Well thank you very much, Carol, for that kind introduction.
It's a real pleasure for me to be here this morning for two reasons.
First, although I've lived in Washington since I first joined
the Reagan administration in 1981 and before that in other parts
of the country, I was born in Vermont and grew up not far from
here in northwestern Saratoga County in a little town called Galway,
population 150. So this is something of a return home for me.
I was extremely pleased that it's worked out this time.
Second, I'm extremely pleased to see that Carol has been so successful over the years with the Property Rights Foundation of America, and I'm extremely pleased to be here to launch the second decade of successes for the foundation.
Now, when Carol invited me to kick off this program, we had to settle on a title and when I looked at the program she'd sent me at that point in time I saw that you're going to be treated to a number of panels dealing with specific issues. So I thought I might give something of an overview of the situation today so that the more particular discussions that follow will have a context within which to take place. We settled on the title "The Supreme Court's Protection of Property Rights" I suppose we could have added "or Lack Thereof"and subtitled it "The Founders' Dream, the Owner's Nightmare." And of course we don't have to tell any people in this room about the second part of that, the owner's nightmare. Today property rights are, as Justice Rehnquist put it in 1994 in the Dolan case, rather like "poor relations" in the Bill of Rights. They are second class members. I suppose the only thing less protected than property rights in the Bill of Rights is the Second Amendment right to keep and bear arms. We at the Cato Institute are going to be doing something about that.
As you may know, we're behind a case that was just decided this summer by the D.C. Circuit, which held that there is an individual right to keep and bear arms. A cert petition was filed a week ago with the U.S. Supreme Court. The conventional wisdom is that the Court is going to grant cert, and so we are likely to see an opinion coming down, we hope, that will be favorable to the idea that there is an individual right to keep and bear arms and that the Second Amendment is not an embarrassment within the Bill of Rights, as people on the left often would have us believe.
Because I'm going to cover a broad range of issues here, I thought it would be useful to first set something like a table of contents out before you. I'm going to talk about the Founders' dream at the outset, and therefore go into the kinds of first principles that are essential to understanding how it is that we have property rights and how they are to be protected under the Constitution. In the course of that, I am going to discuss what's called the police power and eminent domain power and show how they are related. I'm then going to turn to the situation today by setting forth four scenarios in which owners are up against government restrictions and then show you how those play out in some detail after that, bringing us up to the present time.
Once again, I don't need to tell you folks how property rights
are under assault. Just two years ago there were three property
rights cases before the Supreme Court in which the owners had
very good claims against the government. Yet, in all three cases
the owners lost. None was more before the public than the Kelo
case from the state of Connecticut, which animated the public
in a way that no other case has in recent years. It has led to
a backlash all across the nation because people could easily grasp
the injustice. The owner had her title taken not for a "public
use" but for transfer to another private owner, and
that led to a firestorm. Thanks in particular to the work of the
Institute for Justice, a sister organization of the Cato Institute,
41 states have since enacted legislation of various kinds to better
protect people against so-called economic development condemnations.
And state courts have issued favorable decisions since then as
well. So there is real progress on that front. But it is a narrow
front and it does not address the front on which so much mischief
is taking place today, namely in the regulatory takings area.
Let me begin, then, by going back to first principles, and by first principles I mean to start not with the Constitution but with the Declaration of Independence. By the way, I am going to be speaking, Carol said, for about three quarters of an hour, which I realize is 25 minutes more than your attention span is said to be, but what I am going to do is test you afterwards, so please pay attention!
When we look at the Declaration of Independence, we see the
vision that the Founders took with them when they sat down eleven
years later to draft the Constitution. Jefferson placed us in
the natural law tradition, more precisely the natural rights strain
of that tradition. In doing so, he was standing on giants stretching
back 2000 years to antiquity, to the idea that there is a higher
law of right and wrong from which to derive the positive law and
against which to criticize that law at any point in time. This
you can see as early as in Plato's Euthyphro, where Plato
has Socrates asking Euthyphro, "Is piety pious because the
gods love it, or do the gods love it because it is pious?"
