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noting that such a fact-specific inquiry contemplates a situation in which the property retains more than a de minimis value, and, when considered in conjunction with other factors, the property was effectively taken from its owner
Summary of this case from Heartland Biogas, LLC v. Bd. of Cnty. Comm'rs of Weld Cnty.Opinion
No. 00SC151
December 17, 2001 Rehearing Denied January 14, 2002*
Certiorari to the Colorado Court of Appeals Court of Appeals No. 98CA1474
JUDGMENT REVERSED AND CASE REMANDED WITH DIRECTIONS
No. 00SC151 — Animas Valley Sand and Gravel, Inc. v. Board of County Commissioners of the County of La Plata, Colorado — Regulatory Takings — Inverse Condemnation — Colorado Constitution Article II, Section 15.
Animas Sand and Gravel (AVSG) brought an inverse condemnation action against La Plata County, alleging that a county land use plan effected a compensable taking of its property. Under the regulation, only a portion of AVSG's property can be used for sand and gravel mining. The remainder of the property can be used for agricultural, recreational, or office use either by right or by special permit.
The trial court found that the regulation left AVSG's land with an economically viable use and therefore did not effect a taking. The trial court focused its inquiry only on the portion of AVSG's land on which mining was not permitted. The court of appeal agreed that the economic viability test is determinative and that the relevant parcel of land is that most severely affected by the regulation.
The supreme court reverses and remands with directions. There is a two-tiered inquiry in regulatory takings cases. First, a landowner may prove a taking by showing that the regulation renders its land economically idle. Second, even if the land retains a reasonable economic value, a landowner can still prove a taking under a fact-specific inquiry. Furthermore, the appropriate scope of this inquiry is the landowner's land as a whole.
Abadie Zimsky, LLC, William E. Zimsky, Durango, Colorado, Attorneys for Petitioner/Cross-respondent
Goldman, Robbins Rogers, LLP, Michael A. Goldman, Jeffrey Robbins, Durango, Colorado, Attorneys for Respondent/Cross-petitioner
Carolynne C. White, Denver, CO, Attorney for Amicus Curiae Colorado Municipal League
Hall Evans, LLC, Josh A. Marks, Melanie B. Lewis, Denver, CO, Attorneys for Amicus Curiae Colorado Counties Inc.
Grimshaw Harring, P.C., Wayne B. Schroeder, Denver, CO, Attorneys for Amicus Curiae Peter C. Droste, Hayes, Phillips Maloney, P.C.
John E. Hayes, Denver, CO, Attorneys for Amicus Curiae American Planning Association
Bart Miller, Boulder, CO, Attorney for Amicus Curiae (Conservation Group): Clean Water Action (CWA); Colorado Environmental Coalition (CEG); Colorado Wild; CoPIRG Citizen Lobby (CoPIRG); National Audobon Society; San Juan Citizens Alliance (Alliance); Western Colorado Congress (WCC); Western Slope Environmental Resource Council (WSERC)
This case involves the effect of a county land use plan on real property lying within a river valley in La Plata County. The landowner, a sand and gravel company, initiated an inverse condemnation action against the county. The company alleged that the restrictions placed on its property, pursuant to the plan, result in a compensable taking. In this opinion, we apply the United States Supreme Court decision, Palazzolo v. Rhode Island, 121 S.Ct. 2448 (2001), issued after the court of appeals' decision in this case. Animas Valley Sand Gravel, Inc. v. Bd. of County Comm'rs, 8 P.3d 522 (Colo.App. 2000). Palazzolo makes clear that a two-tiered takings inquiry applies to a regulatory takings claim. First, a court must determine whether the landowner has proved a per se takings claim either by showing that the regulation has no legitimate purpose, or by showing that the regulation leaves his or her land without reasonable economic value. Second, if a landowner fails to prove a per se taking, the landowner still may be able to prove a taking occurred under a fact-specific inquiry.
