The trial court held that plaintiffs’ three Lake Michigan beachfront lots were worth approximately $1,700,000 if plaintiffs would have been allowed to erect a home on them. But the elected representatives of the people of Michigan decided that it was important to prevent development on sand dunes and passed the Sand Dune Management and Protection Act (SDMPA), MCL 324.35301-26. This act made it unlawful for plaintiffs to build a home on their three beachfront lots, which made those lots financially worthless. The fundamental public policy question presented is who should bear the brunt of the loss. Should plaintiffs, who benefit only as much as any other Michigan citizen from protected sand dunes, pay the entire $1.7 million loss in value? Or should the cost of the $1.7 million be shouldered equally by all who benefit from the law and who, by enacting the law, took the plaintiffs’ property?

The answer seems obvious; Michigan’s citizens should not be able to enrich themselves through laws and regulations that diminish the value of an owner’s property without paying for the cost of those regulations. But, as will become apparent below, Michigan’s citizens are currently able to do just that, despite much Michigan case law to the contrary that predates 1963, a key date for determining the common understanding of the Michigan Constitution.

The public’s clear revulsion to the United States Supreme Court’s decision in Kelo v New London, 545 US 469, 125 SCt 2655 (2005), wherein the Supreme Court upheld the taking of homes so that private developers could acquire the land, has lead to a re-examination of the role of property rights in our system of government. For example, in Norwood v Horney, 853 NE2d 1115 (2006), the Ohio Supreme Court discussed natural law and John Locke before eventually deciding that Ohio’s constitution does not allow economic development takings.[1]

The Ohio Supreme Court specifically cited the Lockean theory set forth in Richard Epstein’s seminal work Takings: Private Property and the Power of Eminent Domain (1985). Epstein noted that Locke believed that "individual natural rights, including rights to obtain and hold property, are not derived from the sovereign but are the common gift of mankind." Id. at 10. The common property that existed in a state of nature could be reduced to individual ownership as a reward for an individual’s talent and labor. The need for a sovereign arises in order to prevent individuals from being in a constant state of war with each other; by forming a government, it becomes possible to resolve private disputes "in an impartial forum, free from personal bias and animosity." Id. at 9.

But Epstein notes that Locke, in contrast to Thomas Hobbes, did not believe the creation of a sovereign required an individual to surrender all of his natural rights to that sovereign and "the state itself does not furnish new or independent rights, qua sovereign, against the persons subject to its control." Id. at 12. Thus "a state must justify its claims in terms of the rights of the individuals whom it protects." Id. Epstein explains:

The private rights of individual relationships are thereby preserved as much as possible even after the formation of civil society, modified only to secure the internal and external peace for which the police power is necessary. The sovereign is demystified; at every stage he is required to justify his own assertion of power. Every transaction between the state and the individual can thus be understood as a transaction between private individuals, some of whom have the mantle of sovereignty while others do not.

Id. at 12-13. Government, for public purposes, is allowed to take things from an individual, but that individual "must receive from the state (that is, from the persons who take it) some equivalent or greater benefit as part of the same transaction." Id. at 15. Epstein claims that it is in this spirit that the federal Fifth Amendment was enacted. It states in pertinent part "nor shall private property be taken for public use, without just compensation." All state constitutions are currently consistent with the basic Lockean design, since every state has some version of the eminent domain clause. Id. at 18.[2]

Michigan’s current eminent domain clause is found in Const 1963 art 10, § 2, which states "Private property shall not be taken for public use without just compensation therefor being first made or secured in a manner prescribed by law. Compensation shall be determined in proceedings in a court of record."[3]

A review of the federal and Michigan case law reveals that the Lockean model has not been consistently followed. As the law currently stands, there are two general types of takings: (1) physical; and (2) regulatory. Physical takings are where the government takes physical possession of an individual property; Kelo was a physical takings case. In contrast, this case concerns a regulatory taking.

This Court stated that a regulatory taking occurs when the state takes a property for public use "by overburdening that property with regulations." K & K Const, Inc v Dep’t of Natural Res, 456 Mich 570, 576 (1998). Regulatory takings are further broken down into two subcategories: (1) categorical takings "where the owner is deprived of ‘all economically beneficial or productive use of land,’ [Lucas v South Carolina Coastal Council, 505 US 1003, 1015 (1992)]," K & K Const Inc, 456 Mich at 576-77; and (2) "a taking recognized on the basis of the application of the traditional ‘balancing test’ established in [Penn Central Transp Co v New York City, 438 US 104 (1978)],")]," K & K Const Inc, 456 Mich at 577.

