Court Opinion

ID: 6956434
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:38:23.60052+00
Date Added: 2024-06-11T16:08:17.423355
License: Public Domain

O’SCANNLAIN, Circuit Judge,
concurring in part and dissenting in part.
I join the court’s opinion regarding the constitutionality of Ordinance 91-96. With respect to Ordinance 91-95, I concur in the court’s conclusion in Part II-B that there is no violation of the Public Use Clause, but write separately to express concern about Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 104 S.Ct. 2321, 81 L.Ed.2d 186 (1984). I respectfully dissent from Part IIC, however, because I believe that the challenge to Ordinance 91-95’s compensation provision is ripe, and that the provision does not provide just compensation.
I
In Part II-B the court concludes that Ordinance 91-95 does not violate the Public Use Clause and relies heavily on Hawaii Housing Authority v. Midkiff.
A
The Fifth Amendment to the Constitution states: “... nor shall private property be taken for public use without just compensation.” U.S. Const., amend V. The Public Use Clause is an explicit limit on the power of the government to take private property for, as the Supreme Court has long recognized, a taking must be for public use; a taking for a purely private use is unconstitutional. See Thompson v. Consolidated Gas Corp., 300 U.S. 55, 80, 57 S.Ct. 364, 376, 81 L.Ed. 510 (1937).
Notwithstanding this principle, however, the Supreme Court in Midkiff gave the Public Use Clause an exceedingly broad reading: to satisfy the Clause, a taking need only be “rationally related to a conceivable public purpose.” Midkiff, 467 U.S. at 241, 104 S.Ct. at 2329. “The ‘public use’ requirement is thus coterminous with the scope of a sovereign’s police powers.” Id. at 240, 104 S.Ct. at 2329; Nati R.R. Passenger Corp. v. Boston & Maine Corp., 503 U.S. 407, 422-24, 112 S.Ct. 1394, 1404-05, 118 L.Ed.2d 52 (1992).
Since Midkiff was decided, however, the Supreme Court’s regulatory takings jurisprudence has undergone considerable change. *1167See Dolan v. City of Tigard, 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed.2d 304 (1994); Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992); Nollan v. California Coastal Comm’n, 483 U.S. 825, 107 S.Ct. 3141, 97 L.Ed.2d 677 (1987). Nollan, Lucas, and Dolan, of course, dealt with a different area of takings jurisprudence, subject to a different set of rules than the one before us: here we have a challenge under the Public Use Clause whereas that trio dealt with regulatory takings.
Notwithstanding that the Nollart-Lucas-Dolan trio dealt with a different part of the Takings Clause, the landowners argue that these cases have modified Midkiff s deferential review of a legislature’s public use determination. The court rejects this argument, and I agree: the Nollartr-Lucas-Dolan trio does not expressly modify or overrule Midkiff, and therefore we must apply Midkiff in this ease. Indeed, recent Ninth Circuit authority confirms that Midkiff is still viable. See Bay View, Inc. v. AHTNA, Inc., 105 F.3d 1281, 1286 (9th Cir.1997) (“After [Midkiff], a legislative determination of what constitutes ‘public use’ is subject to ‘an extremely narrow’ review, and will be upheld so long as it’s rational.”). Midkiffs deferential standard compels me to conclude that Ordinance 91-95’s taking serves a “conceivable public purpose.”
B
Although Midkiff has not been overruled, and although Nollan, Lucas, and Dolan deal with a different part of the Takings Clause, I nevertheless believe that there is tension between these two lines of authority. The underlying thrust of the Nollart-Lucas-Dolan decisions — increasing the scrutiny of regulations to determine if they go “too far” (enough to require compensation) — is inconsistent with Midkiffs sweeping deference. It may be time for the Supreme Court to reconsider Midkiff.
To provide the context for this observation, I must take a brief detour. It seems to me that, speaking in broad terms, there are three ways the government can exercise control over property, especially real property. First, it can regulate pursuant to its broad police powers. Second, it can use its power of eminent domain to take the property without the consent of the owner as long as it pays just compensation. Third, it can buy land from a voluntary seller after negotiating a price — that is, it can use its revenues to behave like any other arm’s length purchaser of private property. See Thomas W. Merrill, The Economics of Public Use, 72 Cornell L.Rev. 61, 72 (1986).
