Downzoning not a taking

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A property owner’s successful attack of a condition to a zoning ordinance turned out to be a very Pyrrhic victory.

The county responded to his “victory” by repealing the ordinance altogether, resulting in the downzoning of his property, and the 7th Circuit held that action did not constitute a taking.

The court concluded that while the property owner “did suffer as a result of losing the commercial designation to which he had grown accustomed, he retains full use of his property for agricultural and residential purposes.”

John Bettendorf owns property in St. Croix County that was zoned agricultural-residential when he bought it. In 1985, a portion of the property was rezoned to commercial, and Bettendorf put the property to commercial use.

However, the ordinance contained a condition that the property would revert to agricultural-residential upon Bettendorf’s death or transfer to a different owner.

In 2004, Bettendorf sued in state court, seeking a declaratory judgment that this condition was void. The circuit court and the Wisconsin Court of Appeals agreed.

However, the Court of Appeals held that the remedy was not to void the condition, but to void the ordinance in its entirety. As a result, the property reverted to agricultural-residential, and Bettendorf could no longer use the property for commercial purposes.

Bettendorf then filed suit in federal court, alleging that the actions constituted a taking of property without just compensation. The district court disagreed, and on Jan. 20, the 7th Circuit held that no taking occurred, and affirmed.

The court began by listing the three factors to be considered in determining whether a taking has occurred: (1) the nature of the government regulatory scheme; (2) the severity of the economic impact on the challenging landowner; and (3) the degree of interference with the landowner’s anticipated and distinct investment opportunities.

Bettendorf argued that the district court did not adequately consider the third factor, but the 7th Circuit disagreed, in an opinion written by Judge William J. Bauer and joined by Judge Joel M. Flaum.

In doing so, the court relied on three facts.

First, it found that Bettendorf consented to conditional zoning provision.

Second, it found, “Any improvements Bettendorf made to his property were completed with full knowledge that the commercial designation would ultimately be lost.”

And third, it was Bettendorf who initiated the litigation that ultimately resulted in the downzoning. “While he hoped the litigation would result in a decision giving him greater freedom than the ordinance afforded him, the result instead limited the freedom he had previously enjoyed. That was a risk he assumed in asking the court to interpret the scope and validity of the ordinance, not a government interference with his investment opportunities.”

Because the downzoning did not deprive Bettendorf of “all or substantially all practical use” of the property, the court held that no compensable taking occurred.

The court also concluded that the county’s actions did not violate either his substantive or procedural due process rights.

Judge Hamilton wrote a lengthy dissent.

Hamilton distinguished the landmark U.S. Supreme Court opinion in Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978), and other regulatory takings cases that held no taking occurred as a result of regulation. Hamilton noted that, in each of those cases, the lawful governmental action did not eliminate any current use of property, but only barred the owner from changing to a more profitable use.

Hamilton wrote, “In regulatory takings jurisprudence, the fact that a regulatory change prohibits what had been an actual, lawful use ought to be decisive in the vast majority of cases.”

Hamilton recognized that it is relevant that Bettendorf had freely agreed to the conditional zoning provision, and that it would revert to agricultural-residential when he died.

However, Hamilton found that only relevant to the amount of just compensation to which he was entitled, but not to whether a taking occurred. “His takings claim should not be decided as if he had a right to sell the property with the commercial zoning in place,” Hamilton acknowledged.

Nevertheless, Hamilton concluded, “he did have a right to expect the county to abide by the ordinance it enacted, allowing him to continue the commercial use as long as he owned the property. That expectation was entirely reasonable and was backed up with substantial investments.”

Analysis

Judge Hamilton’s dissent is a far better analysis of the takings clause issue, and the case would be a good candidate for reversal if it were to be reviewed by the U.S. Supreme Court.

But even in the event that does not happen, attorneys representing property owners in takings cases in state court have good grounds to argue that Wisconsin courts should not follow the case as precedent.

One reason is that sloppy citations in the majority opinion give a misleading view of Wisconsin law.

