In the United States Court of Federal Claims
No. 02-1078L
(Filed May 29, 2014)
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*
GARY BAILEY, *
* Fifth Amendment; regulatory takings;
Plaintiff, * summary judgment; Section 404 of the
* Clean Water Act; 33 U.S.C. § 1341;
v. * Minnesota Pollution Control Agency;
* background principles of state law;
THE UNITED STATES, * motion for reconsideration; standing
* of subsequent acquirer.
Defendant. *
*
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Alan B. Fish, Roseau, Minnesota, for plaintiff.
Joshua P. Wilson, Natural Resources Section, Environment and Natural
Resources Division, Department of Justice, with whom was Ignacia S. Moreno,
Assistant Attorney General, Washington, D.C., for defendant. Steven P. Adamski,
United States Army Corps of Engineers, St. Paul, Minnesota, of counsel.
MEMORANDUM OPINION AND ORDER
WOLSKI, Judge.
This is an action brought pursuant to the Takings Clause of the Fifth
Amendment. Plaintiff alleges that the United States, acting through the Army
Corps of Engineers (the Corps), has so restricted his use of property as to have
taken it without payment of just compensation. This regulatory takings claim
concerns plaintiff’s platted waterfront property, which he was in the process of
selling for residential development. See Bailey v. United States, 78 Fed. Cl. 239, 241
(Fed. Cl. 2007) (Bailey). In an earlier opinion the Court denied-in-part and granted-
in-part a motion by defendant for summary judgment, and denied its motion to
dismiss. See id.
Pending before the Court are defendant’s second motion for summary
judgment, which argues that plaintiff’s property could not have been taken because
plaintiff did not possess the right to develop the property into residential lots under
background principles of Minnesota law; and defendant’s motion for reconsideration
of the Court’s denial of defendant’s first motion for summary judgment, in light of
the Federal Circuit’s decision in CRV Enterprises, Inc. v. United States, 626 F.3d
1241 (Fed. Cir. 2010). As is explained below, defendant’s second motion for
summary judgment is DENIED, and its motion for reconsideration is also
DENIED.
I. FACTUAL BACKGROUND 1
Plaintiff purchased land abutting the Lake of the Woods, Lake of the Woods
County, Minnesota, in 1989. Most of the upland property, further from the lake,
was used for agricultural purposes, but plaintiff intended to develop all of his
approximately fourteen hundred feet of shoreline into residential lots. Def.’s Mot.
for Summ. J. Based upon Background Principles, App., (Def.’s 2nd App.), Attach. 1
at 1–3, ECF No. 88-1. Plaintiff named this portion of his land “Sunny Beach” and
began preparing it for development around 1998. Id. at 3.
Plaintiff first applied to the County Board of Lake of the Woods County to
plat the property into fourteen separate lots. Id. On December 22, 1998, the
County Board approved the proposal, which created lots bordered by the lake to the
east and plaintiff’s newly constructed road to the west. Id. Though plaintiff’s plat
was approved by the County Board, he did not have the required Section 401
certification or Section 404 permit when he began improving his property. Id.
Section 401 certifications are issued by the Minnesota Pollution Control
Agency (MPCA) in order to ensure development proposals meet Minnesota’s
applicable water standards. See Minn. R. 7001.1400–.1470, subp.1.C. (2007).
Section 404 permits, on the other hand, are issued by the Corps and are required in
order to begin construction in a wetland. See Federal Water Pollution Control Act,
§ 404, 33 U.S.C. § 1344. Section 404 permits cannot be issued until the appropriate
state agency has certified the proposed development (here the MPCA’s Section 401
certification). See Clean Water Act, 33 U.S.C. § 1341(a)(1) (2006) (“Any applicant
for a federal permit to conduct any activity . . . which may result in any discharge
into navigable waters, shall provide the licensing or permitting agency a
certification from the State in which the discharge originates”).
Plaintiff did not attempt to obtain either a Section 401 certification or a
Section 404 permit before he “roughed in a road” connecting his proposed lots with
Sandy Shores Drive during the summer of 1998. Def.’s Mot. for Summ. J., App.,
(Def.’s App.) at 74, ECF No. 48. Plaintiff subsequently applied for an after-the-fact
1 A more complete discussion of the factual and procedural background is set out in
the Court’s earlier opinion. See Bailey 78 Fed. Cl. at 241–247.
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Section 404 permit from the Corps for this road. Def.’s 2nd App., Attach. 1 at 4.
This application also functioned as an application for a Section 401 certification and
prompted the MPCA to issue a request for more information (RFI) to plaintiff. Id.
at 5. Despite plaintiff’s failure to respond to any of the MPCA’s RFIs, the MPCA
issued an after-the-fact Section 401 certification for plaintiff’s access road on
December 17, 1999. Id. at 6–7; Def.’s App. at 135–37.
In late August 2000, based on concerns regarding plaintiff’s development, the
Corps conducted a “formal on-site wetland delineation” of Sunny Beach. Def.’s 2nd
App., Attach. 1 at 9. The Corps determined that the site was “99 percent . . . high
quality wetland.” Id. On October 4, 2000, due in significant part to the Corps’s new
information and wetland delineation, the MPCA revoked plaintiff’s Section 401
certificate. Def.’s App. at 137–38.
