Casitas: The Myth of Physical Requisition and the Reality of Agency

Transcription

1 Casitas: The Myth of Physical Requisition and the Reality of Agency by Jeffrey Bossert Clark 2009 The Penn Central test never purported to capture the entirety of the rich landscape (or waterscape) of takings cases -- more on that point at the end of this presentation. The result in Casitas underscores that important point. But, beyond that, this particular case, Casitas, has been plagued by important misunderstandings in the way it has been portrayed to the wider world. I want to focus on clearing up two of those misunderstandings. The first important misunderstanding is the claim that the International Paper decision, penned (presumably at lightning speed at his standing desk, as was his custom) by the enigmatic Justice Holmes, was a case about requisition in the narrow sense -- in other words the government taking physical possession of the water at issue. But the water in International Paper was not requisitioned in a narrow physical sense, only in a broader regulatory sense. The second misunderstanding is the failure to appreciate that any physical action on the water at issue in Casitas was inherently worked by a government hand. Program Title Before I explore those two points, and close with a few words about how the law on Penn Central has shaped up, I want to make an observation about the title of this program, which is also helpful substantively and not just by way of introduction. The title of the program is Physically Taking the Intangible, the Federal Circuit s Decision in Casitas Municipal Water District. With all due respect to the folks who crafted that title, it s rather loaded, isn t it? The peculiar procedural posture of the case -- which sent up from the Court of Federal Claims to the Federal Circuit only an issue of takings characterization (regulatory vs. physical) -- meant that the very issue before the court was whether the taking in Casitas was a physical or a regulatory one. By labeling the water rights at issue intangible, the program s title appears to telegraph that there is an inherent mismatch in applying physical takings analysis, which is what the Federal Circuit did, to the non-physical, intangible rights at issue. I would have expected a more neutrally framed title. Perhaps Physically Taking Use Rights in Water -- the Federal Circuit s Decision in Casitas. Beyond that, I think referencing the rights at issue in Casitas as

2 intangible is also loaded. When I call to mind the concept of intangible rights, I think of intellectual property like patents and copyrights, regulatory goodwill as in Winstar, 1 trade secrets, or stocks and bonds. By contrast, water is tangible. And that s true whether looked at from the perspective of the plaintiff or defendant in Casitas. The plaintiff wants the disputed water for people to physically drink or to use in farming. The defendant wants the disputed water for the physical benefit of endangered fish. Tangibility is an undisputed starting premise all around, not a matter in controversy. The authorities in the margin make this point. 2 No Requisition Involved The archetypal physical taking are agents of the government showing up on your doorstep and saying, We re sorry, Sir, the government needs your land, we re building a road/quartering troops/building a Post Office. You ll be fairly compensated as determined by a court, if you don t agree to the offer we re about to make to you. The archetypal regulatory taking is getting a letter in the mail with an order from an agency stating: We re sorry, Sir, you cannot build a new house on the corner of your property. It does not comply with county setback regulations. If you begin building in violation of this decision, you will be 1 United States v. Winstar Corporation, 518 U.S. 839 (1996). 2 Water is tangible. See Continental Ins. Co. v. Northeastern Pharm. & Chem. Co., 811 F.2d 1180, 1186 (8th Cir. 1987) ( The policies definition of property damage as damage to tangible property or physical injury seems to contemplate damage to tangible property such as land, trees, air, and water. ); Port of Portland v. Water Quality Ins. Syndicate, 796 F.2d 1188, 1194 (9th Cir. 1986) ( [D]ischarge of pollution into water causes damage to tangible property and hence cleanup costs are recoverable under a property damage liability clause. ) (noting that this is the reasonable, enlightened view ); United States Aviex Co. v. Travelers Ins. Co., 125 Mich. App. 579, 336 N.W.2d 838, 843 (1983) (insurance company liable for cleanup costs for percolating subsurface waters as property damage); Kutsher s Country Club Corp. v. Lincoln Ins. Co., 119 Misc.2d 889, 465 N.Y.S.2d 136, 139 (Sup. Ct. 1983) (oil spill into water was property damage); Lansco, Inc. v. Department of Env tl Prot., 138 N.J. Super. 275, 350 A.2d 520, 524 (Ch. Div.1975) (oil spill into water caused damage to identifiable physical property), aff d, 145 N.J. Super. 433, 368 A.2d 363 (App. Div. 1976), cert. denied, 73 N.J. 57, 372 A.2d 322 (1977). 2