Implicit in that question is a contrast between legal positivism
and natural law. That is to say, that piety is pious simply because
the gods love it, because it reflects merely their will; or, that
there are independent reasons why piety is pious and that
is why the gods love it.
This idea that natural law stands for the notion of a higher law of right and wrong can be found developed in Aristotle, in the Stoics following the demise of the Greek city states. You see it in Cicero and in Seneca and in the Roman legal tradition, in the Middle Ages with the contest between church and state that developed an inchoate notion of separation of powers; but you see it especially in the English tradition, where institutions were developed to better protect our liberty and, in particular, our property with the evolution of the common law over 500 years.
The common law was a law that evolved from judges adjudicating disputes between individuals and later between individuals and the king based upon first principles, upon the notion of a higher law, and upon reason and custom. This law was rooted ultimately in property and contract. It is what John Locke drew upon in 1690 when he wrote the Second Treatise of Civil Government, upon which Jefferson drew, in turn, when he wrote the Declaration.
The Second Treatise sets forth, first of all, the theory of individual rights; second, the theory of private property; and, third, the theory of the social contract, all of which go together to form the principles that Jefferson outlined. We see that in the Declaration in those famous words that begin, "We hold these truths to be self evident." The "self-evident" truths that follow are thus rooted in reason. To be sure, Jefferson made reference to the Creator and to "the Laws of Nature and of Nature's God," but that was in minimal reference to religion. The idea of natural law from antiquity onward was that it was rooted in principles of reason and therefore not in any particular religion or even in religion as such, but, rather, in a foundation that was universal to mankind as such. And so Jefferson continued with a premise of equality, "all Men are created equal," and he defined that equality with reference to rights to "Life, Liberty, and the Pursuit of Happiness." Thus, he couched his argument in the language of rights, not in such other moral notions as values or virtues. In so doing he grounded our moral vision in rights and correlative obligations.
Thus far in the Declaration, however, he had spoken only about the moral order. The legal and political order would follow, but before turning to it, it's important to be clear about what that moral order looks like. Essentially, it's a vision in which each of us is free to pursue happiness by his own values, providing he respects the equal rights of others to do the same. And so you have an implicit distinction between objective rights and subjective values. That lets you thread a path between two extremes that we inherited from antiquityskepticism and dogmatism.
Skepticism holds that there are no moral truths or, if there are, we can't know them. Dogmatism holds that there are moral truths all over the place that are fit subjects for law and therefore for rules about everything in lifefrom what you can put in your bodies to the sexual practices you can engage in and on and on. The first alternative, skepticism, leaves you with no morality. The second leaves you with no liberty. And so when you have this distinction that is implicit in this idea of "the right to pursuit happiness," between objective rights and subjective values, you have a world in which there is morality with respect to rights, yet there is liberty to pursue happiness as you think best, even if it may offend your neighbor. So the idea is that each of us is free to pursue happiness by his own values provided he respects the equal rights of others to do the same.
Now we turn to government: "That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed." Thus, government is twice limited. It is limited first by its endsto secure our rightsand by its means, which must be consented to. And all those rights are reduciblehere is the crucial pointto property. As Locke put it: "Lives, Liberties, and Estates, which I call by the general Name, Property"your property in your life, your property in your liberty, the property that you acquire as you work your way through life. That is the starting point for the theory of rights.
But, of course, people don't live in splendid isolation. They
associate with other people and so we come to the second great
font of rights, namely, promise or contract. Through replication
of these two fundamental rights, property and contract, you can
create the whole of what we call civilization or civil society,
and courts are there to protect people when they have complaints
against their neighbor or against the government that their rights
are being violated.
The vision that emerged from the Declaration is found eleven years later in the Constitution, right from the start, in the Preamble, which begins, "We, the people," for the purposes listed, "do ordain and establish this Constitution." In other words, the Constitution, like the Declaration, like Locke's Second Treatise, begins in the tradition of state-of-nature theory. If you are going to justify these conclusions, you start with a world in which there is no government, because the point is to try to justify government and its powers. If you start with government there already, you have begged the question. It is a circular argument. So you start by determining what our rights are vis-à-vis each other, and then you can determine what those rights are that can be exercised by way of creating government and giving it powers.