The MPCA’s Section 401 certification revocation did not preclude all future
development of plaintiff’s waterfront lots. Id. at 138. The MPCA explained that
plaintiff could reapply for permitting if he included information concerning the
extent of wetlands on the property; how septic systems would comply with state
regulations; and how wetland impact would be minimized in accordance with state
law. Id. The revocation letter also specifically noted three possible ways in which
an Individual Sewer Treatment System (ISTS) could be permitted on the site,
though the MPCA later determined that at least six of the lots could not support an
ISTS. Id.; Def.’s 2nd App., Attach. 1 at 14.
On June 12, 2001, following further analysis of the potential environmental
impact of plaintiff’s proposed project, the Corps denied plaintiff’s after-the-fact
Section 404 permit application to extend Sandy Shores Drive, on the basis that the
road project --- which “cannot be separated from lot development” --- was contrary to
the public interest. Def.’s App. at 213, 224. The Corps believed that “[r]etention of
the dredged and fill material would contribute to unacceptable degradation of a
valuable wetland resource and the adjacent Lake of the Woods,” and noted that
“[t]he hardwood swamp impacted by the project has high functional values for water
quality protection, shoreline protection, wildlife habitat, and floristic
diversity/integrity.” Id. The Corps explained:
The purpose of the unauthorized road is to facilitate potential
residential development in a hardwood swamp. Thirteen of the 14
proposed lots are composed of wetlands with the exception of a small
upland island in lots 3 and 4. Roads and residential development are
not water-dependent activities and the presumption that less
environmentally damaging alternatives exist (e.g., upland sites) has
not been rebutted.
Id. at 214.
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An accompanying report by Corps staff found that plaintiff’s property was a
valuable wetland resource “poorly-suited to residential development.” Id. at 225.
Thus, in contrast to the MPCA, the Corps’s rejection left little or no possibility that
a Section 404 permit might be issued under different circumstances. The Corps’s
evaluators opined:
Overall, [plaintiff’s property] is a poorly-sited development proposal
that would likely be subject to flooding, septic system failure, high
building maintenance costs, and shoreline erosion. A less
environmentally damaging alternative would be to seek an alternate,
upland development site that is more suitable for lakeshore
development.
....
[I]t is the recommendation of the Regulatory Branch that a permit be
denied for the proposed project [and the alternative project]. Further,
the staff recommends complete restoration . . . .
Id. at 245. 2
The relevant decision maker, the Corps’s District Engineer, found “[t]here are
presumed to be practicable alternatives to the discharge that would have less
adverse effect on the aquatic ecosystem, and these alternatives would not have
other significant adverse environmental consequences.” Id. at 246. He found this
“presumption has not been rebutted,” and that “[t]he discharge would result in
significant degradation of the aquatic ecosystem” and “does not include all
appropriate and practicable measures to minimize potential harm to the aquatic
ecosystem.” Id. at 246–47.
Three months later the Corps ordered plaintiff to remove the access road and
its ditches and return the Sandy Beach lots to their natural wetland condition.
Def.’s App. at 308–09. The order stated:
Restoration would confer maximum environmental benefits by
reestablishing wetland functions and values of high quality wetlands
adjacent to an internationally important waterbody. Restoration
would be equitable in that the Corps informed you of the need for a
Section 404 permit before the project . . . . Furthermore, you profited
from the sale of lots associated with the unauthorized work.
2 The staff report recognized the possibility that a public sewer line could serve the
property, but noted that there were not “any plans submitted proposing such public
systems.” Def.’s App. at 230.
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Id. at 308. The order required plaintiff to remove all dredged material (except for
the southernmost 123 feet of road abutting lots 1 and 2), fill the associated ditches,
seed the area with a certain seed mix, and control for invasive weed species. Id. at
308–09. This restoration was to be completed between July 1 and August 15, 2002.
Id. Removal of this road would deny plaintiff vehicular access to lots 3 to 13. Id. at
219.
After plaintiff contested the MPCA’s denial of his Section 401 certification,
the MPCA held a public hearing, conducted by an administrative law judge (ALJ),
from July 23 to 25, 2003. Def.’s 2nd App., Attach. 1. The ALJ produced a report
which contained his findings of fact and concluded that the plaintiff had failed to
disclose all relevant information to the MPCA; that the proposed development
would potentially discharge sewage into the soil and water; and that the road, as
built, harmed the environment. Id. at 2–15.
The Commissioner of the MPCA later reviewed the ALJ’s report and issued a
document titled “statement of the issue, findings of fact, conclusions and order.”
Def.’s 2nd App., Attach. 16. The Commissioner largely adopted the ALJ’s findings
of fact with some minor modifications. Id. at 2–5. (“[T]he proposed Sunny Beach
project endangers human health and the environment. . . . [T]here is no evidence of
the existence of soil conditions at the Sunny Beach project site that comply with
MPCA’s individual sewage treatment ISTS rules. The discharge of sewage without
adequate treatment will create [a] nuisance . . . .”). Based on the foregoing the
Commissioner affirmed the MPCA’s revocation of the Section 401 certification. Id.
at 6. Plaintiff then filed suit against the MPCA, but the case was dismissed on a
motion for summary judgment and was unsuccessfully appealed. See Bailey v.