3 fined $1,000 per day and your structure will be subject to demolition. If you wish to bring a challenge to our decision, you have 60 days to do so. The government s argument here was that the water use rights held by Casitas were being affected by a regulatory order, much like my setback hypothetical. We re sorry, Casitas Municipal Water District, you have to allow X quantity of water to flow downriver for the benefit of certain endangered fish, and we hereby order you to do so, on pain of penal consequences defined by the Endangered Species Act. The problem with that line of reasoning is that it assumes that the entire universe of takings law is defined by a physical vs. regulatory dichotomy of classification. The Supreme Court has never said as much. There are rich veins of cases handed down before Penn Central, 3 which are inconsistent with any claim to monolithic status for such an analytical dichotomy. The richest of such veins is perhaps in the area of water rights. In particular, the Supreme Court s 1931 decision in International Paper v. United States 4 appears to erect a strong barrier to the claim that the dichotomy is even consistent with, let alone compelled by, Supreme Court precedent. For International Paper holds that an order by the United States to a third party to cut off water rights to a third party triggered Takings Clause compensation. The government s response to that argument is that in International Paper (and two other decisions -- Dugan and Gerlach 5 ), the United States requisitioned water for the consumptive use of others). 6 Use of the word requisition, in the context in which the government places it, conjures up notions of the government physically seizing water (obviously a physical taking, as a matter of the dichotomy). And it is tough to fault the United States for using that word, since it is the word chosen by Justice Holmes in his opinion in International Paper: The Secretary of War in the name of the 3 Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (1978). 4 International Paper Co. v. United States, 282 U.S. 399 (1931). 5 See Dugan v. Rank, 372 U.S. 609, (1963); United States v. Gerlach Stock Co., 339 U.S. 725, (1950). 6 United States Combined Petition for Panel Rehearing and Rehearing En Banc, at 11, in Casitas Mun. Water Dist. v. United States, No (Dec. 10, 2008). 3

4 President, with the power of the country behind him, in critical time of war, requisitioned what was needed and got it. 7 One of the bonuses (or downsides, depending on how you look at it), of being a general appellate practitioner like I am is that you read lots of Supreme Court decisions, and you come to get a feel for the Justices. From my forays into Supreme Court opinions, I know one of Justice Holmes s greatest strengths (brevity) can also at times be his greatest weakness. Some Justices -- I won t name names -- go on at length, repeating points -- so much so sometimes I wish they were in front of me so I could beg them to stop. Holmes often creates the opposite demand -- for more -- more explanation, more rebuttal to the obvious counterarguments, and even for more of his excellent prose. Placed in the full context Holmes himself did not set out at length, the Justice s emphasis on the concept of requisition makes perfect sense, and is perfectly consistent with and supportive of the Federal Circuit s holding in Casitas. But that s because Holmes was using the word in the sense of a mere order being issued -- which is precisely in the nature of non-physical regulation. A starting point here is to take a look at the Black s Law Definition of requisition, which embodies both the physical and non-physical senses of the word: Requistion. A demand in writing, or formal request or requirement. The taking or seizure of property by government. Black s Law Dictionary, sixth edition, at page 1304 (1990). Indeed, a requisition s primary usage is as an order, and its secondary meaning (which the government was relying on) is a physical seizure. In International Paper, Justice Holmes was clearly talking about a mere order -- a regulatory ukase. Indeed, he begins his opinion by stating no later than in the second paragraph: On December 28, 1917, the Secretary of War wrote to the Power Company that The President of the United States by virtue of and pursuant to the authority vested in him, and by reason of the exigencies of the national security and defence, hereby places an order with you for and hereby requisitions the total quantity and output of the electrical power which is capable of being produced and/or delivered by you through the use of all waters diverted or 7 International Paper, 282 U.S. at