Nollan, Lucas, and Dolan dealt with the relationship between the first two categories. Lucas established when a government regulation goes too far. See Lucas, , 505 U.S. at 1030,112 S.Ct. at 2901 (“When ... a regulation that declares “off-limits” all economically productive or beneficial uses of land goes beyond what the relevant background principles would dictate, compensation must be paid to sustain it.”). Nollan and Dolan tightened the required fit between the legitimate purpose sought to be accomplished by a government regulation and the means chosen — thereby identifying some exercises of the police power as takings. A police power regulation will be treated as a taking — an exercise of eminent domain — requiring compensation unless it adequately fits its purposes; that is, unless there is an “essential nexus” between a legitimate state interest and the regulation. See Dolan, 512 U.S. at 385-87, 114 S.Ct. at 2317; Nollan, 483 U.S. at 837,107 S.Ct. at 3148-49.
The Nollartr-Lucas-Dolan trio therefore established that the Takings Clause is a limitation upon the state’s police powers; if a regulation goes too far, or does not have the right fit, then it must be treated as an exercise of eminent domain — a taking — which requires compensation. The Public Use Clause appears to serve the same sort of function, but with respect to the second and third categories — it limits the state’s power of eminent domain. If an exercise of eminent domain goes too far — if it is for a private purpose, not a public one — then it cannot stand. If the state wants to acquire property in such circumstances (and has the statutory authority to do so), it may negotiate with the landowner to purchase the property at an *1168agreed price, but it may not use its condemnation power.1
Because the Nollan-Lucas-Dolan trio increased the level of scrutiny given to police power regulations, identifying some of them as takings, it stands to reason that the same increased scrutiny should be given to outright condemnation. If a taking does not have the required fit — perhaps something like Nollan’s “essential nexus” — between its proclaimed public use and its actual effect, then it should be invalid under the Public Use Clause.
The court’s opinion seeks to distinguish these cases, but I am unpersuaded. To the majority, the distinction is the provision of compensation: “[W]e see nothing inconsistent in applying heightened scrutiny when the taking is uncompensated, and a more deferential standard when the taking is fully compensated.” Whereas the majority is correct that there is less reason to be suspicious of a fully' compensated taking than an uncompensated one, more deference does not imply absolute deference. We ought not vitiate the public use requirement because, even if a landlord does receive the “fair market value” of the property, the landlord loses his right to exclude. Whether because of a sentimental attachment to his property or a conviction that the property is actually worth more than what the market will currently bear, a landlord might choose not to sell, even at the “fair market value.” The landlord who refuses to sell is asserting his right to exclude. As the Dolan Court recognized, “th[e] right to exclude others is ‘one of the most essential sticks in the bundle of rights that are commonly characterized as property.’” Dolan, 512 U.S. at 393, 114 S.Ct. at 2320 (quoting Kaiser Aetna v. United States, 444 U.S. 164, 176, 100 S.Ct. 383, 391, 62 L.Ed.2d 332 (1979)). The public use requirement protects this right by limiting government encroachment on private property — by forcing the government to prove that it is upholding the public welfare and not merely transferring-wealth to a class of persons with a stronger political voice.
Therein lies the mischief of Midkiff. Hopefully the Supreme Court will have the opportunity to extend its emerging takings jurisprudence to protect the right to exclude and to add vitality to the public use requirement. If the Clause is to have any effect at all, it must mean that a court will not feign blindness when it sees through a patently transparent legislative recital that a taking is for a public use. When the government uses eminent domain to take real property from A and give it to B, with no meaningful impact on anyone else or on the community at large, the taking is purely private and should violate the Public Use Clause.
In my view, Ordinance 91-95, unlike the statute in Midkiff is a purely private taking. In Midkiff, the legislature was attempting to break up an oligopoly in land ownership — a remnant of Hawaii’s feudal past — to allow single family home ownership. Breaking apart large blocks of land held by a small group of landowners — blocks which encompassed almost half the entire State of Hawaii — could be reasonably expected to spark more land transactions and lead to a more fluid real estate market. See Midkiff, 467 U.S. at 232-33, 104 S.Ct. at 2324-25. That some economists might disagree with the legislature’s remedy does not mean that the statute would be invalid — it retained an “essential nexus” to its purpose and would be constitutional.
In this ease, however, the Honolulu City Council found no land oligopoly, but a mere concentration of land ownership in the hands of landowners (a tautology), many of whom refused to sell their land to their leasehold tenants (typically groups of highrise condominium owners), which in turn led to increased real property prices. As a remedy, when properly triggered, Ordinance 91-95 would condemn the property of the landowners and transfer it in pro rata shares to the condominium owners. It seems to me that the ordinance is nothing more than a naked transfer from one property owner to anoth*1169er — from landlords to tenants. To be sure, because tenants will be able to own land that they could not purchase in the open market, the ordinance might well make today’s tenants better off, and will certainly eliminate their need to pay rent altogether. But transferring title to the tenants will not change the value of the property — which will still equal the combined value of the leasehold interest and the reversionary interest — and hence should not lower the price a seller will demand. If the landlords constituted an oligopoly, then the division of the ownership of the land could have the effect of lowering land prices from an oligopolistic level to something approaching the free-market level. In the absence of a showing of an oligopoly, however, Ordinance 91-95 has nothing to do with changing the structure of Hawaii’s real estate market.
