Under the doctrine of regulatory takings, government regulation that goes “too far” in burdening property rights counts as a taking under the Fifth Amendment, entitling the owner to “just compensation.” In deciding such claims, courts often must deal with a tricky preliminary question: How should they define the bounds of the property that the government has allegedly taken? That question, often dubbed “the denominator problem,” could be outcome-determinative. For example, a regulatory burden on a small pond may seem minor if the property interest is defined as the developer’s much larger contiguous holdings, but severe if the property is defined as the pond itself. The court has long maintained that the denominator analysis must focus on the “parcel as a whole,” but that cryptic instruction has left litigants and lower courts at sea.
The parties in Murr v. Wisconsin offered the court three very different approaches to the denominator analysis. The case is interesting, and challenging, because each test would vindicate a slightly different view of the takings clause. As described in my earlier post, the Murrs argued that a “merger” provision in state and local law — which barred them from selling separately their two undersized, riverfront lots — was a taking of the one lot they wished to sell. The Murrs urged a bright-line denominator test, hinging on the lot lines of the parcel alleged to be taken. This test would typically make it easier for landowners to assert takings. The state, arguing against a taking, offered a different bright-line test based on state law taken as a whole; here, the state’s merger provision would set the denominator as both lots together. The state’s test would offer the greatest deference to state prerogatives in defining property. Finally, the county (and in a similar vein, the United States as amicus) offered a multi-factor approach that would provide the least predictability, but the most flexibility to determine the interests of justice in any given case.
In today’s 5-3 decision, the court ruled against the Murrs, adopting aspects of the tests pressed by the county and the United States. Writing for the majority, Justice Anthony Kennedy stated that the denominator question, like the overall takings inquiry, turns on a multi-part analysis. “Like the ultimate question whether a regulation has gone too far,” he wrote, “the question of the proper parcel in regulatory takings cases cannot be solved by any simple test.” The court rejected the “formalistic” rules proposed by both the Murrs and Wisconsin. The Murrs’ proposed test, the court explained, would unjustifiably elevate lot lines over other aspects of state law. And although state law is relevant to the inquiry, the majority could not accept Wisconsin’s proposal to define the denominator based on state law as a whole: Courts must also “weigh whether the state enactments at issue accord with other indicia of reasonable expectations about property.”
The court emphasized that any denominator test must ascertain, through an “objective” analysis, “whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts.” The court’s prescribed test includes three factors: “ the treatment of the land under state and local law;  the physical characteristics of the land; and  the prospective value of the regulated land.” With regard to the third factor, the analysis should give “special attention to the effect of burdened land on the value of other holdings.”
The court then applied these guidelines and concluded that the Murrs’ two lots should be treated as one for takings analysis. First, Wisconsin property law — specifically, the merger provision — treats the two parcels as one. Second, the lots are contiguous, and their “rough terrain,” “narrow shape,” and riverfront location all make land-use regulations predictable. Third, the lots are more valuable when combined. Going one step further (and arguably a bit beyond the question presented), the court then held that, on the facts of this case, no taking had occurred.
The court’s selection of a standard over a rule may sound like a property law technicality. But it also implicates deeper questions about the takings clause. All sides agree that, as the majority explains, the takings clause serves dual goals of protecting both private property rights and the government’s need to regulate in the public interest. But where does the emphasis belong — and who gets to decide? As I’ll explain, there are reasons to doubt that the choice of denominator test will drastically change the outcomes of takings cases. Still, the provocative theme of a battle between property rights and government regulation bubbles near the surface of this case, as do questions about how much deference is warranted to states, localities, and their lawmaking bodies. These controversial issues likely explain why the justices labored over the case until the penultimate day of opinion announcements.
Indeed, Chief Justice John Roberts’ dissent, joined by Justices Samuel Alito and Clarence Thomas, criticized the majority’s approach as a threat to property rights. Although the dissent did not dispute the court’s holding that no taking had occurred in this case, it rejected the new denominator test. Quoting Alexander Hamilton, the dissent noted that “‘the security of Property’ is one of the ‘great object[s] of government.’” But the new test, the dissent explained, stacks the deck in the government’s favor. It does that through “clear double counting”—considering the government’s interests not just in the ultimate inquiry into whether a taking occurred, but also when defining the denominator. Once applied, the dissent stated, this will push courts to define parcels in ways that align with “[r]easonable government regulation,” making it less likely that such regulation will be deemed a taking. Thomas penned a short separate dissent, expressing interest in taking a “fresh look” at whether the court’s regulatory-takings doctrine can be squared with the Constitution’s original public meaning.
This decision is certainly one for property law casebooks, and it provides a new test that will now play a major role in regulatory-takings litigation. It’s not clear, however, that the stakes are quite as high as the opinions suggest. The denominator question, after all, is just a preliminary step; courts must then decide whether a taking occurred, applying (as relevant here) the tests from Penn Central Transportation Co. v. New York City or Lucas v. South Carolina Coastal Council. In some cases — like this one — judges may be able to agree on whether a taking has occurred despite disagreement on what constitutes the denominator. Moreover, the Penn Central test, the usual test in regulatory-takings cases, is famous for the broad discretion it affords courts. Whether the denominator test preferred by the dissent and the Murrs would actually have spurred courts to find more takings, despite their broad discretion at the second step of the process, is an interesting but unclear empirical question. The more certain result of Murr is that the takings analysis is now more complex. Courts and litigators will spend the coming years interpreting the Supreme Court’s new, open-textured definition of the takings denominator.