Palazzolo v. Rhode Island

Brief Fact Summary. In 1959, Palazzolo (Petitioner) and associates formed Shore Gardens, Inc. (SGI) and purchased parcels of land, which bordered a pond, other houses and was a marsh subject to tidal flooding. After trying to gain approval from the Rhode Island Division of Harbors and Rivers (DHR) for two development projects, which were not approved, the land was designated by the Council, an agency charged with the duty of protecting the state’s coastal properties, as protected “coastal wetlands.” Then, in 1983, Petitioner succeeded to ownership of the property by virtue of the dissolution of SGI.

Synopsis of Rule of Law. It would be illogical and unfair to bar a regulatory takings claim because of the post-enactment transfer of ownership where the steps necessary to make the claim ripe were not taken, or could not have been taken, by a previous owner.

Facts. In 1959, Petitioner and associates formed Shore Gardens, Inc. (SGI) and purchased parcels of land, which bordered a pond and other houses, but the land was salt marsh subject to tidal flooding. After trying to gain approval from the Rhode Island Division of Harbors and Rivers (DHR) for two development projects, which were not approved, the land was designated by the Council, an agency charged with the duty of protecting the state’s coastal properties, as protected “coastal wetlands.” Then, in 1983, Petitioner succeeded to ownership of the property by virtue of the dissolution of SGI. Then Petitioner made an application to the Council requesting permission to build a wooden bulkhead along the shore of the pond and to fill the entire marsh area. The Council rejected the application because it was vague and inadequate for a project of that size. The agency also found that proposal would have significant impacts on the waters and wetlands of the pond, and that the proposal would c
onflict with the Coastal Resources Management Plan currently in effect.
Then, in 1985, Petitioner made a new design, hiring counsel and preparing a more specific and limited proposal for the use of the property. The new plan resembled one of the early SGI plans which were not approved and called for the construction of a private beach club, which would be accomplished by filling 11 acres with gravel to accommodate 50 cars with boat trailers a dumpster, port-a-johns, picnic tables and other trash containers. The Council denied this application also. Under the Council’s regulations a landowner needed a “special exception” to fill salt marsh on the pond. In order to get a “special exception” the proposed use must serve a compelling public purpose, which provides benefits to the public as a whole. Unlike previous attempts to gain approval for proposals to use the land, this time the Petitioner appealed the agency’s decision to the Rhode Island courts. The Council’s decision was affirmed. Then Petitioner filed an inverse condemnation suit asserting that the St
ate’s wetlands regulations, as applied, had taken the property without just compensation under the Fifth Amendment, made applicable to the states by the Fourteenth Amendment. The suit alleged total deprivation of economic value, and sought damages of $3,150,000, which was the value alleged if the property was used as a 74-lot subdivision. The trial court and the Rhode Island Supreme Court ruled against Petitioner, who appealed.

Issue. Was the Petitioner deprived of all economic value of his property?

Held. No. Affirmed in part and reversed in part.
The Court disagreed with the portion of the Rhode Island opinion, which held that the Petitioner’s claims were not ripe due to his taking exclusive ownership of the property after the wetlands law was enacted. The Court here held that the enactment of the wetlands act did not automatically amount to a valid regulation by virtue of Petitioner’s succeeding to ownership after the regulation was passed because if the regulation accomplished a taking under the constitutional precedents, then the mere fact that Petitioner took exclusive ownership after the regulation could not bar a claim for compensation.
It would be illogical and unfair to bar a regulatory takings claim because of the post-enactment transfer of ownership where the steps necessary to make the claim ripe were not taken, or could not have been taken, by a previous owner.
The Court held that Petitioner should be afforded the opportunity to prove a diminished economic value, under which the Petitioner can attempt to prove that his property has been deprived of value by regulation, but the deprivation falls short of total deprivation of economic use. This may be shown by investment-backed expectations.
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. Here, however, the evidence showed that Petitioner was left with more than a token interest.

Dissent. One portion of the dissent would hold that the Petitioner’s claims were not ripe, while another portion of the dissent would hold that Petitioner is without standing.
Concurrence. The concurrence points out that the case of Penn Central v. New York is to be the controlling decision for analysis on remand.

Discussion. The student should be aware of the investment-backed expectations consideration for a claim analyzed under Penn Central v. New York, especially the reasonableness of the expectations. Although prior enactment of the wetlands act is not a bar to a claim, one must question how much the Petitioner could have reasonably expected to gain from the property, which he succeeded to, in light of the regulatio