Forest Properties, Inc. v. U.S.

• Decision Date: 19 May 1999
• Docket Number: No. 97-5145,97-5145
• Citation: 177 F.3d 1360
• Parties: FOREST PROPERTIES, INC.(now known as RCK Properties, Inc.), Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee, and Big Bear Municipal Water District, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

177 F.3d 1360

FOREST PROPERTIES, INC.(now known as RCK Properties, Inc.) Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee and Big Bear Municipal Water District, Defendant-Appellee.

No. 97-5145.

United States Court of Appeals Federal Circuit.

May 19, 1999.

John H. Findley, of Sacramento, California, argued for plaintiff-appellant. With him on the brief were Ronald A. Zumbrun and Meriem L. Hubbard.

Andrew C. Mergen, Attorney, Environmental and Natural Resources Division, U.S. Department of Justice, of Washington, DC, argued for defendant-appellee, United States. With him on the brief were James F. Simon, Acting Assistant Attorney General, Edward J. Passarelli, Alan Brenner, and John A. Bryson, Attorneys.

W. Keith Lemieux, Lemieux & O'Neill, of Westlake Village, California, for defendant-appellee, Big Bear Municipal Water District.

Before LOURIE, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and RADER, Circuit Judge.

FRIEDMAN, Senior Circuit Judge.

This appeal challenges the Court of Federal Claims' decision that the United States did not take the appellant's real property when it denied the appellant a permit to dredge and fill certain underwater lake-bottom property. We agree that there was no taking and therefore affirm the judgment dismissing this suit for just compensation.

I

This case grows out of the planned residential development of two segments of property. The first segment is a 53 acre tract of upland contiguous to Big Bear Lake (the Lake) in Southern California. The second is 9.4 acres of lake-bottom contiguous to the aforementioned upland. The appellant Forest Properties, Inc. (Forest) and Big Bear Properties, Inc. (Big Bear) are, respectively, commonly-owned real estate development and real estate holding companies.

In 1969, Big Bear purchased 2500 acres of land adjoining the Lake for about $4 million. As part of the same contract, it also received a 20-year irrevocable option from a local water company to purchase up to 200 acres of lake-bottom land at $1,000 per acre. The option could be exercised only by an entity (Big Bear or a successor) that owned the land adjacent to the optioned lake-bottom land. As the lake was quite shallow, any use of it would require filling and/or dredging, and the water company had the right to approve any plans for doing so.

In the early 1980's, the number of acres subject to the option was reduced in the settlement of a dispute between Big Bear and the successor water district (the appellee Big Bear Municipal Water District) over the validity of the option. As part of the settlement, the water district approved Big Bear's tentative plan to fill and create housing sites on 9.4 acres of lake-bottom off of Eagle Point, a particularly scenic spot. The settlement also provided that "[t]he deed of the District conveying the Lake Bottom Land ... shall contain a reversionary clause under which title to [the lake-bottom] shall revert to the District if the proposed excavation and filling ... shall not be completed within three years after the date of said deed."

The 9.4 acres of lake-bottom were wetlands. The Federal Water Pollution Control Act Amendments of 1972 prohibited dredging and/or filling "navigable waters" without a permit obtained under Section 404 of those amendments. See Pub.L. No. 92-500, § 404, 86 Stat. 816 (1972) (codified at 33 U.S.C. § 1344). In the mid-1970's, the Army Corps of Engineers promulgated regulations defining "navigable waters" to include wetlands. See United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 139, 106 S.Ct. 455, 88 L.Ed.2d 419 (1985) (validating the Corps' interpretation).

The Corps administers the Section 404 permit program, see 33 U.S.C. §§ 1344(a), (d) (1988), in accordance with guidelines developed in conjunction with the Environmental Protection Agency, see id. § 1344(b)--the Corps must make a "public interest review" of all permit applications, see 33 C.F.R. § 320.4(a)(1) (1988). In relevant part, these guidelines provide that "no discharge of dredged or fill material shall be permitted if there is a practicable alternative to the proposed discharge which would have less adverse impact on the aquatic ecosystem." 40 C.F.R. § 230.10(a) (1988). A housing development is considered a non-water dependent project--one that "does not require access or proximity to or siting within the special aquatic site in question to fulfill its basic purpose." Id. § 230.10(a)(3). For such projects, the guidelines create two presumptions: (1) that "practicable alternatives that do not involve [wetlands] are presumed to be available, unless clearly demonstrated otherwise," and (2) that "all practicable alternatives ... which do not involve a discharge into [protected wetlands] are presumed to have less adverse impact on the aquatic ecosystem, unless clearly demonstrated otherwise." Id. As a practical matter, this means that few, if any, dredge or fill permits will be granted for the construction of housing.

