## United States Court of Appeals for the Federal Circuit

04-5108

AIR PEGASUS OF D.C., INC., Plaintiff-Appellant, v.

UNITED STATES, Defendant-Appellee.

Barry S. Neuman , Barry S. Neuman, P.L.L.C., of Washington, DC, argued for plaintiff-appellant. With him on the brief was Kathy Bailey , Bailey Law Group, P.C., of Washington, DC.

Elizabeth Ann Peterson , Attorney, Environment & Natural Resources Division, United States Department of Justice, of Washington, DC, argued for defendantappellee. With her on the brief were Thomas L. Sansonetti , Assistant Attorney General, and Katherine J. Barton , Attorney. Of counsel was Susan V. Cook , Attorney, Natural Resources Section, Enviro nment & Natural Resources Division, United States Department of Justice, of Washington, DC. Nancie G. Marzulla , Defenders of Property Rights, of Washington, DC, argued for amici curiae National Air Transportation Association and Defenders of Property Rights. With her on the brief was Roger J. Marzulla

. Appealed from: United States Court of Federal Claims Judge Marian Blank Horn

## United States Court of Appeals for the Federal Circuit

04-5108 AIR PEGASUS OF D.C., INC., Plaintiff-Appellant,

v. UNITED STATES, Defendant-Appellee.

__________________________ DECIDED: September 21, 2005

__________________________ Before NEWMAN, SCHALL, and DYK, Circuit Judges

. Opinion for the court filed by Circuit Judge SCHALL. Dissenting opinion filed by Circuit Judge NEWMAN. SCHALL, Circuit Judge

. Air Pegasus of D.C., Inc. (“Air Pegasus”) appeals from the final decision of the United States Court of Federal Claims that granted the government’s motion for summary judgment and dismissed Air Pegas us’s complaint seeking compensation under the Fifth Amendment of the U.S. Constitution for the a lleged taking of its property. Air Pegasus of D.C., In c. v. United States , 60 Fed. Cl. 448 (2004) (“ Summary Judgment ”). The court granted the government’s motion after determining that Air Pegasus, which had operated a hel iport in the District of Columbia, did not have acognizable property interest “over the navigabl e airspace above the . . . South Capitol Street Heliport” that it alleged to have been taken. Id. at 459. We affirm. BACKGROUND

I. The facts of this case are undisputed. From February of 1992 to September 30, 2002, Air Pegasus owned and operated a heli port business at 1724 South Capito l Street, S.E ., Washington, D.C. Air Pegas us did not own the South Capitol Street property, but leased it from Steuart Invest ment Company (“Steuart Investment”). The lease spec ified that Air Pegasus agreed to use the property solely in t he conduc t of a private use and/or public use heliport/vertiport . . . and for any uses related the r eto, including but not limited to fuel sales, maintenance and repair of helicopters and other vertical take off and landing air craft and sea planes, comme rcial, chartered, corporate and s i ghts eeing services and gener al administrative offices, and for no other purpose without the prior written consent of Landlord, which cons ent sha ll not be unreasonably withheld or delayed. (Emphasis added). Air Pegas us entered the lease in February of 1992 and in due course renewed it through October 31, 2010. As agreed in the leas e, Air Pegasus only us ed the Sout h Capitol Street property for the operation of its heliport. Air Pega sus did not actually operate any of the

helic opters serviced by its helip ort. Rather, its business was limited to providing, in return for a fee, a location from w h ich helicopters could land and take off (and, perhaps , also obtain needed fueling and mechanical services). Air Pe gas u s’s helipo rt therefore functioned much like an airport, only it serviced helicopters instead of airplanes (fixed

wing aircraft).

04-5108 2Air Pegas us’s heliport business was greatly affected by events follo win g the terrorist attacks of September 11, 2001. In particular, immediately following the attacks—in which four commercial airplanes were hijacked and three were used as weapons to attack the World Trade Ce nter and Pentagon—the Federal Aviation Administration (“FAA”) used its emergency power s to shut down virtually all commercial air traffic throughout the United St ates. The F AA did this by issuing “Notices to Airmen,” or “NOTAMs,” pursuant to 14 C.F.R. § 91.139 (2001) (“Emergency Air Traffic Rules ” ) and 14 C. F.R. § 91.137 (2001) (“Temporary Flight Restrictions in the Vicinity of Disaster/Hazard Areas”). 1 The FAA’s flight ban appl ied to both helic opters and airplanes. Therefore, by iss u ing t he NOTAMs, the FAA essentially grounded operations at all c o mmercial aviation ports in the days immediately following September 11, 2001. For most aviation port s , the FAA’s fli ght ban merely amounted to a temporary grounding of aircraft. In fact, the FAA permitted most commercial aviation ports to resume flights as early as September 13, 2001. See 68 Fed. Reg. 7684 (Feb. 14, 2003) (final rule). However, this was not the case for Air Pegasus ’s heliport, as the FAA’s decision allowing res u mption of commerci a l ai r travel specific ally e x c l uded the area within twenty-five nautical mi les of Washington, D.C. See id. Although s o me of the

1 Section 91.139 spec ifically authoriz es the F AA to issue NOTAMs when it is “determi ne[d] that an emer gency condition exists, or will e x ist , relating to the FAA’s ability to o perate the air tr affic control system and during wh ich normal flight operations under this chapter cannot be conduc ted consistent with the requi red levels of safety and efficiency[.]” 14 C.F.R. § 91.139(b). The section further states that “[w]hen a NOTAM has been issued . . . , no person may operate an air c raft, or other device governed by the regulation concerned, wit hin the des ignated airspac e ex cept in accordanc e with the authorizations, terms, and conditions prescr ibed in the regulation cove red by the NOTAM.” Id. § 91.139(c).