The problem that faced Madison, the principal author of the Constitution, when he sat down to draft the Constitution was how to create a government that was strong enough to secure our rights yet not so extensive as to violate rights in the process. He did that through the checks and balances we're all familiar withthe division of powers between the federal and state governments, with the most power left with the states; the separation of powers among the three branches of the federal government; the provision for a unitary executive and an independent judiciary that would oversee the actions of the political branches and later on of the states; and the provision for periodic elections to fill the offices set forth in the Constitution.
But the principal restraint on overweening government took the name of the doctrine of enumerated powers, the idea being that if you want to limit power, don't give it in the first place. So what you see in the very first sentence of Article I is: "All legislative Powers herein granted shall be vested in a Congress." By implication not all power was "herein granted." You look at Article I, Section 8, and you see the powers that were granted. There were only eighteen such powers that were there granted to Congressthe power to tax, the power to borrow, the power to regulate international and interstate commerce, and so forth. Then you look at the last documentary evidence of the founding period, the Tenth Amendment, and you see this document of enumerated powers made explicit beyond peradventure of a doubt: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." In other words, the Constitution establishes a government of delegated, enumerated, and thus limited powers. And you look at the Ninth Amendment and you see the obverse of the Tenth. The Tenth speaks of powers. The Ninth Amendment speaks of rights, and it says: "The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people."
The history of the Ninth Amendment helps to explain why it is there. During the state ratification debates it became clear that the Constitution would not be ratified until a Bill of Rights were added. But there were objections to adding a Bill of Rights, and there were two main objections. The first was that a Bill of Rights was unnecessary. As Wilson, Hamilton, and others said, why declare that there is freedom of speech when no power is given with which to violate the freedom of speech. In other words, they took the doctrine of enumerated powers seriously as the main restraint on overweening government. Remember, the Bill of Rights was an afterthought. It was added two years later.
Second, a bill of rights would be dangerous. Why? Because you can't enumerate all of our rightsthe right to get up in the morning when you want to, the right to wear a hat. You're not going to put those in a constitution. Yet by ordinary principles of legal construction, once you start enumerating certain members of a category, if you do not enumerate all of them, it will be read as implying that you meant only those that are enumerated to be protected, not the ones not enumerated. So it was to address that problem that they wrote the Ninth Amendment. "The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people." Thus, the picture that emerges from the Constitution is the same one that emerged from the Declaration and from Locke's Second Treatise. Namely, each of us is free to pursue happiness by his own lights provided he respects the equal rights of others to do the same, and government is there to protect those rights and to do the few other things that we have authorized government to do.
Now let's look at property rights under this basic moral, political, and legal structure. Property rights are not explicitly protected under the Constitution or under the Bill of Rights. There's a reason for that. It's because property rights, which were defined and protected mostly at the state level, are part and parcel of the background common law that the Framers assumed when they drafted the Constitution, and they assumed would be enforced by judges at the state level or federal level, as the case may be. When you look at the Fifth Amendment, however, you see protection of the following sort: You see the Due Process Clause and the Takings Clause. The Due Process Clauseand later the Due Process Clause in the Fourteenth Amendment, which would apply against the statesprevented government from depriving people of life, liberty, and property without due process of law. By implication, therefore, with due process of law you can be deprived of your life, liberty, or property. What that means has been a much mooted question over the years, with a debate between those who would defend so-called substantive due processand I happen to be one of thoseas opposed to those, often conservatives, who defend only "procedural" due processtherefore leaving our rights to the tender mercies of legislatures, federal, state, and local.
The second provision is more substantive and that is the Takings Clause: "nor shall private property be taken for public use without just compensation." Basically, the right to property is implicit within that clause, which recognizes, again by implication, the government's power of eminent domainits power to take private property for public use, provided the owner is justly compensated for his loss.
Let me say a little bit more about eminent domain, because it's important to contrast that power with the police power and show how they go togetherto give you a picture of what the Founders' vision was with respect to the protection of property rights.
