Broadwater Farms Joint Venture v. United States

No. 96-5100 (121 F.3d 727, 46 ERC 1158) (Fed. Cir. July 31, 1997)

The court upholds a trial court determination that a use prohibition issued by the U.S. Army Corps of Engineers under Federal Water Pollution Control Act § 404 constitutes a mere diminution in value of a real estate developer's land and does not constitute a compensable categorical taking. The court, however, vacates the trial court's partial regulatory takings judgment. The court first upholds the trial court's finding that all 27 lots of the development constituted the relevant parcel for calculating the proportional loss in value. The developer financed, purchased, and developed all 27 lots as a whole, and each of the 12 restricted lots does not separately constitute an independent and divisible parcel. In order to constitute a categorical taking, the government's enforcement of a regulation must deny the owner all economically viable use. Here, the court finds that based on the determination that all 27 lots constituted the parcel as a whole for calculating the proportional loss in value, the trial court correctly determined that the developer has not lost all economic use of the entire parcel. The developer maintained the use of 15 of the 27 lots. If the developer had been able to sell all 27 lots, it would have grossed $ 1.48 million. In reality, the developer grossed $ 1.07 million on the 15 remaining lots. The court also holds that the trial court prematurely reached the determination that a compensable partial taking had not occurred. The trial court found that the economic impact felt by the developer was insignificant; however, it did not make any finding on the second and third factors used for determining whether a compensable regulatory taking has occurred. Without the benefit of these findings, the court cannot properly balance the economic impact of the regulation against its interference with the developer's investment-backed expectations and the propriety of the government's actions.

Counsel for Plaintiff
Keith A. Rosenberg
Meyer, Faller, Weisman & Rosenberg
4400 Jenifer St. NW, Ste. 380, Washington DC 20015
(202) 362-1100

Counsel for Defendant
Larry Liebesman
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Before Mayer and Schall, JJ.

[27 ELR 21517]

Radar, J.:

Broadwater Farms Joint Venture (Broadwater) appeals the United States Court of Federal Claims' judgment denying compensation for an alleged taking of real property under the Fifth Amendment of the United States Constitution. The Court of Federal Claims held that a use prohibition issued by the Army Corps of Engineers (Corps) under section 404 of the Clean Water Act, 33 U.S.C. § 1344, did not constitute a compensable taking. Because the trial court issued no findings of fact with regard to the character of the government's actions or the reasonableness of Broadwater's investment-backed expectations, as required in a partial takings analysis, this court vacates and remands.

Background

Broadwater purchased a portion of the Spyglass Subdivision at a foreclosure sale in September 1987 and took possession of the property in March 1988. The property—51 lots in Southern Anne Arundel County in the Chesapeake Bay Critical Area—had been subdivided and separated into phases before Broadwater acquired the property. Broadwater acquired a portion of Phase II (24 lots), which was substantially developed at the time of the purchase, and all of Phase III (27 lots), which was unimproved.

In August 1988, Broadwater sold the developed Phase II property to a residential developer and contracted with the same developer to deliver Phase III once Broadwater had installed the necessary infrastructure for residential development. This infrastructure included roads, electricity, storm drains, and sewage systems. Broadwater had completed 85 percent of the Phase III infrastructure as of August 14, 1989. On August 14, 1989, following an inspection of the property, the United States Army Corps of Engineers determined that Broadwater had discharged dredged materials into federally regulated wetlands without a permit and ordered all work on the property to cease. In November 1989, the Corps instructed Broadwater to restore certain areas of the development as close to their original condition as possible and to perform mitigation in exchange for the preservation of use rights in other areas. The Corps prohibited Broadwater from engaging in any further development of the portion of the property designated as wetlands.

The Corps' determination deprived Broadwater of the ability to develop 12 of the original 51 lots. As a result, Broadwater brought a Fifth Amendment taking action in the Court of Federal Claims asserting that the Corps' actions had deprived it of the entire value of the 12 lots. Finding for the United States, the Court of Federal Claims determined that a categorical taking had not occurred and that the diminution in value experienced by Broadwater was not significant enough to constitute a compensable regulatory taking. Broadwater appeals that decision.