04-5108 3flight restrictions in the Washingt on, D.C. area were subsequently rela xed, 2 m u c h o f t h e area’s airs pace is still off limits to commercia l aircrafts. This inc l udes the a i rspace over 1724 South Capitol Street, S.E. Therefore, unlik e most other commercial aviation ports, Air Pegas us was not able to resume flight operations after the FAA is sued its initial flight ban on Sept ember 11,

2001. This caused obvious ec onomic hardsh ips for Air Pegas us’s heliport and, on September 30, 2002, Air Pega sus abandoned its lease and c eas ed business operations at the South Capitol Street Heliport.

II. On January 10, 2003, Air Pegas us filed th is lawsuit against the United Stat es in the Court of Federal Claims, alleging that the various NOTAMs issued by the FAA after September 11, 2001, resulted in a regulatory taking of its helipor t business located a t 1724 South Capitol Street, S.E., Washingt on, D.C. (Compl. ¶¶ 14–25.) More specifically, Air Pegasus alleged that it acquired t h rough it s lease wit h Steuart Investment, “the legal right to operate a Heliport . . . through October 31, 2010,” ( Id. ¶ 4) and that “[t]he NOTAMs had the immediat e and intended effect of shutting down virtually all air traffic at the Heliport . . . [which,] in turn, made it ec onomically nonviable to continue to operate t he business under the Lease” ( Id. ¶ 11). Therefore, “[s]olely as

2 For example, the FAA allowed c o mmerc ial flight operations to res u me at Ronald Reagan Washington National Airport in October of 2001. See 68 Fed. Reg. 7684; FAA, FDC NOTAM 1/0989 (2001). On F ebruary 13, 2002, the FAA also allowed three smaller Washington-area airports—College Park Air port, Potomac Airfield, and Washington Executiv e/Hyde F i eld— to resume flight operations. Se e 67 Fed. Reg. 7538, 7538-39 (Feb. 19, 2002) (fi nal rule, request for comments); see also 68 Fed. R e g. at 7684-85.

04-5108 4a result of the NOTAMs,” Air Pegasus allege d that “the economic v a lue of [its] business

and its leas ehold interest in the Property ha[d] been destroyed.” ( Id. ) In respons e, the gov ernment conceded that the flight re strictions issued by the FAA had the effect of prohibiting helic opters from flying into and out of Air Pegasus’s heliport. (Answer ¶¶ 3, 13. ) Howev e r, the government denied that the restrictions resulted in a compens able tak i ng of any property interest of Air Pegasus. In particular, the government averred that “[t]h e property inte rest that [Air Pegasus] allege[d] [to] have been taken is not compensable under the Fifth Amendment.” ( Id. (second affirmative defense).) The parties subsequently stipulated to the facts of the case and filed cr ossmotions for summary judgment. Air Pegasu s argued t hat the undi sputed facts showed

that the FAA’s flight restrict ions had the effect of eliminat ing all economic value in it s heliport and, therefore, amount ed to either a categorical or non-categorical regulatory taking of its leasehold. The government, i n turn, argued that the FAA’s restrictions did not deprive Air Pegas us’s lease of all economic value, and that even if they did hav e such an effect, the re stricti ons did not take any property that the government did no t already have authorit y to regulat e. See Summary Judgment , 60 Fed. Cl. at 453. T he Court of Federal Claims ultimately sided with the government and granted summary judgment based on Air Pegasus ’s failure to s how the taking of a c ognizable property

interest. Id

. at 459. The court started from the principle that, in evaluatin g a takings claim, a court must first “inquire into the nature of the l andowner’s est a te to determine whether the use interest proscribed by the governmental acti on was part of the owner’s title to begin

04-5108 5with, i.e., whether the land use interest was a stick in the bun dle of property rights acquired by the owner.” See id. at 453 (quoting Lucas v. South Carolina Coastal Counc il , 505 U.S. 1003, 1027 ( 1992) (internal quotat ion omitted)). The court stated that, under this inquiry, when “a party voluntar ily enters into an area that i s subject to pervasive government control, then a property right that would justify compensation under the Takings Clause may not exist.” Id. at 453–54 (citations omitted). The court further stated that background principles of common law nui sance and property law can also provide the government with a defense to what would otherwise amount to a taking of private property. See id. at 457. That, according to the court, is because such “background principles” may place pre-exis ting limitations on the prope rty owner’s title. See id. (citing Lucas , 505 U.S. at 1028–29). With respect to the facts of the case, the court first not ed that Air Pegasus did not dispute the federal government’s sovere ignty over the navig a b le airspace. Id

. at 456. The court further noted that the airspac e over Washington, D.C., was subject to regulations when Air Pegasus entered its leas e in 1992, and that “the FAA . . . [also] retain[ed] broad authority to instantly alter air flight requirements through NOTAMs.” Id. Therefore, the court concl uded, “Air Pegasus entered this highly regulat ed area, in Washingto n , D.C., with the kn owledge that the government reserved the power, and indeed regularly exer cised its power, to rest rict air flight patterns and procedures.” Id. at

457. Next, the court turned to background prin ciples of property law to determine whether any pre-existing limitat ions inhered in Air Pegasus’s leas ehold interest. The court first concluded that the federal government’s domi nant servitude over navigable

04-5108 6waterways “may constitute part of the ‘ba ckground principles’ to which a property owner’s rights are subject and, thus, may pr ovide the Government with a defense to a takings claim.” Id. (quoting Palm Beach Isles Asso cs. v. United States , 208 F.3d 1374, 1383–84 (Fed. Cir. 2000)). The court then r easoned that the government’s similar

exercis e of exc l us ive sovereignty over the na vigable airways indic a ted that it also had a dominant avigational s e rvitude. See id. at 457–58 (cit ing Braniff Airways, Inc. v. Neb. State Bd. of Equa liz ation & Assessment , 347 U.S. 590 (1954), and Northwe s t Airlines,

