K&K CONSTRUCTION INC V DEPT OF ENVIRONMENTAL QUALITY
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STATE OF MICHIGAN
COURT OF APPEALS
K & K CONSTRUCTION, INC, and J.F.K.
INVESTMENT COMPANY, LLC,
FOR PUBLICATION
July 26, 2005
9:25 a.m.
Plaintiffs-Appellees,
v
No. 244455
Court of Claims
LC No. 88-012120-CM
DEPARTMENT OF ENVIRONMENTAL
QUALITY,
Defendant-Appellant.
Official Reported Version
Before: Zahra, P.J., and Saad and Schuette, JJ.
SAAD, J.
The trial court entered judgment in favor of plaintiffs against defendant. Defendant
appeals the judgment, and we reverse and enter judgment in favor of defendant.
I. NATURE OF THE CASE
When a citizen claims that a governmental land-use regulation, or its regulatory
implementation, adversely affects the value of his or her property, and seeks just compensation
under the Taking Clause of the Fifth Amendment,1 our courts must decide whether the
challenged governmental action, and its consequent effect on private property, constitutes a
"regulatory taking" under federal and state taking jurisprudence.
More specifically, when, as here, the government regulates land use—as opposed to
taking physical possession of land2—and where, as here, the challenged regulation is stipulated
1
US Const, Am V; see also Const 1963, art 10, § 2.
2
As the United States Supreme Court explained:
The clearest sort of taking occurs when the government encroaches upon
or occupies private land for its own proposed use. Our cases establish that even a
minimal "permanent physical occupation of real property" requires compensation
(continued…)
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to be for the public good, our limited role is to answer the specific constitutional question: where
implementation of a valid land use regulation3 negatively impacts a private citizen's valuable
property rights, does the Taking Clause require compensation? To answer this question, our
Supreme Court has instructed us to examine the United States Supreme Court's seminal decision
in Penn Central Transportation Co v New York, 438 US 104; 98 S Ct 2646; 57 L Ed 2d 631
(1978).4
The United States Supreme Court in Penn Central laid out a three-factor test for courts to
apply to answer this important constitutional question:
(…continued)
under the Clause. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S.
419, 427, 102 S. Ct. 3164, 73 L. Ed. 2d 868 (1982). In Pennsylvania Coal Co. v.
Mahon, 260 U.S. 393, 43 S. Ct. 158, 67 L. Ed. 322 (1922), the Court recognized
that there will be instances when government actions do not encroach upon or
occupy the property yet still affect and limit its use to such an extent that a taking
occurs. In Justice Holmes' well-known, if less than self-defining, formulation,
"while property may be regulated to a certain extent, if a regulation goes too far it
will be recognized as a taking." Id. at 415. [Palazollo v Rhode Island, 533 US
606, 617; 121 S Ct 2448; 150 L Ed 2d 592 (2001).]
3
Land-use regulations, such as zoning, are necessary to protect private property rights and
values. Zoning regulations can be used to prevent, for example, a mining operation or a factory
from being built within a residential neighborhood. See, e.g., Euclid v Ambler Realty Co, 272
US 365, 385-389; 47 S Ct 114; 71 L Ed 303 (1926). Such a zoning regulation creates what
Justice Holmes termed "an average reciprocity of advantage," Mahon, supra at 415, which both
burdens and benefits landowners relatively equally. Such regulations are not considered takings,
and thus do not require compensation, in part because, as Justice Holmes stated, "[g]overnment
hardly could go on if to some extent values incident to property could not be diminished without
paying for every such change in the general law." Id. at 413. On the other hand, "if regulation
goes too far it will be recognized as a taking." Id. at 415. When the effect of a regulation goes
as far as to deprive a property owner of all economically beneficial value of his or her land, it
results in a "categorical taking." See, e.g., Palazollo, supra at 615-616, citing Lucas v South
Carolina Coastal Council, 505 US 1003; 112 S Ct 2886; 120 L Ed 2d 592 (1992); see also
Mahon, supra 413-416 (regulation forbade coal mining on land for which the plaintiff was the
holder of mineral rights, thus destroying the plaintiff 's entire interest in the land); see also
Tahoe-Sierra Preservation Council, Inc v Tahoe Regional Planning Agency, 535 US 302, 324;
122 S Ct 1465; 152 L Ed 2d 517 (2002) ("Land-use regulations are ubiquitous and most of them
impact property values in some tangential way—often in completely unanticipated ways.
Treating them all as per se takings could transform government regulation into a luxury few
governments could afford.").
4
See K & K Constr, Inc v Dep't of Natural Resources, 456 Mich 570, 587-588; 575 NW2d 531
(1998). Indeed, as we will discuss further below, our Supreme Court so instructed the trial court.
However, the trial court, while acknowledging the Penn Central test and our Supreme Court's
mandate, failed to actually apply the Penn Central factors during the trial after remand.
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[1] The economic impact of the regulation on the claimant and,
particularly, [2] the extent to which the regulation has interfered with distinct
investment-backed expectations are, of course, relevant considerations. So, too, is
[3] the character of the governmental action. A "taking" may more readily be
found when the interference with property can be characterized as a physical
invasion by government than when interference arises from some public program
adjusting the benefits and burdens of economic life to promote the common good.
[Id. at 124 (citations omitted).]
The taking jurisprudence articulated by the United States Supreme Court in Penn Central and its
progeny5 requires that our courts consider the following factors in deciding whether a
"regulatory taking" claim is compensable: (1) what is the average reciprocity of advantage, in
other words, is the aggrieved property owner singled out to pay for the public good, or is the
land-use regulation so universal and ubiquitous that the benefits and burdens of the land-use
regulation fall relatively equally among all, including the complaining party; (2) what use could
the landowner reasonably expect to make of the land given the state of the land-use regulations
at the time of acquisition (as part of this inquiry, it is necessary to take into account whether the
landowner knew, or should have known, of the land-use regulation at the time of purchase); and
(3) did the specific, challenged application of the land-use regulation leave the property owner
valuable land use rights or did it instead render the land virtually worthless?
Stated another way, if the land-use regulation, like traditional zoning and wetland
regulations: (1) is comprehensive and universal so that the private property owner is relatively
equally benefited and burdened by the challenged regulation as other similarly situated property
owners, and (2) if the owner purchased with knowledge of the regulatory scheme so that it is fair
to conclude that the cost to the owner factored in the effect of the regulations on the return on
investment, and (3) if, despite the regulation, the owner can make valuable use of his or her land,
then compensation is not required under Penn Central.
Here, plaintiffs claim that the denial by the Department of Environmental Quality (DEQ)
of a permit to fill in the wetland on their property constitutes a regulatory taking. Wetland
regulations are, like zoning regulations, all but ubiquitous. At the federal level, the Clean Water
Act (CWA)6 provides for the regulation and protection of wetlands, while Michigan's wetland
protection act (WPA)7 serves the same purpose for this state. Our Legislature made clear that it
enacted the WPA to benefit all the people of this state. The act provides that "[t]he legislature
finds that . . . [w]etland conservation is a matter of state concern since a wetland of 1 county may
5
See, e.g., Tahoe-Sierra, supra; Palazollo, supra; Lucas, supra.
6
33 USC 1251, et seq.
7
MCL 324.30301 et seq.
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be affected by acts on a river, lake, stream, or wetland of other counties."
324.30302(1)(a).8
MCL
Clearly, all people, including property owners, are the intended beneficiaries of the
regulation of wetlands. Like zoning regulations, wetland regulations place a burden on some
property owners, but this burden ultimately benefits all property owners, including those who
claim they are unfairly burdened.