Furthermore, in this opinion, we address the appropriate scope of a takings inquiry. We hold that a court must look to the regulation's effect on the entire parcel owned by the landowner. Thus, it is inappropriate to limit a takings inquiry solely to one particular right in the land, or, to a particular part of the land.
Because the court of appeals erred by deciding that the economic viability test is dispositive and by focusing only on the portion of the landowner's property most severely affected by the regulation, we reverse and remand.
I.
In 1961, Animas Valley Sand and Gravel (AVSG) purchased 46.57 acres of real property in La Plata County, Colorado. AVSG intended to use the land for sand, gravel, and heavy mineral mining. At the time of purchase, no county, state, or federal regulations governing sand and gravel operations existed.
In 1979, AVSG divided the original property into two tracts: Tract A, comprising 4.65 acres, and Tract B, comprising 41.92 acres. AVSG then sold Tract A to James Hanks, who is currently the president and majority shareholder of AVSG. Tract B remains under AVSG's ownership and is the parcel at issue here.
In 1993, La Plata County (the county) adopted the Animas Valley Land Use Plan (the plan). The plan sought to regulate development and activities within certain areas out of concern for flood control and also aesthetic concerns likely aimed at increasing tourism. At that time, AVSG had a permit to mine roughly eight acres of Tract B and two acres of Tract A. The county designated these ten acres as "industrial district" land (Industrial property) pursuant to the plan. Under this designation, AVSG is permitted to continue its sand and gravel operation. The county designated the remaining acreage as "river corridor district" land (River Corridor property). Although some agricultural, residential, professional office, and tourism uses are permitted (either by right or by special permit), mining of sand, gravel, and heavy minerals is not permitted on land with this designation.
Following the county's categorization of the parcel, AVSG requested that the county designate all of Tract B, rather than merely eight acres of it, as Industrial property. The county denied this request. AVSG then sought relief in the district court, pursuant to C.R.C.P. 106(a)(4). The district court denied AVSG's request for certiorari relief, as well as its subsequent motion to reconsider. No appeal was taken from this judgment.
Thereafter, AVSG filed a second lawsuit claiming inverse condemnation pursuant to the Colorado Constitution. AVSG asserted that the mineral estate on the thirty-three acres of River Corridor property is rendered economically idle by the plan. In the alternative, AVSG argued that even if a reasonable economic use remains, a compensable taking still should be found under a fact-specific inquiry because the plan goes too far. After a two-day bench trial, the trial court determined that the plan did not effect a compensable taking. The court focused its inquiry on the River Corridor property but looked at the plan's effect on that property without separating out the effect on the mineral rights. The court determined that a regulation must foreclose all reasonable use of the property for it to effect a taking. It held that because AVSG failed to prove that the plan rendered the River Corridor property economically idle, the plan did not effect a taking.
AVSG appealed the trial court's decision to the court of appeals. The court of appeals agreed with the trial court's definition of the property at issue — agreeing that while certain rights in the land may not be severed, the land may be geographically severed to ascertain the economic viability of the most severely affected portion of the land.Animas Valley, 8 P.3d at 525. Moreover, the court agreed with the trial court's determination that a taking can only occur when there is a total deprivation of reasonable use. Id. The court of appeals remanded the case, however, because it determined that the trial court may have placed an inappropriate burden of proof on AVSG. Id.
The court of appeals agreed with both parties that a landowner in an inverse condemnation action has the burden of proving lack of reasonable use by a preponderance of the evidence. The trial court did not specify which burden applied to AVSG. However, it cited cases that applied a clear and convincing standard and that applied a beyond a reasonable doubt standard. Accordingly, the court of appeals remanded, instructing the trial court to clarify the burden to which it held AVSG. This aspect of the court of appeals' decision is not at issue in this appeal.
