Zealy v. City of Waukesha

• Decision Date: 24 January 1995
• Docket Number: No. 93-2831,93-2831
• Parties: Alfred A. ZEALY, Plaintiff-Appellant, v. CITY OF WAUKESHA, Defendant-Respondent. d . Oral Argument
• Court: Wisconsin Court of Appeals

Page 917

534 N.W.2d 917

194 Wis.2d 701

Alfred A. ZEALY, Plaintiff-Appellant, v. CITY OF WAUKESHA, Defendant-Respondent. ^d

No. 93-2831.

Court of Appeals of Wisconsin.

Oral Argument Jan. 24, 1995.

Opinion Released May 17, 1995.

Opinion Filed May 17, 1995.

On behalf of the plaintiff-appellant, there were briefs and oral argument by James W. Hammes of Cramer, Multhauf & Hammes, Waukesha.

On behalf of the defendant-respondent, there was a brief and oral argument by Karen A. Macherey, Asst. City Atty.

There was an amicus brief by James E. Doyle, Atty. Gen.; John S. Greene, Asst. Atty. Gen.; and Kathleen M. Falk, Wisconsin Public Intervenor. There was oral argument by JoAnne F. Kloppenburg, Asst. Atty. Gen., and Kathleen M. Falk, Wisconsin Public Intervenor.

Before BROWN, NETTESHEIM and SNYDER, JJ.

BROWN, Judge.

The dispute here concerns how courts should measure compensation to a landowner when the government reclassifies a portion of the landowner's parcel as conservancy in order to protect diminishing wetlands. The challenging landowner in this case primarily claims that when part of a parcel's zoning classification is changed to conservancy, the courts should treat that portion as though it has been constructively taken and the government should pay accordingly. The government responds that a taking does not occur when a zoning reclassification restricts the use of only a portion of the parcel if the parcel as a whole retains substantial value. For reasons hereafter explained, we reject both arguments and hold that compensation depends upon a case-by-case analysis of the landowner's reasonably anticipated use of the property. Since this test differs from the law declared by the trial court, we reverse for a new trial consistent with the analysis in this opinion.

The challenging landowner is Alfred A. Zealy. He owns a 10.1 acre parcel in the City of Waukesha. When the land was annexed by the City in 1967, it was classified R-1 residential. Later, a small portion of the land was upgraded to the B-4 business classification. In 1982, Zealy granted the City an easement allowing the municipality to place storm and sanitary sewers on a portion of his property. He alleges that he granted the easement because city officials led him to believe it would expedite future residential development by providing easier hookup to the water system. Three years later, however, the City rezoned 8.2 acres of the R-1 property to C-1 conservation. The change effectively precluded further development on this subparcel. Based on a 1990 appraisal, Zealy alleges that the subparcel value has been reduced from $200,000 to $4000, a ninety-nine percent devaluation. He concedes, however, that when all 10.1 acres are viewed together, the effect of the zoning change is not severe enough to support a constructive taking claim because of the value of his commercial property.

The trial court dismissed Zealy's inverse condemnation action brought pursuant to § 32.10, STATS., as well as his claim of estoppel. The trial court viewed the applicable law to be that parcels may not be segmented for purposes of constructive taking law. Zealy seeks review of these two issues addressed by the trial court. First, he alleges that the City took the 8.2 acres of his land when it promulgated a zoning change resulting in a loss of almost all of its economic value. ¹ This claim rests on a line of cases in which state regulation resulting in a substantial devaluation of privately held property was found to be a taking requiring just compensation. See, e.g., State v. Herwig, 17 Wis.2d 442, 117 N.W.2d 335 (1962). ² In his second claim, Zealy asserts the City should be equitably estopped from enforcing the 1985 zoning change because he relied upon representations made by the City that he could use the 8.2 acres for residential development. See, e.g., State ex rel. Schroedel v. Pagels, 257 Wis. 376, 43 N.W.2d 349 (1950). The City disputes his claims and the state attorney general and the public intervenor have jointly submitted an amicus brief, siding with the City.

We will first address the appropriate standard of review. With regard to the constructive taking claim, the central issue is whether government regulation has rendered the property practically useless for all reasonable purposes. See Howell Plaza, Inc. v. State Highway Comm'n, 92 Wis.2d 74, 85, 284 N.W.2d 887, 892 (1979) (Howell Plaza II ). This is a question of law which is reviewed de novo. See Katze v. Randolph & Scott Mut. Fire Ins. Co., 111 Wis.2d 326, 330, 330 N.W.2d 232, 234 (Ct.App.1983), rev'd on other grounds, 116 Wis.2d 206, 341 N.W.2d 689 (1984). Similarly, Zealy's claim for relief through application of equitable estoppel is a question of law subject to de novo review. Cf. Quinnell's Septic & Well Serv., Inc. v. Dehmlow, 152 Wis.2d 313, 316, 448 N.W.2d 16, 17 (Ct.App.1989) (claim of unjust enrichment presents a question of law reviewed de novo).

