Esplanade Properties, Llc, a Washington Limited Liability Company v. City of Seattle
307 F.3d 978, 33 Envtl. L. Rep. (Envtl. Law Inst.) 20056, 2002 Daily Journal DAR 11573 (2002)
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Rule of Law:
A government regulation that deprives a property owner of all economically beneficial use does not constitute a compensable taking if background principles of state law, such as the public trust doctrine, already prohibited the owner's intended use of the property. Additionally, a substantive due process claim is precluded when a more specific constitutional provision, like the Takings Clause, directly governs the challenged government action.
Facts:
- In 1991, Esplanade Properties, LLC ('Esplanade') purchased first-class tideland property on Elliot Bay in Seattle for $40,000.
- The property is submerged under water for approximately half of each day.
- In 1992, Esplanade applied for permits from the City of Seattle ('the City') to construct nine single-family homes on platforms supported by pilings over the tidelands.
- The City's Department of Construction and Land Use identified several code compliance issues, including that the City's code prohibited parking built over water for single-family residences.
- The City informed Esplanade it had 60 days to submit formal alterations to its plan to address the identified issues.
- Instead of fully altering its plans, Esplanade applied for a parking variance but failed to modify the plans to address all of the City's design concerns.
- On April 13, 1998, the City cancelled Esplanade's application due to its failure to submit a compliant plan.
Procedural Posture:
- Esplanade Properties, LLC sued the City of Seattle in the U.S. District Court, alleging inverse condemnation and violations of federal and state substantive due process.
- The district court granted the City's motion for partial summary judgment, dismissing the federal substantive due process claim.
- Following further briefing, the district court dismissed the state substantive due process claim.
- Subsequently, the district court granted the City's motion for summary judgment on the final remaining claim for an unconstitutional taking.
- Esplanade, as appellant, appealed all three of the district court's adverse decisions to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does a city's denial of a shoreline development permit constitute a compensable taking under the Fifth Amendment if the proposed development, which would deprive the owner of all economic use, is prohibited by pre-existing state background principles, specifically the public trust doctrine?
Opinions:
Majority - Fletcher, J.
No, the city's denial of the development permit does not constitute a compensable taking. A government action depriving a landowner of all economically beneficial use is not a taking if the proscribed use was never part of the property owner's title to begin with due to background principles of state law. The court first affirmed the dismissal of Esplanade's federal substantive due process claim, holding under 'Armendariz v. Penman' that such a claim is precluded by the more specific protections of the Fifth Amendment's Takings Clause. The court then addressed the central takings claim by applying the 'Lucas v. South Carolina Coastal Council' framework. It determined that Washington's public trust doctrine is a background principle of state law that restricts the use of tidelands. This doctrine reserves a public interest in tidelands for navigation, fishing, and recreation, even when the land is privately owned. Citing the Washington Supreme Court's decision in 'Orion Corp. v. State', the court reasoned that Esplanade never possessed the right to construct residences on the tidelands in a manner that would interfere with the public's rights. Because the proposed development was inconsistent with the public trust doctrine, the right to such a use was not part of Esplanade's property rights. Therefore, the City's denial of the permit did not take anything from Esplanade, as the right to develop never existed.
Analysis:
This case reinforces the significance of the 'background principles' exception established in 'Lucas' as a potent defense for government entities against regulatory takings claims, especially in the context of environmental and shoreline regulation. It underscores that the bundle of rights a property owner possesses is defined and limited by pre-existing state property and nuisance law, such as the public trust doctrine. The ruling suggests that developers who purchase ecologically sensitive property at a low price assume the risk that these inherent legal limitations will bar their development plans, and they cannot use the Takings Clause to seek indemnification for a failed speculative investment.
