SIX LESSONS FOR MUNICIPAL LAWYERS:
CITY OF MONTEREY V. DEL MONTE DUNES AT MONTEREY, LTD.
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In Del Monte Dunes, the trial court used a jury instruction based on Agins v. City of Tiburon, 447 U.S. 255 (1980), telling the jury it should find a compensable taking if the permit denial did not substantially advance a legitimate state interest or denied the owner all economically viable use of the property. Several amici, including the United States, urged the Supreme Court to reconsider whether the first prong of this test is an appropriate standard for takings liability. They argued that courts should use the Due Process Clause, not the Takings Clause, to examine whether a land-use reg ulation adequately advances a legitimate state interest. The Court refused to consider this threshold issue, however, because the City of Monterey failed to object to the jury instruction that incorporated the Agins standard.

Whether the Takings Clause should be used to determine if regulation sufficiently promotes a legitimate goal -- sometimes referred to as the Agins means-end inquiry -- is a particularly vexing issue in regulatory takings jurisprudence. Del Monte Dunes highlights the need for municipalities to object to this theory of liability in jury instructions and at other appropriate points in takings litigation, both to convince courts to reject this theory and to preserve the issue for appeal.

Fortunately, the U.S. Supreme Court has recently provided municipalities additional arguments against the Agins means-end inquiry as a standard of takings liability. Indeed, in Eastern Enterprises v. Apfel, 118 S. Ct. 2131 (1998), five Justices distanced themselves from the Agins means-end inquiry.

Eastern Enterprises involved the constitutionality of the federal Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"). A four-Justice plurality concluded that the Coal Act effected a taking because it imposed an extreme, retroactive financial burden on the claimant. 118 S. Ct. at 2149-53.

Although the plurality did not discuss Agins, the other five Members of the Court expressly considered and rejected the Agins means-end inquiry as a theory of takings liability. Justice Kennedy wrote a separate opinion concurring in the judgment but dissenting from the plurality's takings analysis, which he characterized as "incorrect and quite unnecessary for decision of the case." Id. at 2154. Concluding that the reasonableness of the Coal Act should be evaluated under the Due Process Clause, not the Takings Clause, Justice Kennedy explained that the Takings Clause presumes the reasonableness and validity of government action, and merely conditions otherwise permissible government action on the payment of compensation. Id. at 2157. In other words, notwithstanding Agins, the Takings Clause does not operate as a normative limitation on the reasonableness of regulation

[The Agins means-end inquiry] is in uneasy tension with our basic understanding of the Takings Clause, which has not been understood to be a substantive or absolute limit on the Government's power to act. Id.

Justice Kennedy stressed that the Agins means-end inquiry results from "[t]he imprecision of our regulatory takings jurisprudence," not from any coherent explication of the Takings Clause. Id. He concluded that to evaluate the reasonableness of legislative judgments, "the more appropriate constitutional analysis arises under general due process principles rather than the Takings Clause." Id.

Similarly, Justice Breyer, joined by Justices Stevens, Souter, and Ginsburg, concluded in dissent that the reasonableness of the Coal Act was governed by the Due Process Clause, not the Takings Clause: "[T]he plurality views this case through the wrong legal lens. The Constitution's Takings Clause does not apply." Id. at 2161. Agreeing with Justice Kennedy, these four Justices emphasized that "at the heart of the [Takings] Clause lies a concern, not with preventing arbitrary or unfair government action, but with providing compensation for legitimate government action that takes 'private property' to serve the 'public' good." Id. (emphasis in original). There was "no need to torture the Takings Clause to fit this case" because issues regarding the reasonableness of the Coal Act "find[] a natural home in the Due Process Clause, a Fifth Amendment neighbor." Id. at 2163. They stressed that it is the Due Process Clause, not the Takings Clause, that "safeguards citizens from arbitrary or irrational legislation." Id. It is the Due Process Clause, not the Takings Clause, that promotes the "fair application of law, which purpose hearkens back to the Magna Carta." Id. at 2164 (emphasis in original)

In short, five Justices rejected the Agins means-end inquiry as a proper standard of takings liability, and they disavowed the plurality's reliance on the Takings Clause to evaluate the reasonableness of the law at issue. As stated by the United States Court of Appeals for the Third Circuit, in Eastern Enterprises "[t]here are five votes against the plurality's Takings Clause analysis," and lower courts "are bound to follow the five-four vote against the takings claim * * *." Unity Real Estate Co. v. Hudson, 178 F.3d 649, 658-59 (3d Cir. 1999).

