ELEMENTS B 1 B 2 POWER POINT

ELEMENTS B 1 & B 2 POWER POINT SLIDES MUSIC: Meat Loaf, Bat Out of Hell (1977) Class #36: Friday, November 18, 2016 National Vicchyssoise Day (& Mickey Mouse’s Birthday)

Takings Theorist #3: Frank Michelman Today : Intro to Theory DQ 3. 27 -3. 29 (me) (cont’d) Mon: Applying Theory DQ 3. 30 & 3. 33 (Oxygen)

Takings Theorists: Frank Michelman DQ 3. 27 -3. 28 MMN = Cost/Benefit Analysis of Decision Whether to Compensate • Once state has decided to regulate, there’ll be winners & losers. Compensate losers if … – Costs of Compensating (= Settlement Costs = SC) LESS THAN – Costs of Not Compensating (= Demoralization Costs = DC) QUESTIONS?

Takings Theorists: Frank Michelman DQ 3. 27 -3. 28 Role of Efficiency Gains • Efficiency Gains are the net benefits of implementing the regulation in question. • Result of cost/benefit analysis legislature already should have done before deciding to adopt the regulation

Takings Theorists: Frank Michelman DQ 3. 27 -3. 28 • Efficiency Gains = net benefits of implementing regulation in question. E. g. , in Hadacheck: – Gains (Harm Prevented) b/c no brickyards (health; property values) LESS – Costs of Regulation (Harm to brick industry from having to shut down and relocate; harm from increase in cost of bricks; costs of implementation and enforcement)

Takings Theorists: Frank Michelman DQ 3. 27 -3. 28 • Efficiency Gains = net benefits of implementing regulation in question. E. g. , in Miller: – Gains (Harm Prevented) to apple orchards & state economy b/c cedar rust limited LESS – Costs of Regulation (Harm to cedar owners & neighbors; costs of implementation and enforcement)

Takings Theorists: Frank Michelman DQ 3. 27 -3. 28 Role of Efficiency Gains • Efficiency Gains are the net benefits of implementing the regulation in question. • If Efficiency “Gains” are negative, legislature shouldn’t have passed regulation at all.

Takings Theorists: Frank Michelman DQ 3. 27 -3. 28 Role of Efficiency Gains • Efficiency Gains are net benefits of implementing the regulation in question. If negative, legislature shouldn’t pass regulation at all. • Important: Ordinarily, not part of Takings analysis. • Under Euclid & Miller, assessing efficiency gains is job for state legislature, not fed’l court.

Takings Theorists: Frank Michelman Role of Efficiency Gains • If Efficiency Gains less than both Settlement Costs and Demoralization Costs, in theory, shouldn’t proceed with regulation. • Could suggest this in a particular Takings case if both SC & DC seem very high, but very hard high to know with precision. • Really a legislative Q, so shouldn’t be central to Takings Analysis

Takings Theorists: Frank Michelman DQ 3. 29 Fairness Principle • OK not to compensate, if affected parties ought to understand how not compensating in similar cases probably is more beneficial in long run. – Like work of John Rawls on “justice” generally: Look at problem before you know which people in particular will be affected. – Can’t measure this, so using principle = arguments about fairness and how people are likely to react

Takings Theorists: Frank Michelman: Fairness Principle • OK not to compensate, if affected parties ought to understand how not compensating in similar cases probably is more beneficial in long run. • IMPORTANT: Asking about fairness of not compensating losers, not about fairness of underlying regulation. QUESTIONS?

LOGISTICS: Mon & Tue Both Classes Together Both Days • MON: Evaluations (Be Specific) • MON: Midterms Available at End of Class (Bring Grading #) • MON/TUE: Unit 3 Review Problems • MON/TUE: Check Course Page for Specific Panel Responsibilities

Penn Central Transportation Co. v. City of New York 1978 & DQ 3. 31: Demsetz Takings Story

The Blizzard of ‘ 78

1978: Births & Deaths BORN: Louise Brown: 1 st test tube baby Clay Aiken * Erin Andrews Kobe Bryant * James Franco Nelly Furtado * Josh Hartnett Katherine Heigl * Ashton Kutcher Matthew Morrison * Usher Chase Utley * Reggie Wayne DIED Hubert Humphrey Margaret Mead Golda Meir Keith Moon Norman Rockwell