I'll start with the police power. The police power is what
Locke called the "Executive Power" that each of us enjoys
in the state of nature, namely, the power to secure his rights.
It's bounded, therefore, by the rights that there are to be secured.
You can't use the police power to do other things than to secure
your rights. That is the strict and, to my mind, the proper understanding
of the police power. The general police power belongs, however,
to the states, not to the federal government. That is why murder,
rape, robbery, etc. are most often state crimes, rather than federal.
They are federal only in cases where the crime occurs on federal
property or against a federal agent and other closely related
matters. The police power, therefore, is the fundamental power
of government. It is the power that we have in the state of nature
that we yield up to government in the original position, when
we create government in the first place, and ask the government
we've just created to exercise on our behalf.
The eminent domain power, however, is wholly different. That is a power to condemn private property for a public use, provided the owner is compensated for his lose. This power, however, is not one that we would have had in the state of nature. No one in a state of nature can condemn his neighbor's property, however valuable his subsequent use may be, and even if he does compensate his neighbor. Why? Because it is a forced association. That's what it means to have a property right. It means to have title to the property and to be able to exclude the rest of the world from that property. So how is it that we can justify this power of eminent domain?
Well, a standard justification says that it is the power that is inherent in sovereignty. That is, of course, a patently circular argument. The best you can do is say that it is a power that is justified for two reasons: First, we gave it to the government, at least in theory, in the original position, as is evidenced by the Fifth Amendment's Takings Clause. So consent, at least for those who were there in the original position, would to that extent serve to justify it. Second, its exercise is what economists call "Pareto Superior." That is to say that at least one person is made better off and no one is made worse off by the exercise of the power. The person made better off is the public, as is evidenced by its willingness to pay for the property; and the person made no worse off is the person from whom the property is taken, provided the compensation he receives is "just"and that means compensation sufficient to leave him indifferent as to whether he keeps the property or gets the compensation. Of course, rarely is that the case. Compensation today, if you are fortunate, is "market value," which often isn't even close to the true value for the person from whom the property is taken. But that is the theory, the rationale that would serve to justify, as best we can, this power of eminent domain.
Because there is this difficulty with justifying the power of eminent domain, however, it was known in the seventeenth and eighteenth centuries as the "despotic power." That term was used by the Court in the famous eighteenth century case of Vanhorne's Lessee v. Dorrance. There is an air of illegitimacy about the power. Thus, by rights, government should use eminent domain only if it has exhausted all other options. It should not resort to the power first, but only last, after it has tried to get a voluntary transfer of the property to the publicby paying what the owner is willing to accept for giving up his property.
Now let's put those two powers together. If you are going to secure rights, you do that through the police power, and you don't have to pay compensation to anyone. But if you want to do something else, like provide the public with goods, you're going to have to do it through some other power, an enumerated power like the power to provide a post office or a post road or a military base and the like; and in the course of doing that, you may need, as an instrumental power, to use the power of eminent domainto condemn private property and turn it over to the public so that it can be used for a road, a military base, a public school, or the like. And here, compensation must be paid to the owner whose property is taken. That's how, in a principled way, the two powers go together.
I have taken us now to the principle of the matter, and I am
going to turn to the history. That history has never been perfect;
we never did have a "golden age." Indeed, historians
have recently shown that eminent domain and compensation arose
early in our history around the problem of "impressments"
of property during the Revolutionary War and the claim by people
whose property was thus taken that they wanted compensation for
it. But we must remember that for most of our history we had nothing
like the modern regulatory state. So what we now call "regulatory
takings," arising from massive land-use planning, never came
to the fore as they have over the course of the twentieth century.
What I am going to do now is set forth the four scenarios that I suggested earlier and then I am going to develop them a little more fully.
The four scenarios involve cases in which people and government come together with a clash over what appears to be a violation of property rights. When I get to the last of those four, I am going to divide that scenario into four sub-scenarios. That will give you something of a road map of where this is going.
