Blue Water Isles Co. v. Department of Natural Resources

Nos. 90886; 90887 (431 N.W.2d 53, 171 Mich. App. 526) (Mich. Ct. App. July 12, 1988)

The court upholds the Michigan Department of Natural Resources' (DNR's) denial of plaintiff's application for a permit under the Inland Lakes and Streams Act (ILSA) to dredge and fill 442 acres of marsh lands. The court first rejects plaintiff's argument that the ILSA is inapplicable on the grounds that the trial court allegedly made no finding that the marsh land was navigable. Plaintiff did not object to the statute's jurisdiction in the lower court proceedings. The court next holds that the trial court's finding that the DNR did not make a formal decision in 1974 to deny future permits in the affected area is supported by competent, material, and substantial evidence. The court then rejects plaintiff's claim that it was denied its right to an unbiased and impartial decisionmaker by DNR's dual role as the agency responsible for purchasing environmentally sensitive lands and for issuing development permits on these lands. Where quasi-judicial and quasi-legislative functions are performed by separate divisions within the same department, no deprivation of the right to an unbiased decisionmaker occurs. The court also finds that plaintiff failed to show actual or probable bias on the part of the DNR official responsible for plaintiff's permit application. The court next holds that the trial court did not err in applying standards under the state Wetland Protection and Environmental Protection Acts in addition to the ILSA. Lastly, the court holds that the permit denial did not constitute a taking of property requiring just compensation. Citing recent U.S. Supreme Court decisions, the court finds that the ILSA and the Wetland Protection Act, as well as the permit denial itself, were reasonably related to the state's preservation of its natural resources and the protection of the public trust in inland lakes and streams. The court also upholds the trial court's findings that there was no substantial depreciation in value of the plaintiff's land as a result of the permit denial and that various alternative uses of the land existed.

Counsel for Plaintiff-Appellant
John D. Pirich
Miller, Canfield, Paddock & Stone
One Michigan Ave., Ste. 900, Lansing MI 48933
(517) 487-2070

Counsel for Defendants-Appellees
Thomas J. Emery, Ass't Attorney General
Law Bldg., Lansing MI 48913
(517) 373-1110

Before MAHER, P.J., and DOCTOROFF and CONLIN,^* JJ.

[19 ELR 20349]

PER CURIAM.

Plaintiff, Blue Water Isles Company (BWIC), appeals as of right from a judgment granting the motion of defendants, Department of Natural Resources and Natural Resources Commission (DNR), for involuntary dismissal pursuant to MCR 2.504(B)(2).

These consolidated cases involve the DNR's denial of plaintiff's application for a permit under the Inland Lakes and Streams Act (ILSA), M.C.L. § 281.951 et seq.; M.S.A. § 11.475(1) et seq., to dredge and fill 442 acres of marsh lands, located in the St. John's marsh region at the delta of the St. Clair River. Plaintiff planned to construct 880 single-family residences, 20 acres of multiple high-rise buildings, 60 acres of multiple condominium buildings, and 20.3 acres of commercial office buildings.

After a neighboring landowner applied for and was denied a permit by the DNR to fill a portion of his land and construct residential apartments, plaintiff filed an action in the Ingham Circuit Court seeking damages and equitable relief for the "inverse condemnation" of its land. The circuit court ruled that plaintiff's suit was not ripe as it had not yet sought a permit from the DNR and that the Court of Claims had exclusive jurisdiction over plaintiff's damage suit. Plaintiff thereafter requested a permit to dredge and fill its 442 acres of marsh land. The DNR denied plaintiff's permit application on the basis that the proposed project would have a substantial adverse impact on the fish and wildlife remaining in the marsh and would destroy a significant part of the marsh.

