The U.S. Supreme Court will soon decide a regulatory takings case stemming from a dispute over a family cabin located on the St. Croix River in Hudson, Wisconsin. On March 20, 2017, the Supreme Court heard oral arguments in Murr v. Wisconsin.
The legal term “taking” refers to the taking of private property by government for public use. A taking may arise from physical occupation. A taking may also arise when a government regulation removes all economically viable use of private property (i.e. a “regulatory taking”). The government must provide just compensation for any taking. The question in Murr is whether, in a regulatory taking case, two legally distinct but commonly owned contiguous parcels must be combined as one for takings analysis purposes.
Background
In the 1960’s, the Murrs’ parents purchased two adjacent lots on the St. Croix River. A cottage was built on one lot. The adjacent lot was bought for “investment purposes.” The parcels were held in separate ownership. The Murr parents owned one lot and their business owned the second lot. Together, the two lots contain approximately .98 buildable acres.
In 1994 and 1995, the Murr parents deeded both properties to their children (collectively the “Murrs”). This transfer brought the two lots under common ownership, and resulted in an effective merger of the two lots under a St. Croix County Ordinance (the “Ordinance”) which had been in place since the mid-1970s.
The Ordinance prohibits the individual development or sale of adjacent, substandard lots under common ownership, unless an individual lot is at least one acre of buildable land. However, if the abutting, commonly owned lots do not each contain the minimum acreage, together they suffice as a single, buildable lot. The regulation is intended to limit density along the river without depriving single lot owners’ use of their properties.
As an aside, had the Murr parents separately deeded the two lots to different grantees, the problem would have been avoided. However, by the Murrs taking common ownership to both parcels, they triggered the regulations at issue in the case. (This is an interesting takeaway for estate planners.)
The Murrs continued to use the family cabin and adjoining vacant lot until the early 2000s. When the Murrs decided to sell the vacant lot, they learned that the Ordinance would prohibit its separate subdivision and development. The Murrs sought a variance which the county zoning board denied.
Litigation
The Murrs unsuccessfully sought certiorari review of the zoning board’s decision and filed a separate lawsuit against the government seeking compensation for a regulatory taking. The latter suit made its way to the Wisconsin Court of Appeals and is now before the Supreme Court.
The Murrs’ complaint against the government alleged that the Ordinance resulted in an uncompensated taking of their property. The Murrs argue that they have been wholly deprived of the use of their second lot because it cannot be sold or developed. The government argues that the Murrs have not been deprived of all or substantially all of the beneficial use of their property as a whole. There is no dispute that the Murrs could keep the family cabin or build a new home on either lot or straddling both lots.
The circuit court agreed with the government, holding that no taking occurs unless an owner has been deprived of all or substantially all beneficial use of the whole property. The appeals court affirmed. Both courts analyzed both Murr lots as a single property for purposes of the takings analysis. The Murrs have argued that only the vacant lot should be considered in the analysis.
The Supreme Court is now poised to consider this takings question. The decision is likely to be a close one. With only eight justices participating in oral arguments, there could be a 4-4 split.
The government has also raised a number of procedural issues. It is possible that the Court could reach a decision on one of these procedural issues, and not address the takings question. The Court could also limit its decision to the facts of the case presented, limiting its broader application.
Looking Ahead
A decision is predicted to come in June 2017. However, there could also be a reargument of the case after the confirmation of Neil Gorsuch (assuming that he is confirmed) to avoid a 4-4 split. Real estate practitioners, government regulators and private property owners of similar substandard lots should stay tuned for the Supreme Court’s decision.
If you have any questions about how the information in this article may affect you or your business, please contact Jennifer M. Luther at jluther@stroudlaw.com or (608) 257‑2281 or your Stroud attorney.
DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.
