ELR Citation: ELR 21454
No(s). 92-851L (Fed. Cl. Aug 6, 1997)

The court holds that the U.S. Army Corps of Engineers' (the Corps') denial of a real estate developer's application for a Federal Water Pollution Control Act (FWPCA) §404 permit to dredge and fill lakebottom property was not a compensable taking under the Fifth Amendment to the U.S. Constitution. The court first holds that although the developer has not obtained legal title, the developer's equitable interest in the 9.4-acre lakebottom parcel constitutes a property interest that is protected and compensable under the Fifth Amendment. The court holds that the developer properly exercised its option right to purchase the lakebottom parcel, and that the property was under contract of sale to the developer at the time of the permit denial. Under California law, contract rights, including option contracts, are considered property interests. The court rejects the government's argument that this case presents a "nuisance exception problem" and that the court must consider federal laws in determining whether there was a preexisting limitation on the developer's title. The developer's option and equitable interest in the lakebottom property were defined in reference to California law, and the development project neither constituted a nuisance nor was prohibited by California law. The court also rejects the government's "notice defense" argument that because the §404 regulatory scheme was in place before the developer acquired the lakebottom property, the Corps' permit denial demonstrates that the project was constrained by a preexisting and valid law. In a permit-based system, it is incongruous to argue that the owner never had a compensable property interest to begin with, because up to the time of the permit denial (and thus the alleged taking), it was possible that the property owner could have received the permit. The court believes that where there is a regulatory permit procedure in effect, the compensable interest is best examined on the merits in terms of the owner's reasonable investment-backed expectations and not, as a threshold matter, in terms of whether or not the landowner owned a compensable property interest.

The court next holds that the relevant parcel for its taking analysis constitutes the entire 62-acre housing project, i.e., the 53 acres of upland property in conjunction with the 9.4 acres of lakebottom land. First, the upland property and the lakebottom land are contiguous parcels. Further, the five-month time between the developer's acquiring title to the upland property and obtaining option rights for the lakebottom parcel evidences the developer's clear and consistent intent to treat and develop the properties as one unit. Perhaps most importantly, from the time of the upland property's purchase, the developer's economic intentions were to use the lakebottom acreage and the upland parcel in conjunction with each other as one income-producing unit. The court finds that it is indisputable that the parcel as a whole has substantial remaining economic viability. Thus, a categorical or per se taking did not occur.

The court then analyzes the case pursuant to the regulatory/partial taking paradigm. With regard to the character of the governmental action, the court holds that this nation has a legitimate public welfare duty to preserve the nation's wetlands via the §404 permit process, and that this is a worthy national goal. The court holds that the developer did not have a reasonable, investment-backed expectation that it could dredge and fill the lakebottom land. Before its purchase of the property at issue, the developer was aware not only that the lakebottom land was subject to the §404 permit application process, but that the application could be denied due to significant federal and state environmental concerns. The developer's subjective, "unilateral expectation" that it could obtain the §404 permit through mitigation efforts simply does not give rise to a reasonable, investment-backed expectation. The court next holds that the Corps' action did not prevent all or substantially all of the economically viable use of the property and, thus, the economic impact of the regulation is not sufficiently severe to constitute a taking. The denial of the §404 permit exhibits to the court that the government's action in the case has merely caused a noncompensable diminution in value of developer's land. Moreover, property appraisals and sales figures show that the developer retains considerable economic value in the parcel as a whole.

Counsel for Plaintiff
John H. Findley
Zumbrun, Best & Findley
2150 River Plaza Dr., Sacramento CA 95605
(916) 641-0015

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