K & K Const., Inc. v. Department of Natural Resources

• Decision Date: 24 March 1998
• Docket Number: No. 13,Docket No. 106712,13
• Citation: 575 N.W.2d 531,456 Mich. 570
• Parties: , 28 Envtl. L. Rep. 21,156 K & K CONSTRUCTION, INC., J.F.K. COMPANY, and Resorts and Company, Plaintiffs-Appellees, v. DEPARTMENT OF NATURAL RESOURCES, Defendant-Appellant. Calendar
• Court: Michigan Supreme Court

Page 531

575 N.W.2d 531

456 Mich. 570, 28 Envtl. L. Rep. 21,156

K & K CONSTRUCTION, INC., J.F.K. COMPANY, and Resorts and Company, Plaintiffs-Appellees, v. DEPARTMENT OF NATURAL RESOURCES, Defendant-Appellant.

Docket No. 106712.

Calendar No. 13.

Supreme Court of Michigan.

Argued Nov. 5, 1997.

Decided March 24, 1998.

Robert L. Bunting, Oxford, for plaintiffs-appellees.

Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, A. Michael Leffler, Assistant in Charge, and Stanley F. Pruss and S. Peter Manning, Assistant Attorneys General Lansing, for defendant-appellant.

John F. Rohe and Gail S. Gruenwald, Petoskey, amicus curiae for Tipp of the Mitt Watershed Council.

Chris A. Shafer, Lansing, amicus curiae for Michigan Natural Areas Council.

Olson, Noonan, Ursu & Ringsmith, P.C. by James M. Olson, John D. Noonan, and Christopher M. Bzdok Traverse City, amicus curiae for Michigan Environmental Council, League of Women Voters of Michigan, Sierra Club, West Michigan Environmental Action Council, Michigan Land Use Institute, Ecology Center of Ann Arbor, Mid-Michigan Action Council, Citizens Against Pollution, Citizens for Alternatives to Chemical Contamination, Eastern Michigan Environmental Action Council, and Clean Water Action Council.

Lois J. Schiffer, Assistant Attorney General, W. Francesca Ferguson, Assistant United States Attorney, and Edward Shawaker and Timothy J. Dowling, Attorneys, Environment and Natural Resources Division Washington, DC, Jonathan Z. Cannon, General Counsel, and David F. Coursen, Attorney, Office of General Counsel, amicus curiae for United States Environmental Protection Agency.

Marc K. Shaye, Troy, James S. Burling, and Stephen E. Abraham Sacramento, CA, amicus curiae for Pacific Legal Foundation.

Kohl, Secrest, Wardle, Lynch, Clark & Hampton by Gerald A. Fisher (Susan Marie Connor, of counsel, American Planning Association, Chicago, IL), Farmington Hill, amicus curiae for Michigan Municipal League, Michigan Townships Association, and Public Corporation Law Section of the State Bar of Michigan.

Butzel Long by William R. Ralls, John H. Dudley, Jr., and Steven D. Weyhing, Lansing, amicus curiae for Michigan Peat, Inc.

Twohey Magginni, P.L.C. by Patrick M. Muldoon and Ralph Wyngarden (John D. Echeverria and Enrico G. Nardone, of counsel, Washington, DC), Grand Rapids, amicus curiae for Michigan Audubon Society, Detroit Audubon Society, and National Audubon Society.

Glenn P. Sugameli, Washington, DC, Carol Bambery, Lansing, and M. Cameron Davis, Ann Arbor, amicus curiae for Michigan United Conversation Clubs and National Wildlife Federation.

Opinion

MICHAEL F. CAVANAGH, Justice.

This case requires us to decide whether the denial of a permit to fill wetlands on the plaintiffs' property constitutes a regulatory taking of the property without just compensation. On two separate occasions, plaintiffs applied to the Department of Natural Resources for a permit to fill wetlands on a portion of their property so that they could commercially develop the land. Both permits were denied, and the plaintiffs filed the instant action, claiming that the permit denials constituted a regulatory taking of their land. The trial court found that the permit denials effectively rendered part of the plaintiffs' land worthless; therefore, the DNR was required to compensate the plaintiffs. The Court of Appeals affirmed. We granted leave, and we now reverse in part and remand the case to the trial court.

I

Plaintiffs J.F.K. Company and Resorts and Company own eighty-two acres of property near M-59 in Waterford Township. J.F.K. is a Michigan limited partnership, consisting of the five children of Joseph and Elaine Kosik. Resorts and Company is a Michigan copartnership, consisting of Wisconsin Resorts, Inc., and J.F.K. K & K Construction Co., Inc., is a Michigan corporation. Mr. Kosik and his son are the sole shareholders of K & K. It has no ownership interest in the property, but it has contracted with the owners to build a C.J. Barrymore's restaurant and sports complex on the property.