Inc. v. Minnesota , 322 U.S. 292, 303 (1944)). This c onclus i on, the court noted, was consistent with our pr edece ssor court’s decision in By dlon v. Unit ed States , 146 Ct. Cl. 764, 768 (1959). Summary Judgment , 60 Fed. Cl. at 458. T herefore, the court found that Air Pegasus acquired it s leasehold subject to the gov ernment’s dominant servitude to regulate the surrounding nav igable airspac e. The Court of Federal Claims rejected Air Pegasus’s argument that under the Supreme Court’s decision in United States v. Causby , 328 U.S. 256 (1946), the

governmen t’s use of navigab le airspace can still result in a taking despite the existenc e of an avigational servitude. The court stated that the priv ate property right the Cou r t found in Causby was the right t o habitable land, not the right to navigable airspace. Summary Judgment , 60 F ed. Cl. at 459. The c o urt also rejected Air Pegasus ’s argument that under Palazzolo v. Rhode Island , 533 U.S. 606, 627 (2001), a takings claim cannot be barred simply because the pl aintiff acquired its property interest wit h knowledge of an exis ting r egulatory program. The court acknowledged that Palazzolo does not bar a claim where the f ederal regulat ion “ i s s o unreasonable or onerous as to compel compensation,” Summary Judgment , 60 Fed. Cl. at 459 (quoting Palazzolo , 533

04-5108 7U.S. at 627), but in t h is case, t he court c ontinued, “the regulatory scheme certainly is

not unreasonable.” Id

. On the contrary, citing the grave risks to national securit y following the terrorist attacks of September 11, 2001, the court found that the FAA’s flight restri ctions were “not only reasonable, but also . . . appropriate and responsible.”

Id. Accordingly, having found that Air Pega sus voluntarily chos e to oper ate a business in a highly regulated industry, and having further found that the government has a pre- existing s e rvitude over the navigabl e airspace, the Court of Federal Claims held that “[n]o [private] property right exists to public navigable a i rspace,” and that “no property ri ght over the navigable airspace above the leased area at the South Capitol Street Heliport [could ther efore] attach to the lesse e, Air Pegas us.” Id. As a result, the court concluded that “although the FAA’s re gulatory activity may have had an adverse impact on [Air Pegasus’s] heliport business, ” there was not a taking of any cognizable property interest of Air Pegasus. Id. The court therefore gr anted summary judgment to the government and dismissed Air Pegasus’s complaint. Id. Air Pegasus timely appealed the final judgm ent of the Court of Federal Claims. We have jurisdiction over the appeal pur suant to 28 U.S.C. § 1295(a)(3). DISCUSSI ON

I. We review the Court of Federal Claim s’ dec ision to grant summary judgment de

novo

. Spar ton Corp. v. United States , 399 F.3d 1321, 1322–23 (Fed. Cir. 2005). Summary judgment is appropriate when there is no genuine iss u e of material fact and the moving party is entitled to judgment as a matte r of law. Fed. Cl. R. 56(c) ; Anderson

04-5108 8v. Liberty Lobby, Inc. , 477 U.S. 242, 247–48 ( 1986). The issue of whether a taking has occurred is a question of law based on factual underpin n ings. Stearns Co. v. United States , 396 F.3d 1354, 1357 (Fed. Cir. 2005); Maritrans, Inc. v. United States , 342 F.3d 1344, 1350–51 (Fed. Cir. 2003); Washoe County, Nev. v. United States , 319 F.3d 1320, 1325 (Fed. Cir. 2003). In this case, the ma terial facts are undisput ed and so we are presented with a pure question of law. The Takings Clause of the Fifth Amendment of the U.S. Constitution states that “private property [shall not] be taken for public us e, without just compensation.” U.S. Const. amend. V. The purpose of the Takings Clause is to prevent “Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the pub lic as a whole.” Penn Cent. Transp. Co. v. City of New York , 438 U.S. 104, 123 (1978). We have developed a two-part test for determining whether “fairness and justice” require c o mpensat ion for burdens imposed by a particular government action. “First, as a threshold matter, the court must determine whether the claimant has established a property interest for purposes of the Fifth Amendment.” Am. Pelagic Fishing Co. v. United States , 379 F.3d 1363, 1372 (Fed. Cir. 2004), cert. denied , 125 S. Ct. 2963 (2005); see also Maritrans , 342 F

. 3d at 1351. That is because “only persons

with a v a lid property interest at the time of the taking are entitled to compensatio n .” Wyatt v. U n ited States , 271 F.3d 1090, 1096 (Fed. Cir. 2001) . The protections of the Takings Clause apply to real property, see Lucas , 505 U.S. at 1019, personal property,

see Andrus v. Allard , 444 U.S. 51, 65 (1979), and intangible property, see R u cke l sh aus v. Monsanto Co. , 467 U.S. 986, 1003–04 (1984) . However, the Constitution does not

04-5108 9itself create or define the scope of “property” interests protected by the Fifth Amendment. “Instead, ‘exist ing rules and understandings’ and ‘background princip l es ’ derived from an independent source, such as st ate, federal, or common law, define the

dimensions of the requisite property rights for purposes of establishing a cogniza b le taking.” Maritrans , 342 F.3d at 1352 (citing Lucas , 505 U.S. at 1030); see also Am.

Pela gic , 379 F.3d at 1376; Conti v. United States , 291 F.3d 1334, 1340 (Fed. Cir. 2002). “Second, after having identified a vali d property interest, the court must determine whether the governmental action at issue amounted to a compensable taki ng of that property interest.” Am. Pelag i c , 379 F.3d at 1372; see als o Maritrans , 342 F.3d at 1351. A compensable taking can occur not only through the government’s physical invasion or appropriation of private property, see Lucas , 505 U.S. at 1014–15; Loretto v. Teleprompter Manhattan CATV Corp. , 458 U.S. 419 (1982), but also by government regulations that unduly burden pr ivate property interests, see Pennsylvania Coal Co. v.