As we will discuss in detail later, we reject plaintiff 's claim because (1) wetland
regulations are, much like zoning regulations, comprehensive, universal, and ubiquitous, and
provide an "average reciprocity of advantage" for all property owners, including plaintiffs; (2)
plaintiffs have developed and retain the ability to develop a significant amount of their property,
and thus plaintiffs' property retains a significant value even after the permit denial; and (3)
plaintiffs are experienced commercial land developers who clearly had or were on notice of the
wetland regulations promulgated under the WPA, and, therefore, plaintiffs' distinct, investment-
8
The statute provides that the Legislature further found that:
(b) A loss of a wetland may deprive the people of the state of some or all
of the following benefits to be derived from the wetland:
(i) Flood and storm control by the hydrologic absorption and storage
capacity of the wetland.
(ii) Wildlife habitat by providing breeding, nesting, and feeding grounds
and cover for many forms of wildlife, waterfowl, including migratory waterfowl,
and rare, threatened, or endangered wildlife species.
(iii) Protection of subsurface water resources and provision of valuable
watersheds and recharging ground water supplies.
(iv) Pollution treatment by serving as a biological and chemical oxidation
basin.
(v) Erosion control by serving as a sedimentation area and filtering basin,
absorbing silt and organic matter.
(vi) Sources of nutrients in water food cycles and nursery grounds and
sanctuaries for fish.
(c) Wetlands are valuable as an agricultural resource for the production of
food and fiber, including certain crops which may only be grown on sites
developed from wetland. [MCL 324.30302(1)(b)-(1)(c).]
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backed expectations would reasonably have been tempered with the knowledge that their
development of the property would be restricted because of the presence of wetlands.
II. FACTS AND PROCEDURAL HISTORY
A. Procedural History
This case was originally filed in the Court of Claims on December 29, 1988. Plaintiffs, K
& K Construction, Inc., the J.F.K. Company, and Resorts and Company, alleged that defendant,
then the Michigan Department of Natural Resources (DNR) (currently the Department of
Environmental Quality,9 had effected a regulatory taking of plaintiffs' property when it
designated part of that property as wetland and denied a permit to fill in the wetland and build on
the property. Following a nonjury trial, the trial court entered judgment in favor of plaintiffs.
The trial court found that the DEQ's failure to issue the requested permit constituted a categorical
taking of plaintiffs' property.
The DEQ appealed to this Court, which, as it turns out, erroneously affirmed the trial
court's judgment. K & K Constr, Inc v Dep't of Natural Resources, 217 Mich App 56; 551
NW2d 413 (1996) (K & K I), rev'd 456 Mich 570 (1998). The DEQ then appealed to our
Supreme Court, which reversed this Court's decision and the trial court's judgment. K & K
Constr, Inc v Dep't of Natural Resources, 456 Mich 570; 575 NW2d 531 (1998) (K & K II). Our
Supreme Court held that (1) the trial court erred when it considered only the parcel of land that
contained wetland (parcel one) and did not include two other contiguous parcels of land owned
by plaintiffs (parcels two and four) and (2) plaintiffs were not deprived of all economic use of
the land and thus there was no "categorical taking." Id. at 586. Further, our Supreme Court
remanded to the trial court with instructions (1) to include the value of the two other parcels, (2)
to make a finding of fact regarding whether a third parcel (parcel three) should be included in the
value, and (3) to apply the balancing test articulated by the United States Supreme Court in Penn
Central to determine whether plaintiffs proved their regulatory taking claim. K & K II at 588.
On remand, plaintiffs J.F.K. Company and Resorts and Company were succeeded by
J.F.K. Investment Co, LLC (JFK). The parties stipulated that parcel four was not to be included
in the trial court's determination, and the trial court held that parcel three would be included with
parcels one and two when it determined whether a taking had occurred because of the wetland
regulation. The trial court then held that under Penn Central, a taking had occurred and entered
judgment in favor of plaintiffs.
The DEQ once again has appealed to this Court, and plaintiffs have cross-appealed.
B. Factual History
9
For the sake of consistency, though the Department of Environmental Quality was known as
the Department of Natural Resources at the outset of this case, we will refer to defendant as
"DEQ" throughout our opinion.
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1. Overview
This case involves four contiguous parcels of land with a total area of approximately
eighty-two acres in Waterford Township in Oakland County (parcels one through four). In 1988,
a partnership was formed between J.F.K. Company and Resorts and Company, with each holding
a fifty percent interest, for the purpose of developing the land in issue.10 At some point, plaintiff
J.F.K. Investment Company, LLC, replaced J.F.K. Company and Resorts and Company as a
successor in interest. Plaintiff K & K Construction is a Michigan corporation in which Kosik
owns fifty percent of the shares of stock.11
Parcel one is zoned for commercial use, consists of approximately fifty-five acres, and
approximately twenty-seven of those acres are wetland. Parcel two consists of sixteen acres
directly south of parcel one and has a small area of wetland. Parcel three is 9.34 acres of land
directly south of parcel two, with no wetland. Parcel four is 3.4 acres of land bordering the south
side of parcel one and the east side of parcel two, and it has no wetland. Parcels two, three, and
four are zoned for multiple-family housing. The parcels are bounded by Highland Road (M-59)
on the north, North Oakland Drive on the east, Hospital Road on the west, and Pontiac Lake
Road on the south.
Plaintiffs began work on a "C. J. Barrymore's Restaurant" in 1988, which was to occupy
forty-two acres on parcel one and to consist of a restaurant and a sports complex, including a
baseball diamond. Waterford Township issued plaintiffs a cease-and-desist letter that stated that
part of parcel one contained wetland and that plaintiffs would need to get a permit from the
DEQ. Plaintiffs then filed a permit application with the DEQ dated May 28, 1988, which was
received by the DEQ on June 21, 1988. On June 7, 1988, plaintiffs filed an "administrative
10
Joseph Kosik, Sr. (Kosik), and his wife Elaine acquired the land, which was originally
farmland, in 1976. A series of often confusing real estate transactions ensued, as well as
reorganizations of various business entities. The Kosiks quitclaimed the land in 1977 to Kosik
and Leon Blachura as individual guarantors, and to Waterford Mall, a partnership consisting of
the J.F.K. Company, a Michigan limited partnership consisting of their five sons; Alpine Valley
Ski Area, Inc., a Michigan corporation; Alpine Valley Resort, Inc., a Wisconsin corporation; and
the North Oakland Development Corporation. In 1983, Kosik; Alpine Valley Ski Area, Inc.; and
Alpine Valley Resorts, Inc., conveyed their interests in the land to J.F.K. Company. In the
meantime, litigation, through which the Kosiks and J.F.K. Company sought to quiet title to the
land in their favor because of the North Oakland Development Corporation's default on its
obligations, was resolved in 1986 with a circuit court warranty deed conveying the entire interest
in the land to the Kosiks and J.F.K. Company. Because of the Kosiks' and Alpine Valley's
conveyances, J.F.K. Investment Company ultimately held title to the land.
11
While K & K Construction, Inc., does not own any interest in the land, it was under contract to
develop a part of it. It appears that to date there is no dispute with respect to whether K & K is a
proper party to this case. Yet, both K & K I, and K & K II, acknowledge that K & K
Construction has no ownership interest in the land, and for reasons that remain unclear, K & K
was permitted to continue as a party to this suit.
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complaint" with the DEQ and sought a ruling from the department that would remove a
"designation of wetland" from plaintiffs' property. Waterford Township sent a letter to plaintiffs
informing them that their permit for lowland filling would be denied pending the outcome of the
DEQ permit process. In November 1988, the DEQ issued a letter that denied plaintiffs' permit
application.12 Plaintiffs filed this action in December 1988.13
In May 1990, plaintiffs filed another application for a permit, under what is called the
"Goga Plan."14 The Goga Plan would have allowed plaintiffs to fill three acres of wetland,
convert five acres of "upland" property to wetland, and develop the upland ring around the
wetland. This permit application was also denied. At some point, both an office building for
J.F.K. Investment Company and a Ram's Horn Restaurant were built on upland portions of parcel
one.15
This matter was originally tried in December 1991, and the only issue before the trial
court was whether the permit denials constituted a taking of plaintiffs' property. The trial court
held that only parcel one was relevant to its analysis of whether a taking had occurred and
concluded that the permit denials had rendered the parcel, which was worth approximately $6
million before the permit denial, completely worthless after the denial. Having found a
categorical taking, the trial court ordered the DEQ to compensate plaintiffs for this $6 million
loss in value.