AVSG petitioned this court to review the decision of the court of appeals, asserting that the court erred in holding that the economic use test is dispositive in a regulatory takings claim and in refusing to examine mineral rights separately. The county filed a cross-petition asserting that the court of appeals erred in limiting its focus only to the River Corridor property rather than examining the plan's effect on Tract B as a whole. We granted certiorari.
Specifically, this court granted certiorari on the following issues:
Whether a compensable regulatory taking can occur under Colo. Const. art. II, § 15, when the complained of regulation "goes too far" and substantially diminishes the value of the property, even in circumstances where the property retains some economically viable use.
Whether a regulation that prohibits the mining of property constitutes a compensable taking of the property owner's mineral rights under Colo. Const. art. II, § 15. Whether, in analyzing a portion of property to determine if a land use regulation results in a "taking," the court must consider the impact of the challenged action on the property as a whole.
II.
Inverse condemnation is a claim for relief brought by a landowner against a government defendant in which the landowner seeks compensation for a taking of its property, even though the governmental entity has not instituted formal condemnation proceedings. A taking may be effected by the government's physical occupation of the land or by regulation. While a landowner is not entitled to the most beneficial use of his or her land, see Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 125 (1978); Goldblatt v. Town of Hempstead, 369 U.S. 590, 592 (1962); Van Sickle v. Boyes, 797 P.2d 1267, 1271 (Colo. 1990); Sellon v. City of Manitou Springs, 745 P.2d 229, 234 (Colo. 1987), extensive regulatory interference warrants compensation. Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922) ("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.").
The record is unclear as to whether the plan is, in effect, a zoning ordinance or a master plan. However, the district court, in the first AVSG suit, noted that the county conceded that the plan is mandatory. In its order, the district court concluded that "[w]hether zoning or planning, it is clear that the [plan] contain[s] mandatory standards." C.R.C.P. 106(a)(4) Findings and Order, 8. The C.R.C.P. 106(a)(4) order was not appealed and the mandatory nature of the plan has not been an issue in the second AVSG suit. Thus, the extent of the binding power of the plan is not at issue here.
Takings jurisprudence balances the competing goals of compensating landowners on whom a significant burden of regulation falls and avoiding prohibitory costs to needed government regulation. Compare Krupp v. Breckenridge Sanitation Dist., 19 P.3d 687, 695 (Colo. 2001) ("The Takings Clause assures that the government may not force 'some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.'" (citing Dolan v. City of Tigard, 512 U.S. 374, 384 (1994)), with Mahon, 260 U.S. at 413 ("Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law.").
Both the federal and the Colorado constitutions include takings clauses. The federal takings clause provides, "nor shall private property be taken for public use, without just compensation." U.S. Const. amend. V. This provision is applicable to the states through the Fourteenth Amendment. Chicago, B. Q.R. Co. v. Chicago, 166 U.S. 226, 239 (1887). The Colorado takings clause provides, in relevant part, "[p]rivate property shall not be taken or damaged, for public or private use, without just compensation." Colo. Const. art. II, § 15.
Because AVSG brought this claim pursuant to the Colorado Constitution only, it is first necessary to address the scope of Article II, section 15 of the Colorado Constitution as compared to that of the Fifth Amendment of the Federal Constitution. This court has interpreted the "damage" language in Colorado's takings clause to provide broader rights than does the federal clause but only insofar as it allows recovery to landowners whose land has been damaged by "the making of . . . public improvements abutting their lands, but whose lands have not been physically taken by the government." City of Northglenn v. Grynberg, 846 P.2d 175, 179 (Colo. 1993) (applying the "damage" clause to the activities of a government entity on the mineral estate underneath the surface estate owned by the plaintiff landowner). The "damage" clause only applies to situations in which the damage is caused by government activity in areas adjacent to the landowner's land. See Pub. Serv. Co. of Colo. v. Van Wyk, 27 P.3d 377, 388 (Colo. 2001) (in applying the "damage" clause to an inverse condemnation claim of landowners adjacent to an above ground electric line, noting, "[t]he word 'damaged' is in the Colorado Constitution in order to grant relief to those property owners who have been substantially damaged by public improvements made upon land abutting their lands, but where no physical taking by the government has occurred") (emphasis added); Troiano v. Colo. Dep't of Highways, 170 Colo. 484, 488, 463 P.2d 448, 449 (1969) (applying "the rule long established in Colorado" that there may be recovery "[w]hen damages are occasioned an abutting owner by an improvement in the street in front of his property . . . "); Harrison v. Denver City Tramway Co., 54 Colo. 593, 131 P. 409 (1913) (applying the "damage" clause to the expansion of an electric street car line to a street abutting the plaintiff's land); City of Pueblo v. Strait, 20 Colo. 13, 36 P. 789 (1894) (applying the 'damage' clause to the construction of a viaduct abutting the plaintiff's land).