Mahon , 260 U.S. 393, 415 (1922); Cienega Gardens v. United States , 265 F.3d 1237, 1244 (Fed. Cir. 2001). 3 Again, we do not reach this s e c ond step without first identifying

3 Regulatory takings claims are furt her subdiv i ded into categorical and noncategorical takings claims. A categorical taking occurs when “all economically viable use, i.e., all economic value, has been ta ken by the regulatory imposition.” Rith Energy, Inc. v. United States , 247 F.3d 1355, 1362 (Fed. Cir. 2001) (citation omitted); see also Am. Pelagic , 379 F.3d at 1372. Conversely , a non-categor ical taking is a taking “that is the consequence of a regulatory imposition that prohibits or restricts only some of the uses that would other wise be av ailable to t he property owner, but leaves the owner with substantial viable ec onomic us e.” Rith Energy , 247 F.3d at 1362 (cit ation omitted). Determining whether a non-categorical tak i ng occurred involves t he fact-based inquiry stated in Penn Central , specific ally cons ider ing (1) the character of the gov ernmental action, (2) the econom ic impact of the action on the claimant, and (3) the effects of the governmental action on the reasonable inves t ment -backed expectations of the claimant. Lingle v. Chevron U.S.A., Inc. , 125 S. Ct. 2074, 2081 (2005); Am. Pelagic , 379 F.3d at 1372; Maritrans , 342 F.3d at 1351; Conti , 291 F.3d at 1339; Rith Energy , 247 F.3d a t 1362. On the other hand, compensation is due for a categorical taking if the claimant

04-5108 10a cogniz a ble property interest. See, e.g. , Am. Pelag i c , 379 F.3d at 1381; Conti , 291 F.3d at 1340. Theref ore, we now turn to the Co urt of Federal Claims’ dec is ion fin d ing that Air Pegasus lack ed a cognizable inter e st in the airspace over the South Capitol Street Heliport.

II.

A. Air Pegas us contends the Court of Fe deral Claims erred in finding that Air Pegasus did not acquire a constitutionally protected property interest through its leasehold. Air Pegas us asse rts that it acquired from t he lease the express right to operate a heliport, and that this property right was taken as a result of the FAA’s flight restrictions. At oral argument, counsel for Air Pegasus more clearly defined the asserted property right as “the right to oper ate a heliport, whic h includes the right to have a helicopter leav e the gr ound and hit the ground,” i.e., the right to have helico p ters land and take off at the helipor t. Air Pegas us’s couns el furt her stated that, contrary to the Court of Federal Claims’ finding, Air Pega sus does “not claim a property right in the public airspace.” Rather, Air Pegasus merely cla i ms that it ac qu ired a leasehold interest, which explic itly inc l uded the ri ght to operate a heliport, which “properly assumed the ability for the helicopters to use [the] airspace.” Air Pegasus further contends that, in finding no cognizable property right, the Court of Federal Claims took “a sweeping, abs olutist view of the federal government’s

(Cont’d. . . .) can simply show that the regulation has el iminated all economic ally via b le use of the property and that “background principles of nuisance and property law” do not independently restrict the claimant ’s intended use of the property. See Lin g le , 125 S. Ct. at 2081 (quoting Lucas , 505 U.S. at 1030); Lucas , 505 U.S. at 1015; Rith Energy , 247 F.3d at 1362.

04-5108 11power under the Commerce Clause . . . [which ] if allowed to stand, would seriously

erode if not obliterate the value of private property in relation to government authority.” In particular, Air Pegasus asserts that “[p]r operty subject to ‘perv a sive regulation’ may still be property,” and that “t he federal gov ernment’s navi gationa l servitude does not provide an absolute defens e to a takings claim.” 4 F i rst, with respec t to the scope of t he government’s avigational serv itude, Air Pegasus argues the servitude only extends t o government actions taken to both promote interstate commerce and improve public avigation. In this cas e , Air Pegasus cont inues, the FAA’s restrictions did not improve public aviation because, instead of promoting or improving ai r travel, they completely

banned air travel. 5 Second, with respect to the regulat ed nature of the aviation industry, Air Pegasus asserts that the level of gover nment regulation in a given industry goes to the issue of whether a taking actually occur r ed, not to the issue of whether the plaintiff asserted a cognizable property interest. Fi nally , noting that other airports in the region were allowed to open shortly after Septem ber 11, 2001, Air Pegasus cont ends it wa s singled out to bear a disproporti onate burden for the sake of alleged public benefits, and

that it is therefore entitl ed to compensation. In response, the government argues that the Court of Federal Claims properly concluded that Air Pegasus failed to assert the taking of a cogniz able proper ty interest.

4 Air Pegasus also contends that the court erred to the extent it relied on common law nuisanc e principles to impos e pre-existing limitations on Air Pegasus ’s leasehold. Air Pegas us asserts that nuisance principles are simply not relevant to this case. 5 Air Pegas us recognizes the F AA iss ued the flight restrictions in the interest of national s e curity. H o wever, Air Pegasus contends that national security interests are not included withi n the scope of the avigatio nal servitude and that the government must consequently compensate i ndividuals for property taken for such purposes.

04-5108 12The government further argues that Air Pegasus’s arguments on appeal confuse the difference between simply not being distur bed in a particular use of property and hav ing an affirmative right to that use. Specific ally, the government argues that while Air Pegasus ’s lease may have given it the right to use the land at 1724 South Capitol Street as a heliport, it did not , and could not, give Ai r Pegasus the right to actually op erate the heliport, i.e. the right to hav e helicopters enter and exit the navigable airspac e from the South Capitol Street site. Accor d ing to th e government, that is because the navigable airspace has always been subject to the exclus ive and complete control of the federal government and is consequently not available for private ownersh ip. In other words, the government’s pervasive regulation of the public airways serves as one of the background princ i ples limiting private property interests. Therefore, the government contends, Air Pegasus only had a right to oper ate helicopters from its heliport to the

extent the FAA did not fi nd it nec essary to restrict air trav el in the vicinity of Washington, D.C. We agree with the Cour t of Federal Claim s that Air Pegasus failed to as sert a cognizable property interest for purposes of the Fifth Amendment. However, we reach that conclusion in a slightly different manner.

