US Supreme Court Briefs

No. 99 - 2047
========================================
In the
Supreme Court of the United States
------------------------------
ANTHONY PALAZZOLO,
Petitioner,

v.

RHODE ISLAND ex rel. PAUL J. TAVARES, General Treasurer,
and COASTAL RESOURCES MANAGEMENT COUNCIL,
Respondents.
------------------------------
On Writ of Certiorari to
the Supreme Court of Rhode Island
------------------------------
BRIEF OF AMICI CURIAE W. FREDERICK
WILLIAMS, III, AND LOUISE A. WILLIAMS
ON THE MERITS IN SUPPORT OF PETITIONER
------------------------------
Counsel for Amici Curiae

MICHAEL E. MALAMUT,
Counsel of Record
New England Legal Foundation
150 Lincoln Street
Boston, MA 02111
Telephone: (617) 695-3660
Facsimile: (617) 695-3656
========================================

i

QUESTIONS PRESENTED

The argument of Amici concentrates on Petitioner Anthony Palazzolo' s first question presented:

  1. Whether a regulatory takings claim is categorically barred whenever the enactment of the regulation predates the claimant's acquisition of theproperty?

The factual circumstances of Amici 's failed property development attempt, as set out in the Interest Section below, also shed light on Petitioner's second question presented:

  1. Where a land-use agency has authoritatively denied a particular use of property and the owner alleges that such denial per se constitutes a regulatory taking, whether the owner must file additional applications seeking permission for "less ambitious uses" in order to ripen the takings claim?

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TABLE OF CONTENTS

QUESTIONS PRESENTED [i]

TABLE OF CONTENTS [ii]

TABLE OF AUTHORITIES [iii]

INTEREST OF AMICI CURIAE [1]

STATEMENT OF THE CASE [4]

SUMMARY OF ARGUMENT [4]

ARGUMENT [5]

  1. BY TREATING PALAZZOLO MORE HARSHLY THAN HIS RELATED PREDECESSOR IN TITLE IN REGARD TO HIS PROPERTY DEVELOPMENT RIGHTS, THE RHODE ISLAND SUPREME COURT FAILED TO TAKE INTO ACCOUNT ADVERSE PUBLIC POLICY IMPLICATIONS [5]

  2. THE POST-ENACTMENT PURCHASER SHOULD BE COMPENSATED FOR REGULATORY TAKINGS AFTER REJECTION OF A DEVELOPMENT APPLICATION [15]

CONCLUSION [20]

APPENDIX

PROVIDENCE JOURNAL, May 31, 1994 [Am. App. 1]

WALL STREET JOURNAL, Dec. 30, 1994 [Am. App. 4]

Purchase & Sale Agreemt., Aug. 13, 1986 [Am. App. 5]

Deed, Sept. 4, 1986 [Am. App. 16]

Septic Sys. Approval, Sept. 30, 1986 [Am. App. 18]

Cert. of Conformance, Dec. 12, 1998 [Am. App. 19]

iii

TABLE OF AUTHORITIES

CASESArmstrong v. United States, 364 U.S. 40(1960) 17Board of County Supervisors v. United States, 48 F.3d 520(4th Cir.), cert. denied, 516 U.S. 812 (1995)14City of Monterey v. Del Monte Dunes, Ltd., 526U.S.687(1999) 3,6,17Iglehart v. Iglehart, 204 U.S. 478 (1907) 14In re Kellogg, 197 F.3d 1116 (11th Cir. 1999) 6Lopes v. City of Peabody, 507 U.S. 981 (1993) 7Lopes v. City of Peabody, 417 Mass. 299, 629 N.E.2d 1312 (1994) 7, 8Lopes v. City of Peabody, 430 Mass. 305, 718 N.E.2d 846 (1999) 8Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992) 7, 18Nollan v. Cal ~fornia Coastal Comm'n, 483 U.S. 825 (1987) 6,7Palazzolo v. State, 746 A.2d 707 (R.I.), cert. granted, 121 5. Ct. 296(2000) 3,5,6,7,8,11,12Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978) 16Steinbergh v. City of Cambridge, 413 Mass. 736, 604 N.E.2d1269 (1992), cert. denied, 508U.S. 909 (1993) 8Williamson County Regional Planning Comm 'n v. HamiltonBank of Johnson City, 473 U.S. 172 (1985) 11,12,17,18