After the trial court's ruling, the DEQ opted to mitigate the loss under MCL 324.30323,
which requires a trial court to give the DEQ the option, once a taking has been found, to mitigate
its damages by doing one of the following: compensate the property owner for the lost value,
purchase the property, or "[m]odify its action or inaction with respect to the property so as to
12
The letter stated, among other things, that the proposed development was "not wetland
dependent," that plaintiffs had "alternatives available in the avoidance of the wetland," and that
there had been no public need for the development demonstrated. The letter went on to note that
DEQ representatives saw "drainage ditches present[,] which cut through the wetland area, as
well as large amounts of sand fill deposited over much of the site," and ordered plaintiffs to
cease and desist from any further excavation of ditches and placement of sand fill in the wetland
area.
13
Though we need not comment on plaintiffs' failure to seek administrative relief, we note that
the Legislature provided for an extensive administrative appeal process and for judicial review of
the administrative appeal. See MCL 324.30307.
14
This alternative plan for development was apparently named for an engineer who devised the
plan for plaintiffs. We will hereafter refer to this permit as the "Goga permit."
15
Though pursuant to our Supreme Court's holding in K & K II, we are to consider the entire
denominator parcel, which consists of parcels one, two, and three, we find it necessary at times
to refer to the constituent parcels individually. Nevertheless, our ultimate analysis under Penn
Central is applied, as our Supreme Court has mandated, to the denominator parcel as a whole.
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minimize the detrimental affect [sic] to the property's value" (emphasis added).16 The DEQ
chose to reverse its previous decision and issue the Goga permit. The trial court entered
judgment in favor of plaintiffs against the DEQ for a "temporary taking"17 of the land that was
subsequently allowed to be developed under the Goga Plan for the full value of the wetland on
parcel one. The judgment was for approximately $450,000 plus interest for the alleged
temporary taking, and approximately $3.25 million plus interest for the alleged wetland taking.
At the original trial, the trial court took into account the mitigating effect of the DEQ's issuance
of the Goga permit when it calculated the amount of the judgment.
The DEQ appealed the trial court's ruling to this Court. Another panel of this Court
affirmed the trial court's judgment and agreed with the trial court that plaintiffs had been denied
all economically beneficial use of their land, which resulted in a categorical taking. Our
Supreme Court reversed, and reasoned (1) that the trial court erred in only considering parcel one
and in not including parcels two and four in its valuation of plaintiffs' property,18 and (2) in
considering parcels one, two, and four, "it is clear that there was not a categorical taking . . . ."19
The Court then remanded to the trial court, and instructed it to calculate the total value of the
property using parcels one, two, and four, and to make a finding regarding whether parcel three
16
MCL 324.30323(3) provides:
If the court determines that an action of the department or a local unit of
government pursuant to this part or an ordinance authorized pursuant to section
30307(4) constitutes a taking of the property of a person, then the court shall
order the department or the local unit of government, at the department's or the
local unit of government's option, as applicable, to do 1 or more of the following:
(a) Compensate the property owner for the full amount of the lost value.
(b) Purchase the property in the public interest as determined before its
value was affected by this part or the local ordinance authorized under section
30307(4) or the action or inaction of the department pursuant to this part or the
local unit of government pursuant to its ordinance.
(c) Modify its action or inaction with respect to the property so as to
minimize the detrimental affect [sic] to the property's value.
17
We note that the United States Supreme Court rejected a "temporary taking" claim in TahoeSierra, supra at 330-335. The Court reasoned that requiring a governmental agency to
compensate a property owner for the loss of value while considering applications for permits and
variances under a land-use regulatory scheme would either become cost-prohibitive or lead to
governmental agencies making hasty, presumably haphazard, decisions. Id. at 334-335.
18
K & K II, supra at 578-582.
19
Id. at 586.
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should be considered part of the "denominator parcel." Additionally, the Court held that, while
the record was not clear regarding whether the trial court had failed to include the value of the
two developed portions of parcel one in its valuation, there was no reason for the trial court not
to do so. The Court then held that, once the trial court determined whether parcel three should
also be included, and the total value including all relevant parcels (either parcels one, two, and
four, or all four parcels) was calculated, the trial court was to apply the three-part balancing test
from Penn Central to determine whether the DEQ's administrative decision had constituted a
regulatory taking.20 After plaintiffs' unsuccessful petition for certiorari in the United States
Supreme Court, the case returned to the trial court.21
Unsurprisingly, during trial, plaintiffs and the DEQ offered conflicting deposition
testimony relating to the value of the property. At the first trial, plaintiffs presented the
testimony of Edward Cheyz, who is not a licensed real estate appraiser. He testified that parcel
one was valued at approximately $5.94 million before the denial of the permit. The trial court
accepted this figure while rejecting the testimony of the DEQ's appraiser. As discussed
previously, the trial court found the value of these parcels to be zero after the first trial. On
remand, plaintiffs offered the deposition testimony of James Mawson, a licensed appraiser, who
initially testified that the pre-denial value of $5.94 million calculated by Cheyz was correct.
This figure apparently represented a figure of $1.50 per square foot used by Cheyz in calculating
the total value. However, on cross-examination, Mawson testified that he did not believe that
Cheyz would be correct in valuing wetland at $1.50 per square foot and that a more appropriate
figure might be $0.05 per square foot of wetland.
On the other hand, the DEQ offered its own expert testimony and evidence in an attempt
to show that the property's "before" value had been overestimated and that its "after" value had
been grossly underestimated. The DEQ also submitted evidence that, contrary to plaintiffs'
arguments that the non-wetland (upland) portion of parcel one was too shallow for development,
other similar "shallow" lots had been developed in the area.
Regardless, the trial court, in its opinion and order issued after the second trial, stated
incorrectly that, because our Supreme Court "did not disturb" its initial valuation of parcel one, it
would reaffirm that value, and the trial court again concluded that parcel one had no value after
the denial of the permit. The trial court did so despite the fact that our Supreme Court held that a
20
After remand, at the second trial, the parties stipulated that parcel four would not be
considered in the trial court's determination of the value of plaintiffs' property, because that
parcel was purchased after the denial of the permits.
21
Plaintiffs assert that throughout the pendency of this litigation, their attempts to develop or sell
parcel one have been thwarted by the DEQ's appeal of this case. Of course the DEQ has the
absolute right to appeal and, indeed, the duty to appeal an erroneous damage award because the
DEQ is the appropriate state agency to protect both public funds and wetlands. Plaintiffs had the
right to pursue development under the Goga permit that plaintiffs themselves proposed.
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categorical taking22 had not occurred. K & K II, supra at 585-587. Furthermore, the trial court
reaffirmed its finding that parcel one had zero value despite the existence of the Ram's Horn and
the JFK office building, and despite the fact that our Supreme Court stated that it saw "no reason
for [the office building and the Ram's Horn] to be excluded from the taking analysis. They were
both part of parcel one . . . and neither was sold or developed before the enactment of the
regulations in question." K & K II, supra at 584 n 9. It further concluded that the value of
parcels two and three, which totaled over $3 million, was not enough to offset this loss, and that
the total value before the denial was just over $9 million, while the value after the denial was just
over $3 million, representing a sixty-seven percent loss. The trial court then briefly addressed
each of the three Penn Central factors before concluding again that the DEQ's permit denial
constituted a taking. The trial court's opinion stated that it would reaffirm its previous award.