Other than this specific additional coverage, this court has interpreted the Colorado takings clause as consistent with the federal clause. See Cent. Colo. Water Conservancy Dist. v. Simpson, 877 P.2d 335, 346 (Colo. 1994). Accordingly, although AVSG does not rest its claim on the Federal Constitution, we look to both Colorado and federal case law for guidance.
III.
The first issue on which this court granted certiorari is whether there can be a compensable regulatory taking when some economically viable use remains on the property. Like the trial court, the court of appeals determined that the economic viability test is dispositive in a regulatory takings inquiry. Animas Valley, 8 P.3d at 525. Although, given the state of the case law at the time, the court of appeals' decision was not unjustified, a recent decision from the United States Supreme Court causes us to conclude that the court of appeals erred in this conclusion. Palazzolo, 121 S.Ct. 2448.
The United States Supreme Court has established two per se tests under which a regulation can effect a taking absent a physical encroachment onto the land. First, a regulation constitutes a per se taking when it "does not substantially advance legitimate state interests." Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1016 (1992). Second, a per se taking occurs when a regulation "denies an owner economically viable use of his land." (quotation marks omitted) Id. See also Keystone, 480 U.S. at 485 ("We have held that land use regulation can effect a taking if it 'does not substantially advance legitimate state interests, . . . or denies an owner economically viable use of his land.'") (alteration in original) (citing Agins v. Tiburon, 447 U.S. 255, 260 (1980). This second per se rule is at issue here. What has been unclear, until recently, however, is whether, in the absence of a per se taking, there nonetheless can be a taking pursuant to a second, fact intensive, inquiry.
The United States Supreme Court has noted that whether or not a taking has occurred "depends largely 'upon the particular circumstances [in that] case.'" Penn Cent., 438 U.S. at 124 (alteration in original) (citations omitted). In Penn Central, the Court listed the economic impact of the regulation, the regulation's interference with investment-backed expectations, and the character of the governmental action as three such factors (Penn Central factors). Id. While the Court has referred to these factors in subsequent cases, see, e.g., Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 495 (1987), its inquiry often has focused exclusively on the economic viability of the regulated land. See, e.g., Lucas, 505 U.S. 1003; Keystone, 480 U.S. 470;Agins v. Tiburon, 447 U.S. 255 (1980); Mahon, 260 U.S. 393.
In the most recent of these cases, Lucas, the Court found that the regulation deprived the landowner of reasonable economic value. The Court did imply, however, that in situations in which a reasonable value remains, a second inquiry is appropriate:
[A]n owner [for whom economic value remains] might not be able to claim the benefit of our categorical formulation, but, as we have acknowledged time and again, 'the economic impact of the regulation on the claimant and . . . the extent to which the regulation has interfered with distinct investment-backed expectations' are keenly relevant to takings analysis generally.
(alterations in original) Lucas, 505 U.S. at 1019 n. 8.