iv

CONSTITUTIONU.S. CONST. amend. VU.S. CONST. amend. XIVSTATUTESR.I.G.L. 1956 tit. 46, c. 23 5R.I.G.L. 1956 §§ 2-1-13 through 2-1-17 5R.I.P.L. 1971, c. 279, § I 5R.I.P.L. 1965, c. 140, §1 5OTHER AUTHORITIESGRAHAM BANNOCK ETAL, DICTIONARY OF ECONOMICS (1998 ed.) 11THE ECONOMIST, EcoNoMIcs (1999) 5, 11, 138 WILLIAM HOLDSWORTH,A HISTORY OF ENGLISH LAW (2ded. 1937) 163 JAMES KENT, COMMENTARIES ON AMERICAN LAW (O.W. Holmes, Jr.,ed., 12th ed. 1873) 16Durham, Efficient Just Compensation as a Limit on EminentDomain, 69 MINN. L. REv. 1277 (1985) .... 17Gregg Easterbrook, Suburban Myth, NEW REPUBLIC, Mar. 15, 1999, at 18 15Daniel A. Farber, Economic Analysis and JustCompensation, 12 INT'L REV. L. &ECoN. 125 (1992)18William A. Fisehel, Eminent Domain and JustCompensation, in 2 THE NEW PALGRA yEDICTIONARY OF ECONOMICS AND THE LAw 34 (PeterNewman ed., 1998) 18

v

Bruce Katz & Jennifer Bradley, Divided We Sprawl, ATLANTIC MONTHLY, Dec., 1999, at 26 15Gregory M. Stein, Who Gets the Takings Claim? Changes inLand Use Law, Pre-Enactment Owners, and Post-Enactment Buyers, 61 OHIO ST. L.J. 89(2000) .. 11, 13,14, 15, 16,17

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No. 99 - 2047
========================================
In the
Supreme Court of the United States
------------------------------
ANTHONY PALAZZOLO,
Petitioner,

v.

RHODE ISLAND ex rel. PAUL J. TAVARES, General Treasurer,
and COASTAL RESOURCES MANAGEMENT COUNCIL,
Respondents.
------------------------------
On Writ of Certiorari to
the Supreme Court of Rhode Island
------------------------------
BRIEF OFAMICI CURIAE W. FREDERICK
WILLIAMS, III, AND LOUISE A. WILLIAMS
ON THE MERITS IN SUPPORT OF PETITIONER
------------------------------


INTEREST OF AMICI CURVE

Amici W. Frederick Williams, III, and Louise A. Williams own five acres in Little Compton, Rhode Island.[1] See Amici Appendix ("Am. App.") at 1. Their unsuccessful efforts to build a home for themselves there has garnered attention in both local and national media.[2] Their property, which contains

1 Pursuant to Supreme Court Rule 37.6, counsel for Amici state that counsel for neither Petitioner nor Respondent authored this brief in whole or in part and no person or entity other than Amici made a monetary contribution to the preparation or submission of the brief.

2 Copies of articles from the Wall Street Journal and the Providence Journal are included in the Appendix to this Brief. The Appendix also includes a copies of the Purchase and Sale Agreement and Deed for the Property; the September 30, 1986, Septic System Approval; and the

2

freshwater wetlands, is subject to regulation by the Rhode Island Department of Environmental Management ("DEM") in a manner similar to that by which coastal wetlands (such as those at issue in this case) are regulated by the Rhode Island Coastal Resources Management Council ("CRMC"). The Williamses purchased their property in 1986, after the DEM wetlands regulations were adopted. Am. App. 16. DEM regulates not only freshwater wetlands, but also installation of septic systems, and it granted the Williamses a permit to build a septic system. Am. App. at 3, 18-19. Because DEM septic officials failed to inform the Williamses that their property also needed to pass wetlands review before they could commence building, in 1988 the Williamses built a septic system and foundation on their land. Id. at 3-4. After the foundation and septic system were complete, DEM issued an order under its wetlands jurisdiction requiring the construction to be ripped out and the property to be restored to its condition in 1971, when DEM acquired its wetlands jurisdiction. id.[3] The Williamses were unsuccessful in their court challenge to the DEM rulings. Williams v. Durfee, C.A. No. PC 92-1216 (Providence, R.I., Super. Ct. July 6, 1993), cert. denied, S.C. No. 93-503-M.P. (R.I. Feb. 24, 1994).

After the DEM's restoration order, the approximate value of the Williamses' property plummeted from $260,000 to $30,000. Am. App. at 4. The Williamses estimated that their total expenses on the property between 1988 and 1994,

December 12, 1988, Septic System Certificate of Conformance.