Mr. and Mrs. Kosik originally acquired the property in question during 1976. The property was transferred to J.F.K. by quitclaim deed in 1986 so J.F.K. could develop the land. The Kosiks retained a reversionary interest in part of the property, conditioned upon J.F.K.'s ability to obtain financing for the project. Resorts and Company obtained its interest in the property about the same time.

The trial court found that the property consists of four defined parcels, all of which are contiguous. Parcel one consists of approximately fifty-five acres, twenty-seven acres of which are wetlands. It is zoned for commercial use. ¹ Parcel two (sixteen acres) is directly south of parcel one. It contains a small portion of the wetlands. Parcel three (9.34 acres) is directly south of parcel two, and does not contain any wetlands. Parcel four (3.4 acres) borders the south side of parcel one, and the east side of parcel two. It is also free of wetlands. Parcels two, three, and four are zoned for multiple family residential housing (R-2). Parcel three has already been developed; parcels two and four have not been developed.

Plaintiffs' original plan, referred to as the "Barrymore Plan," was to build a restaurant and sports complex on fortytwo acres of parcel one, and several multiple-family residential structures with a storm-water retention pond on parcels two and four. Pursuant to this plan, plaintiffs applied for a permit to fill part of parcel one in June 1988. The DNR denied the permit, finding that approximately twenty-eight acres of the property were protected wetlands under the Wetland Protection Act (WPA), M.C.L. § 281.701 et seq.; M.S.A. § 18.595(51) et seq., since repealed and replaced. Plaintiffs did not file an administrative appeal. Instead, they filed the instant action in December 1988. In May 1990, plaintiffs submitted a second application for a permit to fill approximately three acres of wetland, while mitigating the fill by converting five acres of upland to wetland. This second application, referred to as the "Goga Plan," would have developed the primarily upland ring around the wetland, while leaving most of the wetland intact. The second permit was also denied, and again no administrative appeal was taken.

The case was tried in December 1991. The only issue before the court was whether the permit denials constituted takings of the plaintiffs' property. The trial court held that parcel one was the only property relevant to the taking analysis, and that denial of the permit to construct the restaurant and sports complex effectively rendered plaintiffs' property commercially worthless. The DNR was required to compensate plaintiffs for the full value of their property.

Once faced with a substantial adverse judgment, the DNR attempted to mitigate the loss in value of the property by allowing development to commence under the "Goga Plan." ² Even so, the trial court held that the DNR owed plaintiffs damages both for a "temporary" taking of the land that could now be developed under the Goga Plan, and also for the full value of the wetlands that were not usable under the Goga Plan. The trial court ultimately decided that the DNR was liable for approximately $3.5 million plus interest for the unusable interior wetlands, and approximately $500,000, plus interest for the temporary taking. The Court of Appeals affirmed the trial court's judgment. 217 Mich.App. 56, 551 N.W.2d 413 (1996).

II

The Fifth Amendment of the United States Constitution provides in part: "nor shall private property be taken for public use, without just compensation." ³ Similarly, the Michigan Constitution provides:

Private property shall not be taken for public use without just compensation therefor being first made or secured in a manner prescribed by law. Compensation shall be determined in proceedings in a court of record. [Const. 1963, art. 10, § 2.]

The United States Supreme Court has recognized that the government may effectively "take" a person's property by overburdening that property with regulations. As stated by Justice Holmes, "[t]he general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322 (1922). While all taking cases require a case-specific inquiry, courts have found that land use regulations effectuate a taking in two general situations: (1) where the regulation does not substantially advance a legitimate state interest, or (2) where the regulation denies an owner economically viable use of his land. Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 485, 107 S.Ct. 1232, 1242, 94 L.Ed.2d 472 (1987).

The second type of taking, where the regulation denies an owner of economically viable use of land, is further subdivided into two situations: (a) a "categorical" taking, where the owner is deprived of "all economically beneficial or productive use of land," Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015, 112 S.Ct. 2886, 2893, 120 L.Ed.2d 798 (1992); or (b) a taking recognized on the basis of the application of the traditional "balancing test" established in Penn Central Transportation Co. v. New York City, 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978).

In the former situation, the categorical taking, a reviewing court need not apply a case-specific analysis, and the owner should automatically recover for a taking of his property. Lucas, supra at 1015, 112 S.Ct. at 2893. A person may recover for this type of taking in the case of a physical invasion of his property by the government (not at issue in this case), or where a regulation forces an owner to "sacrifice all economically beneficial uses [of his land] in the name of the common good...." Id. at 1019, 112 S.Ct. at 2895 (emphasis in original). In the...