At a hearing on plaintiffs' posttrial motion for entry of judgment, the trial court found that
the DEQ's issuance of the Goga Permit had not been a valid or effective way of mitigating its
damages as required by MCL 324.30323 and entered judgment in September 2002 against the
DEQ in the amount of $16,486,228, which included compensation for a taking of plaintiffs'
property in the amount of $5.9 million, the value the trial court allocated to parcel one, together
with interest, costs, and attorney fees. The judgment further imposed interest on the entire
judgment, including fees and costs.
Plaintiffs moved the trial court to reconsider the judgment rate of interest. They argued23
that the statutory rate of interest was insufficient, because plaintiffs were experienced real estate
developers who could easily earn several times greater returns on their investment. The trial
court rejected this argument and denied plaintiffs' motion for a greater rate of interest. Plaintiffs
have filed a cross-appeal to challenge the denial of this motion.
2. Damages and the Goga Permit24
After the first trial, the DEQ faced a judgment in excess of $6 million for what the trial
court wrongly held to be a categorical taking of plaintiffs' property. As permitted by statute,
MCL 324.30323, the DEQ decided to mitigate these damages and opted to issue the Goga permit
pursuant to the permit application submitted by plaintiffs. The trial court then issued a written
opinion that acknowledged that the DEQ's election of this option had reduced the amount of the
22
As we will discuss in greater detail later, when a governmental regulation deprives a
landowner of "'all economically beneficial use'" of his or her property, a categorical taking
occurs, which requires compensation. Palazollo, supra at 615-616, quoting Lucas, supra.
23
Interestingly, plaintiffs raised this argument for the first time on remand.
24
The appendix to our opinion is a chart that summarizes the trial court's award of damages after
both trials.
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taking award to approximately $3.25 million.25 The trial court additionally awarded
approximately $450,000 for the temporary taking of plaintiffs' property up to the issuance of the
Goga permit.
However, plaintiffs did not build on parcel one as they were entitled to do pursuant to the
Goga permit.26 Instead, plaintiffs insisted that the DEQ's appeal of the nearly $4 million
judgment against it also constituted an appeal of the permit and that the DEQ intended to revoke
the permit if it prevailed on appeal. The DEQ sent plaintiffs a letter in which it stated that it did
not believe that there should have been a judgment entered against the DEQ, and, therefore, that
there should not have been damages assessed that the DEQ needed to mitigate by issuing the
Goga permit. More importantly, however, the DEQ stated that the permit was valid and could be
used by plaintiffs to begin development of parcel one. Yet plaintiffs continued in their assertion
that the permit was subject to revocation because of the DEQ's appeal.
As stated above, after this Court heard this case, and after our Supreme Court reversed
the decisions of the trial court and this Court, the case returned to the trial court after the United
States Supreme Court denied a writ of certiorari. In the meantime, the Goga permit expired.
After the case returned to the trial court in 1999, plaintiffs attempted to amend their complaint to
raise claims in relation to the Goga permit and their claim that the permit was essentially an
empty gesture. And the trial court originally, correctly, rejected plaintiffs' argument and stated
that plaintiffs could not raise new claims centered on the DEQ's alleged failure to comply with
the trial court's judgment. The trial court said that, instead of waiting six years to try and bring
new claims, plaintiffs should have gone before the trial court to address the alleged
noncompliance.
Notwithstanding plaintiffs' attempt to mischaracterize their rights and the DEQ's conduct
regarding the Goga permit, the DEQ reissued the expired Goga permit for five years.
Nonetheless, plaintiffs continued to insist that the Goga permit was essentially worthless because
the DEQ could revoke it if it prevailed on appeal. Plaintiffs made this assertion despite yet
another letter from the DEQ in which it was stated that the DEQ had no intention of revoking the
permit regardless of the outcome of the case.27 Instead of developing the land as they clearly
could have under the newly reissued permit, plaintiffs continued to maintain that the Goga
permit was an empty gesture. On the other hand, the DEQ maintains that plaintiffs' actions are
25
This amount reflects the trial court's calculation of the value of the percentage of parcel one
that constituted wetland based upon its valuation of the entire parcel at approximately $5.94
million, plus interest up to the time of the judgment.
26
The Ram's Horn restaurant and the JFK office building were constructed on the non-wetland
(upland) portion of parcel one; plaintiffs did not require the Goga permit to build these
structures.
27
This letter stated, in relevant part, "As I have repeatedly expressed, it is not now and never was
the intention of [the DEQ] to seek to revoke or otherwise limit the "Goga Plan" permit through
appeal."
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not motivated by a fear that the Goga permit might be revoked as much as they are by a desire to
continue to accrue damages related to the alleged inability to develop their land.
After the second trial, the trial court reversed its initial decision and agreed with plaintiffs
regarding the Goga permit. The trial court issued a brief opinion in which it stated that it
essentially was reaffirming its first judgment. After the trial court issued its opinion, plaintiffs
moved for the entry of an order of judgment that included an award for the full value of parcel
one. During a hearing on the motion, the DEQ reminded the trial court of the reissuance of the
Goga permit and asked the trial court to take this into account, pursuant to MCL 324.30323,
when it entered judgment, as the court had done after the first trial. However, this time, the trial
court erroneously refused to take the Goga permit into account. Indeed, during the hearing, the
trial court stated, in response to the DEQ's request, that it "[found] the state's handling of the
Goga permit personally offensive."
Ultimately, the trial court entered judgment in the amount of the entire value of parcel
one, approximately $5.94 million, plus interest, costs, and attorney fees, which resulted in a total
judgment in excess of $16 million, with additional interest payable from the date of judgment at
the statutory rate. On appeal, plaintiffs continue to assert that the Goga permit's issuance by the
DEQ was a hollow gesture that did not, in reality, mitigate any damages, while the DEQ insists
that plaintiffs' claims that the permit is ineffective constitute a pretense for an attempt to accrue
further damages.
III. STANDARDS OF REVIEW
We review a trial court's findings of fact for a clear error and disturb the trial court's
findings only where we are "left with the definite and firm conviction that a mistake has been
made." Essexville v Carrollton Concrete Mix, Inc, 259 Mich App 257, 265; 673 NW2d 815
(2003).28
Whether the government has effected a taking of one's property is a constitutional issue,
US Const, Am V; Const 1963, art 10, § 2, which we review de novo. People v Cain, 238 Mich
App 95, 111; 605 NW2d 28 (1999).
IV. ANALYSIS
A. Trial Court's Compliance with the Supreme Court's Remand Order
28
The DEQ urges us to set aside the clearly erroneous standard in favor of a review de novo.
The DEQ argues that the trial court's findings are not entitled to deference because the trial court
conducted the trial solely on the submission of de benne esse depositions, exhibits, and oral
argument. However, the DEQ stipulated the entry of an order that specified exactly that
procedure for trial. The DEQ cannot claim an error to which it contributed. Farm Credit
Services of Michigan's Heartland, PCA v Weldon, 232 Mich App 662, 683-684; 591 NW2d 438
(1998). Accordingly, we will not set aside the clearly erroneous standard here.
-12-
The DEQ correctly asserts that the trial court disregarded the specific remand instructions
of our Supreme Court. "'The power of the lower court on remand is to take such action as law
and justice may require so long as it is not inconsistent with the judgment of the appellate
court.'" People v Fisher, 449 Mich 441, 446-447; 537 NW2d 577 (1995) (citations omitted);
Waati & Sons Electric Co v Dehko, 249 Mich App 641, 646; 644 NW2d 383 (2002). When an
appellate court remands a case without instructions, a lower court has the "same power as if it
made the ruling itself." Fisher, supra at 447. However, when an appellate court gives clear
instructions in its remand order, it is improper for a lower court to exceed the scope of the order.