Minnesota Pollution Control Agency, No. A07-2255, 2008 WL 4777917 (Minn. App.
Nov. 4, 2008).
In the midst of this permitting process, starting after the plat was approved
in December 1998, plaintiff began selling the fourteen Sunny Acre lots (numbered
1–14) to various purchasers. There are two dates when plaintiff’s interests in the
lots are relevant: June 12, 2001, when the after-the-fact permit was denied; and
October 22, 2001, when the restoration order was issued. On June 12, 2001 plaintiff
had a fee simple interest in lot 1; a security interest in lots 2, 3, 9, 10, and 12–14;
and no interest in lots 4–7, 8, and 11. See Bailey, 78 Fed. Cl. at 257. By October 22,
2001 plaintiff had a fee simple interest in lots 1, 4–6, and 10, as well as a security
interest in lots 2, 3, 9, and 12–14 (but still no interest in lots 7, 8, and 11). Id.
II. PROCEDURAL BACKGROUND
Plaintiff filed a complaint with the United States Court of Federal Claims on
August 29, 2002. Following a stay of proceedings to allow resolution of a parallel
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district court action, 3 on February 16, 2005, defendant filed a motion to dismiss the
case under Rule 12(b)(1) of the Rules of the United States Court of Federal Claims
(RCFC), and for summary judgment under RCFC 56. Defendant offered several
arguments in support of its motion. See Def.’s Mot. to Dismiss (Def.’s Mot.) at 16–
25. First, defendant argued that because plaintiff questioned the validity of the
Corps’s restoration order on the basis that Lake of the Woods County was
responsible for the road, plaintiff could not assert a taking. Id. at 17–18. Second,
defendant argued that plaintiff did not have a property interest in thirteen of the
fourteen lots at the time of the alleged taking and therefore lacked standing to seek
compensation. Id. at 17, 19–24. Similarly, defendant also claimed that the plaintiff
did not own the road at the time of the permit denial, and thus, lacked standing. Id.
at 19–20. Last, defendant argued that because the Corps’s alleged taking involved
denial of an after-the-fact permit there could be no taking: the road, according to the
defendant, “continues to exist.” Id. at 24–26.
The Court granted defendant’s motion for summary judgment regarding lots
7, 8, and 11 because plaintiff owned neither a fee simple interest nor a security
interest, but denied defendant’s motion for summary judgment regarding all other
lots. Bailey, 78 Fed. Cl. at 275, 281. The Court held that plaintiff could “seek
compensation for the alleged taking of the fee simple interest in lots [1,] 4, 5, 6, and
10, even were the Section 404 permit denial the basis for the takings claims.” Id. at
274 (citation omitted). The Court also held that plaintiff possessed a vendor’s lien
and legal title as security for lots 2, 3, 9, 12 and 14 and a security interest as the
mortgagee of lot 13. Id. at 276. The government’s motions were denied in all other
respects. See id. at 253, 256, 280.
After the close of fact discovery, defendant filed its second motion for
summary judgment. See Def.’s Mot. for Summ. J. Based upon Background
Principles (Def.’s 2nd Mot.), ECF No. 88. The government argues that, in revoking
plaintiff’s Section 401 certification, the state of Minnesota determined that
plaintiff’s proposed residential use of the Sunny Beach property would create a
nuisance, and thus such use is not included among his property interests. Mem. in
Supp. of Def.’s 2nd Mot. (Def.’s Br.) at 1–2, 18–25. 4 While this motion was pending,
defendant has moved for reconsideration of the Court’s denial of summary judgment
regarding the fee simple interests in lots 4, 5, 6, and 10, on the ground that this
result is compelled by the decision in CRV Enterprises. See Supp’l Br. and Mot. for
3 In district court, plaintiff unsuccessfully challenged the MPCA’s revocation of his
401 certification. Bailey v. U.S. Army Corps of Engineers, No. Civ. 02-639, 2003 WL
21877903 (D. Minn) (Aug. 7, 2003).
4 The government’s supporting memorandum is part of the document containing its
motion, ECF No. 88, beginning at page 8 of that filing. Citations are to the internal
pagination of that portion of the filing.
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Recon. (Def.’s Mot. for Recons.) at 1–7 (discussing CRV Enters., 626 F.3d at 1248–
50), ECF No. 123.
