On Oct. 23, 2006, the Mackinac Center for Public Policy filed a brief of amicus curiae[*] with the Michigan Supreme Court in the case Heaphy v Dep’t of Environmental Quality. This case concerned three lots contiguous to Lake Michigan. Due to the enactment of the Sand Dune Management and Protection Act (SDMPA), the Michigan Department of Environmental Quality (DEQ) refused to allow the plaintiff owners to build a home on these lots. In the Mackinac Center’s brief, Patrick J. Wright, the Center’s Senior Legal Analyst, argues that when a regulation or law limits the use of property in a way that diminishes its value, the owner of that property is entitled to full compensation.
Plaintiffs acquired two of the beachfront lots before the enactment of the SDMPA and acquired the third lot after the enactment of the SDMPA. They also owned various other lots nearby, including two that are directly across the street.
At trial, it was determined that the value of the owners’ three lakeside parcels was $1.7 million if they were allowed to build on these lots. But because the 1995 SDMPA prohibited building in "critical dunes" and plaintiffs’ property was within such dunes, the property was economically worthless.
Both the trial court and the Michigan Court of Appeals applied the Michigan Supreme Court’s 1998 K & K Const, Inc v Dep’t of Natural Resources case, which adopted the federal takings model. Under this model, there are generally two types of takings: physical takings, and regulatory takings. Physical takings occur when the government takes full title to the property interest in question. Regulatory takings occur when the government leaves title in the name of the owner, but restricts the manner in which the owner may use the property. If that restriction leaves the property without any value, a "categorical taking" is said to have occurred, and the owner is entitled to compensation for the lost value. Where there is still some value in the property, the federal courts apply a multifactored balancing test to determine if any compensation is required. Thus, under the federal model, with noncategorical regulatory takings, it is possible for an owner to lose property value and not receive compensation.
The trial court found that under K & K Const, Inc, a categorical taking had occurred and that plaintiffs were entitled to the $ 1.7 million value lost due to the regulation. The Michigan Court of Appeals affirmed the trial court’s ruling. The DEQ filed an application to the Michigan Supreme Court. In this application, the DEQ argued that the lower courts had improperly determined the "denominator parcel." This determination is a crucial step in the federal regulatory takings model, since the denominator parcel often establishes whether a taking is categorical, thereby leading to compensation, or non-categorical, which almost always means that no compensation is required.
The Center’s brief does not discuss the methodology for determining the denominator parcel. Instead, the brief primarily focuses on whether the Michigan Supreme Court erred in adopting the federal takings model in K & K Const, Inc. The brief argues that the federal regulatory takings cases are contrary to Michigan’s constitutional tradition of compensating for most diminutions in property value due to regulation. Neither the 1963 constitution nor Proposal 4, a 2006 constitutional amendment related to property rights, indicates the people of Michigan meant to abandon this tradition.
On Oct. 31, 2006, the Michigan Supreme Court denied leave to appeal, which has the practical effect of making the Michigan Court of Appeals decision controlling. Thus, plaintiffs were allowed to receive the $1.7 million award as compensation for the categorical taking. Although the property owner was compensated in this case, because the Michigan Supreme Court did not address the K & K Const, Inc case many Michigan property owners remain at risk from uncompensated regulatory takings.
[*] “Amicus curiae” means “friend of the court.” Thus, the Mackinac Center is not a litigant in Heaphy v Dep’t of Environmental Quality, but rather an interested observer supplying additional legal reasoning for the Michigan Supreme Court to consider.