K & K Const. v. Deq

• Decision Date: 26 October 2005
• Docket Number: Docket No. 244455.
• Citation: 705 N.W.2d 365,267 Mich. App. 523
• Parties: K & K CONSTRUCTION, INC., and J.F.K. Investment Company, LLC, Plaintiffs-Appellees, v. DEPARTMENT OF ENVIRONMENTAL QUALITY, Defendant-Appellant.
• Court: Michigan Supreme Court

705 N.W.2d 365

267 Mich. App. 523

K & K CONSTRUCTION, INC., and J.F.K. Investment Company, LLC, Plaintiffs-Appellees, v. DEPARTMENT OF ENVIRONMENTAL QUALITY, Defendant-Appellant.

Docket No. 244455.

Court of Appeals of Michigan.

Submitted April 20, 2005, at Lansing.

Decided July 26, 2005, at 9:25 a.m.

Released for Publication October 26, 2005.

Robert L. Bunting, Oxford, Robert Charles Davis, Sterling Heights, and Richard L. Hoffman, Lake Orion, for the plaintiffs.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and S. Peter Manning, Assistant Attorney General, for the defendant.

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 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 U.S. 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:

[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, 98 S.Ct. 2646 (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 be affected by acts on a river, lake, stream, or wetland of other counties." M.C.L. § 324.30302(1)(a).⁸

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-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 N.W.2d 413 (1996) (K &amp K I), rev'd 456 Mich. 570, 575 N.W.2d 531 (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 N.W.2d 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, 575 N.W.2d 531. 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, 575 N.W.2d 531.

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

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...