In March 1988, Big Bear applied to the local Corps office for a Section 404 permit for "a dredge and fill of approximately nine acres ... at Big Bear Lake in conjunction with a residential subdivision that will contain waterfront lots and a small marina. * * * A total of 62 acres (9 acres of filled area) will be developed with approximately 100 lots." The proposed fill would have created three peninsulas jutting out into the lake, and would have added numerous prime, lakefront lots to the development.

After filing the permit application, Big Bear, in May 1988, sold 53 acres of the uplands to Forest for $3.6 million. Five months later, in October 1988, Big Bear assigned to Forest the option to the 9.4 acres of lake-bottom, without additional payment. The owner of Forest and Big Bear stated that the $3.6 million was consideration for both the uplands and the option. Forest also took over the Section 404 permit application.

Forest exercised the option by entering into a contract to purchase from the water district the lake-bottom land. It also agreed with the water district to postpone the closing under the contract, thereby delaying the execution of the deed and avoiding the three year dredge-and-fill period established by the settlement agreement. By entering into the contract, Forest obtained equitable title to the lake-bottom land under the doctrine of equitable conversion. See County of Santa Clara v. Curtner, 245 Cal.App.2d 730, 54 Cal.Rptr. 257, 261 (Cal.Ct.App.1966).

In February 1989, however, the Corps told Forest that "[i]f we were asked for a final decision at this time with the information we currently possess, our recommendation to the District Engineer would be that the projects do not meet [the] criteria for permit issuance." Forest then modified its development to provide a "[r]evised [p]roject [that] involve[d] the creation of 123 lots on 57.6 acres of land including the planned 4.4 acres of net fill." These 4.4 acres had only one peninsula instead of three and the change apparently lessened the adverse effect of the development on the wetlands environment.

By 1991, this new, smaller development had secured the necessary state permits for the lake-bottom land. In February 1992, however, the Corps denied the permit. The Corps concluded that Forest's project could satisfy neither the Section 404 guidelines--mainly because Forest had not rebutted the presumption that there were available, less adverse "practicable alternatives to the proposed discharge"--nor the Corps' public interest review. As an alternative, the Corps suggested "a revised development proposal that would allow other possible uses of the Eagle Point property, such as higher-density lots on the available upland portions of the property."

Forest did not seek administrative or judicial review of the Corps' denial of the permit. It revised its development plan, however, to eliminate the filled peninsula and proceeded to develop the upland. Forest created 106 lots with a market price of about $12 million, at a cost of $7.1 million (the $3.6 million purchase price plus development costs). Forest has sold a number, but not all of the lots. Forest estimates that the additional lots on the proposed peninsula would have provided an additional profit of $2.36 million and claims that its equitable title to the lake-bottom now is worthless.

Forest filed the present suit in the Court of Federal Claims, seeking just compensation for the government's alleged taking of its property. It argued that the denial of the permit was a taking because it both deprived Forest of productive use of the lake-bottom land and would result in title to the lake-bottom land reverting to the water district. After a trial, the court held that there had been no taking and dismissed the complaint. In a 55-page opinion that discussed the issues in detail, the court held that because the regulation deprived Forest of only a small portion of the entire development and because the development as a whole was still profitable, "the economic impact of the regulation is not sufficiently severe to constitute a taking." Forest Properties, Inc. v. United States, 39 Fed. Cl. 56, 80 (1997).

II

The determination whether the government's denial of a permit constituted a taking of Forest's real property, for which the Fifth Amendment mandates the payment of just compensation, involves three inquiries: (A) whether the taking alleged was physical or regulatory; (B) if the alleged taking was regulatory, what was the relevant parcel for determining the economic impact of the regulation, see Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1180 (Fed.Cir.1994); and (C) did the regulatory action actually constitute a taking, see id. at 1181-82.

A. A physical taking of land occurs when the government itself occupies the property or "requires the landowner to submit to physical occupation of its land," Yee v. City of Escondido, 503 U.S. 519, 527, 112 S.Ct. 1522, 118 L.Ed.2d...