III. DISCUSSION
A. Defendant’s Motion for Reconsideration
In the previous opinion in this case, the Court considered defendant’s
argument that plaintiff would lack standing to sue for the taking of lots sold by him
prior to the date of the alleged taking and reacquired afterwards. See Bailey, 78
Fed. Cl. at 258–75. The rule cited by the government stated: “It is axiomatic that
only persons with a valid property interest at the time of the taking are entitled to
compensation.” Wyatt v. United States, 271 F.3d 1090, 1096 (Fed. Cir. 2001). But
the case expressing that rule did not involve a regulatory taking and a post-taking
acquirer, and the other two precedents cited by the government concerned physical
takings. See Bailey, 78 Fed. Cl. at 259, 268–69 (discussing United States v. Dow,
357 U.S. 17, 18–23 (1958), Wyatt, 271 F.3d at 1096, and Cavin v. United States, 956
F.2d 1131, 1134–35 (Fed. Cir. 1992)). A thorough canvassing of binding precedents
revealed none that applied the rule to a post-regulatory-taking acquirer, and
established that the rule was based on the reasoning that the permanent physical
occupation of real property by the government, or the completion of eminent domain
proceedings, removes the affected property interests from private ownership. Id. at
259–64, 268–74. 5
That the rule was based on the presumption of the permanent physical use or
occupation of real property by the government was confirmed by the Court of
Claims opinion in Eyherabide v. United States, 170 Ct. Cl. 598 (1965), in which the
physical use of real property by the federal government was intended to be
temporary and a subsequent purchaser was found to be entitled to just
compensation. See Bailey, 78 Fed. Cl. at 269–70 (discussing Eyherabide, 170 Ct. Cl.
at 605–08). And the basis for the rule was found to be of particular significance in
5 The rule has been applied in avigation easement cases involving the physical use
of private airspace. See, e.g., Lacey v. United States, 219 Ct. Cl. 551, 560–61 (1979);
Vroman v. United States, 147 Ct. Cl. 285, 287–88 (1959). While Federal Circuit
precedent suggests that such takings may be based on the imposition of an
uncompensated nuisance, and thus not necessarily involve a direct physical
invasion, see Argent v. United States, 124 F.3d 1277, 1282–84 (Fed. Cir. 1997), “the
resulting taking still more resembles a physical than a regulatory taking.” Bailey,
78 Fed. Cl. at 269 n.54. Even if such a hybrid taking were viewed as of the
regulatory variety, the context of a military decision to locate and operate jet
aircraft at a particular location could normally be assumed permanent for takings
purposes. Cf. Speir v. United States, 202 Ct. Cl. 1020, 1026 (1973) (finding wartime
helicopter training was not intended to be permanent).
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light of developments in regulatory takings jurisprudence, as both the Supreme
Court and the Federal Circuit have recognized that governments found liable for
regulatory takings retain the option of loosening the restriction at issue, converting
the taking to a temporary one that is less costly to the public fisc. See id. at 270
(citing, inter alia, First English Evangelical Lutheran Church of Glendale v. County
of Los Angeles, 482 U.S. 304, 318–19, 321 (1987), and Seiber v. United States, 364
F.3d 1356, 1365 (Fed. Cir. 2004)). Thus, the presumption that “when the
government makes physical use of private property, by flooding it, or running a road
or a pipe line through it, or burdening it with the interference from a squadron of
jets,” id. at 272, such use is of a permanent nature, would not seem to apply in the
regulatory taking context. In other words, the notion that the prospect of
permanent takings liability could induce the government to change course is more
easily indulged when the relevant activity is issuing a command on paper, rather
than erecting a physical structure for the government’s use.
Since the “owner at the time” rule rests on a presumption of permanence that
does not normally obtain in the regulatory takings context, the extension of the rule
to cover regulatory takings in general would seem to be unfounded and, thus,
arbitrary, in the absence of some other justification. This would explain the
absence of any binding precedents applying the rule to a party who obtained
property after a regulatory taking was alleged to occur. The Court denied
defendant’s motion, holding that “just compensation for the regulatory taking of
real property interests may be owed to owners who have acquired their property
interests after the onset of the taking.” Bailey, 78 Fed. Cl. at 274. The Court
permitted plaintiff to seek compensation for the alleged regulatory taking of lots 1,
4, 5, 6, and 10, which plaintiff possessed in fee simple at the time the restoration
order was issued, as well as for taking security interests in lots 2, 3, 9, 12, 13, and
14. Id. at 274, 279. The Court granted defendant’s motion to dismiss plaintiff’s
claims regarding lots 7, 8, and 11, which he sold before the Corps’s permit denial
and never reacquired. Id. at 275. Then it came to the Court’s attention that the
rule was subsequently applied in the context of a regulatory taking in CRV
Enterprises, Inc. v. United States, 626 F.3d 1241, 1249–50 (Fed. Cir. 2010), and the
Court requested briefing on the subject.
In CRV Enterprises, the appellants purchased property accessible via
waterway after the Environmental Protection Agency (EPA) issued a final record of
decision (ROD) stating that it would install a log boom blocking boat access to
appellants’ property, but before the EPA actually installed the log boom. Id. at
1243–45. Appellants brought suit after the log boom was installed. Id. at 1245.
The Circuit held that the regulatory takings claim ripened when the agency issued
its ROD, since it represented a final agency decision, and not when the log boom
was actually installed. Id. 1249–50. Because appellants purchased the parcel after
the ROD issued, the Circuit held that plaintiffs lacked standing to bring a
regulatory takings claim. Id. at 1250.
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In response to the Court’s order that the parties file supplemental briefs on
the relevance of CRV Enterprises, defendant filed a brief and the pending motion for
reconsideration of the Court’s previous denial summary judgment motion “with
respect to Lots 4, 5, 6, and 10.” Def.’s Mot. for Recons. at 1–2. Defendant argues
that CRV Enterprises “confirms the United States’ summary judgment position that
plaintiff lacks standing to pursue a regulatory takings claim with respect to
property interests that he did not hold at the time his alleged claim accrued.” Id.
