Wheeler v. City of Pleasant Grove
833 F.2d 267, 56 U.S.L.W. 2335 (1987)
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Rule of Law:
Compensation for a temporary regulatory taking requires a landowner to be awarded the market rate return, computed over the period of the taking, on the difference between the property's fair market value without the unconstitutional restriction and its fair market value with the restriction. Separately awarding lost profits or increased development costs constitutes double recovery.
Facts:
- In 1978, Cliff Development Corp. contracted to purchase a parcel of land in Pleasant Grove, Alabama for $160,000 from Joseph and Clarice Wheeler, planning to build a 120-unit apartment complex.
- Cliff Development made a $1,000 downpayment to the Wheelers and obtained a building permit from the Pleasant Grove Planning Commission after zoning compliance was confirmed.
- Cliff Development paid $6,165 for the permit and commenced work in preparation for construction on the site.
- Significant community opposition to the proposed apartment development arose, including public meetings and a referendum expressing citizen disapproval.
- In July 1978, the City Council of Pleasant Grove passed Ordinance No. 216, which outlawed the construction of apartment complexes within the city.
- The ordinance prevented Cliff Development from proceeding with the apartment complex as planned.
Procedural Posture:
- Cliff Development and the Wheelers sued the City of Pleasant Grove and seven city officials in federal district court, alleging violations of their Fifth and Fourteenth Amendment rights and seeking damages, declaratory, and injunctive relief.
- In November 1979, the district court ruled Ordinance No. 216 unconstitutional as applied, permanently enjoined its enforcement, but refused to award monetary damages, finding defendants protected by qualified immunity.
- A panel of the former Fifth Circuit Court of Appeals (in Wheeler I) affirmed the unconstitutionality of the ordinance but reversed the district court's denial of damages, holding that municipalities were not entitled to a good faith defense in section 1983 actions, and remanded for a determination of damages. The Supreme Court denied certiorari.
- On remand from Wheeler I, the district court again refused to award damages, concluding the ordinance had not proximately caused any compensable injury to the plaintiffs.
- The Eleventh Circuit Court of Appeals (in Wheeler II) reversed the district court's second refusal to award damages, holding that the prior panel's decision in Wheeler I implicitly found that damages were sustained and that the district court had violated the law of the case. The case was remanded a second time for a determination of the amount of damages.
- Following the second remand, the district court awarded the Wheelers $1 in nominal damages and Cliff Development damages only for increases in construction and temporary financing costs, while refusing awards for lost profits, increased permanent financing costs, out-of-pocket expenditures, injury to business reputation, or punitive damages.
- The City of Pleasant Grove appealed, and the Wheelers and Cliff Development cross-appealed the district court's damages award to the Eleventh Circuit Court of Appeals (this case).
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Issue:
Does the district court's calculation of damages for a temporary regulatory taking correctly measure the landowner's loss, or does it incorrectly allow for separate awards for lost profits and increased costs?
Opinions:
Majority - TJOFLAT, Circuit Judge
No, the district court applied an incorrect measure of damages for the temporary regulatory taking. The Eleventh Circuit held that the district court misperceived the nature of the task, incorrectly viewing the dispute as involving two separate compensable injuries for the Wheelers and Cliff Development, rather than focusing on the single property interest taken. The court reaffirmed that the Constitution requires compensation for a temporary regulatory taking, as affirmed by the Supreme Court in First English Evangelical Lutheran Church. Compensation is measured by 'what the owner lost,' which is the extent to which governmental action deprived an interest in property, determined by isolating its value as a component of the overall fair market value. For a temporary regulatory taking, the landowner's loss is the injury to the property's potential for producing income or an expected profit. Therefore, the compensable interest is the market rate return over the period of the temporary taking on the difference between the property’s fair market value without the restriction and its fair market value with the restriction. The district court erred by concluding the Wheelers suffered no compensable loss because the property's value after the restriction was greater than before, failing to account for the loss in income-producing potential during the 16-month period the ordinance was in effect. The court emphasized that awarding additional compensation for lost profits or increased costs of development would result in double recovery, as fair market values inherently reflect market estimations of future profits and development costs. However, the court affirmed the district court's refusal to award damages for emotional distress and injury to business reputation, finding the proof inadequate, and for punitive damages against the City of Pleasant Grove, citing municipal immunity under City of Newport v. Fact Concerts, Inc.
Analysis:
This case is significant for solidifying the methodology for calculating 'just compensation' for temporary regulatory takings following the Supreme Court's ruling in First English Evangelical Lutheran Church. It provides a clear, uniform standard for federal courts to apply, preventing speculative damage awards and ensuring that landowners are fairly compensated without receiving double recovery. The ruling clarifies that compensation is not measured by the property's value before and after the taking, but rather by the lost income-producing potential during the period of restriction, thereby impacting future land use litigation involving temporary government interference.