3 Ironically, in this case CRMC urges that Palazzolo should have applied first to DEM for a septic system permit before applying to CRMC to fill wetlands. Respondents' Memorandum in Opposition to Petition for Writ of Certiorari at 18. Following CRMC's suggested order resulted in the Williamses forced removal of their own septic system.

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including lost property value, legal expenses, building materials, restoration costs, professional expenses in preparing site development plans, came to more than $300,000. Id. Although they and their advisors had several meetings with govemment officials, they only submitted one formal building plan to DEM. Given the expense they have already incurred, they cannot afford to prepare another application to DEM consisting of "less ambitious development plans." See Palazzolo v. State, 746 A.2d 707, 714 (R.I.), cert. granted, 121 S. Ct. 296 (2000).[4] This is particularly so in light of the fact that, unlike the decisions of the development agency in City of Monterey v. Del Monte Dunes, Ltd.,[5] DEM's order gave the Williamses no idea whether and to what extent they could build anything elsewhere on their lot. Without guidance from the regulatory agency, the Williamses are in no position to expend the additional tens of thousands of dollars it would cost for them to make another attempt at securing development permission from DEM. See Am. App. at 1. In view of the Williamses' difficulties with DEM, they cannot find a buyer willing to take the property from them for a reasonable return on their investment. Rather than enjoying a home in a tranquil setting, they are instead prisoners of their own property, spending money maintaining (in the manner required by DEM)

4 As small property owners attempting to build their own primary residence on the site, the Williamses similarly cannot "bid against themselves" by presenting ever less ambitious plans until the agency accepts one (in the meanwhile perhaps waiving well founded rights to more ambitious development). In order to receive their reasonable investment-backed expectations for their property, they need to be able to build a comfortable home for themselves on the site. Development plans cannot be more basic than that.

5 526 U.S. 687 (1999).

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land that they can neither use nor sell. Id. at 3-4.

Amici seek to bring to the Court's attention their views, and the views of other similarly situated small property owners, concerning the scope of the takings clause under the Fifth Amendment to the United States Constitution. If the decision below is not reversed, under the "post-enactment purchaser" theory espoused by the Rhode Island Supreme Court, property owners who are unable to develop their own property when a confiscatory regulation is passed will be forced to bring litigation before the area is ready for development or to sell at a steep discount. People like the Williamses who inadvertently bought property that is virtually undevelopable under current regulatory schemes will have no chance to build their much anticipated retirement homes. These issues are of significance to Amici as well as to property owners generally. Amici believe that this brief may provide an additional perspective which may aid the Court in considering the issues raised by this case.

Pursuant to Supreme Court Rule 37.2, counsel for Amici have secured written consent for the filing of this brief from counsel for Petitioner and Respondent.

STATEMENT OF THE CASE

Amici adopt the Statement of the Case contained in the Brief of the Petitioner, Anthony Palazzolo ("Palazzolo").

SUMMARY OF ARGUMENT

Amici contend that a purchaser of property should not be penalized by prohibiting him or her from challenging a regulation that pre- dated the purchase, because such a theory distorts the incentives for the property's development (pp. 5-15). Moreover, awarding takings damages to post- enactment purchasers is the most efficient means of responding to inequities in development regulations (pp. 15-19).

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ARGUMENT

I. BY TREATING PALAZZOLO MORE HARSHLY THAN HIS RELATED PREDECESSOR IN TITLE IN REGARD TO HIS PROPERTY DEVELOPMENT RIGHTS, THE RHODE ISLAND SUPREME COURT FAILED TO TAKE INTO ACCOUNT ADVERSE PUBLIC POLICY IMPLICATIONS.

The 1971 statute establishing CRMC[6] and CRMC's 1977 enforcement regulations were in effect when Palazzolo acquired his property by operation of law in 1978 upon the dissolution of his solely owned corporation Shore Gardens, Inc. ("SGI"). Palazzolo, 746 A.2d at 710-11. CRMC determined that Palazzolo could not fill the eighteen wetland acres on his property, but instead could only build a single home on the small upland portion of the lot. Palazzolo, 746 A.2d at 714.[7] By virtue of the fortuity that the SGI corporate dissolution occurred after the passage of the CRMC enabling legislation rather than before, the Rhode Island Supreme Court decided

6 R.I.P.L. 1971, c. 279, § I, codified as R.I.G.L. 1956 tit. 46, c. 23. A predecessor statute was enacted in 1965. R.I.P.L. 1965, c. 140, §1, codified as R.1.G.L. 1956 §§ 2-1-13 through 2-1-17. See Palazzolo, 746 A.2d at 710. Although not relevant in this case, the Rhode Island Supreme Court mentions the prior statute as though the initiation of any property regulation should put owners on notice of potentially more stringent future administrative or statutory regimes and therefore prevent them from challenging such future regulatory changes. That would constitute unnecessary official acceptance of the unsavory, and as yet unproven, theory that jurisdiction of governmental departments inevitably expands as self-interested bureaucrats seek to enlarge their funding and authority. See THE ECONOMIST, ECONOMICS 161-62 (1999).