(citing CRV Enters., 626 F.3d at 1250). Defendant argues that because the Court
previously held that plaintiff did not own lots 4, 5, 6, or 10 on the date of the denial
of the after-the-fact Section 404 permit by the Corps, and acquired the property
later, the situation is analogous to the one in CRV Enterprises. Id. at 4–5. As a
result, defendant asks the Court to reverse its previous ruling and dismiss the
plaintiff’s claims with respect to lots 4, 5, 6, and 10 of Sunny Beach and hold that
plaintiff lacks standing to pursue regulatory takings claims with respect to those
lots. Id. at 7. Plaintiff opposes reconsideration of this ruling, see Pl’s Supp’l Reply
at 1–2, 5–8, ECF No. 124; see also Pl.’s Supp’l Br. at 1–7, ECF No. 122.
The Court may reconsider its August 10, 2007 ruling pursuant to RCFC
54(b), which allows the court to reconsider any order or decision that adjudicates
fewer than all the claims prior to issuance of judgment on all the claims.
Reconsideration under RCFC 54(b) is available “as justice requires,” and granting a
motion to reconsider may be done under a “less rigorous” standard than a motion to
reconsider a final judgment. Martin v. United States, 101 Fed. Cl. 664, 670–71
(2011) (quotation marks omitted). When controlling legal authority upon which a
court relied changes during the course of litigation, a court may and should address
any effect this change in authority or precedent may have. See L-3 Commc’ns
Integrated Sys., L.P. v. United States, 98 Fed. Cl. 45, 48–49 (2011).
After carefully considering the previous ruling and the Federal Circuit’s
decision in CRV Enterprises, the Court concludes that reconsideration is not
warranted. As was discussed above, CRV Enterprises involved a claim by property
owners that their property was taken without just compensation when the
Environmental Protection Agency (EPA) erected a log boom preventing the property
owners from using a slough adjacent to their property. CRV Enters. 626 F.3d at
1241. The Federal Circuit analyzed the alleged taking as both a physical taking
and as a regulatory taking, rejecting the claim either way. The Federal Circuit
rejected a physical takings argument because the log boom was not on the
appellants’ property and there was no physical appropriation or destruction of
water that the appellants had a right to use. Id. at 1246–48. It also held that the
appellants lacked standing to challenge the restriction on their use of the slough
under a regulatory takings framework because the plaintiffs purchased the property
after the EPA issued the ROD “requir[ing] the installation of a log boom.” Id. at
1250.
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The Court finds that CRV Enterprises is not inconsistent with the earlier
opinion in this case. As was recounted above, the “owner at the time” rule turns on
the presumed permanence of takings accomplished by the physical construction of
roads, dams, landing fields and the like. Even when analyzed as a regulatory
taking that ripened upon the issuance of a piece of paper, the ROD, the restriction
on the property owners’ use of water rights in CRV Enterprises was not any
command governing their behavior, but the decision to install a log boom to protect
a Superfund site. Id. This, then, would still come under the rule that when the
government makes physical use of property by building a structure, any property
interests taken by this activity are permanently appropriated by the government at
that time. See, e.g., Dow, 357 U.S. at 22 (explaining that compensation is due “[t]he
owner at the time the Government takes possession”); Danforth v. United States,
308 U.S. 271, 284, 286 (1939) (explaining that a taking “in actuality” occurs upon
“such construction as would put upon this land a burden, actually experienced”);
Transp. Co. v. Chicago, 99 U.S. 635, 642 (1879) (explaining a “permanent flooding”
of property resulted in a taking when “there was a physical invasion of the real
estate of the private owner, and a practical ouster of his possession”). Indeed, the
possibility that the log boom would be only a temporary interference with use of the
slough was not even entertained in the CRV Enterprises opinion, which stressed
that after the ROD issued “it was clear the United States’ action would be
permanent.” CRV Enters., 626 F.3d at 1250.
Moreover, none of the cases relied upon by the CRV Enterprises opinion
involved the question of a subsequent acquirer of a property interest bringing a
regulatory takings claim. In addition to Wyatt, the opinion cites Huntleigh USA
Corp. v. United States, 525 F.3d 1370 (Fed. Cir. 2008), a case in which the
ownership of valid property interests at the time of the taking was undisputed, id.
at 1378, and two cases which concerned the very existence of protected interests,
not the timing of their acquisition. See CRV Enters., 626 F.3d at 1249 (citing Bair v.
United States, 515 F.3d 1323, 1327 (Fed. Cir. 2008) and Cienega Gardens v. United
States, 331 F.3d 1319, 1328 (Fed. Cir. 2003)). Thus, when the Federal Circuit
concludes that “[b]ecause the claim accrued and ripened before plaintiffs acquired
the property, plaintiffs cannot state a regulatory takings claim,” id. at 1250, the
Court finds no reason for extending this rule beyond the particular circumstances of
the physical construction of a structure that is presumed to permanently interfere
with property usage. 6
6 The Court also notes, as did plaintiff, see Pl.’s Supp’l Br. at 2, ECF No. 122, that
the application of the “owner at the time” rule was conceded by the property owners
in CRV Enterprises, and thus its relevance to regulatory takings was not actually at
issue in the case. See CRV Enters., 626 F.3d at 1249.
