Regulatory Procurement

With this as background, then, let us return to the problem of regulatory procurement and observe at the outset its two sides. First, government is doing countless things today that it has no authority to do, especially in the area of management. Second, the state is ignoring our rights as it goes about doing what it has no business doing. On both counts, the Court is failing to exercise its authority to restrain the government. It is failing to limit government's regulatory powers to those found in the Constitution.  Most importantly, it is failing to secure the rights that are plainly in the document.

In truth, this second aspect of the problem appears to have arisen, even before the New Deal Court opened the floodgates afforded by the doctrine of enumerated powers. It arose, interestingly, with a pair of rent-control cases that reached the Supreme Court in 1921 from the cities of New York and Washington. Faced with a claim by landlords in those cities that, without compensation, war-time rent controls had taken their property, the difference between market rents and controlled rents, Justice Oliver Wendell Holmes found that “exigent circumstances” had justified the controls and so the landlords were made to bear the costs of the 'public good' allegedly brought about by the controls. Rent controls are a blatant form of regulatory taking, of course. Nevertheless, in an era when legislation and law were increasingly justified not on principled but on policy grounds, as the Progressive Era was, the policy of “exigent circumstances” trumped principle.

A year later, however, Holmes went the other way in the famous Pennsylvania Coal case. The facts in that case are worth sketching because they have been repeated with multiple variations ever since, and help to explain why, as a policy matter, we have today so much regulation. It seems that coal companies in Pennsylvania had entered into contracts with landowners to mine under the owners’ land, dividing the estates in three: the surface estates, which the owners would continue to own and use; the underlying mineral estates, which the coal companies would exploit over time; and the intermediate support estates. As was well understood by all the parties, if these support estates were mined they might and often did give way, causing the surface estates they supported to collapse with them. Thus, the question at contract was who would bear the risk and costs of collapse if the coal companies eventually mined the support estates, as they would want in time to do. By contract, the parties agreed that the surface owners would bear that risk, for which they were paid a significant premium.

Well, not surprisingly, when that risk began eventually to materialize, the surface owners, having more votes than the coal companies, went to the Pennsylvania legislature to get a bill to prohibit the companies from mining the support estates. The bill was passed, effectively abrogating the contracts—and the companies sued, eventually reaching the Supreme Court and Justice Holmes. Rather than focus on the contractual issues, however, and reaching a result rooted in principle, Holmes issued his famous statement that if a regulation goes 'too far' and this one did, he said, it constitutes a taking requiring compensation under the Fifth Amendment's Takings Clause. The coal companies won, rightly, but the law ever after has been a giant muddle.

In fact, armed with that 'bright line' test, 'too far', the Court has given us what Justice Antonin Scalia recently called 70-odd years of ad hoc regulatory takings jurisprudence, with no one ever sure really where he stands. As in Pennsylvania, state and local legislatures around the country respond to popular pressures. Often ephemeral, even more often from special interests, and those who must forbear using their property in order to satisfy such demands are made to pay for the goods the state delivers, unless, of course, the regulations go 'too far.'

The recent case of David Lucas, which the Supreme Court decided in 1992, puts the issue in its current perspective. In 1986, Mr. Lucas paid nearly a million dollars for two lots on the outer banks near Charleston, South Carolina, with the idea of building a home for himself on one and a home to sell on the other. His plans were hardly extraordinary: in fact, there were already homes on both sides of each lot. Before building began, however, the South Carolina legislature passed a Beachfront Management Act - not to protect any private or public rights but to promote tourism, preserve habitat, and provide for several other public goods.

The effect of the Act on Mr. Lucas was to render his lots all but useless. He could picnic on them, pitch a tent, pay the taxes and insurance, but that was about it. Faced with that, and holding a mortgage of nearly a million dollars on lots that were now almost worthless, Lucas did what every red-blooded American would do—he sued. He won at trial, but on appeal was reversed, 3 to 2, by the South Carolina Supreme Court. Fortunately, the U.S. Supreme Court agreed to hear his case and, by a vote of 5 to 4, it reversed the South Carolina Supreme Court, finding that the South Carolina Act had indeed effected a taking of the property.

Two things bear mentioning here, however. First, but for a single vote on the U.S. Supreme Court, Mr. Lucas would have been forced, in effect, to dedicate a million dollars of his own money to promoting tourism, preserving habitat, and providing the various other goods the South Carolina legislature thought the citizens of the state should enjoy, but not at their own expense. Secondly, Mr. Lucas prevailed only because the Act effectively wiped him out. Had his loss been less than 100 percent, as the Court all but said, he would have had to bear that loss himself. 'You can take a man's property,' the Court effectively tells state and local legislatures across the country, just so long as you don't go 'too far,' just so long as you leave him a little.' Thus stands the Fifth Amendments Takings Clause today! If a thief says, 'Your money or your life,' and you bargain him down to half your money, none of us would have any difficulty saying that he had taken your money. However, let that thief be called the federal, state or local government and we say, 'Sorry, no taking here, you've still got half your property.' That is the bizarre state of affairs today. Indeed, the gap between the Constitution and modern constitutional law, on this as on so many other constitutional questions, is so perplexing beyond measure, that only those paid to see a connection can do so.