1978: Entertainment (Bonus Slide) • John Travolta – Saturday Night Fever (Grammy for album) – Grease (movie) • Vietnam movies (5 yrs after fall of Saigon) – Deer Hunter (best picture) – Coming Home (best actor & actress) • Premieres: Dallas; Evita; Garfield

1978: Songs (Bonus Slide) • • • Just the Way You Are (Billy Joel) Copacabana (Barry Manilow) Three Times a Lady (Commodores) Sailing (Christopher Cross) Paradise by the Dashboard Light (Meat Loaf)

1978: International • Camp David Accords: Peace treaty between Israel & Egypt • Unrest in Iran & Nicaragua anticipates revolutions of ’ 79 • US agrees to formally recognize People’s Republic of China • Panama Canal Treaties ratified by Senate; will end US control of Canal as of end of ’ 99

1978: California • • I arrive at Stanford mid-September Calif. Propositions 13 & 6 (11/7) Jonestown Mass Suicide (11/18) Killing of Harvey Milk/George Moscone by Dan White (11/27)

1978: Other Memorable • • 1 st US casinos outside Nevada open in Atlantic City Affirmed wins Triple Crown (not again until 2015) Red Sox & Yankees: Bucky Dent Pope Paul VI Pope John Paul I (53 Days) Pope John Paul II

1978: U. S. Supreme Court • Regents of the Univ. of California v. Bakke (affirmative action) • Tennessee Valley Authority v. Hill (snail darter) • Penn Central Transportation Co. v. City of New York (Grand Central Station)

Penn Central: Demsetz Takings Story • Decision: Whether to alter historically significant building • Old Rule: Os can do as they like. • Externalities: Harm to nearby tourist businesses and tourism generally; harm to “history buffs” & civic pride • Change in Circumstances: As time passes, historic buildings become more well-known/more popular/rarer • Increased Externalities: Increase in [Perception of] Harms b/c more popularity; more reliance; loss of some historic buildings (Old Penn Station in 1963)

Jacqueline Kennedy Onassis: "Is it not cruel to let our city die by degrees, stripped of all her proud monuments, until there will be nothing left of all her history and beauty to inspire our children? If they are not inspired by the past of our city, where will they find the strength to fight for her future? …

Jacqueline Kennedy Onassis: "Americans care about their past, but for short term gain they ignore it and tear down everything that matters. Maybe… this is the time to take a stand, to reverse the tide, so that we won't all end up in a uniform world of steel and glass boxes. "

Penn Central: Demsetz Takings Story • Decision: Whether to alter historically significant building • Change in Circumstances: As time passes, historic buildings become more well-known/more popular/rarer • Increased Externalities: Increase in [Perception of] Harms b/c more popularity; more reliance; fewer historic bldgs • Change in Rule: Passage of Historic Preservation Laws • Response: Os of historic buildings might claim “Taking” b/c of interference w Property Rights: (Penn Central is first challenge)

Penn Central: Demsetz Takings Story Policy Questions • For State Legislature (not you): Is Historic Preservation a Good Way to Address Growing Externalities? • For Federal Takings Analysis (you): Society decided relatively recently that historic preservation is important. – Fair to Os of historic bldgs to bear financial burden? -OR – Should gov’t pay them to preserve landmarks? Questions on Demsetz & Penn Central?

Penn Central (1978) Application of Authorities Krypton: Sax Uranium: Epstein & Mahon

Penn Central: DQ 3. 33 (Krypton) Apply Prior Authority to PC Facts • Sax – Pure Arbiter Case? – Enterpriser Case? – Controlling Spillover Effects?

Penn Central: DQ 3. 33 Apply Theorists to Facts of PC: Sax • Arbiter v. Enterpriser: – Not Standard Arbiter Case b/c No Land Use Conflict – Not Standard Ent. Case b/c Gov’t Doesn’t Want to Run – Might Argue : More like Ent. b/c Gov’t Wants Parcel Used Only for Particular Purpose that Serves Gov’t Interest • Control Spillover Effects – Not Preventing Harm to Other Land Uses – BUT: Externalities to NYC from decision to change bldg. • NOTE: Similar Difficulties Applying Miller

Penn Central: DQ 3. 33 & 3. 40 (Uranium) Apply Prior Authority to PC Facts • Epstein & Related Arguments – Public Nuisance/Hadacheck Case?