The opinions of our court reflect the lack of clarity of the United States Supreme Court decisions. While much of our precedent implies that a regulation does not effect a taking unless there is a nearly complete loss of economic value, Jafay v. Bd. of County Comm'rs, 848 P.2d 892, 901 (Colo. 1993); Van Sickle, 797 P.2d at 1267, one case references an alternate test. In State, Dep't of Health v. The Mill, we noted, "[r]egulation which does not prevent all economic use may also constitute a taking if it goes 'too far.' The determination of whether a regulation goes 'too far' . . . is essentially an 'ad hoc, factual' inquiry." 887 P.2d 993, 999 (Colo. 1994) (citations omitted).
A recent United States Supreme Court decision resolves any doubt that there is a two-tiered inquiry in regulatory takings cases. If a landowner fails to meet its burden of proving a per se taking, it can still prove a taking under a fact-specific inquiry. Palazzolo, 121 S.Ct. 2448.
In Palazzolo, the petitioner claimed a regulatory taking after the State of Rhode Island designated his land as coastal wetlands property. The trial court rejected his claim and the Rhode Island Supreme Court affirmed. Palazzolo v. State, 746 A.2d 707 (R.I. 2000). One of the bases for the state supreme court's conclusion was that under the wetlands designation, the land retained a value of $200,000 and thus the regulation did not render the land valueless. The United States Supreme Court affirmed the state court's determination that an economically viable use of the land remained. Nonetheless, the Court remanded the case for further determination under a fact-specific inquiry to complete the analysis. Palazzolo, 121 S.Ct. at 2465. The Court noted:
Where a regulation places limitations on land that fall short of eliminating all economically beneficial use, a taking nonetheless may have occurred, depending on a complex of factors including the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investment-backed expectations, and the character of the government action.
Id. at 2457 (citing Penn Cent., 438 U.S. at 124).
Thus, Palazzolo endorses a two-tiered inquiry in a regulatory inverse condemnation claim. First, a court must determine whether a per se taking has occurred. Second, if a landowner is unable to prove a per se compensable takings claim (because the regulation has a legitimate purpose and her land has not been rendered economically idle), the landowner still may be able to prove a taking has occurred under a fact-specific inquiry.
Although the Palazzolo Court did not address what level of interference a government regulation must have caused to constitute a taking under a fact-specific inquiry, a mere decrease in property value is not enough. This is true because a landowner is not entitled to the highest and best use of his property. Reading Palazzolo together with the Court's prior precedent, it is apparent that the level of interference must be very high.
See Penn Cent., 438 U.S. at 125; Goldblatt, 369 U.S. at 592; Van Sickle, 797 P.2d at 1271; Sellon, 745 P.2d at 234.
We draw this conclusion from several sources. First, we point to Justice Holmes's famous dictum that permits regulation without compensation unless the regulation goes "too far." Mahon, 260 U.S. at 415. Second, we note that the likely purpose of the fact-specific test is to provide an avenue of redress for a landowner whose property retains value that is slightly greater than de minimis. See Lucas, 505 U.S. at 1019 n. 8 (in which the Court references the Penn Central factors in response to the dissent's criticism that under the economic viability test "'[the] landowner whose property is diminished in value 95% recovers nothing,' while the landowner who suffers a complete elimination of value 'recovers the land's full value.'"(alterations in original)). Third, we look to a number of cases in which the Court determined that even a significant reduction in the value of land did not amount to a taking. See, e.g., Agins, 447 U.S. 255 (no taking with an eighty-five percent reduction in value); Vill. of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926) (no taking with a seventy-five percent reduction in value); Hadacheck v. Sebastian, 239 U.S. 394 (1915) (no taking with a 92.5% diminution in value). Finally, we note that inPalazzolo, the Court ordered a fact-specific inquiry when the regulation diminished the value of the petitioner's land by over ninety-three percent. 121 S.Ct. at 2456, 2457.
Thus, the Court's current formulation of the fact-specific inquiry seems to contemplate a situation in which the property in question retains more than a de minimis value but, when its diminished economic value is considered in connection with other factors, the property effectively has been taken from its owner. It provides a safety valve to protect the landowner in the truly unusual case.