7 Palazzolo was also denied permission to fill only 11.4 acres of wetlands to create a commercial recreational facility. Palazzolo's Petition for Certiorari ("P. Pet.") at 14 n.4.

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that Palazzolo's investment-backed expectations in his property were not reasonable and that he was not deprived of all beneficial use of his property by CRMC's determinations. Palazzolo, 746 A.2d at 7 15-17.

This "post-enactment purchaser" theory[8]-that a purchaser on notice of a regulation cannot contest the validity of the regulation-has been disparaged by this Court in Nollan v. California Coastal Comm'n, 483 U.S. 825, 833 n.2 (1987), which indicated that property owners' rights should not be altered "because they acquired the land well after the [regulatory) commission had begun to implement its policy." Id. In Del Monte Dunes, this Court recently upheld a verdict in a regulatory takings case in favor of a developer who purchased the property in question towards the end of the regulatory application process without comment on the "post-enactment purchaser" theory.

Certainly, it is circular to insist that a purchaser loses all right to challenge a regulation simply because he or she is aware at the time of purchase that the regulation may be found valid. That is like saying that if someone purchases a home subject to a lien imposed without the knowledge or permission of the prior owner, the purchaser is prohibited from contesting the lien (as opposed to simply his notice of it), no matter how invalid, simply because he had record knowledge of it before buying the

8As demonstrated in this case, the phrase "post-enactment purchaser" may not be the most accurate encapsulation of the theory, as Palazzolo acquired his property by operation of law, not by purchase. The theory is also referred to as the "coming to the regulation" theory and is often treated as an aspect of the "self-created hardship" doctrine derived from zoning law. See ln re Kellogg, 197 F.3d 1116, 1121 n.4 (11th Cir. 1999) (concerning "self-created hardship" doctrine).

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property. Nevertheless, several courts[9] have adopted the "post- enactment purchaser" theory, contrary to the clear implications of this Court's holdings in Nollan and Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992).

The Supreme Judicial Court of Rhode Island's neighboring state Massachusetts, on the other hand, rejected the "post-enactment purchaser" theory in Lopes v. City of Peabody, 417 Mass. 299,629 N.E.2d 1312 (1994). Lopes was decided in light of Lucas on remand from this Court. Lopes v. City of Peabody, 507 U.S. 981 (1993); Lopes, 417 Mass. at 300 n.2, 629 N.E.2d at 1313 n.2. The Massachusetts court held:

[T]he validity of the ordinance is before us, and [the property owner), a purchaser of land subject to the restriction at the time of his purchase, has every right to challenge the continued application of the restriction. We see no reason to permit challenges to the validity of a zoning enactment only by those landowners who owned land when the zoning provision first affected it. A rule that a purchaser of real estate takes subject to all existing zoning provisions without any right to challenge any of them would threaten the free transferability of real estate, ignore the possible effect of changed circumstances, and tend to press owners to bring actions challenging any zoning provision of doubtful validity before selling their property. Moreover, such a rule of law would in time lead to a crazy-quilt pattern of the enforceability of a zoning law intended to have uniform applicability.
Lopes, 417 Mass. at 302-03, 629 N.E.2d at 1314-15 (citation

9 See Palazzolo, 746 A.2d at 716-17.

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omitted).[10]

The absurdity of denying relief to a new property owner who "comes to the regulation" is demonstrated in this case, where Palazzolo acquired the wetland property by action of law upon dissolution of SGL. Palazzolo, 746 A.2d at 717. His situation is similar to an heir to an individual decedent, who, under the "post-enactment purchaser" theory, would also lose the right to challenge pre- acquisition regulations when the decedent had not been able to develop his property before he died. The Rhode Island Supreme Court dismisses this concern-that all those who acquire property after passage of a regulation are treated similarly, regardless of how the property was acquired-in a footnote. Palazzolo, 746 A.2d at 717 n.9. Yet this concern about whose investment backed expectations are at stake illustrates the policy weakness of the "postenactment purchaser" theory, as discussed in greater detail below. If "coming to the regulation" were a reason to deny Palazzolo the right to develop the wetland property that SGI could have developed, then Palazzolo lost an important and

