42. The decision was interpreted to mean that the "fair return" due the company was a competitive dividend. See Siegal, supra note 29, at 226-27.

43. 198 U.S. 45 (1905).

44. Ten hours per day and sixty hours per week were the legislatively prescribed limits of the bakery employees work day and week. Id. at 46 n.1.

45. Id. at 59. Said the Court:

No trade, no occupation, no mode of earning one's living, could escape this all prevading power, and the acts of the legislature in limiting the hours of labor in all employments would be valid, although such limitation might seriously cripple the ability of the laborer to support himself and his family.

46. Id. at 56.

47. Id. at 56-57.

48. 94 U.S. 113 (1877).

49. 123 U.S. 623 (1887).

50. Lochner, 198 U.S. at 74 (Harlan, J., dissenting). Justice Harlan's dissent argued that legislative enactments should be judicially enforced as the will of the electorate "unless they are plainly and palpably, beyond all question, in violation of the … Constitution." Id. (citing Atkin v. Kansas, 191 U.S. 207, 223 (1903)). Justice Harlan did, at a later time, recognize economic substantial due process as having some vitality with regard to government regulation of business. See Adair v. United States, 208 U.S. 161 (1908) ("No evils arising from such legislation [as the New York bakery law] could be more far reaching than those that might come to our system of government if the judiciary, abandoning the sphere assigned it by the fundamental law, should enter the domain of legislation, and upon grounds merely of justice or reason or wisdom annul statutes that had received the sanction of the peoples' representatives.").

51. Lochner, 198 U.S. at 75 (Holmes, J., dissenting).

52. Id. at 73 (Harlan, J., dissenting). Holmes viewed the Lochner holding with undisguised disdain:

The liberty of the citizen to do as he likes so long as he does not interfere with the liberty of others to do the same, which has been a shiboleth for some …, is interfered with by school laws, by the post office, by every state or municipal institution which takes his money for purposes thought desirable, whether he likes it or not. The Fourteenth Amendment does not enact Mr. Herbert Spencer's Social Statics.

Id. at 75 (Holmes, J., dissenting).

53. G. GUNTHER, CONSTITUTIONAL LAW 564-65 (9th ed. 1975).

54. Mahon, 260 U.S. at 415.

55. Agins v. City of Tiburon, 24 Cal. 3d 266, 9 ELR 20260 (1978), aff'd, 447 U.S. 255, 10 ELR 20361 (1980), disapproved in part in, First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 17 ELR 20787 (U.S. June 9, 1987); Fred F. French Investing Co. v. City of New York, 39 N.Y.2d 587, 6 ELR 20810 (1976). For an enlightening discussion of this emerging view, see Stoebuck, supra note 6, at 1097-99.

56. See F. BOSSELMAN, D. CALLIES & J. BANTA, supra note 15.

57. Siemon, Of Regulatory Takings And Other Myths, 1 J. LAND USE & ENVTL. L. 105 (1985). See also Comment, Testing the Constitutional Validity Of Land Use Regulations: Substantive Due Process As A Superior Alternative To Takings Analysis, 57 U. WASH. L. REV. 715 (1982). A majority of the Supreme Court has recently indicated its awareness of this alternative reading of Mahon; see Williamson County Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. __, 105 S. Ct. 3108 (1985). The Court found in that case that, whether a due process or a just compensation/taking analysis was used, the issue would not be ripe foradjudication. The Court left for future consideration the point discussed above.

58. 260 U.S. at 413 (emphasis added). Holmes suggests here and in other cases that "diminution of value" is an indicator of when a regulation goes "too far." However, this diminution of value test is certainly not applicable to situations where the police power is exercised to protect the public from immoral, unsafe, or similar noxious or nuisance activities. No reasonable person would argue that the government would have to compensate a cocaine dealer when his cache has been confiscated during a police drug raid. In such case the entire value of the private property is physically taken and its value to the owner is reduced to zero. So, too, in the case of environmental regulation of pollution causing activities — like the use of DDT — the government may reduce the value of a corporation's property to nothing without exceeding its police powers or the Just Compensation Clause.

59. Block v. Hirsh, 256 U.S. 135, 156 (1921). In the same vein is Holmes' opinion in Hudson County Water Co. v. McCarter, 209 U.S. 349 (1908):

[T]he police power may limit the height of buildings, in a city, without compensation. To that extent it cuts down what otherwise would be the rights of property. But if it should attempt to limit the height so far as to make an ordinary building lot wholly useless, the rights of property would prevail over the public interest, and the police power would fail. To set such a limit would need compensation and the power of eminent domain.

Id. at 355.

60. Supra note 15.

61. See McGinley & Barrett, Pennsylvania Coal Company v. Mahon Revisited: Is the Federal Surface Mining Act a Valid Exercise of the Police Power or an Unconstitutional Taking?, 16 TULSA L. REV. 420, 451 (1981).

62. 17 ELR at 20446.

63. 467 U.S. 986, 14 ELR 20539 (1984) (disclosure under FIFRA).

64. 17 ELR at 20447.

65. Notwithstanding its use of the verbiage of post-Mahon regulatory taking cases, the Court's analysis in Keystone may signal the death knell for "regulatory taking" analysis where environmental regulations are intended to prohibit or abate private activities that create public nuisance-like effects. The Keystone opinion observes that

[t]he special status of this type of state action can also be understood on the simple theory that since no individual has a right to use his property so as to create a nuisance or otherwise harm others, the state has not "taken" anything when it asserts its power to enjoin the nuisance-like activity.

Id. at 20445.

66. 348 U.S. 483, 487, 488 (1955) (citations omitted).