The first case involves an action by government that reduces
the value of a person's property, but takes nothing that belongs
to him free and clear. If the government closes a school or a
military base and local property values suffer, or if it moves
a highway from where it is now and motels, restaurants, and so
forth situated along the old route suffer accordingly, owners
often think that the government owes them compensation for their
losses. Well, the government does not owe them compensation because
nothing was taken that belongs free and clear to the owner. The
owner does not own the value in his property. That's a function
of many things, which are changing all the time. Sometimes government
actions will raise the value of your property. Sometimes they
will lower it. But if they take nothing that belongs to you free
and clear, you're not entitled to compensation.
The second scenario involves a case in which a government regulation prohibits you from using your property in ways that violate your neighbor's property rights. This is the classic nuisance or risk situation, and here, too, the owner thus regulated will often think that he is entitled to compensation for the losses he suffers as a result of the restriction. But again he is mistaken because the use, if it violates a neighbor's property rights, is one that should never have been undertaken in the first place. There are often complex issues of fact in the application of these principles, but the basic idea is quite simple: Government can use its police power to condemn uses that should never have been permitted in the first place, even if that wipes you out. If you have a pig farm in the middle of Manhattan, you will likely be shut down. You can't impose odors, vibrations, flies, noise, particulate matterpollutionon your neighbors, at least beyond a certain point. So this is the kind of government action that is perfectly legitimate. It's a legitimate exercise of the police power.
The third scenario is the most troublesome. It's the regulatory takings area. This is the case in which the government condemns uses, not to protect the rights of neighbors, but, rather, to provide the public with various goodslovely views, wildlife habitat, historic preservation, and the like. Here the government is obligated, by right, to compensate the person who suffers a loss as a result of that. Otherwise, the cost of providing such public goods falls entirely on the owner.
The fourth scenario is the full eminent domain case, not the condemnation simply of uses, where the title remains with the owner, but the condemnation of the property itself, with the title transferred. And here there are four scenarios, as I mentioned earlier.
The first is the condemnation and transfer of title to the
public, as, for example, to create a military base, a road, a
public airport, etc. Here is the classic use of eminent domain.
No problem arises here, provided the compensation is just, because
the condemnation is for a "public use" and so that restraint
in the Takings Clause is satisfied.
The second scenario involves condemnation and transfer of title, not to the public but to another private party for something like a "public utility"a telephone, telegraph, or cable line, a railroad, and so forth. Here you're have another classic use of eminent domainto protect the public against the single holdout: that holdout will be able to extract monopoly rents as a result of his advantageous position, as economists would put it. So this, too, is a legitimate use of eminent domain since the public use requirement is satisfied if the subsequent use is indeed open to all members of the public on a nondiscriminatory basis, oftentimes with regulated rates in return.
The third scenario and fourth scenario are the problematic ones. The third also involves private-to-private transfers of title, but for "blight reduction," as in so-called urban renewal projects. Yet, if you have true blight, you can use the police power to condemn the use that leads to the blight. You don't have to transfer the title from the owner to another.
And the fourth scenario is, of course, the one we saw in the
Kelo case, private-to-private transfers of title for purposes
of "economic development." It's going on all across
the country today: governments, in order to increase their tax
base, in order to promote "upscale" development, will
condemn property, take title from one private party, and give
it to another private party. It is a scenario in which you often
have under-the-table dealingswell connected people working
with city hall to the disadvantage of less well connected people.
You have the federal bulldozer moving in with the blight scenario.
Here you have the developer moving in with downscale property,
commercial and residential, being replaced by upscale. It's the
nightmare scenario that was involved in Kelo.
Now what I am going to do is outline something of the history, and I mean something of the history. I realize that some of you are lawyers and are familiar with this literature. Others of you are not. So I am going to just give you kind of a general view of how it is that we got into this state of affairs, and I am going to focus on the third and fourth scenarios, the regulatory takings on one hand and the eminent domain problem on the other hand.