10 The Massachusetts Supreme Judicial Court in Lopes decided only that the "post-enactment purchaser" theory did not apply to challenges to validity of zoning regulations. The court reserved decision on the applicability of the "post-enactment purchaser" theory to takings damages claims, although it posited no reason why its logical position would not apply in the damages area as well. See Lopes, 417 Mass. at 302-03 n.7, 629 N.E.2d at 1314 n.7; Steinbergh v. City of Cambridge, 413 Mass. 736, 742-43, 604 N.E.2d 1269, 1274 (1992), cert. denied, 508 U.S. 909 (1993). In a subsequent decision in a related case, the Supreme Judicial Court affirmed in part a temporary takings damages award for the post-enactment purchaser on other grounds without discussing the "post-enactment purchaser" theory. Lopes v. City of Peabody, 430 Mass. 305, 307 n.4, 310, 718 N.E.2d 846, 849 n.4, 850-51 (1999).

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valuable property development right simply even though it no longer made economic sense for him to keep up the legal fiction of corporate ownership. The corporate form, while often useful in appropriate circumstances, carries inherent economic inefficiencies in the form of the monetary and time costs of filing fees and paperwork, often requiring professional assistance from lawyers and accountants. In the case of sole owners, such as Palazzolo or the Williamses, the expenses of maintaining the corporate form may often outweigh the benefits conveyed by corporate status.

If, however, Palazzolo had been aware in 1978 that the Rhode Island Supreme Court would adopt the "post-enactment purchaser" theory, he could have taken precautions to avoid the dissolution of SGI and retained ownership of the property under the SGI form (with its inherent expenses) until development of the property had begun. The transfer from SGI to Palazzolo occurred by act of law. It made sense in economic terms to the do away with the corporate fiction. The economic calculus would have been very different if development rights were made dependent on it. The Williamses structured the purchase of their property so that the sale was contingent on septic approval (which they received), but their counsel was not sufficiently astute to make the sale contingent on actual buildability. See Am. App. 14 (Purchase and Sale Agreement 25-26). They suffered, while a large- scale developer with higher-powered legal counsel might have arranged for the preenactment owner to retain legal ownership of the property and act as a figurehead by applying for all permits under his own name until after the property had been completely developed. In the meanwhile, the purchaser could have been empowered to direct and fund the development and act in all respects as the true owner, while agreeing to indemnify the prior owner for any potential liability of his nominal "ownership."

10

Thus, a large developer with a skillful attorney could eviscerate the effect of the "post-enactment purchaser" theory for land in corporate ownership through legal fictions including mergers, consolidations, stock transfers, formation of subsidiaries, and corporate divisions. For example, investors in a real estate company that only owned one proposed subdivision could evade the "post-enactment purchaser" theory by transferring their stock to a new purchaser, rather than transferring the real estate. It is ironic that Palazzolo, the successor by law to a solely owned corporation, stands in a worse position under the Rhode Island Supreme Court's decision than a complete stranger would if he had purchased all the stock in SGI from Palazzolo and continued to maintain the corporate fiction. The "post-enactment purchaser" theory would thus invite litigation over the form of the transaction, the nature of the transfers, and the effect of partial transfers (for instance a new investor buying out the partner of a continuing investor).

The "post-enactment purchaser" theory would also disadvantage individual property owners and small-scale developers, such as the Williamses and Palazzolo, who would not be able to utilize sophisticated transactions to protect their development rights. Acceptance of the "post-enactment purchaser" theory would constitute a massive uncompensated taking from small property owners like Palazzolo and the Williamses, while at the same time preserving the development rights of large corporations with perpetual existence. Property owners interested in retaining their development rights would gradually form otherwise unnecessary corporations or sell out to large property development corporations with the resources to manipulate the corporate form as needed to ensure development rights are preserved. The percentage of undeveloped, but developable, property in the hands of large

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corporations would increase, making it more difficult for individuals like the Williamses to develop their own property affordably at their own pace. Over time, these effects could have a massive impact on American property ownership patterns and decrease considerably the availability of affordable single-family housing sites.

