Federal Circuit Examines the Boundaries of the Relevant Parcel Rule in Takings Claims

When I explain how takings law works to lawyers in other specialties, they are usually surprised that we fight so much to define the relevant parcel of property. That matters because the U.S. Supreme Court has said that government action only constitutes a regulatory taking when it goes "too far." The question becomes, then, did the government go too far if it takes 95% of the value of your parcel A, but your parcel B is unaffected so that if both parcels are considered, the government only took 50% of the combined value? Bet you can guess the government's standard argument!

The Federal Circuit just issued a new opinion analyzing how to determine the relevant parcel. In Lost Tree Village Corp. v. United States, Case No. 2012-5008 (Jan. 10, 2013), the Federal Circuit writes:

In many cases, as here, the definition of the relevant parcel of land is a crucial antecedent that determines the extent of the economic impact wrought by the regulation. Definition of the relevant parcel affects not only whether a particular regulation is a categorical taking under Lucas, but also affects the Penn Central inquiry into the economic impact of the regulation on the claimant and on investment-backed expectations. The relevant parcel determination is a question of law based on underlying facts.

The Supreme Court has not settled the question of how to determine the relevant parcel in regulatory takings cases, but it has provided some helpful guideposts. First, the property interest taken is not defined in terms of the regulation being challenged; the takings analysis must focus on “the parcel as a whole.” Second, “parcel as a whole” does not extend to all of a landowner’s disparate holdings in the vicinity of the regulated property.  

This court has taken a “flexible approach, designed to account for factual nuances,” in determining the relevant parcel where the landowner holds (or has previously held) other property in the vicinity. In this inquiry, the “critical issue is ‘the economic expectations of the claimant with regard to the property.’” When a “developer treats several legally distinct parcels as a single economic unit, together they may constitute the relevant parcel.”  

Conversely, even when contiguous land is purchased in a single transaction, the relevant parcel may be a subset of the original purchase where the owner develops distinct parcels at different times and treats the parcels as distinct economic units. 

(Citations omitted). In the case at hand, the Federal Circuit reversed the trial court because the trial court incorrectly combined multiple parcels of property owned by the same company in a takings lawsuit related to a Clean Water Act permit. Even though the lots were contiguous and were held to make a profit, "the mere fact that the properties are commonly owned and located in the same vicinity is an insufficient basis on which to find they constitute a single parcel for purposes of the takings analysis." The company showed that it had "distinct economic expectations" for each parcel. Consequently, the trial court was ordered to determine the value of the only the taken parcel. A rare win for the landowner!