Penn Central: DQ 3. 33 & 3. 40 (Uranium) Apply Prior Authority to PC Facts • Epstein & Related Arguments Public Nuisance/Hadacheck Case? NO – – Implied Compensation/Reciprocity: • DQ 3. 40: The dissent claims that there was no “reciprocity of advantage” in Penn Central. • Can you make an argument that Justice Rehnquist is wrong on this point?

Penn Central: DQ 3. 33 & DQ 3. 40 Apply Theorists to Facts of PC: Epstein • Stopping Public Nuisance: NO • Implicit Compensation – Reciprocity? : • Normally not for Hist. Preservation • Penn Central does get some non-trivial tourism benefits at Grand Central – NOTE: Other Compensation from Ordinance • Tax Breaks: Probably Not Enough to Matter (Not Raised) • TDRs: Could discuss; might depend on actual value

Penn Central: DQ 3. 32 (Uranium) Apply Prior Authority to PC Facts • Arguments from Mahon (beside reciprocity)? – Too Far?

Penn Central: DQ 3. 32 (Uranium) Arguments about Penn Central from Mahon: • Loss in Property Value = “Too Far”? – – Losing $2 Million/year BUT retains value of building + reasonable rate of return Gets TDRs + tax breaks Would need better data plus discussion re meaning of “too far” • Value to Zero?

Penn Central: DQ 3. 32 (Uranium) Arguments about Penn Central from Mahon: • Value to Zero? – If look at whole parcel, NO – If look at air rights alone, MAYBE • BUT City might allow use of air rights if better design • BUT TDRs may allow moving value of air rights to new site • Why Not Interference w Contract Case? • Other Arguments from Mahon?

Penn Central: DQ 3. 32 -3. 33 (Krypton) Arguments about PC from Prior Cases One Common Way to Do This: Compare Facts of Old Case to Facts of New Case/Hypo

Penn Central: DQ 3. 32 -3. 33 (Krypton) Compare Facts of Old Case to Facts of PC • E. g. , Compare Nectow to Penn Central: – PC: Less Interference w Ppty Rts (Value Left) – PC: Furthers Police Power (Welfare) (Nectow Didn’t) – Thus, Better Case for Gov’t than Nectow

Penn Central: DQ 3. 32 -3. 33 (Krypton) Compare Facts of Old Case to Facts of PC • E. g. , Compare Hadacheck to Penn Central: – Gov’t Purpose? – Almost Certainly Stronger in Hadacheck – Serious Concerns re Human Health > Economics – Interference with Property Rights? Hard Call • Had: Basically can do anything except existing use; may have substantial loss on investment. • PC: Basically can only do existing use; still have reasonable return on investment.

Penn Central: DQ 3. 32 -3. 33 (Krypton) Compare Facts of Old Case to Facts of PC • If compare facts for all cases, should see that PC facts are between the other cases (like an exam Q): – Smaller interference w property rights than Mahon or Nectow; greater interference than Miller (Hard to say re Hadacheck) – Arguably less important purpose than Hadacheck or Miller; more important than Nectow or arguably Mahon (at least as described by Holmes)

Penn Central: DQ 3. 32 -3. 33 (Krypton) Compare Facts of Old Case to Facts of PC • If compare facts for all cases, should see that PC facts are between the other cases (like an exam Q): • Suggests Theorists especially helpful to resolve. Note that US SCt in PC explicitly relies on both Sax and Michaelman. (Epstein not yet written).

Penn Central Transportation Co. v. City of New York (1978) DQ 3. 37: Arbitrariness Claim (Radium)

Penn Central: Arbitrary? DQ 3. 37 (Radium) Penn Central claimed designation of historical buildings arbitrarily singled out some property owners. Why Did Majority Disagree?