Waati & Sons, supra at 646. "It is the duty of the lower court or tribunal, on remand, to comply
strictly with the mandate of the appellate court." Rodriguez v Gen Motors Corp (On Remand),
204 Mich App 509, 514; 516 NW2d 105 (1994).
1. The Trial Court's Findings of Fact on Remand Regarding the Value of the Denominator
Parcel
During the first trial, the trial court considered only the value of parcel one in making its
decision whether the DEQ's denial of a wetland permit constituted a taking. The trial court held
that the DEQ's action deprived parcel one of all its economic value and that the DEQ had taken
plaintiffs' property. Our Supreme Court, however, held, consistently with Lucas v South
Carolina Coastal Council, 505 US 1003; 112 S Ct 2886; 120 L Ed 2d 798 (1992), that a
categorical taking had not occurred. K & K II, supra at 585-587. The Court then remanded the
case to the trial court and clearly directed the trial court to make a new finding of fact with
respect to the value of plaintiffs' property and to include parcel two with parcel one when doing
so. Furthermore, the trial court was clearly directed to make a finding of fact regarding whether
parcel three should also be included in its analysis. Id. at 588. After the trial court made these
new findings of fact, the trial court was to apply the three Penn Central factors, as mandated by
our Supreme Court, to determine whether the DEQ's action here constituted a taking.
Unfortunately, on remand, the trial court failed to adhere to the Supreme Court's
mandates. The trial court did make a finding of fact that parcel three should be included in its
analysis during the new trial. Furthermore, the trial court purportedly considered parcels one,
two, and three together in its analysis, as our Supreme Court's decision required. However, the
court rationalized its ruling by contending that our Supreme Court had not specifically disturbed
its valuation of plaintiffs' property before and after the permit denial, simply reaffirmed its
finding that the value of parcel one had diminished from nearly $6 million to zero. The court did
this despite the fact that our Supreme Court essentially foreclosed any possibility of a finding
that parcel one had a value of zero:
Even if we did limit our analysis to parcel one, the Court of Appeals
conclusion that a categorical taking had occurred is not supported by the record.
In its first opinion, the trial court stated: "While it is true that some financial
value will remain, this Court finds that what little economic value remains is but a
small fraction of the economic value the property would have had if all of it could
be developed." (Emphasis added.) Thus, while the regulations may have
diminished the value of plaintiffs' land, this diminution in value would not give
-13-
rise to a categorical taking. . . . [K & K II, supra at 587 n 13 (emphasis in the
original).]
After a careful review of the trial proceedings, it is clear that the trial court failed to include the
values of a Ram's Horn Restaurant and plaintiff JFK's office building, both located on upland
portions of parcel one. Our Supreme Court stated that it saw "no reason for [the office building
and the restaurant to be excluded from the taking analysis. They were both part of parcel one as
originally purchased, and neither was sold or developed before the enactment of the regulations
in question." Id. at 584 n 9. The evidence presented during the trial after remand shows that the
Ram's Horn and the JFK office building have a combined value of at least $1 million.
Furthermore, our Supreme Court explicitly stated that "plaintiffs were not prohibited from
developing the remaining upland on parcel one . . . ." K & K II, supra at 587. Were the trial
court to have complied with our Supreme Court's remand instructions, the trial court could not
reasonably have reaffirmed its previous finding that the value of parcel one had been reduced to
zero. For this reason alone, the trial court's holding must be reversed.
Additionally, the trial court then found that parcels two and three had a value
approximately $3 million. The trial court reasoned that this value was not high enough to
"offset" the diminution in value that the court ruled parcel one had sustained. While the trial
court held that the value of the entire "denominator parcel," consisting of parcels one, two, and
three, had been diminished in value by sixty-seven percent, from approximately $9 million to
just over $3 million, the trial court's analysis here centered on the value of parcel one. Rather
than treating the three parcels as a single denominator parcel as our Supreme Court mandated,
the trial court erroneously continued to treat parcel one as the relevant parcel, and only
considered the values of parcels two and three to the extent that they might "offset" the
diminution in the value of parcel one. This directly contradicts our Supreme Court's holding that
any taking analysis here must look beyond the value of parcel one, and include the value of the
entire denominator parcel. Accordingly, we conclude that the trial court did not comply with our
Supreme Court's remand instructions with respect to determining the value of the denominator
parcel. Because we so conclude, we hold that the trial court's findings of fact with respect to the
value of the denominator parcel are clearly erroneous, and its decision is reversed.
2. Compliance with the Supreme Court's Order to Apply the Facts to Penn Central
The trial court's Penn Central analysis also failed to comply with the Supreme Court's
remand instructions.29 A trial court must "comply strictly" with our Supreme Court's mandate.
29
The trial court's conclusions regarding the three factors read, in its entirety:
1. What is the Character of the Government Action in this Case?
In this case, the government activity, as noted, has taken the entire value
of parcel one with the exception of two small areas that were developed prior to
(continued…)
-14-
Rodriguez, supra at 514. Here, the trial court, without an explanation of what the factors mean,
and, indeed, without so much as a citation of Penn Central, devoted not much more than a page
of its analysis to this difficult, crucial, and dispositive analysis that was clearly mandated by our
Supreme Court's remand order. Moreover, and dispositively, the trial court's ruling simply failed
to properly apply the law to the facts.
For these reasons and reasons we will discuss in greater detail below, we hold that the
trial court did not comply with our Supreme Court's remand instructions with respect to its
purported Penn Central analysis.
3. The Goga Permit and Mitigation
As outlined above, our Legislature, following the lead of the United States Congress,
passed comprehensive legislation to protect Michigan's wetlands for the benefit of its citizens.
This represents a clear public policy determination and statement of the importance to the
citizens of this state, including property owners, of preserving wetlands for public welfare. MCL
(…continued)
the wetland determination in this case. Thus the declaration of a wetland has
taken, for all intents, the entire value of the parcel as previously found.
2. The Economic Effect of the Regulations.
This Court finds that the regulations in this case have deprived the
Plaintiffs of the entire economic value of parcel one which is approximately twothirds of the value of the entire denominator parcel.
3. The Interference with Investment-Backed Expectations.
Clearly, Plaintiffs intended to develop parcel one for economic gain.
There is no question from the facts of this case that Plaintiffs have always
intended to develop parcel one. They applied for zoning and dutifully paid
commercial taxes on this parcel for many years. In addition, this property is not a
characteristic wetland where an owner would likely be on notice of potential
difficulties with development. The record showed an investment of several
millions of dollars and the loss of a huge commercial development on parcel one.
Applying the law to these facts demonstrates that the loss of parcel one far
overshadows parcels two and three in area and in value.
Conclusion
This Court finds that applying the test as required to the entire parcel
under consideration shows a taking. This Court reaffirms its award as previously
entered for Plaintiff [sic] together with costs and attorney fees. Interest shall run
in the proscribed [sic] manner from the date of taking.
-15-
324.30302. Moreover, the Michigan Constitution provides that "[t]he legislature shall provide
for the protection of the air, water and other natural resources of this state . . . ." Const 1963, art
4, § 52. In keeping with this mandate, the Legislature enacted the Natural Resources and
Environmental Protection Act (NREPA), MCL 324.101 et seq., which contains the WPA. The
Legislature vests the DEQ with the responsibility for guarding our state's valuable natural
resources on behalf of the citizens of this state. MCL 324.501.