Although the Rhode Island Supreme Court ignored these powerful policy reasons against the "post-enactment purchaser" theory, it opined that enforcement of the theory was necessary to prevent speculation. Palazzolo, 746 A.2d at 716.[11] The

11 A recent commentator voiced similar moral disapproval of post-enactment purchasers' "gambling" on the outcome of their post-purchase development proposals. Gregory M. Stein, Who Gets the Takings Claim? Changes in Land Use Law, Pre- Enactment Owners, and Post-Enactment Buyers, 61 OHIO ST. L.J. 89, 99-100, 118(2000). In purely economic terms, however, "speculation" is an inherent motivating factor for any form of investment, whether in stocks, education, or real estate. GRAHAM BANNOCK FT AL, DIcTIoNARY OF EcoNoMics 389 (1998 ed.) ("speculative motive The reason which causes people or firms to hold a stock of money in the belief that a capital gain or the avoidance of a loss can be achieved by so doing. It is one of three motives for holding money outlined by Ejohn Maynardl Keynes." (emphasis in original)); THE ECONOMIST, supra note 6, at 278-83 (by incorporating opposing views into asset price, speculators provide a valuable economic service). Thus, all property ownership, being a major form of investment, is to a certain extent speculative. It is only in the context of litigation that "speculation" causes concerns because uncertainty about future prospects can lead to highly inaccurate estimations of value and, therefore, unjust recoveries. Under the ripeness doctrine of Williamson County and its progeny, however, the uncertainty inherent in a real estate investor's "speculative" purchase price is long past; instead, the courts can evaluate the potential value of the investor's concrete development proposal. See Williamson County Regional Planning Comm 'n v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985).

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Rhode Island Supreme Court feared that individuals would purchase land severely limited by environmental restrictions solely to seek compensation for regulatory takings. Id. This concern is, however, overstated in light of current regulatory takings ripeness doctrine. See Williamson County Regional Planning Comm 'n v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985). In order to succeed in a takings claim, a property owner must first request regulatory approval for a development plan. As the Williamses can attest, there is considerable expense involved in preparing development plans and applying for their approval, even for a single family home. Am. App. at 1, 4. Given the unpredictable nature and expense of litigation and the prerequisite of prior application for regulatory approval, it is unlikely that a significant number of such purely "speculative" cases will be brought. On the other hand, if takings compensation is denied to post-enactment purchasers, great injustices will be caused to pre-enactment owners (whose sale prices will be considerably reduced) and post-enactment purchasers (who are denied compensation when, by fortuity, the properties they seek to develop were owned by individuals, who have to sell the land itself, instead of corporations, which could simply sell shares).

In addition to its potential for spawning legal fictions and litigation, the "post-enactment purchaser" theory loses its superficial substantive appeal when its underlying premises are examined in light of economic principles. As a property owner's claim that a regulation constitutes a taking is not ripe until the property owner is denied the right to develop, the "post-enactment purchaser" theory puts owners of undeveloped property in an awkward position. See Williamson County, 473 U.S. at 186, 195. The theory is contrary to sound public policy because it would produce unwarranted distortions in property ownership and development patterns and cause unnecessary

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erosion of transparency in property ownership and development records.[12]

The owners of undeveloped property under a "post- enactment purchaser" regime are in a Catch-22 when a regulation restricting development is passed. The property owners cannot challenge the regulation until they are ready to develop the property and are denied a development permit, even if the regulation would clearly constitute a taking. An owner without adequate capital to develop immediately after the regulation is adopted is in a difficult position. The owner may not want or be able to face the time, expense, uncertainty, and exasperation of challenging the regulation. In such case, under a "post- enactment purchaser" theory regime, the value of the property to the owner is effectively reduced to zero. Without such a restriction, the pre-enactment owner could sell at a modest discount to someone else willing to take on the development challenge, because the purchaser would retain the same right to challenge the regulation.13 On the other hand, under the "post-enactment purchaser" theory, an owner unwilling or unable to develop the property must either sell to someone else at a steep discount to cover the purchaser's loss

12 For the importance of transparency in economic systems, see THE ECONOMIST, supra note 6, at 209.

13 For a detailed discussion of the economic calculus that pre-enactment owners and post-enactment purchasers go through in determining the appropriate post-enactment sales price discount, see Stein, supra note 11, at 107-08, 120-21. Under this system, part of the bundle of rights that the post-enactment purchaser acquires from the pre-enactment owner is the right to challenge the validity of development regulations. Id. at 107. The right to challenge the validity of the regulation would thus follow the land. Id.

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of development rights or retain the property until such time as he or she is finally able to raise the capital to develop the property, regardless of other potentially more beneficial ways that the owners might want to use their capital.[14] This disincentive to sell at a fair price under the "post-enactment purchaser" theory is in the nature of a long-disfavored restraint on alienation of property. See Iglehart v. Iglehart, 204 U.S. 478, 484 (1907); Board of County Supervisors v. United States, 48 F.3d 520, 526 (4th Cir.), cert. denied, 516 U.S. 812 (1995).

