   PALAZZOLO v. RHODE ISLAND et al.

Certiorari to the Supreme Court of Rhode Island 

   No. 99-2047. 
   Argued February 26, 2001 
   Decided June 28, 2001

In order to acquire the waterfront parcel of Rhode Island land that is here 
at issue, petitioner and associates formed Shore Gardens, Inc. (SGI), in 
1959. After SGI purchased the property petitioner bought out his associates 
and became the sole shareholder. Most of the property was then, and is now, 
salt marsh subject to tidal flooding. The wet ground and permeable soil 
would require considerable fill before significant structures could be 
built. Over the years, SGI's intermittent applications to develop the 
property were rejected by various government agencies. After 1966, no 
further applications were made for over a decade. Two intervening events, 
however, become important to the issues presented. First, in 1971, the State 
created respondent Rhode Island Coastal Resources Management Council 
(Council) and charged it with protecting the State's coastal properties. The 
Council's regulations, known as the Rhode Island Coastal Resources 
Management Program (CRMP), designated salt marshes like those on SGI's 
property as protected coastal wetlands on which development is greatly 
limited. Second, in 1978 SGI's corporate charter was revoked, and title to 
the property passed to petitioner as the corporation's sole shareholder. In 
1983 petitioner applied to the Council for permission to construct a wooden 
bulkhead and fill his entire marsh land area. The Council rejected the 
application, concluding, inter alia, that it would conflict with the CRMP. 
In 1985 petitioner filed a new application with the Council, seeking 
permission to fill 11 of the property's 18 wetland acres in order to build a 
private beach club. The Council rejected this application as well, ruling 
that the proposal did not satisfy the standards for obtaining a special 
exception to fill salt marsh, whereby the proposed activity must serve a 
compelling public purpose. Subsequently, petitioner filed an inverse 
condemnation action in Rhode Island Superior Court, asserting that the 
State's wetlands regulations, as applied by the Council to his parcel, had 
taken the property without compensation in violation of the Fifth and 
Fourteenth Amendments. The suit alleged the Council's action deprived him of 
all economically beneficial use of his property, resulting in a total taking 
requiring compensation under Lucas v. South Carolina Coastal Council, 505 
U.S. 1003, and sought $3,150,000 in damages, a figure derived from an 
appraiser's estimate as to the value of a 74-lot residential subdivision on 
the property. The court ruled against petitioner, and the State Supreme 
Court affirmed, holding that (1) petitioner's takings claim was not ripe; 
(2) he had no right to challenge regulations predating 1978, when he 
succeeded to legal ownership of the property; (3) he could not assert a 
takings claim based on the denial of all economic use of his property in 
light of undisputed evidence that he had $200,000 in development value 
remaining on an upland parcel of the property; and (4) because the 
regulation at issue predated his acquisition of title, he could have had no 
reasonable investment-backed expectation that he could develop his property, 
and, therefore, he could not recover under Penn Central Transp. Co. v. New 
York City, 438 U.S. 104, 124

Held:

1. This case is ripe for review. Pp. 816. 

(a) A takings claim challenging application of land-use regulations is not 
ripe unless the agency charged with implementing the regulations has reached 
a final decision regarding their application to the property at issue. 
Williamson County Regional Planning Commn. v. Hamilton Bank of Johnson City, 
473 U.S. 172, 186. A final decision does not occur until the responsible 
agency determines the extent of permitted development on the land. 
MacDonald, Sommer & Frates v. Yolo County, 477 U.S. 340, 351. Petitioner 
obtained such a final decision when the Council denied his 1983 and 1985 
applications. The State Supreme Court erred in ruling that, notwithstanding 
those denials, doubt remained as to the extent of development the Council 
would allow on petitioner's parcel due to his failure to explore other uses 
for the property that would involve filling substantially less wetlands. 
This is belied by the unequivocal nature of the wetland regulations at issue 
and by the Council's application of the regulations to the subject property. 
The CRMP permits the Council to grant a special exception to engage in a 
prohibited use only where a compelling public purpose is served. The 
proposal to fill the entire property was not accepted under Council 
regulations and did not qualify for the special exception. The Council 
determined the use proposed in the second application (the beach club) did 
not satisfy the compelling public purpose standard. There is no indication 
the Council would have accepted the application had the proposed club 
occupied a smaller surface area. To the contrary, it ruled that the proposed 
activity was not a compelling public purpose. Although a landowner may not 
establish a taking before the land-use authority has the opportunity, using 
its own reasonable procedures, to decide and explain the reach of a 
challenged regulation, e.g., MacDonald, supra, at 342, once it becomes clear 
that the permissible uses of the property are known to a reasonable degree 
of certainty, a takings claim is likely to have ripened. Here, the Council's 
decisions make plain that it interpreted its regulations to bar petitioner 
from engaging in any filling or development on the wetlands. Further permit 
applications were not necessary to establish this point. Pp. 812.