In keeping with this constitutional and statutory scheme, our Legislature also expressed
its intent that the DEQ should act to preserve public funds as well as public resources by
establishing a statutory framework to mitigate damages to the state should a court find that the
DEQ "went too far" in implementing the wetland regulations in a particular case. MCL
324.30323(3) represents our Legislature's well-considered plan to serve the dual purpose of
having the DEQ protect the environment while also protecting the pocketbooks of our citizens by
creating a mechanism to mitigate damages in those cases where courts find that the DEQ may
have gone too far. Here, the DEQ, as our Legislature envisioned, acted properly under the
statute to mitigate damages. The trial court should not have disregarded this legislative mandate
where the DEQ, acting to preserve the citizens' financial resources, agreed to an alternative use
of the land, as proposed by plaintiffs, that would have allowed substantial development of the
property at issue.
The courts of this state must recognize that our constitutionally and statutorily mandated
agencies, like the DEQ, have a difficult duty in administering complex laws to preserve the
environment for all citizens while respecting the important private property rights of those
directly affected by the regulations. Our Legislature clearly saw the wisdom of anticipating that,
in balancing these competing, important interests, the DEQ might err, at least in the judgment of
a judge who is asked to review a specific application of the wetland regulations to a specific
piece of property. And, when a judge rules against the DEQ, the state agency has the further
task of again deciding how best to preserve taxpayer dollars and the environment by choosing
the legislative options of purchasing the property, paying the amount of the lost economic value,
or taking some other action, such as the issuance of an alternative permit that allows greater
development, but with minimal damage to wetlands. Our courts should not ignore this complex,
important statutory mitigation scheme. This legislative mandate is an important application of
constitutional, statutory, and administrative law that must be respected and administered by our
courts in the best interests of the public. This, the trial court simply failed to do. The statute
does not allow a trial court to deny the state a chance to mitigate a regulatory taking judgment on
the basis of the trial court's views of the DEQ.
Moreover, we agree with the trial court's original ruling with respect to the Goga permit,
and further hold that plaintiffs waived this claim that the DEQ's appeal rendered the Goga permit
invalid. If plaintiffs truly believed that the DEQ disobeyed that portion of the trial court's
original order regarding the Goga permit, then plaintiffs should have sought the appropriate
relief. Our review of the record reveals no attempt by plaintiffs to seek declaratory or other
-16-
relief with respect to the Goga permit. Any claim that the DEQ's appeal rendered the Goga
permit invalid here was waived by plaintiffs' own conduct.30 Lewis v LeGrow, 258 Mich App
175, 210; 670 NW2d 675 (2003) ("[E]rror requiring reversal may only be predicated on the trial
court's actions and not upon alleged error to which the aggrieved party contributed by plan or
negligence.").
B. The Penn Central Factors as Applied to This Case
In Penn Central, the United States Supreme Court noted that "[t]he question of what
constitutes a 'taking' . . has proved to be a problem of considerable difficulty." Penn Central,
supra at 123. The constitutional requirement that the state provide just compensation for the
taking of one's property is "'designed to bar Government from forcing some people alone to bear
public burdens which, in all fairness and justice, should be borne by the public as a whole.'" Id.
at 123-124, quoting Armstrong v United States, 364 US 40, 49; 80 S Ct 1563; 4 L Ed 2d 1554
(1960). The Court stated that taking determinations are "essentially ad hoc, factual inquiries . . .
." Penn Central, supra at 124.
Since the United States Supreme Court's decision in Penn Central, and, indeed, since our
Supreme Court's decision in K & K II, the United States Supreme Court has further explained its
holding in Penn Central. A governmental regulation that deprives a landowner of "all
economically beneficial use" of his or her property, is a categorical taking that requires
compensation. Palazollo v Rhode Island, 533 US 606, 615-616; 121 S Ct 2448; 150 L Ed 2d
592 (2001), citing Lucas, supra. Here, our Supreme Court rejected the trial court's ruling that
the DEQ had effected a categorical taking of plaintiffs' property and remanded the case to the
trial court with the instruction to determine, pursuant to Penn Central, whether a taking had
occurred despite the fact that plaintiffs' property had some, but because of the trial court's error, a
yet to be determined, remaining value. The United States Supreme Court in Penn Central
identified three factors to be examined when a court makes such a determination:
[1] The economic impact of the regulation on the claimant and,
particularly, [2] the extent to which the regulation has interfered with distinct
investment-backed expectations are, of course, relevant considerations. So, too, is
[3] the character of the governmental action. A "taking" may more readily be
found when the interference with property can be characterized as a physical
invasion by government than when interference arises from some public program
adjusting the benefits and burdens of economic life to promote the common good.
[Penn Central, supra at 124 (citations omitted).]
30
We hold only that plaintiffs have waived any claim that the DEQ's appeal rendered the Goga
permit invalid. Nothing in our holding prevents plaintiffs from pursuing their right to seek
issuance of a Goga-type permit in the future.
-17-
As we will discuss in greater detail below, while no one of the three factors is dispositive
in and of itself, a key factor in terms of wetland regulations is the third, the character of the
government action. Where, as here, the regulation serves an important public interest and is
widespread and ubiquitous, we conclude that, to sustain a regulatory taking claim, a plaintiff
must prove that the economic impact and the extent to which the regulation has interfered with
distinct investment-backed expectations are the functional equivalent of a physical invasion by
the government of the property in question.
1. Economic Impact of the Regulation
A reduction in the value of the regulated property is insufficient, standing alone, to
establish a compensable regulatory taking. Penn Central, supra at 131. Indeed, the Supreme
Court in Penn Central cited two of its previous opinions in which the Court refused to hold that
there was a regulatory taking: Euclid v Ambler Realty Co, 272 US 365; 47 S Ct 114; 71 L Ed 303
(1926), in which a zoning regulation resulted in a seventy-five percent diminution in value, and
Hadacheck v Sebastian, 239 US 394; 36 S Ct 143; 60 L Ed 348 (1915), in which the regulation
resulted in an 87.5 percent diminution.
Here, the DEQ's initial refusal to grant the requested permit unquestionably caused some
decrease in the value of the property. After the second trial, the trial court held, erroneously, that
the value had declined from a value before the denial of the permit of approximately $8.94
million to a value after denial of approximately $3 million, which represents a diminution of
value of approximately sixty-seven percent. Even under this incorrect, inflated "damage
calculation," plaintiffs failed to demonstrate a sufficient decrease in value to constitute a
compensable regulatory taking under Penn Central, Euclid, and Hadacheck.31
However, as we discussed above, the trial court not only failed to account for the
substantial value of the land that could have been developed pursuant to the Goga permit, worth
at least $2.8 million, as it had after the first trial, but it also did not include the approximate $1
million value of the Ram's Horn and JFK office building. Accordingly, the proper value after
denial for the denominator parcel would be approximately $5.8 to $6.8 million, which represents
a decrease in value of approximately twenty-four to thirty-three percent. While this diminution
of value is significant, we conclude that this figure most certainly does not weigh in favor of a
finding that the DEQ's actions constitute a compensable regulatory taking.32
31
Indeed, in Lucas, the Court noted that it is quite possible for a landowner to suffer a ninetyfive percent diminution in value as the result of a regulatory action and nevertheless be unable to
establish a regulatory taking. Lucas, supra at 1019 n 8.
32
This conclusion is supported by the fact that far greater diminutions of value have been found
not to give rise to taking claims. See Euclid, supra, and Hadacheck, supra; see also William C
Haas & Co, Inc v City & Co of San Francisco, 605 F2d 1117, 1120 (CA 9, 1979) (ninety-five
percent diminution in value). Moreover, the Supreme Court has held time and again that even a
significant diminution in value is not enough on its own to establish a regulatory taking. See
(continued…)
-18-
Moreover, as we discussed above, plaintiffs could have developed the land pursuant to
the Goga permit, and could possibly have increased the value of the land, or, at the very least
further mitigated any loss in value but for their unjustifiable inaction.
