The Deregulatory Takings Are Coming!

Nikolas Bowie –

Laws take. It’s what they’re for. Taxes take dollars from some people and distribute them to other people. Traffic laws take away drivers’ opportunity to speed through intersections. Zoning restrictions take from neighbors their ability to build apartments in their backyards. Talk to me about a law’s requirements and you’ll be talking about a taking.

The ubiquitous nature of takings is why the Supreme Court’s decision in Knick v. Township of Scott was, perhaps, its most consequential decision of the last Term.  The case dramatically expanded the range of circumstances in which a person can challenge a state or local law in federal court under the Takings Clause, which states that “private property [shall not] be taken for public use, without just compensation.” Given the current Court’s deregulatory impulses, the end result could endanger many redistributive laws at the local level, including inclusionary zoning rules, rent controls, and every other health and safety regulation that “takes.”

To understand the high-stakes world of uncompensated takings, it helps to know a little about the history of the Takings Clause. For its first century, the Clause was interpreted narrowly to apply only to the federal government’s use of eminent domain. If the federal government wanted someone’s land, the Takings Clause required it to pay “just compensation.” But if all the federal government did was take someone’s tax dollars or regulate the ways in which someone could use their property, the Takings Clause didn’t apply.

This changed after the Fourteenth Amendment prohibited states and local governments from depriving anyone of “property, without due process of law.” Now, lawyers for corporations, landlords, and other property owners began to argue that due process requires compensation for all takings, not just condemnations. These lawyers started challenging taxes, fees, price controls, minimum-wage laws, safety requirements, zoning restrictions, and other regulations as laws that unconstitutionally took their clients’ private property without providing any compensation in return.

Beginning in the 1890s, the Supreme Court agreed with the lawyers that the Takings Clause should apply to more than just the federal government and more than just a physical repossession of land. At the same time, the Court recognized that “Government hardly could go on” if it had to pay people every time a regulation diminished their property values. Seeking a middle ground, the Court held that the Constitution requires compensation for any regulation that “goes too far” in making one person sacrifice to solve a problem that everyone should pay for. “Too far,” of course, is not a clear test. A law that requires bars to close at midnight might be “too far” for bar owners and “not far enough” for neighbors who want to sleep. Unsurprisingly, therefore, the Court has spent the last century attempting to figure out when a law that takes is an “uncompensated taking” and when it’s just a law.

Determining whether a regulation “goes too far” is, inherently, subjective. “Private property” is just another term for what interests in stuff a government will protect. As a result, any adjustment of a property interest can be fairly deemed both a “taking” of that interest and, more charitably, a decision to protect other interests instead. It therefore matters who is assigned the task of determining in the first instance whether a law’s adjustments have gone too far. If the evaluator is familiar with the background of a regulation and sympathetic to the new interests it protects, they’ll probably be less likely to demand compensation for the regulation. And if the evaluator sees the regulation as a surprising intrusion into a property owner’s legitimate objectives, the opposite will be true.

In a 1985 case called Williamson County v. Hamilton Bank, the Supreme Court held that state and local officials, not federal judges, should get an exclusive first look at evaluating whether a law’s application to an affected person has gone “too far” in its redistribution of property interests. On the theory that the Takings Clause doesn’t prohibit all takings but only those made “without just compensation,” the Court prohibited federal courts from considering a takings claim until a plaintiff could show that the state or local government wouldn’t eventually compensate them in some form for the alleged taking. In 2005’s San Remo v. City and County of San Francisco, the Supreme Court added that Congress required any state or local findings to have a preclusive effect on subsequent federal cases.

In practice, all this meant that for the past few decades, anyone who wanted to challenge a state or local law under the Takings Clause had to go through state court. This gave sympathetic officials an opportunity to explain in their own proceedings why their own laws didn’t go “too far.” For example, when California developers challenged an inclusionary zoning ordinance as an uncompensated taking of their potential rental income, California courts evaluated the ordinance. The California Supreme Court ultimately determined that the ordinance validly struck a reasonable balance between protecting the developer’s interest in making a profit against the public’s interest in increasing the amount of affordable housing. Although the Supreme Court could have reviewed this decision, it would have had to rely on the California courts’ factfinding. Lower federal courts had no role to play.

Rose Mary Knick’s case ended this state-court monopoly. Knick owned farmland in Scott Township, Pa., on which she maintained a small graveyard. In 2012, her township passed an ordinance requiring all “cemeteries” to open themselves up to the public. Treating Knick’s graveyard as a cemetery, the township claimed she was violating the ordinance. Knick sued the township in federal court for its “uncompensated taking” of her right to exclude people from her farmland. But because of Williamson County, the federal court ordered her to first go through state proceedings and seek compensation that way.

The Supreme Court in Knick overturned this order and overruled Williamson County. Writing for the Court, Chief Justice Roberts reinterpreted the Takings Clause to prohibit uncompensated takings at the moment they take place—not after compensation is later denied, as Williamson County had held. Under this reinterpretation, the Chief wrote, Knick should have been allowed to challenge the cemetery ordinance in federal court, not just a state court. The contrary rule of Williamson County, he wrote, “relegates the Takings Clause ‘to the status of a poor relation’ among the provisions of the Bill of Rights.” Just as it would be unfair to make someone challenge a police officer’s use of excessive force in police court, the Chief thought it was unfair to make Knick challenge a local ordinance in local proceedings.

In dissent, Justice Kagan agreed that Williamson County was anomalous but only because the Takings Clause is anomalous. Unlike the clause of the Fourth Amendment that prohibits all uses of excessive force, she wrote, the Fifth Amendment prohibits only takings that are subsequently uncompensated. Given how difficult and subjective the line is between an ordinary taking and a Fifth Amendment “taking,” she added, the Williamson County rule had allowed state and local officials to bring their knowledge of local property law to bear on whether a law like the cemetery ordinance came out of nowhere (making it more likely that it went “too far”) or simply codified the common law (making it less likely).

After Knick, if a person thinks that a law effects an uncompensated taking, they can immediately sue in federal court. Writing for the majority, the Chief repeatedly sought to assure readers that the decision won’t change much. The Supreme Court has always had the ability to review the decisions of state courts, including Takings Clause cases, so the new rule doesn’t change the Court’s formal authority. And the Chief Justice stressed that the new rule wouldn’t lead federal courts to start blocking state laws, as rules governing federal injunctions prohibit courts from enjoining state laws when monetary damages—”just compensation”—would provide an adequate alternative remedy.

But the Chief’s take is a conservative one. In practice, Knick will likely have a tremendous effect. Regardless of whether federal courts issue injunctions, federal judges likely will be less sympathetic to most regulations than the state and local officials that previously held home-court advantage in evaluating their laws’ legitimacy. In this respect, it wouldn’t be surprising if Knick has an effect analogous to 1961’s Monroe v. Pape: a case that opened federal-court doors to claims alleging civil rights violations. Pape began the Warren Court’s reevaluation of the constitutional law of criminal procedure. By similarly opening federal-court doors to takings cases, Knick could allow a judiciary eager to expand the Court’s Takings Clause jurisprudence to start finding takings everywhere.

Federal judges will have a lot to work with. In the thirty years since Williamson County, local governments have passed rent control laws, inclusionary zoning laws, environmental protections, antismoking ordinances, gun-control laws, paid-leave requirements, labor regulations, and more. All of these laws take. That’s the point. Federal judges are about to evaluate whether these takings go “too far.” With their answers might come a sweeping deregulatory agenda.

Nikolas Bowie is an assistant professor of law at Harvard Law School.