At first glance, it might seem like there’s a lot there in the U.S. Court of Appeals’ opinion in Becker v. City of Hillsboro, No. 23-3367 (Jan. 7, 2025).
After all, the city’s prohibition on new private wells and another requirement that newly built homes connect to the city’s water system seems a bit arbitrary (at least the opinion doesn’t give a lot of detail why, other than “the city said so”). And the opinion evaluates a Lucas wipeout, a physical invasion, a Penn Central ad hoc taking, and a Nollan/Dolan claim. Even a Murr denominator issue. This case could have been a good vehicle to examine those questions in more detail that many courts do.
But after taking a dive in, our initial impression that this case would provide a lot of insight — or even food for deeper thought — didn’t pan out. Take a look and see if you agree.
The case involved two separate but related city restrictions on how landowners use their property. The first was a prohibition on new private wells within the city’s jurisdiction, put in place five decades ago. The second is more recent (2008), and requires all residences to get water service from the city.
The plaintiff here owed an undeveloped 156-acre parcel zoned for residential uses. A prior owner voluntarily annexed the land to the city in 2000. Flash forward, and the current owner tried to sell the property in 2020. It was only then, it asserted, that it discovered the annexation and the resultant well ban and city-water requirement. Complying with the city water requirement would cost way more than it is worth, and killed potential sales.
Takings lawsuit next, cross motions for summary judgment followed. City’s motion granted, appeal followed.
Physical invasion? No. The owners “are not being compelled to tolerate a permanent physical occupation because they are not being compelled to do anything at all.” Slip op. at 9. No, this is a require that if they build homes, then those homes must be on city water. “If.” No one is compelling the owners to build homes: the owner “still may choose whether to build a structure and comply with the ordinance or forego building a structure.” Id. Simple: don’t want to be on city water? Don’t build nothin!
Well, what about the owners’ argument that yes, we could choose to not build but that would force us into a Lucas wipeout. That, too, failed to convince the court. You might not be able to build homes, but hey, you “may still use the Property as it is for recreational purposes, or they could sell it.” Id. And, worse yet, the owners’ “own expert did not suggest that the property was rendered valueless by the City’s ordinances.” Slip op. at 10. The requirements “only” reduced the property’s value by 70%.
What about forcing the owner to choose (develop and use city water, or not develop and get whacked for 70% value) violates Nollan/Dolan? The court held that it couldn’t address this argument because it had not been raised and argued in the district court. Hold on, the owners argued, whadda mean we didn’t raise this — our district court summary judgment papers used the terms “exaction” and “Nollan/Dolan.” Not good enough the court of appeals concluded: “those references and citations were made in the context of arguing that the regulations are not impermissible exactions because the Trust is not seeking permits from the City. Furthermore, the trustees made no reference to exactions, Nollan, or Dolan in their Amended Complaint.” Slip op. at 12.
Finally, the owners’ Penn Central argument floundered on similar shoals. The court started off by rejecting the owners’ claim that the denominator should be be each of the potentially subdivided lots (“as that’s how they hope to sell the tract”), or was the court going to treat the property as the entire 156 acres? One big lot, the court concluded, applying the multi-factor Murr test. That settled, the court held that each of the Penn Central factors weighed against the owners.
- Economic impact: nothing “significant” here, because owners “presented no evidence” to show impact, because the expert only declared that “the cost to the Trust of extending the City water system to the Property made the development for that highest and best use economically unfeasible,” and didn’t conclude anything about the economic impact of other uses.”Slip op. at 16.
- Investment-backed expectations: yes, the owners might have subjectively believed that they could developed without connecting to city water, and the prior owner voluntarily annexed the property, thus subjecting it to the city’s regulations. Yeah, there’s Palazzolo, which doesn’t categorically bar you from forming reasonable expectations, but the regulatory regime can “shape” your expectations (what’s the difference?) and other nearby owners paid to hook up city water, so there’s that. Slip op. at 17.
- Character: the court acknowledged that the government’s reasons for the regulations are not what the Supreme Court meant by “character of the government action,” but in the same breath concluded that the the “likely” reason for the city’s regulations was to prevent water contamination and depletion of the aquifer. Slip op. at 18.
The court’s approach to Penn Central is perplexing. On one hand, it acknowledges–as it must–that the Supreme Court directs the factors to mean a certain thing (or not mean a certain thing), and are applied a certain way. Yet despite that acknowledgement, the Eighth Circuit just goes ahead an applies the test the same old way. You have to disprove all possible uses and values (and not let the trier of fact decide how much is too much), your post-regulation acquisition of the property doesn’t kill your RIBE, but merely “shapes” them negatively, and “character” doesn’t mean the government’s reasons (yet it does).
So despite the initial promise that the Eighth Circuit would grapple with the issues presented in the case — in particular an application of the Penn Central factors — in the end it was a tale full of sound and fury, signifying nothing.
Becker v. City of Hillsboro, No. 23-3367 (8th Cir. Jan. 7, 2025)