Penn Central: Arbitrary? DQ 3. 37 (Radium) Majority: Not Arbitrary (pp. 143 -45: “Secondly …) • Comprehensive Plan Here – No Singling Out: Rule applies to “vast numbers of structures” in NYC – Arbitrariness limited by judicial review of designation or decision

Penn Central: Arbitrary? DQ 3. 37 (Radium) Majority: Not Arbitrary (pp. 143 -45: “Secondly …) • Comprehensive Plan Here • Hard to say gov’t action is “arbitrary” when PC didn’t exhaust other remedies: – Didn’t appeal designation as landmark – Didn’t appeal decision by Board to reject plans – Only tried 2 options for additional stories

Penn Central: Arbitrary? DQ 3. 37 (Radium) Majority: Not Arbitrary (pp. 143 -45: “Secondly …) • Comprehensive Plan Here • Hard to say gov’t action is “arbitrary” when PC didn’t exhaust other remedies. • NOTE: US SCt not happy be asked to decide to constitutional Q that might be unnecessary, but Majority doesn’t explicitly reject claim for this.

Penn Central: Arbitrary? DQ 3. 37 (Radium) Majority: Not Arbitrary (pp. 143 -45: “Secondly …) • Comprehensive Plan Here • Hard to say gov’t action is “arbitrary” when PC didn’t exhaust other remedies. • Not “arbitrary” just b/c falls more heavily on some landowners: regulatory burdens don’t have to be evenly distributed (citing Miller; Euclid ; Hadacheck).

Penn Central: DQ 3. 37 Arbitrary? Majority: Not Arbitrary • Same result on this claim as Hadacheck Miller & • Reminder: Arbitrariness won’t be an issue for you. • Leaves us with real Takings Question

Penn Central Transportation Co. v. City of New York (1978) Takings Analysis

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1. 2. 3. 4. 5. Overview Relatively Clear Instances of Takings Arguments from Purpose Arguments re Harm to Property Owner Means/End Testing

Penn Central: Takings Analysis KEYS TO COLOR OF TEXT Greens = Arguments of Claimant PC Blues = Points Made by Majority Reds = Points Made by Dissent Purple = Points Made by Prior Authorities Black = Commentary from Me Yellow/Gold: Open Qs After Penn Central

Penn Central: Takings Analysis Big Qs Left Open by Penn Central A. Noxious Use B. Meaning of Distinct Invest-Backed Expectations (DIBE) C. DIBE & Hadacheck D. Denominator Q E. Heightened Scrutiny for Takings?

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1. Overview 2. 3. 4. 5. Relatively Clear Instances of Takings Arguments from Purpose Arguments re Harm to Property Owner Means/End Testing

Penn Central Takings Analysis: Overview • Majority Makes Clear: No Easy Answers – – no “set formula” “depends on particular circumstances” essentially ad hoc factual inquiries several relevant factors

Penn Central Takings Analysis: Overview • Majority Makes Clear: No Easy Answers • Not every case where gov’t action adversely affects property value (PV) is a Taking (p. 141 -42) a. Taxing Power b. Economic harm insufficiently tied to claimant’s reasonable expectations to be called “property” (e. g. , from closing military bases) c. Police Power cases like Miller & Hadacheck (more on later)

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1. Overview 2. Relatively Clear Instances of Takings 3. Arguments from Purpose 4. Arguments re Harm to Property Owner 5. Means/End Testing

Penn Central Takings Analysis: Relatively Clear Instances of Takings • More likely Taking if there is a physical invasion a of property by or because of gov’t (p. 141) – Note: Based on typeof interference rather than purpose or extent – Arguably Michelman reasons: Likely high demoralization costs for physical invasions

Penn Central Takings Analysis: Relatively Clear Instances of Takings • More likely Taking if physical invasion • Gov’t actions that may be characterized as acquisitions of resources to permit or facilitate uniquely public functions (Sax Enterprisers) (bottom p. 142)

Penn Central Takings Analysis: Relatively Clear Instances of Takings • More likely Taking if physical invasion • Gov’t actions that may be characterized as acquisitions of resources to permit or facilitate uniquely public functions. (Sax Enterprisers) • US v. Causby (DQ 3. 38) arguably both: – Very low airline overflights invaded airspace – Use by military completely destroys value of farm