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Accordingly, the Court is satisfied that the earlier opinion correctly applied
the law. The motion for reconsideration is DENIED.
B. Defendant’s Second Motion for Summary Judgment
Defendant’s second motion for summary judgment rests on the argument
that plaintiff cannot demonstrate that he possessed any property interest in the
lake front lots. Def.’s Br. at 1–2. More specifically, defendant contends that the
MPCA, acting on behalf of the state, prohibited all residential development of
Sunny Beach due to the application of nuisance law, and thus the Corps’s permit
denial could not have been a taking --- as it could not deprive plaintiff of something
he did not possess. Id. at 1. 7 Defendant argues that “applying its own intrinsic law,
the state determined that neither plaintiff, nor any other owner, could possess a
stick in their bundle of property rights that would allow them to locate residential
development on the lake front lots at issue in this case.” Id. But, as will be seen,
the background principle established by the MPCA is that plaintiff does not have
the right to develop his property as proposed using a mound ISTS. Whether
plaintiff has other rights under Minnesota law to develop residential lots on Sunny
Beach remains a genuine issue of material fact.
Defendant’s argument is predicated on two assumptions: that the MPCA (or
another state law or agency) prohibited any residential development of plaintiff’s
waterfront property on the basis that plaintiff’s proposed development would
necessarily create a nuisance; and, second, that the Corps did not impose any
greater limitations on plaintiff’s property than those imposed by the state.
Otherwise stated, plaintiff would have lacked a viable right to use his property at
the time the Corps denied plaintiff’s Section 404 permit if the state of Minnesota,
applying its own background principles of nuisance law, had prohibited any
development of Sunny Beach. Defendant’s factual support for these two
assumptions is set forth below.
7 This motion was extensively (and exhaustively) briefed. See, e.g., Def.’s Br.; Def.’s
Prop. Findings of Fact, ECF No. 89; Pl.s Mem. in Opp’n (Pl.’s Opp’n), ECF No. 93;
Aff. of Alan Fish, ECF No. 94; Reply in Supp. of Def.’s Mot. (Def.’s Reply), ECF No.
97; Pl.’s Resp. to Prop. Findings of Fact, ECF No. 102; Pl.’s Supp’l Br., ECF No. 103;
Def.’s Supp’l Br., ECF No. 107; Def.’s Resp. to Pl.’s Supp’l Br., ECF No. 109; Pl’s
Supp’l Reply, ECF No. 110; Def.’s Notice of Supp’l Auth., ECF 113; Pl.’s Resp. to
Supp’l Auth., ECF No. 115; Def.’s Resp. to Pl.’s Mem., ECF No. 117. Although all
filings have been considered, for the sake of convenience not all are referenced in
this opinion.
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1. The MPCA’s Section 401 Certification Denial
Plaintiff’s proposed development requires a Section 401 certification from the
state and a Section 404 permit from the Corps. Section 401 certifications ensure
compliance with the state’s water quality standards and other requirements of state
law. Although the MPCA first conditionally approved plaintiff’s Section 401
certification on December 17, 1999, it later revoked plaintiff’s Section 401
certification on October 4, 2000, based on its greater understanding of the nature of
plaintiff’s property. As a result of the revocation, plaintiff is prohibited from
developing his lake front property in the manner originally proposed.
Defendant argues that the MPCA’s revocation prohibited plaintiff from all
“residential development on the lake front lots” because the soil was “not adequate
for the septic system that [plaintiff] proposed.” Def.’s 2nd Mot. at 15–16, (citing
Def.’s 2nd App., Attach. 11 at 8–31). In addition to the inadequacy of the soil for
ISTS, defendant argues that the MPCA also found that “six of the lots did not have
sufficient area [for the ISTS] and that another four required [additional analysis].”
Def.’s 2nd Mot. at 9, Def.’s 2nd App., Attach. 11 at 21. Defendant cites the MPCA
Commissioner’s conclusions, which state in part:
In particular, sewage is likely to be discharged without adequate
treatment. This situation exists because there is no evidence of the
existence of soil conditions at the Sunny Beach project site that comply
with MPCA’s individual sewage treatment system (ISTS) rules. The
discharge of sewage without adequate treatment will create nuisance
conditions and an imminent public health threat and violate other
MPCA rules . . . .
Id. at 21 (citing Def.’s 2nd App., Attach. 16 at 5).
2. The Corps’s Section 404 Permit Denial
On June 12, 2001 the Corps denied plaintiff’s after-the-fact Section 404
permit request to extend Sunny Beach Drive on the basis that it was “contrary to
public interest.” Def.’s App. at 213. The Corps determined that “[r]etention of the
dredged and fill material would contribute to unacceptable degradation of a
valuable wetland resource” and believed that the possibilities of residential
development using “less environmentally damaging alternatives exist (e.g., upland
sites).” Def.’s App. at 213–14. The Corps specifically noted that the proposed road
would be used to access residential development of a “valuable wetland” and that
the Corps also considered the impact of the total development in evaluating the
permit for the road. Id. at 214, 220. The Corps’s staff report described the site
itself as “poorly suited to residential development” and believed that “the
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presumption that less environmentally damaging alternative are available has not
been rebutted.” Id. at 225–26.