Del Monte Dunes, too, provides municipalities with additional arguments against the Agins means-end inquiry because every Member of the Court refused to endorse it. The Majority noted that the jury instruction relied on the Agins formulation (119 S. Ct. at 1634, 1636), and it recognized that it has never given "a thorough explanation of the nature or applicability" of the role of the Agins means-end inquiry in takings jurisprudence. Id. at 1636. Yet, despite a clear opportunity to explain and reaffirm Agins, a case that has been on the books for nearly twenty years, the Court refused to do so. In a separate concurrence, Justice Scalia (author of Nollan) stressed that the Majority had declined to approve the Agins means-end inquiry and that he too wished to "express no view as to its propriety." Id. at 1649 n.2. Justice Souter, writing for himself and three other Justices in dissent, similarly refused to endorse Agins:

I offer no opinion here on whether Agins was correct in assuming that this [means-end] prong of liability was properly cognizable as flowing from the Just Compensation Clause of the Fifth Amendment, as distinct from the Due Process Clauses of the Fifth and Fourteenth Amendments. [Id. at 1660 n.12.]

In sum, not a single Justice endorsed the Agins means-end inquiry in Del Monte Dunes, and five Justices disavowed it as a standard of takings liability in Eastern Enterprises. A Majority of the Court thus has concluded that the Takings Clause does not require, or even permit, an Agins-type inquiry into the reasonableness of regulation. Rather, such inquiries find their "natural home" in the Due Process Clause. Outside the Dolan/Nollan context of compelled dedications of property, regulatory takings analysis should focus on the economic impact of the challenged regulation.

This recent five-Justice disavowal of the Agins means-end inquiry follows nearly twenty years of widespread judicial neglect of the inquiry. Although the Supreme Court has quoted the Agins "substantially advance" language over the years, outside the Dolan/Nollan context it has never endorsed the Agins means-end theory to justify an award of compensation under the Takings Clause in a challenge to a land-use restriction. Lower courts likewise largely have ignored the Agins means-end inquiry. The U.S. Court of Federal Claims -- the court with jurisdiction over takings claims against the United States -- canvassed the case law a full eight years after the Agins ruling and concluded: "[N]o court has ever found that a taking has occurred solely because a legitimate state interest was not substantially advanced." Loveladies Harbor, Inc. v. United States, 15 Cl. Ct. 381, 390 (1988).

The widespread judicial disregard of the Agins mean-end inquiry reflects its deep analytical flaws and its fundamental inconsistency with the Takings Clause itself. Agins is a terse, unanimous ruling that upheld a zoning ordinance against a takings challenge. In articulating the "substantially advance" test, Agins did not rely on the Ta kings Clause or takings case law, but instead cited a single case decided under the Due Process Clause of the Fourteenth Amendment: Nectow v. City of Cambridge, 277 U.S. 183 (1928). Nectow could not be clearer that the plaintiff there claimed that the regulation at issue "deprived him of his property without due process of law in contravention of the Fourteenth Amendment." Id. at 185. There is no indication in Agins that the Court desired to create an entirely new standard of liability under the Takings Clause.

As noted by Justice Kennedy in Eastern Enterprises, the Takings Clause is not designed to "limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amounting to a taking." First English, 482 U.S. at 315 (emphasis in original). Moreover, the word "take" suggests a physical expropriation of property, and the Supreme Court has acknowledged that the Takings Clause originally was understood as applying only to actual dispossessions of property. See Lucas, 505 U.S. at 1014 (for the first 150 years of our Nation's history, "it was generally thought that the Takings Clause reached only a 'direct appropriation' of property or the functional equivalent of a 'practical ouster of [the owner's] possession.'"; citations omitted, alteration in original); id. at 1028 n.15 ("early constitutional theorists did not believe that the Takings Clause embraced regulations of property at all * * *."). Although the Court has extended the Takings Clause to regulations, it continues to use physical expropriation as the benchmark for regulatory takings liability. In the first regulatory takings case -- Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922) -- the Court found a taking because the regulation in question had "very nearly the same effect for constitutional purposes as appropriating" the support estate at issue. Id. at 414. In Williamson County, the Court stated that in regulatory takings cases, its task is "to distinguish the point at which regulation becomes so onerous that it has the same effect as an appropriation of the property through eminent domain or physical possession." 473 U.S. at 199. The Court again emphasized such functional equivalency in Lucas, stating that "total deprivation of beneficial use is, from the landowner's point of view, the equivalent of a physical appropriation." Lucas, 505 U.S. at 1017.

The Agins means-end inquiry flies in the face of this consistent use of physical expropriation as a benchmark for regulatory takings. Regulation that is impermissible only because it does not adequately advance a legitimate interest is not the functional equivalent of an expropriation of land. Because a means-end standard of takings liability would result in automatic compensation where the government acts irrationally, it would apply to all manner of government action that has no similarity to expropriation. Indeed, it would require compensation (in the form of market value for the "taken" property interest) no matter how insignificant the actual economic impact on the claimant.

