Lingle v. Chevron U.S.A., Inc.

Supreme Court of the United States
544 U.S. 528, 125 S.Ct. 2074, 161 L.Ed.2d 876 (2005)

ELI5:

Rule of Law:

The 'substantially advances a legitimate state interest' formula is not a valid standalone test for determining whether a regulation constitutes a compensable taking under the Fifth Amendment. A challenge to a regulation's effectiveness or rationality is properly brought as a due process claim, not a takings claim.

Facts:

Due to Hawaii's geographic isolation, its wholesale oil market was highly concentrated, with Chevron U.S.A. Inc. being the largest refiner and marketer in the state.
Chevron owned and leased approximately 64 service stations to independent lessee-dealers, charging rent based on a percentage of the dealer's sales margins.
In 1997, responding to concerns about market concentration and high gasoline prices, the Hawaii Legislature enacted Act 257.
Act 257 limited the amount of rent an oil company could charge a lessee-dealer to 15 percent of the dealer's gross profits from gasoline sales and other product sales.
The parties stipulated that while the rent cap would reduce Chevron's rental income from 11 of its stations, it would allow an increase at the other 53, potentially increasing Chevron's overall rental income by nearly $1.1 million per year.
It was also stipulated that Chevron earned, and would continue to earn under Act 257, a constitutionally sufficient return on its investment in its lessee-dealer stations.

Procedural Posture:

Chevron sued Hawaii in the U.S. District Court for the District of Hawaii, alleging the rent cap in Act 257 effected an unconstitutional taking of its property.
The District Court granted summary judgment for Chevron, holding that the Act failed to substantially advance a legitimate state interest.
Hawaii, as appellant, appealed to the U.S. Court of Appeals for the Ninth Circuit, with Chevron as appellee.
A divided Ninth Circuit panel affirmed the use of the 'substantially advances' test but vacated the judgment, remanding for a trial on the factual issue of whether the Act would benefit consumers.
On remand, the District Court held a bench trial and again entered judgment for Chevron.
Hawaii appealed again to the Ninth Circuit, which affirmed the District Court's ruling.
The Supreme Court of the United States granted certiorari to review the Ninth Circuit's decision.

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Issue:

Does a government regulation of private property effect a taking in violation of the Fifth Amendment if it fails to substantially advance a legitimate state interest?

Opinions:

Majority - Justice O’Connor

No. A regulation does not effect a taking merely because it fails to substantially advance a legitimate state interest. The 'substantially advances' formula is a due process inquiry, not a takings test. Takings jurisprudence focuses on the severity of the burden a regulation imposes on private property rights, aiming to identify actions functionally equivalent to a direct appropriation of property. In contrast, the 'substantially advances' test improperly probes a regulation's underlying validity and effectiveness—a means-ends inquiry that is logically distinct from the question of whether a property owner has been forced to bear a public burden that should be compensated. This test was derived from due process precedents like Nectow and Euclid, and its application to takings law has been imprecise and doctrinally untenable. The proper tests for regulatory takings remain the physical invasion test from Loretto, the total deprivation test from Lucas, and the multi-factor balancing test from Penn Central.

Concurring - Justice Kennedy

No. Justice Kennedy joined the majority opinion but wrote separately to emphasize that the decision does not preclude challenges to regulations under the Due Process Clause. He noted that a regulation might be so arbitrary or irrational that it violates due process, and the failure of that regulation to accomplish its stated objective would be relevant to such an inquiry. Because Chevron had voluntarily dismissed its due process claim, the Court did not have occasion to consider whether Hawaii's Act 257 was so irrational as to violate that standard.

Analysis:

This unanimous decision significantly clarifies regulatory takings jurisprudence by explicitly removing the 'substantially advances' prong of the Agins test from takings analysis. The Court re-established a clear doctrinal wall between takings claims and substantive due process claims. After Lingle, a takings claim must focus on the burden imposed on the property owner (under Loretto, Lucas, or Penn Central), while a claim that a regulation is simply ineffective or irrational must be brought under the Due Process Clause, which involves a much more deferential standard of review. This decision makes it more difficult for property owners to challenge economic regulations by simply arguing that the government's policy is unwise, forcing them to instead prove a severe and unfair economic impact to succeed on a takings theory.

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