The regulatory takings issue, remember, arises when government does not take title but takes uses, leaves the title, sometimes an empty title, in the hands of the owner, and gives no compensation. The case that best illustrates this is one that the Supreme Court handed down in 1992, which involved David Lucas, who was a developer in Charleston, South Carolina. He had bought two parcels on the Outer Banks near Charleston for nearly a million dollars, with the idea of building a home for himself on one and a home to sell on the other. This was in 1986. Nothing extraordinary in what he was proposing. There were homes on either side of his two lots and on the lot between his lots.
Between the time he bought the parcels and he began developing,
however, the legislature of South Carolina passed the Beachfront
Management Act in order to promote tourism, to protect certain
flora and fauna, and so forth. The effect of the act, however,
was to reduce the value of Lucas's property to virtually nothing.
He could picnic on it. He could pitch a tent on it. But it was
pretty expensive tenting property. And so he did what every red-blooded
American would do: He sued. And he won at trial, but at the state
Supreme Court he lost, 3 to 2. So he filed a cert partition
with the U.S. Supreme Court and was fortunate that the Supreme
Court granted cert, heard the case, and reversed the South
Carolina Supreme Court, by a vote of 5 to 4. Now, notice what
we've got here. A man wiped out of a million dollars invested
in two parcels. The Beachfront Management Act is passed to promote
tourism, to promote wildlife habitat, and the like, and he is
wiped out, and four members of the Supreme Court say, that's fine.
That's how close we came in that case.
What came from that decision was the Justice Scalia all-or-nothing rule. That is to say, if it is a wipeout, you are entitled to compensation. But as Justice Stevens said in dissent, most of these regulatory takings don't result in a wipeout. You lose 50 percent of the value of your property, 75 percent, and so forth. And Scalia answered, well, takings law is full of these all-or-nothing situations. That's cold comfort! I bring this case up first because it captures quintessentially what is involved in the regulatory taking scenario, and this area of our law is an absolute mess today as those of you who may have wrestled with it can attest far better than I.
The beginnings of it, one could say, were in a case called Block v. Hirsch in 1921, a decision involving a challenge to the rent control statutes of Washington, DC, and New York City that had arisen during World War I. The decision was handed down by the sainted Justice Oliver Wendell Holmes, the Progressive par excellence. In it he upheld the statute even though the dissent said that it violated every rule of leases known to mankind from time immemorial. It was a case in which the parties had already sorted out their relationships and their respective rights and duties by contract. Nevertheless, Holmes said there were "exigent circumstances" and therefore that was good enough for him. What we have here is a paradigmatic example of the Progressive Era mindset, and that is what you must understand to appreciate why it is that the twentieth century in law has looked so different from the late eighteenth and nineteenth centuries.
The Progressive Era was a time in which we fundamentally rethought our conception of government. Whereas the Founders had thought of government as a "necessary evil," the Progressives saw government as an engine of good, an instrument through which to solve all manner of social and economic problems. It was, if I may paraphrase the Dupont ad from a few years ago, to be "better living through bigger government." They were drawing from German schools of good government; they were drawing from British utilitarianism, which supplanted natural rights theorythe idea being that law, policy, etc. was to be justified, not with reference to whether it was securing our rights, but rather with reference to whether it secured the greatest good for the greatest number.
Indeed, what you had was a period in which, well, I will give you a quote that captures it so nicely. It is from a magazine called The Nation, before it became the rag that it is today, in which the editors, who were classical liberals, wrote an essay lamenting the demise of liberalism, by which they meant classical liberalism, and they wrote that "the Declaration of Independence no longer arouses enthusiasm; it is an embarrassing instrument which requires to be explained away. The Constitution is said to be 'outgrown.'" This was 1900! It was not 1968, with Abbie Hoffman and the Chicago 7. 1900. These ideas were coming out of the elite schools of the EastHarvard, Columbia, Yale, Princeton, and the like; and the idea was that social engineers were going to plan our future.
Now, this is the first I have used the word "plan," but those of you who work in the property rights area know full well that what you are up against is planners of one sort or another, federal, state, and localeven, as Carol has pointed out, the United Nations planners are insinuating themselves, insofar as they can, in American domestic law. You are dealing here with people who think they know what our interests are better than we do. After all, they are experts. Take the area of social welfare. The new welfare state was to be designed not simply to supplement private charity but rather to crowd it out and have charity performed by professionals trained at the Columbia School of Social Work.
