Moratoria: Takings or Valid Planning Devices?

The Tennessee Court of Appeals recently ruled in a “takings” or “inverse condemnation” case that a moratorium enacted by a local legislative body for a fairly short period of time (eight months) might under the facts of the case render the city liable for a taking. Durrett Investment Company v City of Clarksville, Tenn. App. February 15, 2013. The trial court had dismissed the case pursuant to a motion to dismiss filed by the city but on appeal, the Court of Appeals reversed. Noting that there is “no bright line rule or formula… for determining when a regulation goes too far such that it is recognized as a taking,” and citing Tahoe-Sierra Preservation Council v Tahoe Regional Planning Agency, 535 US 302 (2002), the court concluded that the balancing test of Penn Central should apply. The factors considered there included:

(1) the economic impact of the regulation,
(2) the degree to which the regulation has interfered with the owner’s reasonable distinct investment-   backed expectations concerning the property, and
(3) the character of the governmental action.

Penn Central v City of New York, 438 US 104 (1978).

There may be other relevant factors to consider as well. That’s probably just as well, because two of the factors enumerated in Penn Central seem to have gone by the boards. For example, the first factor, the economic impact of the regulation, seems to be much less important since the court has held that land use regulations can be a taking only if the landowner is deprived of all or substantially all economically beneficial use of the land. The third factor, the character of the action, originally was thought to distinguish between physical invasions of land and overbroad regulations. However, since the Supreme Court has since ruled that a physical taking is a per se violation, the third factor also seems to be somewhat superfluous.

The complaint alleged that the city knew that the property owner wanted to develop the property, and was in fact in the process of selling the property. The complaint also alleged that the road which was under consideration would not have been constructed for over 10 years. It is also worth noting that the moratorium did not affect all of the property of the plaintiff; only a fairly narrow corridor.

Most of the cases which have considered moratoria such as Tahoe-Sierra hold in favor of the government. In fact, the Supreme Court specifically noted that moratoria were widely used for planning purposes and upheld the 32 month moratorium at issue in that case as reasonable under the circumstances.

The Supreme Court also indicated that a moratorium over one year or more in length might be viewed with special skepticism. Indeed, most cases challenging moratoria with durations of less than one year fail, most likely for the reasons advanced by Tahoe-Sierra.

Although based on the other decisions involving moratoria, the result in this case might be slightly surprising, most likely the Court of Appeals felt that the factual background of the case had not been sufficiently brought into focus for it to make a decision on the ultimate issue of overbroad regulatory takings. A remand to the trial court will give both parties an opportunity to get all the facts before the court so that a fair and final resolution can be achieved.