B. As an initial matter, a cl aimant seeking com pensation f r om the government for an alleged tak i ng of priv ate property mu st, at a minimum , assert that its property interest was actually taken by the government action. See United States v. Gen. Motors Corp. , 323 U.S. 373, 379 (1945) (“[I]t has been held t hat the compens a tion to be paid is the value of the interest taken.”); United State s v. Miller , 317 U.S. 369, 376 ( 1943) (“As

04-5108 13respects other property of the owner consisting of separate tracts adjoining that affected by the taking, the Constitution has nev er been construed as requiring p a yment of consequential damages[.]” ); Campbell v. United States , 266 U.S. 368, 371 (1924) (“[I]f the land taken from plainti ff had belonged t o another, or if it had not been deemed part and parcel of his estat e , he w ould not hav e been entitled to any thing on acc ount of the diminution in value of his estate. It is only because of the taking of a part of his land that he became entitled to any damages resulting to the rest.”); Yuba Natural Res., Inc. v. United States , 904 F.2d 1577, 1581 (Fed. Cir. 1990) (“It is a well s e ttled principle of Fift h Amendment taking law . . . that the measure of just compensat ion is the fair value of what was taken, and not the consequential damages the owner s u ffers as a result of the taking.”); Klein v. United States , 375 F.2d 825, 829 (Ct

. Cl. 1967) (“It is settled law that

. . . compensation under the Fifth Amendment may be recovered only for property taken

and not for inc i dental or consequential loss es , the rationale being that the sovereign need only pay for what it actually takes rather than for all that the owner has lost.”).

In this cas e , however , Air Pegasus does not appear to assert that its property was actually taken by the FAA’s regulations . In particular, at oral argument, Air Pegasus ’s counsel conceded that Air P egas us’s takings claim was really for compensation resulting from a “ derivative injury.” Counsel char acterized t he injury as derivative because, while the FAA’s regulati ons pr ohibit the operat ion of helicopt e rs (and other aircraft) in the ai rspace around Washington, D.C., 6 Air Pegasus does not actually own or operate any he lic opters. Therefore, Air P egasus ’ s economic injury is

6 See, e.g. , FAA, NOT A M FDC 2/ 1261 (2002) (p rohibiting “flight operations” in designated areas of Wash ington, D.C.); FAA, NOTA M FDC 2/1369 (2002) (same); see also 67 Fed. Reg. at 7538-39.

04-5108 14not the result of the gover nment taking Air Pegas us’s pr operty, but is the more attenuated result of the governm ent’s purported taking of other people’s property. This circumstance does not form the basis for a viable takings claim. See, e.g. , Gen. Motors Corp. , 323 U.S. at 379; Miller , 317 U.S. at 376; Ca mpbell , 266 U.S. at 371; Yub a Natural Re s. , 904 F.2d at 1581; Klein , 375 F.2d at 829; Bydlon v

. United States , 175 F. Supp. 891, 897 (Ct. Cl. 1959) (“It is well-s e ttled that cons equential damag es resulting from lawful government action cannot form the basis of a compensable taking.”). 7 In fact, Air Pegasus ’s takings claim is in many respects similar to a takings claim rejected by the Supreme Court in Omnia Commercial Co., Inc. v. United St ates , 261 U.S. 502 ( 1923). In that case, the appellant owned a contract that gave it the right to purchase a large quantity of st eel from the Allegheny Steel Company at a sub-market price. Id. at 507. The contract, if performed, would have therefore resulted in a substantial profit for the appellant. Howeve r, before any deliveries were made to the appellant, the federal government requisiti oned all of the steel plate produced by Allegheny Steel for the year 1918 and directed Allegheny Steel n o t to perform its

7 Nor does this cas e pr esent a s i tuat ion where the gov ernm ent directed or authorized a third party to take adv erse action against Air Pegasus. Se e Casa de Cambio Comdiv S.A., de C.V. v. United States , 291 F.3d 1356, 1362-63 (Fed. Cir. 2002) (stating that the governm ent is liable for third-party adverse actions under the Takings Clause only if it specif ically directs or authorizes such actions). To be sure, the FAA’s regulations prohibit flight in much of the Washington, D.C. area. However, this does not mean the regulations di rected third parties to specifically take adverse action against Air Pegasus’s heliport. On the cont rary, the regulations simply state that commercial aircraft are not allowed in t he r e stricted airspace surrounding W a shington, D.C. Com pare Hendler v. United States , 952 F.2d 1364, 1378–79 (Fed. Cir. 1991) (holding the federal government liable for ph ysical tak i ngs committed by officials of the State of California, where t he state officials acted solely under authority granted by federal law); Turney v. United States , 115 F. Supp. 457, 460, 463–64 (Ct. Cl. 1953) (holding the federal government liable for physical takings committed with the aid of the Philippine government).

04-5108 15contract with appellant. Id. The appellant subsequen t ly sued the government in the Court of Claims, alleging “that the effect [of the government’s action] was to take for the public use appellant’s right of priority to the steel plate expected to be produced by the steel company and thereby appropriate for public use appellant’s property in the

contract.” Id. at 508. The Supreme Court held that appellant had not stated a takings claim recognized by the Fifth Amendment. The Court ack nowledged that the appell ant had a property right in its contract with Allegheny Steel. Id. Howev e r, the Court held that there is a signific ant difference between an injury to one’s property interest and a taking of one’s property interest: If, under any power, a contra ct or other property is taken for public use, the government is liable; but, if injured or destroyed by lawful action, witho ut a taking, the government is not liable.

Id. at 510 (emphasis in original ). Accordingly, the Court concluded that the appellant failed to assert a takings claim under t he Fifth Amendment because the government’s action had not taken appellant’s contract but merely frustrated its performance. Id. at

511–13. Similarly, in this case, Air Pegasus owns a property interest in its leasehold.

Howev e r, Air Pegas us, which did not itself own or operate any helicopters, does not allege that the FAA’s r e strictions regulated it s operations under the lease. Instead, Air Pegasus basically alleges that the FAA, by regulating helicopters owned by third parties, frustrated its busines s expectations at the South Capito l Street helipor t. Therefore, like t he appellant in Om n i a , Air Pegasus, while no doubt injured by reason of

04-5108 16the government’s actions, has not alleged a taking of private property under the Fifth

Amendment. C. Although we have concluded that Air Pegas us’s alleged derivative injury does not present a c ognizable takings claim, our analysis is not quite complete. That is becaus e, despite its noted concession at oral argument, 8 Air Pegasus nevertheless seems to claim a right of access to the navigable airspace from its heliport. (Reply Br. of Appellant at 3 (“[T]he l ease also c onveyed to Air Pegas us a right of access to navigable airspace from the heliport site[.]”)

