Property Rights Foundation of America®
Founded 1994

Bulletin - June 28, 2001

U. S. SUPREME COURT RULES THAT “TAKINGS” ARE NOT WIPED OUT BY CHANGE OF OWNERSHIP

Ruling in Palazzolo v. Rhode Island holds that a State cannot be allowed “to put an expiration date on the Takings Clause.”
By Carol W. LaGrasse

Deciding today in a Rhode Island case where a property owner acquired coastal wetlands after State regulations were in effect, the United States Supreme Court cancelled the rule that a purchaser was deemed to be barred from claiming compensation for a “taking” due to a restriction enacted earlier.

This ruling, part of a three-part decision handed down by Justice Kennedy, not only trounces the Rhode Island Coastal Management Council, but goes exactly contrary to several New York State Court of Appeals rulings where existing regulations were held to govern whether “takings” compensation was due. This “New York Rule,” as it is sometimes referred to by property rights lawyers and activists, should now be readily reversible in litigation here in New York.

The case before the Supreme Court resulted from a long-drawn-out series of efforts by Mr. Palazzolo and his former corporation Shore Gardens, Inc. (SGI), to fill in the wet ground to build structures. During the regulatory machinations, the State created the Rhode Island Coastal Resources Management Council to preserve coastal properties. The property fell to Palazzolo when SGI’s corporate charter was revoked, and he began another series of efforts to obtain permission to fill in the marsh area. When the Council rejected his application, Palazzolo filed an inverse condemnation action in Rhode Island Superior Court. Ascending the court system, Palazzolo reached the highest court in Rhode Island, where a four-part ruling was handed down against him. One of the court’s holdings was that he could not assert a takings claim because the regulation at issue predated his acquisition of title and therefore he could have had no reasonable investment-backed expectation that he could develop his property.

The U. S. Supreme Court today ruled in favor of Mr. Palazzolo in two parts of its three-part ruling, and remanded the case back to the State Court for a decision in the third part. In addition to reversing the state court on the issue of compensation for regulatory takings based on rules enacted before he acquired the property, the high court gave Palazzolo a victory in the area of “ripeness,” where his case was ruled ripe for court action even through he could have theoretically made a new, revised application. On the third issue included in the Supreme Court’s ruling, Mr. Palazzolo’s actual chance of compensation still hangs in the balance, because he went to court on the basis on the regulatory taking of his entire parcel, rather than a portion. He may still have to prove a loss of all economic use in the state court, to which the case is now remanded on this one issue.

In ruling on the issue of whether preexisting regulations preclude compensation for “takings,” the Supreme Court held, “Were the Court to accept the State’s rule, the postenactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable. A State would be allowed, in effect, to put an expiration date on the Takings Clause. This ought not to be the rule. Future generations, too, have a right to challenge unreasonable limitations on the use and value of land.”

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