The present case must be retried because the trial court determined, prior to trial, that the economic use test was dispositive. A new trial will permit the district court to apply the proper legal test and the parties to present evidence relevant to the ad hoc factual inquiry. Although there is ample evidence in the record to establish the nature of the regulation, the other factors are not well developed and AVSG has had no opportunity to prove their relevance.
This factor weighs in favor of the county. The record shows that there was no physical invasion of AVSG's property and that the plan serves a legitimate governmental purpose. In addition, the plan was properly adopted after public hearings in which AVSG participated. See Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 434-45 (1982) (examining whether there is a physical occupation of the landowner's property); Keystone, 480 U.S. at 485 (examining whether there is a legitimate public purpose behind the regulation); Dist. Intown Prop. Ltd. P'ship v. Dist. of Columbia, 198 F.3d 874, 879 (D.C. Cir. 1999) (limiting its inquiry of the "nature of the government interest" to whether there was a physical intrusion and whether the regulation was for a legitimate governmental purpose).
The two Penn Central factors on which more evidence is needed are the economic impact of the plan, and the plan's impact on investment-backed expectations. First, as a threshold matter, it is unclear whether the plan itself has had any economic impact on AVSG's land. The extent to which the sand and gravel industry has been regulated independent of the plan must be established. The record reveals that AVSG has operated under a permit since 1985. There is no evidence, however, regarding how long and to what extent the sand and gravel industry, in particular, and land use, in general, has had to conform to regulations in Animas Valley. The trial court must determine to what degree the current restrictions on AVSG's property are attributable to the plan rather than to the accumulated state and federal regulations of the past several decades that have arisen from both a growing population and an increased awareness of the environmental consequences of industry.
It is undisputed that the plan allows precisely the same use of AVSG's land as had occurred prior to the plan's enactment. See Esposito v. South Carolina Coastal Council, 939 F.2d 165, 170 (4th Cir. 1991) (noting that whether the regulation affects the existing use of the property is significant in determining the regulation's economic impact).
In weighing the significance of past regulation, the trial court should keep in mind that the United States Supreme Court has noted that landowners cannot establish a takings claim "simply by showing that they have been denied the ability to exploit a property interest that they heretofore had believed was available for development . . . ". Penn Cent., 438 U.S. at 130.
Assuming at least some restriction can be attributed to the plan, the trial court must then quantify the resulting diminution in value, if any, of the property. The court must ascertain the net value of the land's use before and after the plan, and compare these two values. It is not enough to simply quantify the value of the sand and gravel deposits that could not be mined as a result of the plan. Rather, the court must measure the diminution, if any, in the fair market value caused by the regulatory imposition. See 2A Julius L. Sackman, Nichols On Eminent Domain § 12.01 (3d ed. 2001).
Second, if AVSG is able to prove a diminution in value that is both substantial and attributable to the plan, AVSG will then need to prove that its reasonable investment-backed expectations were adversely impacted by the plan. There is a dispute regarding the long-range investment expectations of AVSG. While the county presented evidence that, since the retirement of the founder, AVSG has become a small-time "one-retiree operation," AVSG presented evidence that the company had larger plans. The trial court must make findings of fact resolving this issue and must determine if AVSG had a reasonable expectation that it could mine areas other than the land already permitted to be mined.
AVSG and the county may chose to raise other factors for the trial court's consideration. While the Court in Palazzolo lists the Penn Central factors as the relevant focus of an ad hoc, factual inquiry, 121 S.Ct. at 2457, Penn Central itself stresses that although these factors have "particular significance," there is no "set formula" for determining when a compensable regulatory taking has been effected. 438 U.S. at 124. Justice O'Connor's concurrence in Palazzolo emphasizes that "Penn Central does not supply mathematically precise variables, but instead provides important guideposts that lead to the ultimate determination whether just compensation is required." 121 S.Ct. at 2466 (O'Connor, J., concurring). Thus, no one factor is dispositive. Each case must be decided on its own facts.