The Fifth Amendment commands the government to pay for private property when it converts it to public use. This compels the state to act rationally when it reallocates private resources to the general public. See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322 (1922); see also Just v. Marinette County, 56 Wis.2d 7, 23, 201 N.W.2d 761, 771 (1972). The government, however, also has a duty to protect the public from the destructive use of land by individual citizens. See Pennsylvania Coal, 260 U.S. at 413, 43 S.Ct. at 159. Takings law requires courts to balance these two competing policies.

Thus far, two lines of analysis have emerged. If the state acquires the sum total of the legal rights to any component of privately held property, then it must compensate. For instance, in Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982), the state authority was required to reimburse the aggrieved landlords even though only 1.5 cubic feet of their apartment buildings had been usurped for public use. See id. at 438 n. 16, 441, 102 S.Ct. at 3177 n. 16, 3179; see also Zinn v. State, 112 Wis.2d 417, 422, 437-38, 334 N.W.2d 67, 69, 77 (1983) (two-year acquisition of legal title to property requires compensation). The second line of analysis, which is at issue in the present case, reflects an understanding that by intensive regulation the government may render private property effectively useless even though legal title remains in the hands of the citizen. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, ----, 112 S.Ct. 2886, 2893, 120 L.Ed.2d 798 (1992); Just v. Marinette County, 56 Wis.2d 7, 201 N.W.2d 761 (1972). ³ These claims are commonly referred to as constructive takings.

As the United States Supreme Court recently explained in Concrete Pipe and Prods., Inc. v. Construction Laborers Pension Trust, 508 U.S. 602, ----, 113 S.Ct. 2264, 2290, 124 L.Ed.2d 539 (1993), three factors have emerged as guideposts for courts to employ in this second type of takings analysis. ⁴ The factors are: (1) the nature of the government regulatory scheme, (2) the severity of the economic impact on the challenging landowner, and (3) the degree of interference with the landowner's anticipated and distinct investment opportunities. See id. at ---- - ----, 113 S.Ct. at 2289-92. The first factor focuses on the nature of the land use regulation at issue. In Lucas, the Supreme Court appeared to set forth a new manner of gauging the reasonableness of government activity in the land use arena. The Court held that a state's power to enact prescriptive land use controls may be rooted in established nuisance law. Lucas, 505 U.S. at ---- - ----, 112 S.Ct. at 2901-02. The government can prohibit certain uses of land without compensation to affected landowners if such use has traditionally been curtailed by the common law of nuisance. Id.

Alternatively, a state may rely upon its police power to impose substantial restrictions on private land in order to promote the public interest in the efficient use of natural resources. In these circumstances, however, the government must compensate the private landowner if that landowner is unduly burdened by such regulation. Landowners become unduly burdened when their property is deprived of all, or substantially all, of its beneficial use. See Concrete Pipe, 508 U.S. at ---- - ----, 113 S.Ct. at 2289-92; Howell Plaza, Inc. v. State Highway Comm'n, 66 Wis.2d 720, 726, 226 N.W.2d 185, 188 (1975) (Howell Plaza I ); Reel Enters. v. City of La Crosse, 146 Wis.2d 662, 671, 431 N.W.2d 743, 747 (Ct.App.1988).

Here, it is evident that the City's conservancy zoning, which is intended to protect existing wetlands, falls under this latter category of land use control. See Just, 56 Wis.2d at 14-15, 201 N.W.2d at 767 (describing how Wisconsin wetlands regulations serve "the public interest in stopping the despoliation of natural resources"). In fact, it appears that Zealy and the City agree that such is the case. The determination of whether there has been a constructive taking of Zealy's property depends upon the application of the two remaining Concrete Pipe criteria.

The second guidepost gauges the severity of economic impact. We view this criterion to be nothing more than proof from an appraiser that, on paper, the landowner has suffered a reduction in value from the property's highest and best use. Because of the underlying dispute in this case, however, resolution of this criterion cannot be easily determined. If, as Zealy contends, we should look to only that part of the property which has been zoned as a conservancy, then Zealy can presumably show a loss of $196,000. If, on the other hand, the whole parcel is examined, then Zealy cannot show any severity of economic impact due to the zoning change and the second criterion must be resolved against him. Thus, resolution of this case depends upon examination of the third guidepost.

To restate the third...