. ) This us e of the airspace is at least im plicitly proscribed by the F A A’s flight rest rictions ov er Wa shington, D.C. See 67 Fed. Reg. at 7538–39. Therefore, if Air Pegasus has a private right to access the navigable airspac e from its hel iport, then Air Pegas us has, at a minimum, asserted a cognizable property interest allegedly tak en by the FAA regulations. 9 However, for the reasons that follow, we do not think that Air Pegasus has such a private property right for purposes of the

Fifth Amendment. We first note that Air Pegasus ’s claimed pr operty interest is not merely a right to access the airspace over its heliport, but a right to acc e ss the navigable airspace from its heliport. This means that we need not cons ider the extent to which Air Pegasus, as a lessee of the South Capitol Street property, has the ri ght to use the non-navigable airspace immediately above its leasehold. See Causby , 328 U.S. at 264 (“[I]t is obv ious

8 Specifically , as noted supra , counsel stated that Air Pegasus does “not claim a property right i n the public airspace.” 9 As discuss ed, whether the FAA’s regul ations actually effected a taking of that property interest woul d be another matter, requiring, in the first instance, a determination as to whether t he effects of the regulations amounted to a categorical or non-categorical takings claim.

04-5108 17that if the landowner is to have full enjoyment of t he land, he must have exc l usiv e control of t he immediate r eaches of the enveloping atmo sphere. Otherwis e buildings could not be erected, trees could not be pl anted, and ev en fences could not be run.”). 10 Our review is therefore limited to the specific issue of whether Air Pegasus has a private property right of access to the navigable airspace from the South Capitol Street Heliport. 11 Turning to that issue, t he text of the Fifth Amendm ent expressly states that compensation is due f o r government takings of “p rivate property.” Howev e r, it is we ll established under federal law that the navigable airspace is public property not subject to private ownership. Se e 49 U.S.C. § 40103( a)(2) (2000) (“A citizen of the United States has a public right of transit through the navigable airspace.”); Air Commerce Act of 1926, ch. 344, § 10, 44 Stat. 568, 574 (“[T]he term ‘navigable airspace’ mean s airspace above the minimum safe altitudes of flight prescribed by the Secretary o f Commerce . . . , and such navigable airspace shall be subject to a public right of freedom of interstate and foreign air navigati on in conformity with the requirements of

this Act.” ). As the S upreme Court aptly stated over a half-century ago: The air is a public highway, as Congress declared. Were that not true, every transcontin ental flight would subject the operator to countless trespass suits. Common sense revolts at the idea. To recognize such private claims to the airs pace would clog these highways, se riously int e rfere with their control and development in the public inter e st, and transfer

10 In any ev ent, the FAA’s regulations do not appear to themselves prohibit Air Pegasus from constructing buildings, planti ng trees, or conducting other activities in the immediate reaches of the airspace over its leasehold. 11 The FAA defines “nav igable airspace” at 14 C.F.R. § 91.119 (2005). The regulation states that helic opters may fly at lower altitu des than airplanes, provided the y do not pose a “hazard to persons or property on the surface.” Id. § 91.119(d).

04-5108 18into private ownership that to which only the public has a just claim

. Causby , 328 U.S. at 261 (emphasis added); see also Brown v. United Stat es , 73 F.3d 1100, 1103–04 (Fed. Cir. 1996) (indica ting that the na vigable airspace is not itself a private property interest). In addition, the government has long exercis e d dominant control over the navigable airspace in regulating the public right of transit. See 49 U.S.C. § 40103(a)(1) (2000) (“The United St ates Government has exc l usiv e sovereignty of airspace of the United States.”); Air Commerc e Act of 1926, § 6, 44 Stat. at 572 (“Th e Congress hereby declares that the Government of the United States has, to the

exc l usion of all foreign nations, c o mplete sove reignty of the airspace over the lan d s a nd waters of the United States, including the Canal Zone.”). 12 Therefore, “background principles” of long-standing federal property law indic a te that there is no private property right in the navigable airspace of the United States. F o r that reason, we hold that Air Pegasus does not have a cogniz able property interest in its alleged right to access the navigable airspace from the South Capitol Street Heliport. We recognize that courts have found proper ty rights in the navigable air space in

limited c i rcumstances. Most notably, in By dlon , our predecessor court held that the plaintiffs had a property interest in a way of necessity to access by air land that they owned in a remote region of northern Minnesota, and that the government took that interest when it banned air traffic in th e air s pace surrounding their properties. 175 F.

12 We note that while Congress has cl early asserted sovereignty as to foreign nations over the United States’ airs pace, at least one Supreme Court decision indic a tes that the states may retain some authority to regulate intrastate airspace. See Braniff Airways , 347 U.S. at 597 (holding that federal regulation of air commerce did no t preempt a state tax on airplanes doing business in Ne braska). In any event, although Braniff may provide a basis for state regulation of intrastate airspace, we do not see how it provides a basis for privat e ownership of navigable airspace.

