[REN #757] Real Estate: Supreme Court Rules in Favor of Property Owner Rights

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Picture of a Gavel for Real Estate News for Investors Podcast Episode #757

A recent Supreme Court ruling is being hailed as a win for private property rights. It is also shaking up the legal community because it overturns a precedent that’s been used for other cases, and weakens the whole idea of a legal precedent.

This case is called Knick vs. Township of Scott. (1) It began in 2013 with a local ordinance requiring access to all cemeteries and burial grounds, and the discovery of an old family graveyard on private property. Property owner Rose Mary Knick did not grant permission to access her property, and filed a lawsuit in federal court for a Fifth Amendment violation. Her case was dismissed due to a legal precedent set in 1985 that forced her to seek compensation, after the fact, in state court.
 

The Takings Clause

What the Supreme Court just did was to overturn that precedent, and restore the power of the Fifth Amendment. As you may remember from your college course on the U.S. Constitution, the Fifth Amendment has a clause at the end which says that no person shall be “deprived of life, liberty, or property, without due process of law, nor shall private property be taken for public use, without just compensation.” That last part is commonly known as the Takings Clause.

To expand on this lesson in property rights, there are two ways in which a government can take private property. One is eminent domain when a government entity takes the property for a public purpose and pays the owner “just compensation.” There’s no violation of the Takings Clause when that happens because the property owner is compensated. According to a legal website for property owners called Owners Counsel, eminent domain is also referred to by other terms including “condemnation” or “direct condemnation,” or by the phrase “direct taking.” (2)

The second way in which a government can encroach on private property rights is by “inverse condemnation.” That’s when property is taken without following the eminent domain process, and without compensating the property owner. It may also involve something other than the direct taking of a property such as government regulations that interfere with the economical use of the property, or something like the Knick case, where the government demanded public access to the small graveyard on her property.

Under the so-called Takings Clause in the Fifth Amendment, Knick should have been able to sue the Township in Federal Court, but was prevented from doing so by the 1985 precedent. In that case, the judge ruled that property owners must seek just compensation under state law in state court before they file for a Takings Clause violation in federal court.
 

The Catch 22

And here’s the Catch 22… A property owner who “loses” his or her case in state court, was then barred from bringing it to a federal court because of the full faith and credit statute in the U.S. Constitution. This clause states that judgements take precedent over laws so a state court ruling would therefore trump the Fifth Amendment Takings Clause.

The 1985 precedent was the result of a case out of Williamson County, Tennessee. In that case, the local planning commission had rejected a property owner’s development proposal. The owner could have demanded compensation through the state’s inverse condemnation procedure but chose to file a lawsuit at the federal level for a Takings Clause violation.

At that time, the court ruled that no violation had occurred, because the developer hadn’t followed through with the state procedure so there was officially no denial of compensation. The court said the claim was “premature” because the developer had not taken the case to the state court first.
 

Impact of Williamson County Ruling

The full impact of that ruling wasn’t felt for another 20 years, however. Chief Justice John Roberts wrote in his ruling, “In that case, the takings plaintiffs complied with Williamson County and brought a claim for compensation in state court. The complaint made clear that the plaintiffs sought relief only under the takings clause of the State Constitution, intending to reserve their Fifth Amendment claim for a later federal suit if the state suit proved unsuccessful. When that happened, however, and the plaintiffs proceeded to federal court, they found that their federal claim was barred. This Court held that the full faith and credit statute required the federal court to (defer) to the state court’s decision, blocking any subsequent consideration of whether the plaintiff had suffered a taking within the meaning of the Fifth Amendment.”

In the new ruling, Chief Justice Roberts says they overturned the Williamson County ruling because property owners are entitled to just compensation at the time of the taking, and not after some state law procedure. He says, “… because the violation is complete at the time of the taking, pursuit of a remedy in federal court need not await any subsequent state action. Takings claims against local governments should be handled the same as other claims under the Bill of Rights. Williamson County erred in holding otherwise.”

Have I lost you yet?

This new ruling is big news, and one that doesn’t sit well with the dissenting justices. They said in their dissent, that the ruling also overturns other cases that were based on this precedent.
 

Dissenting Opinion

Associate Justice Elena Kagan wrote, “Today’s opinion smashed a hundred-plus-years of legal rulings to smithereens.” She also says the overturning of the 1985 precedent will “turn even well-meaning government officials into lawbreakers” because there are nearly an “infinite variety of ways for regulations to affect property interest.” She also says it betrays the idea of federalism because “It makes federal courts a principal player in local and state land-use disputes” and it goes against the legal acceptance of a “precedent.” She says, “Judges do not get to reverse a decision because they never liked it in the first place.”

The Wall Street Journal described the dissent as “high-spirited” and “somewhat overwrought.” The article points out that Justice Kagan’s solution for a claimant’s loss in state court, could then be solved by an act of Congress. Yikes. Can you imagine bringing your property rights issue to Congress? (3)
 

What Happened?

The upshot of the ruling:

  1. A violation of the Taking Clause occurs at the time of the Taking.
  2. Property owners can go directly to a federal court to file a Takings claim.
  3. The meaning of a “legal precedent” is now open for debate.

Links:

(1) Supreme Court Case

(2) Owner’s Counsel Article

(3) Wall Street Journal Article

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