5 capable of being diverted through your intake canal and for your plants and machinery connected therewith. International Paper, 282 U.S. at 405 (emphasis added). On the facts of International Paper, no government agents ever showed up to physically seize the water rights at issue from the Niagara Falls Power Company, thereby depriving International Paper of those rights. This is particularly clear from the facts set out by the Court of Claims, which were written up in great detail, and thus not subject to Justice Holmes tendency for abridged statements of facts and for aphorism over explanation. 8 At no time in the International Paper dispute did the United States ever physically seize or divert water for its own use. Instead, it issued an order to a third party, the Niagara Falls Power Company, to stop providing water to International Paper, and then entered into a settlement agreement that allowed the power company to send the water elsewhere. In the United States own Motion in Support of Partial Summary Judgment, it made the same point -- though it did so, as if the point supported a finding of no physical taking: It is undisputed that the government has never physically diverted or appropriated water from the Ventura River for its own use. 9 If you make a comparison to the real facts of International Paper what you come to is that just as it was undisputed that Reclamation agents were not drinking or bathing in the water taken from Casitas, so it was undisputed in International Paper that federal troops engaged in the War to end all wars were not consuming the paper company s water in that case. Yet, the Supreme Court found that a taking had occurred. Note as well that a forerunner kind of argument to Penn Central was upheld by the Court of Claims below, but rejected by the Supreme Court in International Paper. The government pointed to a grab-bag of regulatory power it was exercising, including the Burton Act, a treaty with Great Britain, and the Federal Power Commission Act of Said the Court of Claims: To sum up our conclusions: The Government did not, and did not intend to, take 8 International Paper Co. v. United States, 68 Ct. Cl. 414, 1929 WL 2492 (1929). 9 Casitas Joint Appendix at

6 the plaintiff s property. If it be held that it took the property of the Niagara Falls Company, the loss of the plaintiff was incident to the exercise of a sovereign right. 10 Justice Holmes rejected that progenitor of the Penn Central regulatory takings argument. Here is the force of Holmes rhetoric at its best: There is no room for quibbling distinctions between the taking of power and the taking of water rights. The petitioner s right was to the use of the water; and when all the water that it used was withdrawn from petitioner s mill and turned elsewhere by the government requisition for the production of power it is hard to see what more the government could do to take the use. 11 In other words, the mere regulatory order here, under authority of a treaty, the Burton Act, and the Federal Power Commission Act to the power company (not even directly to International Paper) was enough for a taking to be established. Given that International Paper found a taking without requiring a direct physical seizure, the government was hard-pressed to sustain its argument that International Paper involved some readily distinguishable form of requisition while Casitas involved regulation with the mere incidental effect of impinging on property rights. Both cases involved different forms of requisitions for third parties -- in International Paper, a requisition to support the diversion of water to third parties engaged in activities seen as of greater use to the World War I effort; in Casitas a requisition to support the diversion of water to deprived fish, and thus ultimately for the benefit of the human proponents of those fish. Both cases involved regulatory action and not a physical intrusion -- not even one as small as the de minimis intrusion found to trigger physical takings analysis in Loretto, which involved the installation of cable television equipment. 12 For the same reason, the Federal Circuit found it hard to sustain Judge Wiese s volte face on similar issues as compared to his earlier ruling in the Tulare case. 13 According to Judge Wiese, the government was correct that his 10 International Paper, 68 Ct. Cl International Paper, 282 U.S. at See Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982). 13 Tulare Lake Basin Water Storage Dist. v. United States, 49 Fed. Cl. 313 (2001). 6

7 Tulare ruling was overtaken by the Supreme Court s decision in the land development moratorium case, Tahoe-Sierra. 14 Since it is axiomatic that lower courts cannot conclude that a later Supreme Court case overtakes an earlier Supreme Court case unless the Supreme Court itself says so explicitly, there was never a plausible basis for the government s claim that Tahoe-Sierra changed anything more than the landscape -- not the waterscape -- if you ll forgive the play on words. I refer to the notable case of Rodriguez de Quijas. 15 My own theory for why Judge Wiese accepted such a weak argument, instead of standing firm on his Tulare ruling and its implications for Casitas is the savage nature with which his Tulare ruling was attacked, both by other members of the Court of Federal Claims and by commentators, both in legal academia and the policy community. Said Court of Federal Claims Judge Allegra in Klamath Irrigation District: 16 [W[ith all due respect, Tulare appears to be wrong on some counts, incomplete in others and, distinguishable, at all events. Ouch, perhaps not as biting as a dissent by Justice Scalia in a case on the culture wars front, but not something I d like to be on the receiving end of from a colleague I d be seeing most everyday at the Howard T. Markey National Courts Building. A true count of American legal journals would run much higher, but Judge Allegra also catalogued three commentators who had advanced what he called intense criticism of Judge Wiese s Tulare decision. 17 Luckily, we re not a country run by means of plebiscites of law review author electors. But hopefully, the 2-to-1 panel decision and the vote of at least six Judges on the full Federal Circuit against rehearing Casitas en banc, shows that Tulare is not, and never was an unreasonable judicial decision. 14 Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002). 15 Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 484 (1989) ( If a precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions. ). 16 Klamath Irrigation Dist. v. United States, 67 Fed. Cl. 504, 538 (2005). 17 See id. at 538 & n.59. 7