For example, the county may assert that AVSG gained benefits from the implementation of the plan (often termed, "average reciprocity of advantage"). See Dolan, 512 U.S. at 408; Hodel v. Irving, 481 U.S. 704, 715 (1987).
In sum, if AVSG is to prevail, it must show that it falls into the rare category of a landowner whose land has a value slightly greater than de minimis but, nonetheless, given the totality of the circumstances, has had its land taken by a government regulation.
IV.
The second and third issues on which we granted certiorari deal with the definition of the property interest at stake. Because both the per se economic viability test and the Penn Central factual test involve a comparative analysis between the value of the property before and after the regulation, the definition of the relevant parcel of land is key to the inquiry. See Keystone, 480 U.S. at 496 ("Because our test for regulatory taking requires us to compare the value that has been taken from the property with the value that remains in the property, one of the critical questions is determining how to define the unit of property 'whose value is to furnish the denominator of the fraction.'") (quoting Frank Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of "Just Compensation" Law, 80 Harv. L. Rev. 1165, 1192 (1967)); Jan G. Laitos, Law of Property Rights Protection § 2.01[C] (1999) (noting that "[o]ne critical threshold issue for takings cases is ascertaining the size of the property affected by the police power").
AVSG suggests that in defining the relevant portion of the property, two forms of conceptual severance are appropriate: first, a geographical severance separating out the thirty-three acres of River Corridor property from Tract B as a whole; second, a rights severance, separating out the mineral rights from the full bundle of rights in the land. Conversely, the county claims that the appropriate scope of a takings inquiry is the entire parcel that the landowner owns.
Both the trial court and the court of appeals held that the appropriate scope of the takings inquiry is the full "bundle" of property rights, rather than simply the mineral rights. However, these courts did sever conceptually the acreage of the property focusing only on the thirty-three acres of River Corridor property without regard to the remainder of Tract B.
We agree that mineral rights should not be considered in isolation. However, because we hold that the appropriate scope of a takings inquiry is the entire parcel of property owned by AVSG, we find that the court of appeals and trial court erred in limiting the focus of their inquiries to merely the River Corridor property.
A.
First, AVSG asserts that in assessing whether or not a regulation has effected a taking, it is appropriate to examine the regulation's effect on one distinct right in the property (in this case, mineral rights) rather than on the entire bundle of rights. The trial court and court of appeals in this case rejected this argument. We agree.
The United States Supreme Court has consistently held that in a regulatory takings case, a court must determine the regulation's effect on the full rights in the land.
In Penn Central, the landowner asserted that because New York City's Landmarks Preservation Law significantly reduced its ability to build on top of Grand Central Terminal, the law effected a compensable taking of its land. In addressing the appropriate scope of the takings inquiry, the landowner argued that the Court should ascertain the law's effect on one aspect of the property interest, i.e., the airspace above the terminal. The Court rejected such a conceptual severance as "quite simply untenable." Penn Cent., 438 U.S. at 130; see also Andrus v. Allard, 444 U.S. 51, 65-66 (1979) (noting that, "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"); Clajon v. Petera, 70 F.3d 1566, 1577 (10th Cir. 1995) (refusing to separate out just one stick (hunting rights) in the bundle of rights in an inverse condemnation action).
The Court applied the same reasoning in Keystone. There, the petitioners, an association of coal mining companies, claimed that Pennsylvania's Bituminous Mine Subsidence and Land Conservation Act effected a regulatory taking of their property. The act, in part, required coal mining companies to leave at least fifty percent of the coal beneath certain protected structures in place to ensure proper surface support so that the land would not subside. Keystone, 480 U.S. at 476-77. Petitioners claimed that this act effected a taking of the support estate — defined as consisting of the right to remove the strata of coal and earth that undergird the surface or to leave those layers intact to support the surface and prevent subsidence. Id. at 498. The petitioners urged the Court to ascertain the act's effect on the support estate of the land, rather than on the land as a whole. Id. at 479. The Court concluded that even though Pennsylvania property law regards the support estate as a separate interest in land that can be conveyed on its own, "takings jurisprudence forecloses reliance on such legalistic distinctions within a bundle of property rights." Id. at 498.