On the other hand, an owner with adequate capital at the time the regulation is passed may have an incentive to seek to develop the property immediately, so as to receive the benefits of the regulatory challenge (the recognition of his or her development rights) when he or she is capable of exercising those rights and before future uncertainties take their toll on the owner's ability to develop the property. Without a "post- enactment purchaser" rule, an owner might prefer to hold property thinking that in the long run the surrounding area will grow and development of the property will be warranted. At that time, assuming the area has grown, ordinarily the owner could then develop the property or sell the property to a developer who would retain whatever development rights the original owner had. If the "post-enactment purchaser" theory were applied, however, the property might well be developed prematurely because it is the only way for the owner to realize the benefits of a developed property (i.e., higher value per square foot), as a subsequent purchaser (without the right to challenge the regulation) would not have the same development rights as the original owner. Since the surrounding area will not

14 For a discussion of the sharp loss in value to property owners under a "post-enactment purchaser" regime immediately after a development regulation is adopted, see Stein, supra note 11, at 99-100.

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by then have grown out to the development, the price for the developed property will be lower than it would be in the future and may thus not be the best investment for the owner, nor the best use of the property at the time. This incentive for premature development would thus unnecessarily contribute to the suburban "sprawl" of leapfrogged development that has been much decried recently. See, e.g., Gregg Easterbrook, Suburban Myth, NEW REPUBLIC, Mar. 15, 1999, at 18; Bruce Katz & Jennifer Bradley, Divided We Sprawl, ATLANTIC MONTHLY, Dec., 1999, at 26.

Thus, economic considerations and policy implications demonstrate that the incentives of a "post-enactment purchaser" theory regime would cost society a great deal in terms of lost openness, increased sprawl, inappropriate development, and lost investment value to small property owners. At the same time, the principal "benefit" of the "post-enactment purchaser" theory--that someone acquiring property with knowledge that it is affected by a regulatory scheme is prevented from challenging the regulation's overbreadth--can easily be evaded by clever maneuvering by large corporations with well paid legal staffs.

II. THE POST-ENACTMENT PURCHASER SHOULD BE COMPENSATED FOR REGULATORY TAKINGS AFTER REJECTION OF A DEVELOPMENT APPLICATION.

One recent commentator, after a wide- ranging discussion of the economic inequities of the "post-enactment purchaser" theory, suggests a novel approach to the issue. Professor Stein would bar post-enactment purchasers from compensation, but consider the pre-enactment owner to have a takings claim that ripens upon sale. Stein, supra note II, at 130-31. Stein acknowledges that his proposal is economically equivalent to the more straightforward approach of allowing takings

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compensation for post-enactment purchasers after rejection of a development proposal. Id. at 108-09. He suggests that his proposal is superior on two grounds: (I) courts are sometimes wary of allowing legal claims to be bought and sold; and (2) uncooperative or unavailable prior owners might be necessary to provide evidence of their own "reasonable investment-backed expectations." Id. at 109. See Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978).

As to the first issue, while courts do look askance at some types of transfers of legal claims, particularly those that might unnecessarily stir up litigation, other types of claims transfer are well accepted in the law. For example, subrogation is a common and long-recognized method of transferring legal claims. See 8 WILLIAM HOLDSWORTH, A HISTORY OF ENGLISH LAW 204 (2d ed. 1937); 3 JAMES KENT, COMMENTARIES ON AMERICAN LAW *123 n.l, 124 (O.W. Holmes, Jr., ed., 12th ed. 1873). Stein cites no good policy reason to discourage transfer of development rights claims that pass with the land.

As to the second issue, even if the investment-backed expectations of the pre-enactment owner were controlling, those expectations (required to be reasonable) could be established objectively by reference to the pre-enactment regulatory scheme and the development history of similarly situated neighboring properties. There is no reason that the post- enactment purchaser's reasonable investment-backed expectations should be discounted. While the post-enactment purchaser has some expectation that he may not be permitted to develop the property at all, absent adoption of the "post- enactment purchaser" theory, that result would generally be a low probability. It is far more likely that the post-enactment purchaser anticipated being able to develop the property or else he would not have purchased it. In fact, in light of the Fifth Amendment, it would be entirely reasonable for a post-

17

enactment purchaser to believe that he would be able to overturn an unjust property regulation when he was ready to develop the property. While the price he paid may be somewhat discounted because of the possibility of litigation over development, the non-discounted price (fair market value absent the challenged regulatory regime) can usually be determined by comparison with similarly situated neighboring properties developed under pre-enactment grandfathering protections.

