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II - THE “TYPE 2" DE FACTO TAKING: DEPRIVATION OF “ALL BENEFICIAL USE” OF PROPERTY

The second type of taking is where the concept of “de facto” taking becomes more elusive. This occurs when the regulation or government conduct destroys all the economic value of the property. The Court in Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1019, 112 S.Ct. 2886 (1992), stated:

“Where “permanent physical occupation” of land is concerned, we have refused to allow the government to decree it anew (without compensation), no matter how weighty the asserted “public interests” involved, Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S., at 426, 102 S.Ct., at 3171 – though we assuredly would permit the government to assert a permanent easement that was a pre-existing limitation upon the land owner's title. Compare Scranton v. Wheeler, 179 U.S. 141, 163, 21 S.Ct. 48, 57, 45 L.Ed. 126 (1900) (interests of “riparian owner in the submerged lands ... bordering on a public navigable water” held subject to Government's navigational servitude), with Kaiser Aetna v. United States, 444 U.S., at 178-180, 100 S.Ct., at 392-393 (imposition of navigational servitude on marina created and rendered navigable at private expense held to constitute a taking). We believe similar treatment must be accorded confiscatory regulations, i .e., regulations that prohibit all economically beneficial use of land..."

A recent case where this type of regulation/de facto taking was addressed was Noghrey v. Town of Brookhaven, 48 A.D.3d 529, 852 N.Y.S.2d 220 (2d Dept. 2008), lv. to appeal dismissed 15 N.Y.3d 815, 908 N.Y.S.2d 148 (2010), where the Town’s approval process was claimed to be so protracted and oppressive that it destroyed all the economic value of the property. The property owner was in the trial court, but the case was reversed on appeal with the Appellate Division holding that:

“While the United States Supreme Court has eschewed any set formula for determining whether a regulation constitutes a Penn Central taking (see Tahoe-Sierra Preservation Council, Inc. v Tahoe Regional Planning Agency, 535 US 302, 326 [2002]; Palazzolo v Rhode Island, 533 US 606, 617 [2001]), it has also indicated that such a taking requires a diminution in value which is “one step short of complete,” citing as an example a 95% diminution in value (Lucas v South Carolina Coastal Council, 505 US 1003, 1019 [1992]). The Court has further held that “a mere diminution in the value of property, however serious, is insufficient to demonstrate a taking” (Concrete Pipe & Products of Cal., Inc. v Construction Laborers Pension Trust for Southern Cal., 508 US 602, 645 [1993]). In making this statement, the Court cited cases in which a significant diminution in value was insufficient to support a Penn Central taking (see Village of Euclid v Ambler Realty Co., 272 US 365 [1926] [approximately 75% diminution in value]; Hadacheck v Sebastian, 239 US 394 [1915] [92.5% diminution]). Lower federal courts have likewise rejected Penn Central claims where the diminution in value caused by a regulation approached or exceeded 90% of the pre-regulation value (see Rith Energy, Inc. v U.S., 270 F3d 1347, 1352 [2001], cert denied 536 US 958 [2002]; Pompa Constr. Corp. v City of Saratoga Springs, 706 F2d 418, 425 [1983]; William C. Haas & Co., Inc. v City & County of San Francisco, Cal., 605 F2d 1117, 1120 [1979], cert denied 445 US 928 [1980], reh denied 446 US 929 [1980]; cf. Loveladies Harbor, Inc. v U.S., 28 F3d 1171 [1994] [Penn Central taking found for 99.5% loss]).”

See also, Adrian v. Yorktown, 83 A.D.3d 746, 920 N.Y.S.2d 411 (2d 2011).

Clearly, the burden of proof under this test (at least under New York law) is very demanding. Interestingly, on remand, the plaintiff in Noghrey prevailed again with the jury coming in with a verdict awarding damages. This was appealed by the Town, which appeal is still pending. Noghrey v. Town of Brookhaven, 2011 N.Y. Slip Op. 76945(U).