The Compensation Constraint and the Scope of the Takings Clause

Notre Dame Law Review Volume 96 Issue 4 Article 3 4-2021 The Compensation Constraint and the Scope of the Takings Clause Thomas W. Merrill Charles Evans Hughes Professor, Columbia Law School Follow this and additional works at: https://scholarship.law.nd.edu/ndlr Part of the Constitutional Law Commons, and the Property Law and Real Estate Commons Recommended Citation 96 Notre Dame L. Rev. 1421 (2021) This Article is brought to you for free and open access by the Notre Dame Law Review at NDLScholarship. It has been accepted for inclusion in Notre Dame Law Review by an authorized editor of NDLScholarship. For more information, please contact . \\jciprod01\productn\N\NDL\96-4\NDL403.txt unknown Seq: 1 9-APR-21 18:05 THE COMPENSATION CONSTRAINT AND THE SCOPE OF THE TAKINGS CLAUSE Thomas W. Merrill* INTRODUCTION The idea I wish to explore in this Essay is whether the established methods for determining just compensation can shed light on the meaning of other issues that arise in litigation under the Takings Clause. Specifically, is it possible to “reverse engineer” the Takings Clause by reasoning from settled understandings about how to determine just compensation in order to reach certain conclusions about when the Clause applies, what interests in private property are covered by the Clause, and what does it mean to take such property?1 The proposed exercise is positive or descriptive in nature rather than normative. The hypothesis is that the ability to calculate just compensation, using established valuation techniques, is a necessary condition for finding that the Takings Clause applies. That the compensation constraint is a necessary condition for applying the Clause does not establish that it is a sufficient condition. There may be other factors, not addressed here, that enter into any final determination that government action gives rise to liability under the Clause. The Essay is concerned only with whether the ability to determine the amount of just compensation is a limiting principle on the scope of the constitutional right. I. HOW TO DETERMINE JUST COMPENSATION The Takings Clause is unique among constitutional provisions in that it specifies a remedy for its violation: the payment of just compensation. Moreover, by common consensus this is the exclusive remedy for violation of the Clause.2 As the Supreme Court has observed, the Clause “is designed not to © 2021 Thomas W. Merrill. Individuals and nonprofit institutions may reproduce and distribute copies of this Essay in any format at or below cost, for educational purposes, so long as each copy identifies the author, provides a citation to the Notre Dame Law Review, and includes this provision in the copyright notice. * Charles Evans Hughes Professor, Columbia Law School. 1 The Takings Clause provides: “nor shall private property be taken for public use without just compensation.” U.S. CONST. amend. V. 2 This does not mean that anticipatory relief should be prohibited if it will serve to speed the resolution of litigation. See Thomas W. Merrill, Anticipatory Remedies for Takings, 1421 \\jciprod01\productn\N\NDL\96-4\NDL403.txt 1422 unknown Seq: 2 notre dame law review 9-APR-21 18:05 [vol. 96:4 limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amounting to a taking.”3 The question for consideration is whether this uniquely limited remedy also limits the substantive protection afforded by the Clause. The possibility of a compensation constraint gains force when one considers that the approach to determining the measure of just compensation is by far the most settled of the various issues that can arise under the Clause. The reason for this is that most disputes governed by the Clause involve express exercises in the taking of property under the power of eminent domain.4 The primary contested issue in such cases is the amount of compensation that is owed; as a result, the basic principles that govern the determination of just compensation have been repeatedly adjudicated by courts over a significant period of time. When one peruses the leading decisions on the meaning of just compensation and the treatises on eminent domain like Nichols, one learns that the general principle in all cases is that just compensation means fair market value.5 Fair market value is further defined to mean what a willing buyer would pay a willing seller in an arm’s-length transaction.6 This is obviously an imputed number. By definition, when the government takes property there is no arm’s-length transaction: we are dealing with forced exchanges of property, not voluntary exchanges. The determination of fair market value therefore is based on an imaginary transaction of the subject property, and an estimate or guess about the price that would be agreed upon in such a hypothetical transaction. These generalities are further particularized by considering a number of methods that are permissible to use in calculating fair market value. The method most commonly used is (1) to examine recent transactions of other property similar to the property taken, making adjustments for differences in the size, age, location, and the quality of improvements. Other techniques that have been used less often include (2) considering recent transactions of the property in question, making adjustments for general changes in market prices since the date of those transactions; (3) estimating the rental value of the property in question, and capitalizing this to generate an imputed purchase price using a rate of return commonly used as a benchmark for 128 HARV. L. REV. 1630 (2015) (arguing that declaratory relief should be available if conditions warrant it). But the final judgment in any case that successfully establishes that the government engaged in a taking of property for public use will always be an award of just compensation for the taking. 3 First English Evangelical Lutheran Church v. Cnty. of Los Angeles, 482 U.S. 304, 315 (1987). 4 Indeed, virtually all the reported cases that address the meaning of just compensation involve express takings. A small number of decisions that involve regulatory takings are referenced in Christopher Serkin, The Meaning of Value: Assessing Just Compensation for Regulatory Takings, 99 NW. U. L. REV. 677, 684–85 (2005). 5 4 JULIUS L. SACKMAN, NICHOLS ON EMINENT DOMAIN § 12.02[1], at 12–60 to 12–67 (3d ed. 2006). 6 See United States v. Miller, 317 U.S. 369, 374–75 (1943). \\jciprod01\productn\N\NDL\96-4\NDL403.txt unknown Seq: 3 9-APR-21 18:05 2021] t h e c o m p e n s a t i o n c o n s t r a i n t a n d t h e t a k i n g s c l a u s e 1423 investments in similar property; and (4) estimating the replacement cost of the property in question, making adjustments to reflect depreciation due to age and wear and tear of the property in question.7 A critical point to make about the established methods of det (...truncated)