This Court explained that the first step in a taking analysis is determining the denominator parcel:

Before we decide whether the regulations imposed on plaintiffs’ property constitute a taking, we must first address an important preliminary matter. The first step in our analysis is to determine which parcel or parcels owned by plaintiffs are relevant for the taking inquiry. The determination of what is referred to as the "denominator parcel" is important because it often affects the analysis of what economically viable uses remain for a person’s property after the regulations are imposed.

Id. at 578. The denominator parcel is based on the "‘nonsegmentation’ principle," which "holds that when evaluating the effect of a regulation on a parcel of property, the effect of the regulation must be viewed with respect to the parcel as a whole." Id. This Court stated that courts should not "divide a single parcel into discrete segments and attempt to determine whether the rights in a particular segment have been entirely abrogated." Id. (quoting Penn Central, 438 US at 130).

This Court adopted a vague and amorphous test for determining the denominator parcel:

Factors such as the degree of contiguity, the dates of acquisition, the extent to which the parcel has been treated as a single unit, the extent to which the protected lands enhance the value of remaining lands, and no doubt many others would enter the calculus. The effect of a taking can obviously be disguised if the property at issue is too broadly defined. Conversely, a taking can appear to emerge if the property is viewed too narrowly. The effort should be to identify the parcel as realistically and fairly as possible, given the entire factual and regulatory environment.

Id. at 580 (quoting Ciampitti v United States, 22 Cl Ct 310, 318-19 (1991)).

The denominator-parcel approach is flawed, as the following example shows. Assume that A owns 10 acres, that B owns an adjacent 60 acres, and that each acre is worth $2000. The state then enacts a law which has the practical effect of prohibiting A from using any of his 10 acres, while that same law prohibits B from using 35 of the 60 acres of his land. A’s denominator parcel will be 10 acres. His numerator parcel will also 10 acres; therefore, he has suffered a categorical taking and will receive $20,000 in compensation ($2,000/acre x 10 acres lost). With B, it is likely that his denominator parcel will be 60 acres. His numerator parcel is 35 acres. B has lost use of "only" 58.33% of his property. Therefore, despite the fact that his property has been diminished $70,000 in value, B will likely receive nothing, unless he is one of the fortunate few who receive an award under the federal courts’ arbitrary Penn Central balancing test. The general public thus gets to shift $70,000 of the cost of the regulation to B, even though he is bearing more of the regulation’s cost than A. This is particularly perverse if A is in fact much wealthier than B in both land and capital.

Vague and amorphous standards create a host of problems. For example, such standards expose members of the judiciary to the charge that they are manipulating the factors to achieve their desired political result. More importantly, those standards breed litigation. Both the property owners and the government will be able to find some case law that supports their respective best outcomes. Thus, both sides will be willing to both go to court and to file appeals. Further, as Epstein notes in discussing regulatory takings: "The courts that are unable — or unwilling — to demarcate clear principles of judgment are more likely to retreat into the frame of mind that allows the legislature free rein." Esptein, Takings at 103. But the protection of individuals against legislative whims is why both the federal and state eminent domain clauses were enacted.

Michigan has a long tradition of recognizing diminution-in-value claims, and there is ample case law to support a holding that such claims are recognized under the common understanding of art 10, § 2. K & K Const, Inc relies almost exclusively on federal law that postdates 1963. In Wayne County v Hathcock, 471 Mich 445 (2004), this Court overturned Poletown Neighborhood Council v Detroit, 410 Mich 616 (1981), which erroneously relied on federal precedent to allow for economic development takings. In Hathcock, this Court held that the federal precedent was contrary to the common understanding of art 10, § 2. In K & K Const, Inc, common understanding was not discussed. If this Court were to grant leave to appeal, it should ask the parties and interested amici to brief whether the K & K Const, Inc holding properly reflects the common understanding of art 10, § 2.

[1] This re-examination is occurring not only in the courts, but is also being brought through the initiative process and by legislative action. Michigan’s Proposal 4, a proposed constitutional amendment, is discussed below in footnote 3. The property rights issues being examined in the other states include both physical takings and regulatory takings.

On September 30, 2006, the voters in Louisiana approved a constitutional amendment (Act 851) that prohibits physical takings for economic development.