04-5108 19Supp. at 897–900. However, the facts of that case ar e far removed from those of this case. For one thing, Air Pegasus does not asse rt to have a way of neces sity by air. Moreover, i n Bydlon t he court actually rejected a taki ngs claim quite similar to the one presently asserted by Air Pegas us. See By dlon , 175 F. Supp. at 897 (holding that two airline oper ators failed to assert a viable ta kings claim because they did not own a way of necessity by air, and therefore asserted ent itlement to compensation based solely on a claim to consequential damages). In reaching our conclusion, we are also mindful of Ai r Pegasus ’s contention that the FAA acted outside of the gove rnment’s navigational servitude. 13 Ho we ver, our conclus i on is not grounded in the government’s navig ational serv itude. The navigational servitude is a dominant servitude. This means that, when properly invoked, the government’s servitude takes prio rity over the underlying proper ty interests of private parties. See, e.g. , United States v. Cher okee Nation of Okla. , 480 U.S. 700, 704–05 (1987) (applying the navi gational servitude to preem pt private interests of riparian landowners in a streambed); Kaiser Aetna v. United States , 444 U.S. 164, 175– 79 (1979) (concluding that t he government’s navigatio nal s e rvitude did not provide a right-of-way through a private marina); United States v. Twin Cit y Power Co. , 350 U.S. 222, 225–28 (1956) (holding that riparian landow ners took their interest in a stream subject to the government’s dominant nav igatio nal servitude). Rather, our conclus i on in

this case is that Air Pegasus simply does not have a private property interest in what is public airspace, regardless of whether the government is ac ting to promote aviation.

13 Specifically , as previously noted, Air Pegas us argues t h at the scope of the government’s servitude is limited to actions tak en to promote avigation, and that, in this case, the FAA’s regulations fall outside of the servitude bec ause they prohibit, instead of promote, avigation.

04-5108 20Therefore, because there is no private property interest here to which the government’s servitude could attach, we do not see how the principles underly ing the servitude are

relevant to this case. See Black’s Law Dictionary 1400 (8th ed. 2004) (defining “servitude” as “the right exer cised by a dominant tenement over a servient tenement”). Air Pegasus also argues t hat v o luntarily c hoosing to enter a regulated industry does not, by itself, deprive a pers on of a F i fth Amendm ent property interest. We agree.

Howev e r, this case does not involve a typi cal c l aim to property in a regulated area. Rather, Air Pegasus claims the right to property that, since at least 1929, has been committed to the public domain. Air Commerce Act of 1926, § 10, 44 Stat. at 574. The fact that Air Pegasus was ab le to operate the heliport prio r to September 11, 2001, is

irrelevant. Am. Pelag i c , 379 F.3d at 1377 ( “ [T]here is a distinction between simply not being disturbed in the particular us e of one’s property and hav ing the right to that use of the property. Clearly, in order for there to be a cogniz able proper ty interest sufficient to support a takings c l aim, the latter must be tr ue.”). Private property interests simply do not, as a general matter, exist in the nav igable airspac e of the United States. Causby , 328 U.S. at 266 (“The airspace, apart from t he immediate reaches above the land, is part of the public domain.”). Finally, we do not s hare Air Pegasus’s c oncern that upholding the Court of Federal Claims’ dec is ion will provide the go vernment with a c o mplete “blanket” defense to takings claims involving air commerce. For example, our dec ision does not affect prior decisions finding takings liability w here government aircraft i n terfered with private property interests on the ground. See, e.g. , Causby , 3 28 U.S. at 265–67 (holding that various military overflights, whic h, among other things, were extremely noisy, caused

04-5108 21leaves to fall off plaintiffs’ trees, and ru ined plaintiffs’ chicken-farming business, constituted a taking of the habita ble use of plaintiffs’ land); Argent v. United States , 124 F.3d 1277 (Fed. Cir. 1997) (recogniz i ng that military ov erflights can effect a taking of property rights in the land below) ; Brown v. United States , 73 F.3d 1100 (Fed. Cir. 1996) (same); Branning v. United States , 654 F.2d 88, 98–102 (Ct. Cl. 1981) (stating that government action m a y exceed the scope of the gov ernment’s avigatio nal servitude if

the action interferes with the hab itable use of private land). In our decision today, we simply hold that Air Pegasus does not have a private pr operty right to access the navigable airspace from the South Capitol S t reet Helipo r t. CONCLUS ION We hold that Air Pegasus failed to assert a cognizable property interest sufficient to support a takings claim under the Fifth Amendment. We base our decis ion on two separate grounds. First, Air Pegasus appear s to assert a claim based on a perceived taking of property owned by other parties. The Fifth Amendment does not provide a remedy for such a der ivative claim. Second, Air Pegasus also appears to assert a right to access the navigable airspac e from the South Capitol St reet Heliport, access whic h was no doubt restricted by the F AA’s regulations . We do not think this right of access is a cognizable property interest under the Fifth Amendment. Accordingl y, we affirm the judgment of the Court of Federal Claims. COSTS Each party shall bear its own costs.

AFFIRMED

04-5108 22

## United States Court of Appeals for the Federal Circuit

04-5108

AIR PEGASUS OF D.C., INC., Plaintiff-Appellant,

v. UNITED STATES, Defendant-Appellee.

NEWMAN, Circuit Judge , dissenting.

It is not disputed that the heliport leasehold owned by Air Pegasus lost all value upon government prohibition of helicopter traffic in the area of the National Capital. The question is not whether Air Pegasus had property, for a leasehold is property. Nor is the question whether the government had the right to close the area at South Capital Street to helicopter traffic. In exercising that right, the government directly deprived the heliport leasehold of its

value. This action in the in terest of national security, taken abruptly and without notice, transcended any reasonably foreseeable regulatory action. Thus the devaluation of the leasehold falls squarely withi n law and precedent, for a governmental taking of property rights within the cognizance of the Fifth Amendm ent. From my colleagues' contrary ruling I must, respectfully, dissent.04-5108 2 The panel majority holds that because an airport operator knowingly enters a highly regulated industry, he bears the risk of regul atory action by government. I agree. However, the act of closing the airspace around the National Capitol to helicopter traffic is not routine regulation, and it is not disputed t hat this action was not reasonably foreseeable. The sudden and total prohibition of Air Pegas us' business was not an ordinary regulatory act in ordinary times, but an extraordinary response to a catastrophic event. This unforeseeable governmental ac tion rendered Air Pegasus' leasehold valueless. See Pennsylvania Coal Co. v. Mahon 260 U.S. 393, 415 (1922) ("while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking"). Air Pegasus argues that compensation is prescribed by the Fi fth Amendment policy explained in Armstrong v. United States , 364 U.S. 40, 49 (1960) and in Penn Central Transportation Co. v. City of New York , 438 U.S. 104, 123 (1978), that the Amendment is designed "to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whol e." The courts are charged to consider this fundamental question: the placement of the economic burden of the government's actions in the national interest. That is, does Air Pegasus alone bear the financial consequences of enhanced security in t he National Capitol, or does the nation

