United States Supreme Court Clarifies Regulatory Taking Claims

Lingle v. Chevron U.S.A. Inc., United States Supreme Court
Lingle v. Chevron U.S.A. Inc., United States Supreme Court
No. 04-163
Monday, May 23, 2005

The case below is a summary of a recent United States Supreme Court decision.

The United States Supreme Court has clarified the law regarding regulatory taking claims. In Lingle v. Chevron U.S.A. Inc., the plaintiff, Chevron, USA, sued the state of Hawaii. Chevron alleged that a state law, which capped the maximum rent an oil company could charge certain dealers, amounted to an unconstitutional taking. Chevron asserted that the regulatory taking was improper because it failed to “substantially advance” a legitimate state interest. The Hawaii legislature had enacted the rental cap to reduce the high cost of gasoline to consumers.

By way of procedural background, the United States District Court ruled in favor of Chevron and struck down the state law. It concluded that the regulation amounted to a taking of private property because it does not “substantially advance” a legitimate interest. The Ninth Circuit Court of Appeals affirmed the lower court ruling; the Supreme Court reversed and remanded.

The Court clarified the different tests used to determine whether a regulation is tantamount to an unconstitutional taking under the United States Constitution. It noted that “regulatory actions generally will be deemed per se takings for Fifth Amendment purposes (1) where government requires an owner to suffer a permanent physical invasion of privacy . . . or (2) where regulations completely deprive an owner of ‘all economically beneficial use[s]' of her property[.] (Citations omitted). Generally, outside these two categories, whether a regulation rises to the level of a public taking depends on, among other things, the following: the regulation's economic impact on the property owner; the extent to which it interferes with distinct investment-backed expectations; and the character of the government action.” These considerations are referred to as the Penn Central factors after the seminal case Penn Central v. New York City , 438 U.S. 104 (1978). In Palazzolo v. Rhode Island , 533 U.S. 606 (2001), the Court reiterated and clarified the Penn Central factors, stating: “Where a regulation places limitations on land that fall short of eliminating all economically beneficial use, a taking nonetheless may have occurred, depending on a complex[ity] of factors including the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investment-backed expectations, and the character of the government action.”

The Court stated that the “substantially advances” test, which the lower courts applied, is no longer a valid method of identifying a compensable regulatory taking. In Agins v. City of Tiburon , 447 U.S. 255 (1980), the Court fashioned the “substantially advances” test. Premised on a due process analysis, it inquired whether a regulation of private property is effective in achieving some legitimate purpose. Twenty-five years later, the Lingle Court reversed its prior decision, noting that, although such an inquiry may be relevant to a due process challenge, it “reveals nothing about the magnitude or character of the burden a particular regulation imposes upon private property rights or how any regulatory burden is distributed among property owners.” In short, the Court said such a test “is not a valid method of discerning whether private property has been ‘taken' for purposes of the Fifth Amendment.”

Finally, Chevron only argued the “substantially advances” formulation, effectively ignoring the Penn Central analysis. Chevron did not establish that it had been singled out to bear any particularly severe regulatory burden; the record was unclear whether Hawaii's rent cap actually burdened Chevron's property rights. Consequently, the Court reversed and remanded the case.