Penn Central Takings Analysis: Relatively Clear Instances of Takings • US v. Causby (DQ 3. 38): Taking where … – Very low airline overflights invaded airspace – Use by military completely destroys value of farm • Maj: Causby distinguishable from PC (pp. 145 -46) – No physical invasion of airspace by NYC – No appropriation of property by NYC for gov’t use or exploitation for gov’t purposes – Harm to PC not arising from gov’t entrepreneurial operations (Note: Dissent wouldn’t necessarily agree)

Penn Central Takings Analysis: Relatively Clear Instances of Takings • DQ 3. 38: Majority treatment of Causby suggests endorsement of Sax with narrow view of “Enterpriser” – Majority Characterizes PC: No appropriation of property [by NYC] for gov’t use or exploitation for gov’t purposes. – Arguable if “Enterpriser” read broadly (see application of Sax to PC in earlier slides)

Penn Central: Takings Analysis Structure of Penn Central Takings Analysis 1. Overview 2. Relatively Clear Instances of Takings 3. Arguments from Purpose 4. Arguments re Harm to Property Owner 5. Means/End Testing

Penn Central Takings Analysis: Arguments from Purpose: Where We Before Penn Central? • Hadacheck Mahon Can regulate to stop public nuisance. & : • Miller To save one type of property, can limit or destroy : another type • Sax & Epstein both think purpose is important • Indirectly enters into Michelman b/c affects people’s perception of situation and thus may be relevant to both Demoralization Costs & Fairness Principle

Penn Central Takings Analysis: Arguments from Purpose Majority’s Discussion of Zoning (p. 141 -42) • US SCt had previously “upheld land-use regulations that destroyed or adversely affected recognized real property interests” where – State gov’t “reasonably concluded” – that forbidding particular land use – would promote HSWM • Reaffirms Hadacheck Miller; gives many examples of & permissible regulations.

Penn Central Takings Analysis: Arguments from Purpose Pet’r Tried to Distinguish Hadacheck/Miller, etc • Argued laws upheld in these cases all designed to stop “noxious uses” (essentially public nuisances) (see fn 30) • This is plausible reading of earlier cases : – Stopping public nuisance/noxious use = no Taking – Different rules for other kinds of gov’t actions. – E. g. , BDS in Mahon dissent re public harm v. public benefit

Penn Central Takings Analysis: Arguments from Purpose Dissent Agrees with Pet’r: Providing Benefit Different From Stopping Harm • “[T]he gov’t can prevent a property owner from using his property to injure others without having to compensate the O for the value of the forbidden use. ” (p. 149) • Describes Hadacheck Milleras noxious use cases (fn 8 & p. 149) • NOTE: Even the most Conservative Justices in 1978 don’t question results in Hadacheck Miller &

Penn Central Takings Analysis: Arguments from Purpose Dissent Apparently Would Adopt Position Later Articulated By Epstein (Taking unless Public Nuisance or Reciprocity) • Dissent Sees Neither Here • DQ 3. 40: As we noted earlier, could see some reciprocity in tourist $$$ flowing to Pet’r; neither opinion recognizes (although Judge in NY Ct. App. had noted) • Important: Majority Implicitly Rejects Epstein Position by Disagreeing w Dissent

Penn Central Takings Analysis: Arguments from Purpose [DQ 3. 39] (n. 30): Majority seems to reject distinction between preventing harm & providing benefit • In Hadacheck Miller uses lawful at time of regulation & , [relevance: Os not bad actors meriting punishment? ] • Cases don’t turn on “noxious use” but that restrictions were “reasonably related” to implementing a policy “expected to produce a widespread public benefit” • Plus destruction of historic landmark is public harm. • Very 1 L Law Prof Kind of Move: “Harm!? ” Benefit!? ”

Penn Central Takings Analysis: Arguments from Purpose DQ 3. 39: Does Footnote 30 alter earlier cases? • If “noxious use” category gone, would seem to mean that readings of Hadacheck Millerthat rest on public & nuisance idea are incorrect. • I’m skeptical that category is completely gone. You’d think preventing greater harms ought to give state more leeway to regulate land use.