2. Plaintiffs' Distinct Investment-Backed Expectations
A court must also examine the extent to which the regulation has interfered with the
property owner's "reasonable investment-backed expectations." Palazollo, supra at 618, citing
Penn Central, supra at 124. A key factor is notice of the applicable regulatory regime, here
wetland regulations. The Supreme Court in Palazollo rejected the principle that the purchase of
property after the enactment of a wetland regulation absolutely bars a taking claim. Palazollo,
supra at 626-630.33 However, notice of such regulations should nevertheless be taken into
account.34 In her separate concurrence in Palazollo, Justice O'Connor explained the importance
of notice:
As the Court holds, the Rhode Island Supreme Court erred in effectively
adopting the sweeping rule that the preacquisition enactment of the use restriction
ipso facto defeats any takings claim based on that use restriction. . . .
The more difficult question is what role the temporal relationship between
regulatory enactment and title acquisition plays in a proper Penn Central analysis.
Today's holding does not mean that the timing of the regulation's enactment
relative to the acquisition of title is immaterial to the Penn Central analysis.
Indeed, it would be just as much error to expunge this consideration from the
takings inquiry as it would be to accord it exclusive significance. Our polestar
instead remains the principles set forth in Penn Central itself and our other cases
that govern partial regulatory takings. Under these cases, interference with
investment-backed expectations is one of a number of factors that a court must
examine. Further, the regulatory regime in place at the time the claimant acquires
the property at issue helps to shape the reasonableness of those expectations.
[Palazollo, supra at 632-633 (O'Connor, J., concurring) (emphasis added).]
(…continued)
Penn Central, supra at 131; Concrete Pipe and Products of California, Inc v Constr Laborers
Pension Trust, 508 US 602, 645; 113 S Ct 2264; 124 L Ed 2d 539 (1993).
33
Indeed, the Court stated, "A blanket rule that purchasers with notice have no compensation
right when a claim becomes ripe is too blunt an instrument to accord with the duty to compensate
for what is taken." Id. at 628.
34
See Cordes, The Effect of Palazollo v Rhode Island on Takings and Environmental Land Use
Regulation, 43 Santa Clara L R 337, 376 (2003), citing the concurring opinion of Justice
O'Connor in Palazollo, supra at 635; Justice Stevens, dissenting in part and concurring in part,
id. at 637-645; and Justice Ginsburg's dissent, id. at 645 n 3.
-19-
In other words, equity is no better served by ignoring a claimant's knowledge of existing
land-use regulations than it would be by holding that the claimant's knowledge of those
regulations absolutely barred recovery regardless of how inequitable those regulations might be.
[I]f existing regulations do nothing to inform the analysis, then some
property owners may reap windfalls and an important indicium of fairness is lost.
As I understand it, our decision today does not remove the regulatory backdrop
against which an owner takes title to property from the purview of the Penn
Central inquiry. It simply restores balance to that inquiry. [Id. at 635.]
The WPA was originally enacted as the Goemaere-Anderson Wetland Protection Act in
1979. Here, plaintiffs acquired title to the property in 1986. And, as plaintiffs themselves
point out, JFK and Kosik are experienced commercial land developers with extensive knowledge
of land-use regulations.36 This knowledge and experience logically must be taken into account
when determining what plaintiffs' reasonable, investment-backed expectations were with respect
to the denominator parcel and in determining the extent of the WPA's effect on those
expectations. Despite this admitted extensive commercial land development and legal expertise,
plaintiffs nonetheless claim that they were unable to discover a twenty-seven-acre area of
wetlands.37 Given the significant area of wetland on the denominator parcel and plaintiffs'
experience in commercial land development, together with their notice of wetland regulations,
we conclude that a reasonable person with the extensive expertise that plaintiffs possess would
have notice of the existence of both the wetlands and the WPA.
35
As Palazollo teaches us, the mere fact that plaintiffs had notice of the WPA does not end
the inquiry with respect to their reasonable, investment-backed expectations and the effect of the
governmental regulation challenged here. However, as Justice O'Connor explained, plaintiffs'
notice of the WPA does help shape the analysis of whether plaintiffs' expectations were
reasonable.
Plaintiffs' alleged actual expectations involved building a forty-two-acre
restaurant/sports complex on parcel one. However, with their experience, notice of the WPA,
and the fact that twenty-seven acres of wetland existed on parcel one, this expectation was not
reasonable. Looking at the denominator parcel as a whole, a reasonable expectation would be
that plaintiffs would be able to develop the upland areas of the denominator parcel that are not
wetlands. Indeed, there has been significant development on parcels two and three. On parcel
one, there has been some development on the upland, including the construction of an office
35
The WPA was later reenacted as Part 303 of the Natural Resources and Environmental
Protection Act of 1994.
36
Indeed, Kosik is a lawyer by training.
37
Plaintiffs claim that the wetland was "not characteristic" because it was sandy; however, there
is evidence, in the form of the DEQ's initial permit denial letter, that the wetland consisted of
sand because "someone" had filled it in with sand. We also note that plaintiffs had begun
attempting to develop the wetland area over an unspecified time before Waterford Township
officials sent them a cease-and-desist letter.
-20-
building and a restaurant. And the Goga permit allows plaintiffs to utilize the remaining upland,
as well as some of the wetland acreage (contingent upon the conversion of other, non-wetland
acreage to wetland). The fact that plaintiffs have chosen not to make use of the Goga permit is
wholly irrelevant to our analysis. However, when we consider the actual development of the
entire denominator parcel, together with the development potential afforded plaintiffs by the
Goga permit, it is clear that there has not been a significant negative effect on plaintiffs'
reasonable investment-backed expectations.
Plaintiffs acquired the denominator parcel for the purpose of commercial development.
On this parcel, they have constructed apartment homes, a restaurant, and an office building, with
a total value of at least $5.8 million. Furthermore, the record shows that, while a significant
portion of the parcel consists of wetland, there is nevertheless a significant area of upland that
may be commercially developed. Plaintiffs claim, but failed to prove, that the DEQ's refusal to
allow plaintiffs to fill in the entire wetland portion of the denominator parcel has thwarted their
reasonable, investment-backed expectations. This simply is not supported by the evidence.
Accordingly, we hold that the effect of the governmental regulation on plaintiffs'
reasonable, investment-backed expectations weighs against a conclusion that a taking has
occurred.
3. Character of the Government Action
This factor requires a court to place the challenged regulatory action along a spectrum
ranging from an actually physical taking on one extreme, to a far-reaching, ubiquitous
governmental regulation that provides all property owners with an "average reciprocity of
advantage" on the other. As the United States Supreme Court explained, "A 'taking' may more
readily be found when the interference with property can be characterized as a physical invasion
by government than when interference arises from some public program adjusting the benefits
and burdens of economic life to promote the common good." Penn Central, supra at 124.
Clearly, this case does not involve a physical taking. The relevant inquiries are whether the
governmental regulation singles plaintiffs out to bear the burden for the public good and whether
the regulatory act being challenged here is a comprehensive, broadly based regulatory scheme
that burdens and benefits all citizens relatively equally. See Walcek v United States, 49 Fed Cl
248, 270 (2001); R & Y, Inc v Anchorage, 34 P3d 289, 298 (Alas, 2001).38 In Penn Central, the
Supreme Court rejected the plaintiffs' argument that the New York City law that designated
certain property as historic, and thus restricted the use and development of that property, served
to single out the plaintiffs to carry the burdens of the regulation:
38
We are not bound by the decisions of the courts of other states; however, we may look to these
regulatory taking decisions as persuasive authority. See Farm Bureau Mut Ins Co v Buckallew,
246 Mich App 607, 614 n 6; 633 NW2d 473 (2001).
-21-
[A]ppellants' repeated suggestions that they are solely burdened and
unbenefited is factually inaccurate. This contention overlooks the fact that the
New York City law applies to vast numbers of structures in the city in addition to
the Terminal—all the structures contained in the 31 historic districts and over 400
individual landmarks, many of which are close to the Terminal. Unless we are to
reject the judgment of the New York City Council that the preservation of
landmarks benefits all New York citizens and all structures, both economically
and by improving the quality of life in the city as a whole—which we are
unwilling to do—we cannot conclude that the owners of the Terminal have in no
sense been benefited by the Landmarks Law. [Penn Central, supra at 134-135.]