The Corps’s staff explored alternatives available to the plaintiff, noting that
“sale of the property could generate funds towards purchase of upland lakeshore
property.” Id. at 226. Additionally, the staff report did not believe that the plaintiff
could successfully mitigate the effects of his development through offsite mitigation.
Id. at 226–228 (“The proposed compensatory mitigation would not adequately
replace the functions lost or adversely impacted by the project . . . . Offsetting loss of
a hardwood swamp through in-kind compensation would take a minimum of 25
years . . . . Such compensation is high risk as successfully creating or restoring
forested wetlands is difficult.”). The report concluded that immitigable
environmental harms “would exist as long as the road and lakeshore lots would be
used.” Id. at 245.
The report also expressed concern that Lake of the Woods is an area of
growing development. Id. at 241. (“The Corps recently reviewed four other
additional permit applications . . . . [The] 519 acres south of the project site may be
proposed for a similar lakeshore development.”). Denial of plaintiff’s development
was significant, in part, because approval “would likely set a precedent for approval
of similar projects resulting in adverse, cumulative impacts that would contribute to
the depredation of Lake of the Woods.” Id. at 245. Finally, the staff report not only
rejected the plaintiff’s proposal but recommended “complete restoration” of the site.
Id. at 246.
After reviewing and considering the recommendation of the staff, the Corps’s
District Engineer denied the after-the-fact permit, for three reasons. First, he
found unrebutted the presumption that there existed “practicable alternatives . . .
that would have less adverse effect on the aquatic ecosystem” and “would not have
other significant adverse environmental consequences.” Id. Second, he felt
approval “would result in significant degradation of the aquatic ecosystem.” Id. at
247. And finally, he believed the “discharge” for which approval was sought “does
not include all appropriate and practicable measures to minimize potential harm to
the aquatic ecosystem.” Id.
Determining whether a plaintiff has alleged a cognizable property interest
first requires “identify[ing] what, if anything, was the subject of the alleged taking.”
Acceptance Ins. Cos. Inc. v. United States, 583 F.3d 849, 855 (Fed. Cir. 2009). A
court must identify “the use interest proscribed by the governmental action” and
determine whether that use “was part of the owner's title to begin with, i.e.,
whether the land use interest was a ‘stick in the bundle of property rights’ acquired
by the owner.” M & J Coal Co. v. United States, 47 F.3d 1148, 1154 (Fed. Cir.1995)
(citing Lucas v. South Carolina Costal Council, 505 U.S. 1003, 1027 (1992)).
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Determining the permissible uses of property requires a court to analyze
“existing rules and understandings and background principles derived from an
independent source, such as state, federal, or common law, [to] define the
dimensions of the requisite property rights for purposes of establishing a cognizable
taking.” Air Pegasus of D.C., Inc. v. United States, 424 F.3d 1206, 1212–13 (Fed.
Cir. 2005) (internal quotation marks omitted). For defendant to rely on state
background principles of nuisance and property law it must do no more than
replicate the limitations embedded in state law. Lucas, 505 U.S. at 1029; John R.
Sand & Gravel Co. v. United States, 62 Fed. Cl. 556, 589 (2004), vacated on other
grounds¸ 457 F.3d 1345 (2006), aff’d 1522 U.S. 130 (2008); Rith Energy, Inc. v.
United States, 44 Fed. Cl. 108, 115 (1999), aff’d on other grounds, 247 F.3d 1355
(Fed. Cir. 2001). Defendant must show that it is undisputed that plaintiff had no
right to use his property for residential development. See Celotex Corp. v. Catrett,
477 U.S. 317, 322–23 (1986). Should the evidence be inconclusive as to this
material fact, defendant’s motion for summary judgment must fail. Id.; see also
RCFC 56(a), (c).
3. There Is a Genuine Issue of Material Fact Concerning Plaintiff’s Right to
Develop Sunny Beach under Minnesota Law
Defendant’s argument fails because it is predicated on an unsupported
assumption, namely, that the state’s revocation of the 401 certification forecloses all
residential uses of the property. In its motion for summary judgment defendant
argues that ISTS cannot be installed on plaintiff’s property because the soil is
inadequate on all lots and because some lots have insufficient upland area to
support the systems. Def.’s Br. at 29–31. Additionally, defendant argues that
plaintiff cannot show that an alternative septic system could feasibly work on the
Sunny Beach lots. Def.’s Reply at 9. Defendant relies primarily on three sources:
the testimony of Mr. Wespetal, the MPCA’s soil scientist; the ALJ’s report; and the
MPCA Commissioner’s order. Id. Each of these sources suffers the same deficiency:
it only addresses the use of ISTS on plaintiff’s property as proposed by plaintiff and
not the right to develop residential lots using alternative septic systems or plans.
