The Supreme Court of the United States has clarified the judicial requirements that a land owner must meet in order claim that the government has violated the Takings Clause of the Fifth Amendment.

In 1959, Anthony Palazzolo ("Owner") created a corporation to purchase property ("Property") in Westerly, Rhode Island, a popular seaside vacation spot. Eventually, the Owner was the sole shareholder in the corporation. The Property was approximately twenty acres, and much of the Property consisted of salt water marshes subject to tidal flooding, which would require filling prior to any development. In 1962, 1963, and 1966, applications to develop the Property were submitted to a governmental agency ("State"). The State rejected the proposals because of their adverse environmental impact, and the rejection was not challenged. In 1978, the corporation holding the property was dissolved and so, by operation of law, the Owner took personal possession of the Property. Also, in 1971, the State adopted new laws designed to protect "coastal wetlands," like those found on the Property.

In 1983, the Owner renewed his attempts to develop the Property. His first application proposed placing a wooden bulkhead on the Property and then filling in the entire marsh area, which the state rejected for being "vague." A second application was submitted in 1985, proposing to fill in eleven acres of the marsh land with gravel and creating a beach club on the property. The State also rejected this application, stating that under its laws, requests to fill in the coastal wetlands required the obtaining of a "special exception." To obtain a special exception, the Owner would need to demonstrate that his project served a "compelling public purpose," which the State determined he had not shown. The Owner challenged this decision, but the courts upheld the decision. The Owner then filed an inverse condemnation proceeding against the State, claiming the State's regulations constituted a taking of the Property without compensation, in violation of the Fifth and Fourteenth Amendments. The trial court ruled in favor of the State, and the Rhode Island Supreme Court affirmed the trial court's rulings. The Owner appealed.

The Supreme Court of the United States affirmed in part and reversed in part the rulings of the Rhode Island Supreme Court, remanding the case for further proceedings. The Takings Clause of the Fifth Amendment, applicable to the State via the Fourteenth Amendment, prohibits the government from taking private property without "just compensation." The Supreme Court has established that governmental actions which do not physically occupy a property but have the effect of substantially limiting a property's use can constitute a governmental taking requiring compensation to the landowner.

The Court first considered whether the Rhode Island Supreme Court had properly decided that the Owner's lawsuit was not "ripe" for judicial consideration. "Ripeness" is a judicially-created doctrine which, in a takings case, requires that the appropriate regulatory body must have reached a final decision on how its regulations apply to the property. The Rhode Island Supreme Court had ruled that the lawsuit was not ripe for judicial consideration because there was doubt as to what kind of development the State would permit on the Property. The Court reversed the Rhode Island Supreme Court's ruling, finding that this matter was ripe for judicial consideration because the State had made it clear that the Owner had failed to meet the criteria necessary for developing the wetlands on the Property. While a portion the uplands portion of the Property was not wetlands, the Court found that there was no dispute that the Owner could develop this land and so there was no reason for the Owner to seek special development permits from the State to develop the uplands portion of the Property. Indeed, the Court stated that both parties had accepted a $200,000 value for the uplands portion of the Property, demonstrating that this property had development value. Thus, the Court ruled this lawsuit was ripe for judicial consideration.

The Court next considered the ruling of the Rhode Island Supreme Court that the Owner could not claim a taking because he personally acquired ownership of the Property in 1978. Since this was after the 1971 regulations took effect, the lower court had ruled that the Owner was imputed notice of these regulations and their effect on the Property, thereby barring him from challenging the State's application of the regulations. The Court reversed this ruling as well, finding that the Owner was permitted to claim a taking of his property. The Court ruled that there is no time period for making a takings claim and that a landowner is permitted to challenge an unreasonable governmental limitation on land use at any time. The only time when a subsequent landowner is not entitled to receive compensation for a taking is in a direct condemnation action, as only the owner at the time of the direct condemnation is entitled to the compensation, not subsequent owners of the property. The Court stated it would be unfair to place a time restriction on takings claims, as the subsequent landowner should not be barred from challenging a regulation simply because the prior owner did not. Therefore, the Court reversed the Rhode Island Supreme Court's ruling and stated the Owner could proceed with his taking claim.

The final matter before the Court was the ruling of the Rhode Island Supreme Court that there was no taking because the Property still had an economically beneficial use. Under Lucas v. South Carolina, 505 U.S. 1003 (1992), a state may not evade its duty to compensate a landowner when its regulations leave the landowner with a "token" interest in the property and no economically beneficial use. The Court affirmed the Rhode Island Supreme Court's ruling that there was no taking under the Lucas standard, since a portion of the Property could be developed and retained a value of $200,000. However, the Court remanded the case for consideration under another Supreme Court case, Penn Central Transportation Company v. New York City, 438 U.S. 104 (1978). Under this case, a landowner must show that limitations on property that do not eliminate all beneficial economic use still constitute a taking, with the court considering such factors as: 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. Since the Rhode Island Supreme Court had failed to consider Penn Central, the Court remanded the case for further consideration under this criteria. Thus, the Rhode Island Supreme Court was partially affirmed and partially reversed, with the case remanded for consideration of the Penn Central criteria.

A number of separate opinions were filed in the case. Three Justices (Ginsburg, Breyer, Souter), dissented from the Court's opinion, arguing that this case was not ripe for judicial consideration, based on prior precedent of the Court.

Palazzolo v. Rhode Island, 533 U.S. 606, 121 S. Ct. 2448 (2001).

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