Nevertheless, Midkiffs language limits the public use inquiry to whether there is a conceivable public purpose behind the law. Applying that deferential standard, I conclude that Ordinance 91-95 barely passes muster, and therefore I reluctantly concur in the court’s conclusion that it does not violate the Public Use Clause.
II
In Part II-C of its opinion, the court concludes that the landowners’ compensation claims are not ripe. It does so while theoretically recognizing the well-established rule that a party need not seek compensation when doing so would be futile under existing state law. See Levald, Inc. v. City of Palm Desert, 998 F.2d 680, 686 (9th Cir.1993); see also Williamson County Regional Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 196-97, 105 S.Ct. 3108, 3121-22, 87 L.Ed.2d 126 (1985).
Ordinance 91-95 sets the compensation for the taking as “the current fair market value of the leased fee interest.” Ordinance 91-95, § 5.3. It defines the “leased fee interest” as the “reversionary interests of the fee owner.” Id. at § 1.2.
By its plain meaning, the ordinance pays only the current fair market value of the landowner’s reversionary interest. In other words, the landowner gets paid only for his interest in the property which excludes the leasehold. Conspicuously absent from this formula is any payment for the current stream of rental payments from the tenants to the landlord. Undoubtedly, the landlord has a protected property interest in the rental payments — a lessor’s interest distinct from the reversionary interest in the land. Currently, the tenants pay rent to the landlord for the lease term. Under the ordinance, the tenants stop paying rent immediately upon condemnation. The landlord loses the stream of payments for the leasehold period but is not compensated for the loss.
In the court’s view, Honolulu’s Department of Housing and Community Development could interpret the compensation provision broadly and include the lost rental payments in the compensation formula. I do not think a fair (or even generous) reading of the ordinance will sustain that conclusion. The ordinance is clear: the landowners will get paid only for their “reversionary interests,” which, as a matter of basic property law, do not include the current income from the property. See Black’s Law Dictionary 1186 (5th ed. 1979) (defining “reversionary interest” as “[t]he property that reverts to the grantor after the expiration of an intervening income interest”). The Supreme Court has recognized that merely compensating a lessor for the reversionary interest is insufficient:
“[W]hen a lease of trust land is made, ... upon a subsequent condemnation by the United States, the trust must receive the then full value of the reversionary interest that is subject to the outstanding lease, plus, of course, the value of the rental rights under the lease.”
Alamo Land & Cattle Co., Inc. v. Arizona, 424 U.S. 295, 303, 96 S.Ct. 910, 916, 47 L.Ed.2d 1 (1976) (emphasis added). The landlord must receive the value of the leased payments because that is the difference between what is taken by the government (a present fee simple) and the fair market of the “reversionary interests.”
The court reaches the incorrect result because its analysis is incomplete. After noting that what reverts back to the landlord is a fee interest, the court states that “[t]he projected earning of that property would be a *1170normal factor in determining the value of the property that reverts to the lessor.” The court is correct in that what reverts back is a fee interest, and that the value of a fee interest takes into account all projected earnings. The court does not recognize, however, that a reversionary interest in fee simple is a lesser estate than a present fee simple, and that the difference is the interim lease payments. One can view the value of property as the sum of the discounted future cash flows. A reversionary interest is less valuable than a present fee simple because the value of a reversionary interest does not include the rent payments made prior to reversion, as those would be past cash flows.
Thus, to provide just compensation, Hawaii must pay the landlords the value of the re-versionary interest plus the present value of the lease payments. There is no need to wait and see how the Department administers Ordinance 91-95, for unless the ordinance means something other than what it very clearly says, it does not authorize the Department to give landowners just compensation. In light of the plain meaning of the ordinance, any compensation paid by Honolulu to the landowners would be constitutionally inadequate. The formality of pursuing such compensation would therefore be futile. For that reason, I would conclude that the landowners’ compensation claims are ripe for review, and that the district court’s order should be reversed to that extent.

. This is not to say that the Public Use Clause prohibits the government from possessing property for a non-public use; if the government with the statutory power to do so purchases the property from a voluntary seller, there is no taking at all because there is no use of eminent domain. The government becomes the owner with the consent of the seller.