Supreme Court Clarifies Test for when Private Property is “Taken”

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In Lingle v. Chevron, Chevron challenged a Hawaii law limiting rent charged to dealers leasing stations. Hawaii hoped the law would keep retail gas prices reasonable. Chevron alleged it was an unconstitutional taking because it failed to substantially advance legitimate state interests. Hawaii courts agreed, concluding the law would not substantially reduce costs or retail prices, as oil companies would simply raise gas prices to offset the lower rents. Prior to this case, the Supreme Court held that a government regulation of private property “effects a taking if it does not substantially advance legitimate state interests,” which lower courts interpreted as a separate freestanding takings test, independent of traditional tests that focused on the impact of the government action on the property . The Hawaii courts based their decision on this test.

The Supreme Court reversed, abolishing the “substantially advances” takings inquiry, stating it “reveals nothing about the magnitude or character of the burden a particular regulation imposes upon private property rights.” Instead, the proper inquiry is to identify regulations whose effects are “functionally equivalent” to taking claims where the “government directly appropriates private property or ousts the owner from his domain.” The “substantially advances” formula necessarily forced courts to substitute their predictive judgments for those of elected legislatures and expert agencies and was thus unworkable.

The Supreme Court did reaffirm that property owners can still challenge regulations by alleging: (1) a physical taking of the property; (2) Lucas type - regulatory taking (denial of all economically beneficial use of property); (3) Penn Central - economic impact taking (which examines the economic impact of the regulation and the degree to which it interferes with investment backed expectations); and (4) Nollan & Dolanland use exaction taking (government demands property in exchange for granting discretionary permit it otherwise could deny).

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