Suppose, for example, a state agency issues a land-use regulation that slightly reduces the value of thousands of parcels of land throughout the state. Suppose further that the regulation is based on a mistaken interpretation of the agency's authority. The affected property owners could, of course, seek invalidation of the ordinance as an unlawful exercise of the agency's power. But if a means-end inquiry were an appropriate standard of takings liability, they also could seek compensation for the time during which the restriction was in effect, arguing that the regulation failed to advance a legitimate state interest. Because the regulation exceeds the agency's legislatively conferred authority, by definition it fails to advance a legitimate legislative goal. But it would make no sense to allow the landowners to seek compensation in the face of such a small reduction in the value of their property. The litigation floodgates would open whenever state or local government action, subsequently deemed by a court to be arbitrary or unauthorized, adversely affected property values, no matter how slight the economic impact.

Not only would litigation increase, but the required compensation often would be greatly disproportionate to the claimant's out-of-pocket expenses. Successful due process claimants generally seek actual, out-of-pocket expenses, whereas successful takings claimants seek fair market value for the "taken" property interest. See Williamson County, 473 U.S. at 197 (discussing the difference between remedies under the Due Process and Takings Clauses). If a takings claimant were to prevail on a means-end theory, it could claim full rental value for the time during which the regulation was in effect (see First English, 482 U.S. at 319, 322), even if the claimant suffered no actual damage or out-of-pocket expenses. Although full rental value might be appropriate for other temporary takings (because the claimant effectively cedes the property to the public for that period of time), it is illogical where regulation is impermissible solely because it fails to advance a legitimate interest (because the public gains nothing and the claimant often loses far less than the rental value of the property.) This scenario is no academic hypothetical. See Tampa-Hillsborough County Expressway Auth. v. A.G.W.S. Corp., 640 So. 2d 54 (Fla. 1994) (illustrating not only the risk of debilitating compensation claims that may result from conflation of due process and takings analysis, but also the proper resolution of such claims by limiting means-end inquiries to the Due Process Clause).

The Agins means-end inquiry also conflicts with the Takings Clause's requirement that a taking be for a "public use." In Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229 (1984), the Court made clear that where a taking does not adequately advance the public interest, the proper remedy is invalidation under the Public Use Clause. Id. at 245 ("the Constitution forbids even a compensated taking of property when executed for no reason other than to confer a private benefit on a particular private party. A purely private taking could not withstand the scrutiny of the public use requirement; it would serve no legitimate purpose of government and would thus be void."). Midkiff further holds that the judicial role in enforcing the public-use requirement is "an extremely narrow one" (id. at 241-42), and that the standard of judicial review of an asserted public purpose is comparable to the highly deferential "rational basis" test used to evaluate substantive due process claims. Id. at 241 (a taking survives a challenge under the public use requirement where it is "rationally related to a conceivable public purpose").

It is inconsistent with Midkiff and the public use requirement of the Takings Clause to award compensation for a taking based solely on the failure of regulation to advance the public interest. From an analytical perspective, it would be anomalous to co nsider a regulation's means-end "fit" twice under the same clause but using differently phrased standards: i.e., first to determine if the regulation is rationally related to a conceivable public purpose under the Public Use Clause, and then to examine whether it substantially advances a legitimate interest to determine liability under Agins. From a remedial perspective, it is illogical to invalidate a regulatory taking under Midkiff for failing to advance a public use, and yet deem the regulation to be a compensable taking under Agins for failing to advance a legitimate public interest. And from a policy perspective, it makes no sense to require taxpayers to pay "just compensation" to a property owner for government action that fails to advance the public interest in any way.

How is it that due process and takings analysis became confused? Prior to 1987, many courts believed that invalidation was a sufficient remedy under the Takings Clause for a taking of property without just compensation. Thus, there often was little need to distinguish between due process and takings analyses because violations of both clauses led courts to strike down the offending law. Indeed, the Supreme Court frequently mixed the terminology of the clauses, often referring to "a taking of property without due process." E.g., Metromedia, Inc. v. City of San Diego, 453 U.S. 490, 498 n.7 (1981) (describing various claims as alleging "takings of property without due process"); Rostker v. Goldberg, 453 U.S. 57, 61 n.2 (1981) (same).

In 1987, however, takings jurisprudence experienced a sea change with the Court's ruling in First English, which makes clear that the government must pay just compensation for a taking, regardless of whether the taking occurs directly through the power of eminent domain or inversely through regulation that denies land economically viable use. 482 U.S. at 314-22. Although the government may limit its liability to temporary damages by rescinding the offending regulation (id. at 321), just compensation must be paid. Since the First English ruling, it has become far more important to distinguish between due process and takings analysis. Eastern Enterprises constitutes the first clear step toward repudiating the Agins-type due process analysis that crept into takings jurisprudence prior to First English.

In sum, the Agins means-end inquiry has no appropriate role in takings analysis, as evidenced by the five-Justice disavowal of the inquiry in Eastern Enterprises, the virtual disregard of the inquiry by lower courts in identifying compensable takings, and its fundamental inconsistency with the text and history of the Takings Clause.

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