Following the denial of its permit application, [19 ELR 20350] plaintiff's circuit court action for injunctive relief was consolidated with its Court of Claims action seeking money damages for the inverse condemnation of its land and a third circuit court action brought by two environmental groups charging that plaintiff's proposed use of the land violated Michigan environmental laws.¹

At the close of plaintiff's proofs, pursuant to MCR 2.504(B)(2), the DNR moved for involuntary dismissal of plaintiff's actions for injunctive relief and for money damages on the alleged claim of inverse condemnation. The circuit court issued a lengthy opinion containing its findings of fact and conclusions of law.

The circuit court ruled that plaintiff had not shown actual or probable bias in the DNR's denial of plaintiff's request for a permit. The court further ruled that plaintiff had failed to prove a past DNR policy to deny all permit applications in the St. John's marsh region such that plaintiff was denied an individualized hearing on its application and due process of law. On plaintiff's claim of inverse condemnation, the circuit court found that the DNR's denial of a permit had not caused a substantial reduction in value of plaintiff's property and, further, that there were various alternative uses for the marsh land which would be of substantial value to plaintiff yet would not destroy the marsh. Judgment was entered dismissing plaintiff's actions against defendants.

On appeal plaintiff sets forth a number of reasons in support of its contention that the trial court committed error requiring reversal in ruling that the DNR's denial of plaintiff's application for a permit to dredge and fill the marsh land was not unlawful.

The standard of review of a state administrative agency's decision is set forth in M.C.L. § 24.306; M.S.A. § 3.560(206):

"(1) Except when a statute or the constitution provides for a different scope of review, the court shall hold unlawful and set aside a decision or order of an agency if substantial rights of the petitioner have been prejudiced because the decision or order is any of the following:

"(a) In violation of the constitution or a statute.

"(b) In excess of the statutory authority or jurisdiction of the agency.

"(c) Made upon unlawful procedure resulting in material prejudice to a party.

"(d) Not supported by competent, material and substantial evidence on the whole record.

"(e) Arbitrary, capricious or clearly an abuse or unwarranted exercise of discretion.

"(f) Affected by other substantial and material error of law.

"(2) The court, as appropriate, may affirm, reverse or modify the decision or order or remand the case for further proceedings."

In reviewing the DNR's denial of a permit to plaintiff under M.C.L. § 24.306; M.S.A. § 3.560(206), the trial court found no basis to set aside the agency's decision. This Court reviews a decision of an administrative agency in the same limited manner as does the circuit court. Auto Club Ins. Ass'n v. Comm'r of Ins., 144 Mich. App. 525, 531, 376 N.W.2d 150 (1985).

Plaintiff first argues that the ILSA applies only to navigable water and since the trial court made no findings that the marsh land was navigable, the court erred in applying the statute. Plaintiff, however, did not object at trial to ILSA's sovereignty over its marsh land. Nor did plaintiff raise the issue of ILSA's inapplicability in its complaint in the circuit court or in the Court of Claims. Plaintiff's failure to raise this issue below precludes consideration by this Court. Bajis v. Dearborn, 151 Mich. App. 533, 536, 391 N.W.2d 401 (1986), lv. den. 426 Mich. 874 (1986). We additionally note that the DNR considered the criteria set forth in the Wetland Protection Act, M.C.L. § 281.701 et seq.; M.S.A. § 18.595(51) et seq., in acting on plaintiff's request for a permit. The latter act specifically covers marsh land and requires the obtaining of a permit to dredge, fill, and develop land covered under the act. M.C.L. §§ 281.702(g), 281.705; M.S.A. §§ 18.595(52)(g), 18.595(55).

Plaintiff next argues that the DNR unlawfully made a predetermination in 1974 that all permits in the St. John's marsh region would be denied regardless of their merit. Plaintiff claims that, since it was not included in this predetermination and did not receive notice of the decision, it was denied due process of law. The trial court found that plaintiff's proofs evidenced the DNR's concern for the region as an endangered natural resource. However, the DNR made no formal decision to deny all future permits in the area. We have reviewed the record and believe that the trial court's finding is supported by competent, material and substantial evidence.