Indeed, even the dissent in Penn Central noted in language equally applicable to this state's
wetland regulations, that regulation in and of itself does not constitute a taking if it applies to a
widespread group of landowners:
[A] taking does not take place if the prohibition applies over a broad cross
section of land and thereby "secure[s] an average reciprocity of advantage." It is
for this reason that zoning does not constitute a "taking." While zoning at times
reduces individual property values, the burden is shared relatively evenly and it is
reasonable to conclude that on the whole an individual who is harmed by one
aspect of the zoning will be benefited by another.
. . . For the reasons noted in the text, historic zoning, as has been
undertaken by cities such as New Orleans, may well not require compensation
under the Fifth Amendment. [Id., supra at 147 (Rehnquist, J., dissenting)
(citations deleted; emphasis in the original).]
Michigan's wetland regulations, like zoning regulations, are comprehensive and universal
throughout this state. The federal government enacted the CWA, which permits the regulation of
wetlands, and our Legislature enacted the WPA to protect wetlands in this state.39 Our
Legislature made clear, within the very text of the WPA, that the regulation and protection of
Michigan's wetlands is intended to benefit the people of this state in a variety of ways. All
property owners in this state share these benefits relatively equally, and all property owners and,
all prospective owners are relatively equally subject to the burdens placed on much of the
property in this state by the wetland regulations.
39
See K & K I, supra at 61 ("[T]he state has a legitimate interest in preserving and protecting
wetlands."), citing Attorney General ex rel Dep't of Natural Resources v Huron Co Rd Comm,
212 Mich App 510, 516; 538 NW2d 68 (1995) ("'[t]he primary purpose of the WPA is to ensure
that wetland habitats are preserved and protected'"); Brace v United States, 48 Fed Cl 272, 278,
279 (2000) (noting that Congress passed the CWA in part to protect wetlands. The court noted
that "[t]here is no question that the systemic destruction of the Nation's wetlands is causing
serious, permanent ecological damage.").
-22-
Applying a similar analysis, the Alaska Supreme Court held that the regulatory action
being challenged in R & Y, Inc was a "wetlands preservation scheme which applies broadly to all
landowners and which benefits both the public generally and the landowners in particular." R &
Y, Inc, supra at 298. The court then noted that, as in this state, "[s]cientists and legislators have
recognized the unique ecological and economic value that wetlands provide in protecting water
quality, regulating local hydrology, preventing flooding, and preventing erosion." Id.40
The United States Court of Claims has similarly stated that "Congress attempted to
protect wetlands while dealing with the concerns of private individuals." Brace v United States,
48 Fed Cl 272, 279 (2000). The court also explained that "the existence of the wetland
regulations in question . . . indisputably serve an important public purpose—one which benefits
plaintiffs as members of the public at large." Walcek, supra at 270.
Similarly, plaintiffs here cannot establish that the WPA's enforcement has the effect of
singling out plaintiffs to bear the burden of a public benefit. What the federal Court of Claims
said about federal wetland regulations is equally applicable to Michigan: "the [CWA] and the
wetlands regulations issued thereunder are generally applicable to all similarly situated property
owners and can in no way be viewed as being directed at plaintiffs." Walcek, supra at 270.
Again, the Alaska Supreme Court's reasoning in rejecting the plaintiff 's taking claim in R
& Y, Inc, applies here:
[T]he landowners were not singled out and made to suffer unduly
burdensome economic loss. Instead, they incurred only relatively minor
economic loss due to generally applicable wetlands restrictions which govern all
land use . . . and benefit all landowners, including these landowners, by
preserving the ecologically and economically valuable functions of wetlands. [R
& Y, Inc, supra at 300.][41]
Here, plaintiffs are simply not being singled out by the WPA. The WPA provides a
regulatory framework that applies to all property owners in this state for the benefit of all
landowners. Indeed, were we to uphold the trial court's award, we would, in effect, single out
40
It is worth noting that the Alaska Supreme Court held that the Alaska state constitution
provides greater protections for property owners than the United States Constitution does under
the Fifth Amendment. R & Y, Inc, supra at 293. Our Supreme Court has adopted the United
States Supreme Court's Penn Central test, signaling that our Supreme Court has decided that the
Michigan Constitution provides no greater protection for property owners than that provided by
the Fifth Amendment. Though Alaska's constitution provides greater property protections than
do the United States Constitution and the Michigan Constitution, the Alaska Supreme Court
nevertheless held that enforcement of the challenged wetlands regulations did not effect a
compensable taking of the plaintiff 's property. Id. at 300.
41
Though the alleged economic effect in R & Y is less than the alleged economic effect here, the
reasoning and analysis of R & Y are equally applicable here.
-23-
plaintiffs to their benefit, because compensating plaintiffs for the loss of value of their property,
especially when it has a significant amount of value and development potential remaining, would
be tantamount to making the plaintiffs exempt from the regulation of wetlands, to the detriment
of others who bear the burden of wetland regulations throughout the state.
Accordingly, we conclude that the character of the government action was a widereaching, regulatory action that seeks to protect the rights of the public and to provide an
"average reciprocity of advantage," and that this factor weighs heavily against finding that a
compensable regulatory taking has occurred here.42
V. CONCLUSION
Because the challenged land-use regulation here, like traditional zoning, is
comprehensive and universal so that plaintiffs are relatively equally benefited and burdened by
the challenged regulation as other similarly situated property owners, because plaintiffs
purchased the land with knowledge of the regulatory scheme, and because plaintiffs have made
and can make valuable use of their land despite the application of this regulation, we conclude
that compensation is not required under Penn Central.
Therefore, we hold that plaintiffs have failed to establish that the DEQ's regulatory action
here constituted a compensable regulatory taking of their property. Consequently, we reverse
the trial court's judgment in favor of plaintiffs and enter judgment in favor of the DEQ. See
MCR 7.216(A)(7).
/s/ Henry William Saad
/s/ Brian K. Zahra
/s/ Bill Schuette
42
Indeed, we note that the historical district preservation regulations upheld in Penn Central
were far less universal and ubiquitous, and much closer to singling out individual property
owners, than the wetland regulations challenged here. The Supreme Court in Penn Central
nevertheless held that the regulation benefited the public as a whole, which weighed heavily
against finding that a taking had occurred. See Penn Central, supra at 134-135.
-24-
Appendix
Summary of the Trial Court's Damage Awards
Before Permit
Denial Value,
Parcel 1
After
Permit
Denial
Value,
Parcel 1
Before Permit
Denial Value,
Denominator
Parcel
After Permit
Denial Value,
Denominator
Parcel
Credit for
Goga Permit
Award to
Plaintiffs
Trial 1
Approximatel
y $5.94
million
$0
Approximately
$5.94 million
(Parcel 1 only)
$0
Approximatel
y $2.8 million
Approximatel
y $3.25
million (For
taking of
wetland) plus
approximately
$450,000
(temporary
taking of
entire parcel)
Trial 2
(after
remand
from our
Supreme
Court)
Approximatel
y
$5.94
million
$0
Approximately
$9 million
(Parcels 1, 2,
and 3, pursuant
to the Michigan
Supreme
Court's remand
order)
Approximately
$3 million
$0
Approximatel
y $5.94
million (plus
over $10
million for
interest, costs,
and attorney
fees)
-25-
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