Stein's proposal also fails to address adequately: (1) the impact of Williamson County and its progeny on the ripeness of pre-enactment owners' claims before property development is proposed; (2) the difficulty in ascertaining the value of the property taken by inverse condemnation without a development plan in place, which would require the hypothetical calculation of what the property would be worth in its current state with and without the regulation; and (3) the incentive his proposals give to governments to enact confiscatory property development regulations in the hope that pre-enactment owners (in particular small, unsophisticated property owners) will fail to enforce their rights upon sale, resulting in a small actual cost to the state for a major policy change at the expense of many pre-enactment owners. See Stein, supra note 11, at 93. See also Armstrong v. United States, 364 U.S. 40, 49 (1960) ("The Fifth Amendment's guarantee that private property shall not be taken for a public use without just compensation was designed to bar the Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."), quoted in Del Monte Dunes, 526 U.S. at 702; Durham, Efficient Just Compensation as a Limit on Eminent Domain, 69 MINN. L. REV. 1277, 1297, 1300-01 (1985) (under the "fiscal illusion," government entities underestimate costs of their actions unless required to include

18

such costs in their budgets); Daniel A. Farber, Economic Analysis and Just Compensation, 12 INT'L REV. L. & ECON. 125, 130 (1992) (economic theory predicts that externalities will produce overproduction of the product that does not absorb its true cost); William A. Fisehel, Eminent Domain and Just Compensation, in 2 THE NEW PALGRAVE DICTIONARY O~ ECONOM1CS AND THE LAW 34, 36 (Peter Newman ed., 1998) (concerning economic incentives for inefficient takings when government fails to consider societal costs).

Stein's proposal also fails to account for the encouragement it gives to litigation, potentially clogging the courts with difficult-to-assess pre- enactment purchaser takings claims. Under the Stein regime, the pre-enactment purchaser would almost inevitably be forced to sell at a steep discount and then take his or her chances with the courts on a regulatory takings claim. It is a far more efficient use of economic and litigation resources for the regulatory takings claim to pass with the property and allow the post-enactment purchaser to make a property development proposal when the land is most suitable for development. Under such a legal regime, pre- enactment owners would receive fair, market- based prices for their properties (with modest discounts reflecting the realistic probabilities of their properties' development). Inevitably, in many cases, the post-enactment purchaser's proposal would be approved, in whole or with minor revisions, and regulatory takings litigation would be superfluous. Professor Stein's proposal therefore ignores practical considerations as well as this Court's standing jurisprudence as developed in Williamson County and its progeny. This Court should utilize Stein's economic insights into the injustice of the "post-enactment _ purchaser" theory, while rejecting his impractical and novel proposal of takings damages for pre-enactment owners.

In light of this analysis and this Court's decision in Lucas,

19

a complete regulatory denial of any economically beneficial or productive use of property, such as Palazzolo's loss of the use of the wetlands at issue here or the Williamses' inability to build a single family home on their own five-acre property, should constitute a categorical taking regardless whether the property remains in the hands of the same owner who held the property when the regulation was passed. The "post-enactment purchaser" theory would promote legal fictions, encourage litigation, constitute a restraint on alienation, and stimulate premature development leading to unnecessary "sprawl." The policies behind the Fifth Amendment's protection of property ownership would be vitiated if original owners are prohibited from challenging regulations until they are ready to develop while subsequent owners are prevented from challenging regulations when the property is ready to be developed. The Court should reject the "post- enactment purchaser" theory in order to ensure fairness to property owners nationwide and to prevent government from imposing the costs of confiscatory regulation on some property owners alone-those who sell at a substantial discount in light of the legal regime as well as those (like the Williamses) who are trapped because they were unaware of the extent to which their property development rights were impaired by the existing regulatory scheme.

20

CONCLUSION

For the reasons stated above, this Court should reverse tht Rhode Island Supreme Court and grant the Petitioner hi~ requested relief.

Respectfully submitted,

W. FREDERICK WILLIAMS, Ill, and LOUISE A. WILLIAMS,

By their attorney,

Counsel for Amici Curiae
Michael E. Malamut
Counsel of Record
New England Legal Foundation
150 Lincoln Street
Boston, MA 02111
Telephone: (617) 695-3660
Facsimile: (617) 695-3656

Dated: November 24, 2000

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