In November 2006, the electors in the following states are will be voting on constitutional amendments that concern property rights. In California, Proposition 90, a citizen initiative, would both prevent economic-development physical takings and compensate property owners for regulatory takings. proposition_90/entire_prop90.pdf. In Florida, House Joint Resolution 1569, would prevent a physical taking whereby the property was turned over to another private owner, unless a general law allowing such a transfer had been passed by 3/5s of both houses. In Georgia, House Resolution 1306 would require each individual taking be voted on by a legislative body. In Nevada, the citizens circulated a petition similar to California’s Proposition 90, that concerned both physical takings and regulatory takings. Due to a statute that limited initiatives to a single subject, the Nevada Supreme Court struck the regulatory takings provisions and held that only the physical takings provision would appear on the ballot. Nevadans for the Protection of Property Rights, Inc v Heller, 141 P3d 1235 (Nev 2006).). (question 2). In New Hampshire, Constitution Amendment Concurrent Resolution 30 was placed on the ballot by the legislature. It would prohibit physical takings that are for private development. (question 1). In North Dakota, the voters initiated Measure 2, which would prohibit physical takings for economic development. -2-text.pdf. In South Carolina, the legislature proposed an amendment that would prevent physical takings for economic development. 2006_statewide_constitutional_amendments (question 5).

There are also initiatives to amend state statutes related to property rights. In Arizona, Proposition 207 would prohibit some physical takings and require compensation for regulatory takings. In Idaho, Proposition 2 would prevent physical takings for economic development and require compensation for regulatory takings. In Montana, Initiative 154 would prevent physical takings for economic development and require compensation for regulatory takings. In Oregon, Initiative 57 would prohibit physical takings that would benefit a private party. In Washington, Initiative 933 would require compensation for regulatory takings.

[2] In Lucas v South Carolina Coastal Council, 505 US 1003 (1992), Justice Blackman noted in his dissent that while "there was an obvious movement toward establishing the just compensation principle during the 19th century," at the time of this country’s founding, some of the states believed it was proper to take property without compensation. See, id. at 1056-57 (Blackman, J., dissenting).

[3] Proposal 4, which is before the electorate this November, would amend Const 1963, article 10, § 2 to read:

Private property shall not be taken for public use without just compensation therefore being first made or secured in a manner prescribed by law. If private property consisting of an individual’s principal residence is taken for public use, the amount of compensation made and determined for that taking shall be not less than 125% of that property’s fair market value, in addition to any other reimbursement allowed by law. Compensation shall be determined in proceedings in a court of record.

"Public use" does not include the taking of private property for transfer to a private entity for the purpose of economic development or enhancement of tax revenues. Private property otherwise may be taken for reasons of public use as that term is understood on the effective date of the amendment to this constitution that added this paragraph.

In a condemnation action, the burden of proof is on the condemning authority to demonstrate, by the preponderance of the evidence, that the taking of a private property is for a public use, unless the condemnation action involves a taking for the eradication of blight, in which case the burden of proof is on the condemning authority to demonstrate, by clear and convincing evidence, that the taking of that property is for a public use.

Any existing right, grant, or benefit afforded to property owners as of November 1, 2005, whether provided by this section, by statute, or otherwise, shall be preserved and shall not be abrogated or impaired by the constitutional amendment that added this paragraph.

Assuming that Proposal 4 were to become law, it appears that all of the changes were meant to apply to physical takings and that there would have been no intent to modify existing law on regulatory takings.

As will be discussed below, there is a strong argument that Michigan has a long legal tradition of recognizing diminution-of-value claims, which significantly overlap the arguments related to regulatory takings. If, as is suggested here, K & K Const, Inc failed to recognize that legal tradition, it should not be incumbent on the people to rectify this Court’s mistake through a constitutional amendment.

This Court’s jurisprudence regarding the doctrine of stare decisis underscores this point. In Robinson v Detroit, 462 Mich 439, 463 n. 22 (2000), this Court stated "the doctrine of stare decisis does not tie the law to past, wrongly decided cases solely in the interest of stability and continuity." Further, this Court rejected the argument that the Legislature can acquiesce in an improper judicial decision, "‘legislative acquiescence’ is a highly disfavored doctrine of statutory construction; sound principles of statutory construction require that Michigan courts determine the Legislature’s intent from its words, not from its silence." Id. at 465 n. 25. It is true that Robinson is a statutory construction case and that this case concerns constitutional interpretation, but that distinction should not lead to different results; in both cases it makes little sense to require either the people or their elected representatives to correct judicial mistakes. There are dozens of Michigan Supreme Court decisions each year and many more Michigan Court of Appeals decisions. It is not possible for the Legislature to correct all the perceived mistakes the courts make. Therefore, the fact that Proposal 4 does not address regulatory takings should not influence the decision whether K & K Const, Inc was correctly decided.

Therefore, the fact that Proposal 4 does not address regulatory takings should not influence the decision whether K & K Const, Inc was correctly decided.