Indeed, the record contains some evidence showing that the extent of
plaintiff’s ability to develop Sunny Beach into residential lots under Minnesota
state law is uncertain. Plaintiff argues that the residential development
immediately north of his proposed development has an MPCA approved septic
system. Pl.’s Opp’n at 12–13. This is consistent with the Corps’s description of the
area in its after-the-fact permit denial. Def.’s App. at 219–46. The presence of a
development on Lake of the Woods, immediately adjacent to Sunny Beach, suggests
that there may be an alternative septic system that would allow plaintiff to develop
his land into residential lots. See Fish Aff., Ex. 14, at A-332 to A-372, ECF No. 94-
15. Plaintiff also claims that the local government previously informed him that
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sewers could be used on the property. Pl.’s Opp’n at 13. 8 The MPCA itself has
publicly taken the position that Mr. Bailey may still seek a variance or propose
another development option, see Fish Aff., Ex. 5 at A-156 to 57, and its revocation of
the Section 401 certification identified three ways in which the ISTS requirements
could potentially be satisfied. Def.’s 2nd App. at 2.
Further, evidence has been submitted that alternative development plans
could comply with Minnesota state law. For example, the Corps’s after-the-fact
permit denial notes that lots 3 and 4 have a small upland island that is not wetland
and that lot 1 is effectively drained by an old drainage ditch. Def.’s App. at 231.
And plaintiff has also identified at least two alternative approaches to sewage
treatment that might satisfy the state requirements. See Fish Aff., Ex. 4 at A-133
to 36.
Moreover, Mr. Wespetal’s testimony was limited to the use of a mound
system, which was “the type of system commonly used in areas with wet soils.”
Def.’s 2nd App., Attach. 11 at 29. He testified that there are at least eleven types of
septic treatment systems and that he did not explore the use of any of them other
than the mound system. Id. at 26; Pl.’s Opp’n at 11. When plaintiff’s counsel asked
him if he had considered off-site septic systems, he said he had not. Def.’s 2nd App.,
Attach. 11 at 29. And Mr. Wespetal even left open the possibility that some of the
Sunny Beach lots may have enough upland area to support a mound system. Id. at
21. Given these limitations the Court cannot extrapolate from Mr. Wespetal’s
testimony the conclusion that no septic system exists which could conform to
Minnesota law and support residential development on plaintiff’s property.
This evidence establishes that plaintiff is prohibited by Minnesota’s
background principles of nuisance law 9 from developing Sunny Beach into
8 As noted above, see n.2, supra, the Corps’ staff recognized the possibility that a
public sewer line could serve the property. Def.’s App. at 230.
9 Although collateral estoppel may attach to the MPCA Commissioner’s affirmance
of the Section 401 certification revocation, that decision did not consider all possible
residential development, just the proposal using the mound ISTS. In any event, if
the appeal had considered other possible residential development of Sunny Beach,
those considerations do not bind the Court. Under Minnesota law, the issue to be
precluded must be necessary for agency adjudication and properly before the
agency. Graham v. Special Sch. Dist. No. 1, 472 N.W.2d 114, 117 (Minn. 1991).
Additionally, for issue preclusion to apply the issue to be precluded must also be the
same as the issue raised in the prior agency adjudication. Id. at 116. A
determination whether any septic system would comply with state law if used
within the confines of Sunny Beach was not the issue before the MPCA, and
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residential lots using the proposed plan and using a mound ISTS. But it is far from
clear that plaintiff has no right under Minnesota law to develop Sunny Beach into
residential lots.
That residential development of Sunny Beach is not necessarily precluded by
the MPCA decision is of significance, as the Corps’s denial of the Section 404 permit
appears to have rested on much broader grounds than any nuisance that would be
created by the specific proposal. As was detailed above, while the staff report
discussed the MPCA’s revocation of the Section 401 certification, see Def.’s App. at
221–22, and noted the possibility of septic system failure, id. at 225, 230–31, 236,
245, the decision of the District Engineer rested on the presumption that Mr. Bailey
could obtain other (non-wetland) property that it believed was better suited for
residential development, and on general concerns of the impact on “the aquatic
ecosystem” associated with his wetlands, id. at 213–14, 246–47. How much more
restrictive the Corps’s decisions were compared to the MPCA’s, and the types and
value of uses that may remain to Mr. Bailey under those decisions, are factual
questions that cannot be resolved on the record before the Court. That uncertainty
cuts in plaintiff’s favor when he opposes summary judgment, but will become his
problem when he attempts to satisfy his burden at trial.
Defendant has failed to satisfy its burden of showing that there is no genuine
issue of material fact concerning the extent of plaintiff’s property rights under
background principles of state law. Specifically, it has not shown that background
principles of state law preclude all “residential development on the lake front lots at
issue in this case.” Def.’s 2nd Mot. at 1. Thus a question of material fact remains.
Defendant’s motion for summary judgment is DENIED.
III. CONCLUSION
Defendant’s motion for reconsideration is DENIED. Defendant’s motion for
summary judgment is DENIED. The parties shall file a joint status report
proposing a schedule for further proceedings on or by Thursday, June 12, 2014.
IT IS SO ORDERED.
s/ Victor J. Wolski
VICTOR J. WOLSKI
Judge
reaching such a determination was not necessary to its evaluation of plaintiff’s
proposal.
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