(b) Contrary to the State Supreme Court's ruling, petitioners claim is not 
unripe by virtue of his failure to seek permission for a use of the property 
that would involve development only of its upland portion. It is true that 
there was uncontested testimony that an upland site would have an estimated 
value of $200,000 if developed. And, while the CRMP requires Council 
approval to develop upland property lying within 200 feet of protected 
waters, the strict compelling public purpose test does not govern proposed 
land uses on property in this classification. Council officials testified at 
trial, moreover, that they would have allowed petitioner to build a 
residence on the upland parcel. Nevertheless, this Court's ripeness 
jurisprudence requires petitioner to explore development opportunities on 
his upland parcel only if there is uncertainty as to the land's permitted 
use. The State's assertion that the uplands value is in doubt comes too late 
for the litigation before this Court. It was stated in the certiorari 
petition that the uplands were worth an estimated $200,000. The figure not 
only was uncontested but also was cited as fact in the State's brief in 
opposition. In this circumstance ripeness cannot be contested by saying that 
the value of the non-wetland parcels is unknown. See Lucas, supra, at 1020, 
and n. 9. Nor is there genuine ambiguity in the record as to the extent of 
permitted development on petitioner's property, either on the wetlands or 
the uplands. Pp. 1214.

(c) Nor is petitioner's takings claim rendered unripe, as the State Supreme 
Court held, by his failure to apply for permission to develop the 74-lot 
subdivision that was the basis for the damages sought in his inverse 
condemnation suit. It is difficult to see how this concern is relevant to 
the inquiry at issue here. The Council informed petitioner that he could not 
fill the wetlands; it follows of necessity that he could not fill and then 
build 74 single-family dwellings there. Petitioner's submission of this 
proposal would not have clarified the extent of development permitted by the 
wetlands regulations, which is the inquiry required under the Court's 
ripeness decisions. Pp. 1416.

2. Petitioner's acquisition of title after the regulation's effective date 
did not bar his takings claims. This Court rejects the State Supreme Court's 
sweeping rule that a purchaser or a successive title holder like petitioner 
is deemed to have notice of an earlier-enacted restriction and is barred 
from claiming that it effects a taking. Were the Court to accept that rule, 
the post-enactment transfer of title would absolve the State of its 
obligation to defend any action restricting land use, no matter how extreme 
or unreasonable. A State would be allowed, in effect, to put an expiration 
date on the Takings Clause. This ought not to be the rule. Future 
generations, too, have a right to challenge unreasonable limitations on the 
use and value of land. The State's notice justification does not take into 
account the effect on owners at the time of enactment, who are prejudiced as 
well. Should an owner attempt to challenge a new regulation, but not survive 
the process of ripening his or her claim (which, as this case demonstrates, 
will often take years), under the State's rule the right to compensation may 
not by asserted by an heir or successor, and so may not be asserted at all. 
The State's rule also would work a critical alteration to the nature of 
property, as the newly regulated landowner is stripped of the ability to 
transfer the interest which was possessed prior to the regulation. The State 
may not by this means secure a windfall for itself. See, e.g., Webb's 
Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 164. The rule is, 
furthermore, capricious in effect. The young owner contrasted with the older 
owner, the owner with the resources to hold contrasted with the owner with 
the need to sell, would be in different positions. The Takings Clause is not 
so quixotic. A blanket rule that purchasers with notice have no compensation 
right when a claim becomes ripe is too blunt an instrument to accord with 
the duty to compensate for what is taken. Nollan v. California Coastal 
Commn., 483 U.S. 825, 834, n. 2, is controlling precedent for the Court's 
conclusion. Lucas, supra, at 1029, did not overrule Nollan, which is based 
on essential Takings Clause principles. On remand the state court must 
address the merits of petitioner's Penn Central claim, which is not barred 
by the mere fact that his title was acquired after the effective date of the 
state-imposed restriction. Pp. 1621.

3. The State Supreme Court did not err in finding that petitioner failed to 
establish a deprivation of all economic use, for it is undisputed that his 
parcel retains significant development value. Petitioner is correct that, 
assuming a taking is otherwise established, a State may not evade the duty 
to compensate on the premise that the landowner is left with a token 
interest. This is not the situat