And it wasn't simply economic liberties and property rights
that were at risk here. There were personal liberties as well.
I give you a case called Buck v. Bell, decided in 1927,
again by the sainted Justice Oliver Wendell Holmes, the paradigmatic
Progressive. The case was a challenge to a Virginia statute that
authorized the sterilization of people thought to be of insufficient
intelligence. This was all part of the modern eugenics movement
to improve the human race by reducing the portion of the population
at the lower levels. The decision came down in no more than five
paragraphs, ending with the ringing phrase, "Three generations
of imbeciles are enough." It upheld the statute, a statute
that was supported by luminaries of the daythe president
of Planned Parenthood, the president of Stanford University, and
others. And it led to some 70,000 sterilizations in this country.
So it wasn't just economic liberties and property rights that
Progressivism put at risk. It was personal liberties as well.
That was the same Justice Holmes who had upheld rent controls in 1921. A year after doing so, however, Holmes was faced with another property rights case called Pennsylvania Coal v. Mahon. The facts of the case, in brief, are as follows. Here again the parties had distributed the rights between themselves by contract. To mine the coal in Pennsylvania, coal companies had entered into contracts with the surface owners such that they would mine the coal below and the surface owners would continue to occupy the land and farm or do whatever they did on the surface. The only question was who would bear the risk of subsidence, which was not an unknown phenomenon in coal mining, once the companies started mining the support estates. It was determined that the surface owners would bear that risk, for which they were paid.
As the risk began to materialize, however, you can imagine what the surface owners did. They ran to the legislature and got a statute passed that would prohibit the coal companies from mining the support estates, which belonged to the coal companies, so that surface owners could continue enjoying their surface estates. Well, here Holmes said that that was a regulation that went "too far," and so he found for the coal companies.
With that "bright line""too far"there
began what Justice Scalia in the Lucas case in 1992 called
seventy-odd years of ad hoc regulatory takings jurisprudence.
And we saw that no better than in a case that came down four years
after Pennsylvania Coal, the City of Euclid decision,
which upheld an exquisitely detailed zoning schemeso detailed
that it ordered where you could locate stables of more than five
horses, stables of fewer than five, crematories, cemeteries, and
on and on. Everything was to be planned. Well the plaintiff in
City of Euclid v. Ambler Realty brought suit because the
scheme prevented him from using his property as he had planned,
reducing its value by some 75 percent. Eventually the case made
it to the Supreme Court where the scheme was upheld, to no one's
surprise. Why? Because in the two previous cases, the rent control
case and the Pennsylvania Coal case, the Court had gotten
it wrong even though the parties had already sorted out
their rights by contract, leaving the Court with very little to
do. Those cases were what today we call "no-brainers."
By contrast, when they got the Euclid case in 1926 they
had to repair not to contracts and the terms that had been explicitly
set out by the parties but to natural rights and common law principles
to determine where the rights lay. So it's no surprise whatsoever
that they got it wrong.
Thus, with property rights, the floodgates were now open to the modern redistributive regulatory state. It would be another decade, however, before the New Deal Court of 1937 and 1938 would institutionalize that state more generally. I'll just touch upon the issues here.
In 1937 the Court eviscerated the doctrine of enumerated powers, the very centerpiece of the Constitution, the foundation of its legitimacy, opening the floodgates more fully to the modern welfare state. Then in 1938, in a case called Carolene Products, the Court attended to the problem that was posed by the fact that the Bill of Rights was still standing and thus might serve as an impediment to New Deal planners. In what has become "famous footnote four" in the opinion, the Court in effect distinguished two kinds of rights and two levels of judicial review. If a law implicated so-called fundamental rights, like voting, speech, and, later on, certain personal liberties, the Court would apply what is called "strict scrutiny" and the statute would doubtless be found unconstitutional. By contrast, if a law implicated "non-fundamental rights" like property, contract, the rights we exercise in "ordinary commercial relations," why then the Court would apply what is called the "rational-basis test." It would essentially look the other way and the legislation would sail right through. We had thereafter essentially two-and-one-quarter branches of government, and as a result of the '37 and '38 constitutional revolution the modern Leviathan we know and love so well flourished. Indeed, that was the great watershed. The Progressive Era developed the ideas that were then institutionalized by the New Deal Court following President Franklin Roosevelt's infamous Court-packing scheme in 1937.