Discussion

Parties seeking compensation under the takings clause of the Fifth Amendment must prove that the government's actions constitute either a categorical or compensable partial taking. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 120 L. Ed. 2d 798, 112 S. Ct. 2886 [22 ELR 21104] (1992); Loveladies Harbor, Inc. v. United States, 28 F.3d 1171 [24 ELR 21072] (Fed. Cir. 1994); Florida Rock Indus. v. United States, 18 F.3d 1560 [24 ELR 21036] (Fed. Cir. 1994). Turning first to the categorical takings analysis, the government's enforcement of a regulation must deny the owner all economically viable use to constitute a categorical taking. See Lucas, 505 U.S. at 1015; Loveladies Harbor, 28 F.3d at 1180. Thus, the governmental action cannot merely diminish the property's value. See Penn Central Transp. Co. v. New York City, 438 U.S. 104, 131, 57 L. Ed. 2d 631, 98 S. Ct. 2646 [8 ELR 20528] (1978). To determine whether a mere diminution in value has occurred or whether the owner has in fact been denied economically viable use, a court must compare the ratio of the land subject to restrictions with the plaintiff's entire property or "the parcel as a whole." Id. For this reason, a court's determination of what constitutes the parcel as a whole—which has been called "the denominator problem"—is critical to this analysis. Loveladies Harbor, 28 F.3d at 1180. In fact, the definition of the parcel often controls the entire takings analysis. See Lucas, 505 U.S. at 1016-17 (1992); Loveladies Harbor, 28 F.3d at 1180.

The Court of Federal Claims, in determining this issue, concluded that all 27 lots of the Phase III development, taken as a whole, constituted the relevant parcel. The trial court noted that the relevant parcel could not include the Phase II development because Broadwater did not own Phase II at the time of the Corps' actions. On appeal, Broadwater urges this court to consider each lot in the development as an individual parcel. If each lot in Phase III constitutes an individual parcel, then each of the twelve restricted lots could constitute a separate categorical taking.

The Supreme Court has held that the determination of what constitutes the parcel of land "must largely depend upon the facts of the particular case, and the sound discretion of the court." Sharp v. United States, 191 U.S. 341, 354, 48 L. Ed. 211, 24 S. Ct. 114 (1903). This court, in a case involving facts similar to the instant case, has suggested that rarely will each lot of a residential subdivision constitute a separate parcel, because doing so would cause the Corps' protection of wetlands to "constitute a taking in every case where it exercises its statutory authority." Tabb Lakes, Ltd. v. United States, 10 F.3d 796, 802 [24 ELR 20169] (Fed. Cir. 1993). In defining the proper parcel in a takings case brought by a residential developer, other factors such as: the contiguity of the lands, purchase dates, unity of use, and the extent that the protected lands affect the value of the remaining land, might be considered.

The trial court in this case found that Broadwater financed and purchased Phase III as a whole. It contracted for the improvements to the infrastructure for the property as a whole. Further Broadwater contracted with the same developer who purchased Phase II to sell Phase III, again as a whole, upon completion of the necessary infrastructure. The contract envisioned development of the property into a residential "community." The trial court determined that the value to Broadwater was in the property as a whole not in each individual lot. Based on these considerations, the trial court found that Broadwater treated all of Phase III as one uniform parcel of land.

After considering the facts of this case, this court upholds the trial court's finding that Phase III of the Spyglass Subdivision is one parcel for calculating the proportional loss in value. Because Broadwater financed, purchased, and developed Phase III as a whole, each of the twelve lots does not separately constitute an independent and divisible parcel. The trial court properly declined to consider the lots separate parcels at this point because Broadwater saw them as inextricably linked in its handling of the property.

Based on the determination that Phase III constituted the parcel as a whole for calculating the proportional loss in value, the trial court correctly determined that Broadwater has not lost all economic use of [27 ELR 21518] the entire parcel. Broadwater maintained the use of 15 of its 27 Phase III lots which, based on a lot-by-lot comparison, results in the preservation of 56 percent of the property use. The trial court determined that if Broadwater had been able to sell all 27 of the Phase III lots it would have grossed $ 1.48 million. In reality, Broadwater grossed $ 1.07 million on the 15 remaining lots, losing $ 410,000 or approximately 28 percent of anticipated gross value. The Court of Federal Claims was, therefore, correct in holding that a prohibition on development of 12 of Broadwater's original 51-one [sic] lots constituted merely a diminution in value and, therefore, does not constitute a compensable categorical taking.

Even if the government's actions do not constitute a categorical taking, the government can still be liable for a partial regulatory taking. See Florida Rock, 18 F.3d at 1565. To determine whether a compensable regulatory taking has occurred, this court balances the following three factors: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation interferes with investment-backed expectations; and (3) the character of the government action. See id. at 1564.

The trial court found that the economic impact felt by Broadwater was insignificant. However, the Court [of Federal Claims] did not make any findings on the second or third Florida Rock factors. Without the benefit of these findings, this court cannot properly balance the economic impact of the regulation against its interference with Broadwater's investment-backed expectations and the propriety of the government's actions. Given its limited findings, the Federal Claims Court prematurely reached its determination that a compensable partial taking had not occurred.

This court, therefore, vacates the trial court's judgment and remands for further findings with regard to the propriety of the government's actions and the regulation's interference with Broadwater's investment-backed expectations. The trial court will also have the opportunity to balance these findings with its assessment of the economic impact of the regulation to determine whether Broadwater is entitled to compensation under a partial regulatory taking analysis.