Plaintiff also claims that it was denied its right to an unbiased and impartial decisionmaker. Crampton v. Dep't of State, 395 Mich. 347, 350-351, 235 N.W.2d 352 (1975), reh. den. 396 Mich. 956 (1976). The Administrative Procedures Act requires that administrative hearings be conducted in an impartial manner before an unbiased officer. M.C.L. § 24.279; M.S.A. § 3.560(179).

Plaintiff argues that because the DNR was responsible for decisions on permanent requests for development of the St. John's marsh region at the same time that the DNR was seeking to acquire for the state land within the region, the DNR had a conflict of interest in plaintiff's case which rendered it incapable of making an unbiased decision.

The trial court dismissed plaintiff's objection, noting that administrative agencies often perform quasi-judicial and quasi-legislative functions. Livonia v. DSS, 423 Mich. 466, 378 N.W.2d 402 (1985). We again find no error in the trial court's decision. Those seeking to acquire St. John's marsh region property had no control over the grant of permits in the same region. David Haywood, Assistant Chief of the Submerged Lands Division in the DNR, and the individual responsible for denying plaintiff's permit application, testified that his division acted only on ILSA permits and did not buy and sell land. Where, as here, these two separate functions were performed by separate divisions within one department, plaintiff was not denied its right to an unbiased decisionmaker.

Plaintiff similarly contends that David Haywood's actual and probable bias rendered him a partial and biased judge of the merits of plaintiff's application. As evidence of bias, plaintiff points to Haywood's awareness of the DNR's alleged policy to deny permits in the St. John's marsh region and of the DNR's desire to acquire land within the region.

Once again, the record clearly supports the trial court's finding that plaintiff failed to demonstrate actual or probable bias. Haywood testified that his denial of plaintiff's application was done in conjunction with the standards set forth in § 7 of the ILSA, M.C.L. § 281.957; M.S.A. § 11.475(7). Haywood denied that he was directed by his superiors to deny plaintiff's application or that his knowledge that the DNR wished to acquire St. John's marsh land affected his decision. The trial court's finding of no actual bias was based upon its assessment of Haywood's credibility; special regard should be given to the fact finder's superior ability to judge the credibility of witnesses. Kroll v. Crest Plastics, Inc., 142 Mich.App. 284, 290, 369 N.W. 2d 487 (1985), lv. den. 423 Mich. 859 (1985).

As evidence of Haywood's probable bias, plaintiff suggests that Haywood had a pecuniary interest in the outcome of the permit decision arising from the DNR's [19 ELR 20351] interest in acquiring plaintiff's land at a lower price. A due process violation may occur where the decisionmaker has a pecuniary interest in the outcome of the decision. Crampton, supra, 395 Mich. p. 351, 235 N.W.2d 352. The record amply supports the trial court's ruling that Haywood had no direct, pecuniary interest in either plaintiff's tract or in the DNR's acquisition of the land. Furthermore, because we have already found that the DNR's desire to acquire land in the St. John's marsh land did not create an impermissible conflict of interest, we reject plaintiff's argument that a pecuniary interest on the part of the DNR can be imputed to Haywood.

Plaintiff finally claims that the trial court's decision failed to comply with M.C.L. § 24.306; M.S.A. § 3.560(206) by using improper standards under the Wetland Protection Act and the Michigan Environmental Protection Act, M.C.L. § 691.1201 et seq.; M.S.A. § 14.528(201) et seq. Plaintiff's argument concerning the inappropriate simultaneous use of the ILSA and the Wetland Protection Act is not persuasive. The provisions of section 6 of the Wetland Protection Act do not mean that the two acts cannot apply simultaneously, but that a second permit requirement would be superfluous where one was required under the ILSA. Nor was consideration by the trial court of the Michigan Environmental Protection Act inappropriate. Furthermore, as denial of plaintiff's permit was supported under the ILSA's standards alone, M.C.L. § 281.957; M.S.A. § 11.475(7), any alleged error by Haywood in additionally considering the standards set forth in these other named statutes would be harmless.