A footnote in Lucas may leave the door open to rights severance if the right at issue is fundamental. In a discussion of the "denominator question," the Court notes:
The answer to this difficult question may lie in how the owner's reasonable expectations have been shaped by the State's law of property — i.e., whether and to what degree the State's law has accorded legal recognition and protection to the particular interest in land with respect to which the takings claimant alleges a diminution in (or elimination of) value."
Lucas, 505 U.S. at 1016 n. 7.; see also, Laitos, supra at § 11.03[C] (recognizing an exception for a "critical stick," such as the right to sell). Precisely which rights may fit this exception is not before us in the current case. The precedent is clear that mineral rights may not be severed.
Thus, in this case, the trial court and court of appeals were correct in holding that the appropriate focus of a takings inquiry is the property rights as an aggregate rather than merely the mineral rights.
B.
Second, AVSG contends that in assessing the economic effect of the plan, a court should look to the diminution in value of only the thirty-three acres designated as River Corridor property rather than of the entirety of Tract B. Both the trial court and the court of appeals agreed with AVSG and identified the River Corridor property as the relevant focus of the takings inquiry. This was in error. The appropriate "denominator" for determining the economic impact of a regulation is the contiguous parcel of property owned by the landowner, not merely the segment most severely affected.
The United States Supreme Court has held that in assessing a takings claim, a court must look to the regulation's effect on the property as a whole:
'Taking' jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, this Court focuses rather both on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole . . . .
Penn Cent., 438 U.S. at 130-31; see also Colo. Water, 877 P.2d at 347 (citing, with approval, this language from Penn Central). Moreover, inDolan, in discussing whether an exaction would deprive the landowner of all economic use, the Court examined the value of the property as a whole — not simply the portion affected by the exaction. Dolan, 512 U.S. at 385 n. 6.
Thus, in determining the economic ramifications of a regulatory act, a court must look at the contiguous parcel of land owned by the petitioner, not merely the portion most drastically affected by the regulation. Were we to accept AVSG's position that a court should evaluate the effect of a regulation with respect to only one segment of the parcel, virtually any land use regulation would effect a taking if the landowner defined the relevant parcel small enough. For example, were partitioning allowed, a zoning ordinance that required a setback would effect a taking of the land between the lot line and the building line. Such a regime would defeat the balance of interests reached in takings jurisprudence. Accord Keystone, 480 U.S. at 496 (noting that in a takings regime in which geographical severance is permitted, "[a] requirement that a building occupy no more than a specified percentage of the lot on which it is located could be characterized as a taking of the vacant area").
Nonetheless, AVSG claims that such a partition is appropriate because the River Corridor property is the only portion affected by the plan. This characterization is incorrect. The county regulated the entire forty-four acres of Tract B under the plan. To segment out only the portion most adversely affected by the plan would be to ignore the possibility that the county designated eight acres as Industrial property precisely to allow AVSG an economically viable use of Tract B.
Thus, the trial court and the court of appeals erred in identifying only the River Corridor property rather than Tract B in its entirety as the relevant parcel of land.
It is highly unlikely that the trial court's finding that the plan did not effect a per se taking will be altered by the additional consideration of the Industrial property. If land that includes only the River Corridor property remains economically viable, surely land containing the River Corridor property and the Industrial property is economically viable as well.
V.
For the reasons discussed above, we reverse the court of appeals and remand this case for return to the trial court. On remand, the trial court is directed to retry the case and apply the fact-specific inquiry to Tract B in its entirety.