share this burden? My colleagues on this panel do not discuss this question, and although they agree that "Air Pegasus owns a property interest in its leasehold," Op. at 16, they conclude that the extinction of that property interest ra ises no issue under the Fifth Amendment. It is established that leaseholds are compensable pr operty interests under the takings clause. See , e.g , United States Trust Co. of New York v. New Jersey , 431 U.S. 1 (1977); Sun Oil04-5108 3 Co. v. United States , 215 Ct. Cl. 716 (1978). And it is not disputed that t he closing of the airspace to helicopter traffic deprived the leasehol d of its value, raising the "clear principle of national equity that the indivi dual whose property is thus sacr ificed must be indemnified." Pumpelly v. Green Bay & Mississippi Canal Co. , 80 U.S. 166, 179 (1871). Thus the court's holding that Air Pegas us had no compensable property right is contrary to long-established precedent. Our pr edecessor court so recognized, holding in Bydlon v. United States , 175 F. Supp. 891 (Ct. Cl. 1959), that where the government imposed a prohibition on air traffic below 4,000 f eet over the Superior National Forest for environmental reasons, resort owners who had a way of necessity through the air space in order to reach their proper ty were entitled to just compensation. In Griggs v. Allegheny County , 369 U.S. 84, 88 (1962), the Court explained t hat "An invasion of the 'superadjacent airspace' will often 'affect the use of t he surface of the land itself,'" quoting United States v. Causby , 328 U.S. 256, 265 (1946), sett ling that property rights in land may be affected by activity in the air. The panel majority departs from precedent in describing the injury to Air Pegasus as "derivative" and thus not com pensable, for the injury was the direct consequence of the prohibition on helicopter traffic. The majority deems it dispositive that air commerce is heavily regulated. However, even "pervasive" regulation does not preclude app lication of Fifth Amendment principles. When applying the law of regulatory takings as set forth in Penn Central , 438 U.S. at 124, it is necessary to determine how the particula r government action affected the reasonable investment-backed expectations of the property owner. Central to the application of takings jurisprudence in regulated industry is the ques tion of whether the property owner should reasonably have foreseen the gover nmental action, and thus is properly charged with the04-5108 4 risk of its occurrence. Unlike for example the situation in Connolly v. Pension Benefit Guaranty Corp. , 475 U.S. 211, 226-27 (1986) (plainti ff had been on notice for years of the potential regulation), relied on by the Court of F ederal Claims, Air Pegasus is surely correct that the total shutdown of helicopter activity due to terrorist attack is not an action that it should have reasonably foreseen in entering into its long-term leasehold. In Cienega Gardens v. United States , 331 F.3d 1319, 1331 (Fed. Cir. 2003) the Federal Circuit again explored and again rejected the argument that government action in a "pervasively regulated industry" can never constitute a taking of private rights, in that case holding that despite the highly regulated federal housi ng program, the enactment of legislation preventing the owners of low-in come apartments from prepaying their federally subsidized mortgages after twenty years, thus freeing t hemselves from regulatory restrictions governing mortgages, was a taking of their property. See also United Nuclear Corp. v. United States , 912 F.2d 1432 (Fed. Cir. 1990) (com pensable taking found in highly regulated mining industry). The Court of Federal Claims did not reach the question of whether there was a taking, for the court based its decision on its holding that Air Pegasus had no compensable property interest because of the per vasive regulation of air traffi c. Thus the trial court did not consider the regulator y factors identified in Penn Central , 438 U.S. at 124, viz. , the character of the government action, the economic impact of the regul ation on the claimant,

and the extent to which the regulation interfered with di stinct investment-backed expectations. Although there is no question that the federal govern ment has extensive authority over air commerce and traffic, see City of Burbank v. Lo ckheed Air Terminal, Inc. , 411 U.S. 624, 627 (1973) (preempti on of State authority), action s of the federal government04-5108 5 pursuant to its authority under t he Commerce Clause can, and often do, result in takings. The fact that the federal gov ernment possesses a "se rvitude" in navigable space, including airways, does not insulate it fr om the consequences of a taking. See , e.g. , Kaiser Aetna v. United States , 444 U.S. 164, 172 (1979) ("this Court has never held that the federal navigational servitude creates a blanket ex ception to the Takings Clause whenever Congress exercises its Commerce Clause authority to promote navigation"); Palm Beach Isles Associates v. United States , 208 F.3d 1374, 1384-86 (Fed. Cir. 2000) (same), reh'g

on other grounds , 231 F.3d 1354 (Fed. Cir. 2000). Even an environment of "perva sive" regulation does not mean that all regulatory changes will be reasonably foreseeable in t hat environment. Air Pegasus cannot reasonably be charged with accepting the commerc ial risk of the 9/11 terrorist attacks and the immediate government response by closing t he airspace, which clearly were different in kind as well as degree from any reasonable regulatory lim itation before 9/11. See Connolly v. Pension Benefit Guaranty Corp. , 475 U.S. 211, 226-27 (1986) (p laintiff was on notice for years of a projected future regulation); M & J Coal Co. v. United States , 47 F.3d 1148 (Fed. Cir. 1995) (no compensation where plaintiff was barred from conduc ting mining operations in violation of a pre-ex isting regulatory standard). The Court of Federal Claims and my co lleagues appear to have been diverted by the government's concentration on the c oncept of who "owns" the air, thus ignoring the effect of the government action on the heliport leasehold. The result negates the basic rights and protections secured by the Fifth Amendment, and places the financia l burden of emergency government action for national security, on the property owner w hose property became

valueless. Precedent makes clear that Air Pegasus indeed possessed a compensable04-5108 6 property interest in Fifth Amendment terms. From my colleagues' contrary decision, I respectfully dissent.