We now turn our attention to the issue of whether the DNR's denial of plaintiff's application for a permit to dredge and fill its marsh land amounts to an act of inverse condemnation requiring that just compensation be paid to plaintiff. In its opinion granting defendant's motion for involuntary dismissal, the trial court found that no substantial reduction in value of plaintiff's marsh land had occurred as a result of defendant's permit denial and, additionally, that alternative uses of the marsh land existed which would be of substantial value to the plaintiff and yet not destroy the marsh. We review the trial court's findings of fact under the clearly erroneous rule set forth in MCR 2.613(C). Marderosian v. The Stroh Brewing Co., 123 Mich.App. 719, 724, 333 N.W.2d 341 (1983). A finding of fact is clearly erroneous when the reviewing court, after reviewing the entire record, is left with a definite and firm conviction that a mistake has been committed. Precopio v. Detroit, 415 Mich. 457, 462, 330 N.W.2d 802 (1982).

The trial court correctly recognized that under Michigan law a "taking" of private property for public use is not restricted to cases involving absolute conversion of private property, but also includes cases where the value of the property is destroyed by the action of the government or where the owner is excluded from use or enjoyment of his property or from any of the appurtenances thereto. Bott v. Natural Resources Comm., 415 Mich. 45, 81, n. 43, 327 N.W.2d 838 (1982), citing Pearsall v. Eaton Co. Supervisors, 74 Mich. 558, 561, 42 N.W. 77 (1889).

The issue of what constitutes a taking of property requiring just compensation has been the subject of recent United States Supreme Court decisions. Whether the impact of government action on a specific piece of property requires the payment of just compensation is essentially an ad hoc factual inquiry. Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 495, 107 S. Ct. 1232, 1247, 94 L. Ed. 2d 472, 494 (1987), citing Kaiser Aetna v. United States, 444 U.S. 164, 175, 100 S. Ct. 383, 390, 62 L. Ed. 2d 332 (1979). Relevant factors to be examined include the economic impact of the regulation, its interference with reasonable investment-backed expectations, and the character of the government action. Id. A land use regulation may be justified where the government's action is reasonably necessary to the effectuation of a substantial public purpose. Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 127, 98 S. Ct. 2646, 2660, 57 L. Ed. 2d 631 (1978), reh. den. 439 U.S. 883, 99 S. Ct. 226, 58 L. Ed. 2d 198 (1978).

Here, both the statutes under which the DNR reviewed plaintiff's application and the DNR's denial of plaintiff's request are reasonably related to the preservation of the state's natural resources and the protection of the public trust in inland lakes and streams.

Moreover, the trial court's finding that no substantial depreciation in the value of plaintiff's property had occurred as a result of the permit denial is not clearly erroneous. Plaintiff purchased the land in 1971 for approximately $ 800,000. It subsequently sold two parcels to a third party for $ 466,000. The remaining land was valued in 1978 by a state appraiser at $ 376,500. In 1979, the DNR offered plaintiff $ 426,000 for the parcel. Where plaintiff itself valued the property on its 1980 tax return as $ 600,000, the trial court did not err in finding no substantial depreciation in value of the property. Additionally, the trial court properly considered the existence of various alternative uses for the property which would not destroy the marsh land. Penn Central, supra, p. 137, 98 S. Ct. at p. 2665.

From our examination of the record, we find no error in the trial court's conclusion that the DNR's denial of a permit to plaintiff to dredge and fill its marsh land did not amount to an act of inverse condemnation.

AFFIRMED.

* Henry T. Conlin, 22nd Judicial Circuit Judge, sitting on Court of Appeals by assignment pursuant to Const. 1963, Art. 6, Sec. 23, as amended 1968.

1. The latter action is not part of this appeal.