So today we have a series of property rights opinions that
are absolutely ad hoc. When it comes to regulatory takings, nobody
knows where he stands. The Penn Central decision that came
down in 1978 is the one that is most often used. It sets forth
a three-pronged test. If you know what that test means, you are
doing better than the Court. The only thing that you need to know
is that if you are up against the Penn Central test, you
will lose. That is the rule that you can know going into it.
We are left then in the regulatory takings area with an absolute nightmare. Today, if you invoke the Lucas "wipeout" test, there are certain areas where you know you can winbut not always, especially if you run into what is called the "numerator-denominator problem." Then again, if there is a physical invasion of your property, you can win under the Loretto case. That case involved putting a cable box on an apartment building. Other situations, like the government flooding your land, will also fall under the invasion test. And there are the temporary takings cases, where you may get compensation under First English.
You've also got the "nexus" situations, like the Nollan and the Dolan cases, whereby the government puts you to a choice between two of your entitlementsyour right to get the permit, which you're seeking from the government to remodel your house, and your right to be free from the easement the government wants to impose on you as a condition for granting the permit. In other words, it is like the mugger who says "Your money or your life. Take your choice." You say "I have a right to both." "Well, we are not going to give you both," the government answers. "You can choose, but you are not going to get both."
This is the kind of thing that came up in the Nollan
case, which involved what Justice Scalia called "an out-and-out
plan of extortion." And in the Dolan case in Oregon
in 1994 the owners of a small hardware store sought to get a permit
to expand their business and pave the parking lot, whereupon the
city sought to extract land for a bicycle path from them in exchange
for the permit. Notice, the city could have condemned that land
and built the bicycle path, but it would have had to pay the owners
for that. The city wanted to get the property "on the cheap."
The case went to the Supreme Court, which upheld the right of
the Dolans to retain their property and get the permit.
But those kinds of cases are all over the lot, unfortunately.
And so we have a completely mixed bag here with respect to regulatory takings.
With respect to cases involving the full use of eminent domaintakings of the whole property, not just useslet me turn to those very briefly, Here, as I've said, there is more hope because of the legislative actions of 41 states. New York, of course, is not among them.
The decision of the Michigan Supreme Court in 2004 in the Hathcock case was a ringing support of the rights of owners against economic development condemnations. It overturned the infamous Poletown case of 1981. Then in 2006 the Ohio Supreme Court in the Norwood decision gave an even more ringing defense of the right to be free from economic development condemnations. So there is hope on that front, but it is a hope that is always checked by the fact that the people who are on the other side are indefatigable and, of course, are on the public payroll.
We come finally to the issue that I want to just touch upon, and that is the procedural injustice that is out there. It turns out that, in order to get into federal court, it is often almost impossible. Because under the Williamson County decision of 1985 you have to exhaust all your remedies at the state level and you have to get a final decision and a denial of compensation before you can even apply to federal court. But once you apply you will find the federal Full Faith and Credit Act excludes you because it is what lawyers call res judicataa case that has already been adjudicated. This was the San Remo case of 2005. And so the procedural side is an absolute nightmare for the owner.
There is a lot more to be said on this issue. Here I've just skimmed the surface. I am going to conclude, however, by saying, look, we have inherited a set of principles from the founding generation, which probably could not be better and could not be written in a time other than the late eighteenth century. But over the twentieth century we have squandered those principles, and we will not get them back until we go back to basics. And that is what is so good about the work that Carol and this organization are doing to revive those ideas and to educate the public, because that is where it must start, with you people working in the coal mines, if I may, of private property to restore the Founders' vision and to instill in the minds of the people the idea that private property is the very foundation of our liberty. Thank you very much.