In a footnote, the majority notes that Wisconsin courts make no distinction between state and federal takings law. In support of that proposition, the court cites: Zealy v. City of Waukesha, 194 Wis.2d 701, 709 (1995).

That citation makes it appear to be an opinion of the Wisconsin Supreme Court. However, it is not; it is a Court of Appeals opinion.

The case should properly be cited as follows: Zealy v. City of Waukesha, 194 Wis.2d 701, 534 N.W.2d 917 (Wis.App. 1995), rev’d on other grounds, 201 Wis.2d 365, 548 N.W.2d 528 (Wis.1996).

Later in the same paragraph, the 7th Circuit cites the Court of Appeals opinion in Zealy for its holding that a regulatory taking exists only if the regulation has “rendered the property practically useless for all reasonable purposes.”

But while the Court of Appeals may have said that, the Wisconsin Supreme Court in Zealy did not embrace that as the standard.

In Zealy, property was rezoned as a wetlands conservancy district that could then no longer be developed for residential use. The property at issue had never been put to residential use. For the Wisconsin Supreme Court, that was a critical point.

The court repeatedly noted that the property owner had never made any investment in residential development: “we consider only the 10.4 undeveloped acres owned by Zealy at the time of its rezoning (emphasis added).” Zealy, 201 Wis.2d at 378; “the 8.2 acres of land zoned C-1 may still be used for its historical use, farming.” Id., at 380.

But Bettendorf only wanted to continue using the property for its historical use – commercial.

Second, it could also be argued that Zealy does not apply to zoning generally, but only to wetlands and shoreland zoning.

The power of the state to downzone property for environmental reasons was established in the landmark case of Just v. Marinette County, 56 Wis.2d 7, 201 N.W.2d 761 (1972). The court held that under the public trust doctrine, the state has a duty to protect shoreland areas that trumps the right to private development.

The property owner in Zealy argued that Just only applies to cases involving the public trust doctrine, and does not apply to his property, which was wetlands, rather than shoreland property on navigable waters.

But the Supreme Court rejected this, and held that Just is equally applicable to wetland regulations. The Court emphasized that protecting swamps and wetlands is an essential part of protecting lakes, rivers and streams. Zealy, 548 N.W.2d at 535.

Similarly, in M&I Bank v. Town of Somers, 141 Wis.2d 271, 414 N.W.2d 824, 830-831 (1987), downzoning was upheld because it was done for environmental protection: “In analyzing any case in which it is claimed that land is taken without just compensation — whether the regulated land is a wetland within a shoreland area, or land within a primary environmental corridor, or an isolated swamp — the test to be applied is the same: public benefit versus public harm. Where land is taken for the public benefit, the taking is compensable. However, if the land is regulated to avoid a public harm, then the regulation is not compensable unless the regulation results in a value diminution to the landowner which is so great as to amount to a confiscation. We note, further, that a parcel of land which consists of continuing wetland which is partly within and partly outside a shoreland area should be treated as if the entire wetland was located within a shoreland area. There would be little value to the wetland within the shoreland if the part of the wetland outside the shoreland area was allowed to be altered.”

However, there was no suggestion that the downzoning of Bettendorf’s property was done to protect shoreland or wetlands. Although it is not clear from the opinion, it is likely the county’s goal was to preserve the rural nature of the community.

If so, that would be a “public benefit [and] the taking is compensable.” It would not be a regulation “to avoid a public harm.”

Accordingly, Just, Somers, and Zealy can arguably be limited to downzoning that serves the public trust doctrine by protecting wetlands and shorelands, and should have no application to cases such as this one.

What the Court Held

Case: Bettendorf v. St. Croix County, No. 10-1359

Issue: Did it violate the Takings Clause for a county to downzone property from commercial to agricultural, when the commercial zoning was conditional and personal to the current owner?

Holding: No. Where the zoning was only conditional, the rezoning did not constitute a taking.

David Ziemer can be reached at [email protected]