8 Instead, it involves a legal subject on which reasonable judicial minds could at least disagree. I think it s a sad state of affairs, even as to contentious matters like takings cases and the impact of the Endangered Species Act, where those with differing views and legal points to make cannot more civilly agree to disagree. The Government s Agency in Casitas A corollary of the archetypal physical takings rubric is that the compliance action that causes the harm to property rights that induces the plaintiff to bring suit is caused by the hand of the regulated party and not the direct hand of the government. For instance, in Tahoe-Sierra, it was the landowners living under the development moratorium that felt harm by obeying the government order to refrain from new construction or lot improvements that could have had the effect of damaging Lake Tahoe and its environs. By contrast, if a telegraph company puts up poles on your property, then it has entered into a physical intrusion that demands compensation. 18 The notion of directness in a physical intrusion vs. the indirect nature of regulation, which causes mere compliance activity, is at the heart of the physical vs. regulatory takings dichotomy. One would assume, given all the fuss about Casitas, that on this dimension of a direct physical intrusion, the government was also on good ground in maintaining that an indirect regulatory directive was involved, and not a direct intrusion. But that issue also turns out to be a lot more complicated than those unhappy with Casitas have allowed either. And that is because it turns out that the regulatory target of the Endangered Species Act here was not a private actor, but rather than the government itself. Of course, the Endangered Species has some provisions that reach private conduct, and some reaching government conduct. It is not sufficient, however, to assume that just because Casitas was a non-federal party, therefore the ESA regulatory action here was directed at Casitas. In point of fact it was not. Instead, the ESA regulatory action here was directed at an arm of the United States, specifically the Bureau of Reclamation, because the United States retained all ownership in the dam system that is part of the 18 See St. Louis v. Western Union Telegraph Co., 148 U.S. 92 (1893). 8

9 Ventura River Project. Casitas s actions onsite were as a mere agent of the government. This starts to make Casitas look a lot like Loretto. Recall that in Loretto, there were no City of New York employees who showed up to install the cable boxes at issue. Instead, the installer of the cable boxes were employees of the private cable company, which was the nominal defendant in the takings suit. As the Supreme Court stated, [t]he one incontestable case for compensation (short of formal expropriation) seems to occur when the government deliberately brings it about that its agents... regularly use, or permanently occupy space, or a thing which therefore was understood to be under private ownership. 19 Tweak the facts of Casitas a bit and you ll see the point. Suppose the government contract with Casitas preserved ownership and operation rights for the federal government, not simply ownership rights. In that case, the ESA document at issue from the National Marine Fisheries Service ( NMFS ) would have involved Bureau of Reclamation officials specifically diverting the water, as a physical matter for the fish s benefit. The only reason Casitas employees or agents were turning the dials is because they were the government agents for purposes of operating the Project. As Reclamation itself has stated, Casitas Municipal Water District operates the Ventura Project on Reclamation s behalf. 20 Moreover, the nature of the ESA document issued by NMFS here, and claimed to be a regulatory directive by the government, makes this point. What was issued was not an incidental take permit to Casitas, but an incidental take statement to the Bureau of Reclamation. 21 Compare 16 U.S.C (incidental take permits) with 16 U.S.C (incidental take statements). The Federal Circuit majority recognized the importance of the effect here occurring based on federal agency: 19 Loretto, 458 U.S. at 427 n Def. s Mot. for Partial S.J., at See J.A. 965, 971,

10 These admissions make clear that the government did not merely require some water to remain in stream, but instead actively caused the physical diversion of water away from the Robles- Casitas Canal -- after the water had left the Ventura River and was in the Robles-Casitas Canal-and towards the fish ladder, thus reducing Casitas' water supply.... The active hand of the government was also at play in International Paper, where the Court remarked that [t]he petitioner s right was to the use of the water; and when all the water that it used was withdrawn from the petitioner s mill and turned elsewhere by government requisition for the production of power it is hard to see what more the Government could do to take the use. [ 22 ] Conclusion -- The Limits of Penn Central It is ironic that there are those who have tried to reify the illustrative dichotomy created in Penn Central between regulatory and physical takings as a universal analytic that encompasses all takings cases. Given clear statements in Penn Central about the nature of takings jurisprudence, that would be particularly odd. As Loretto described it: In Penn Central Transportation Co. v. New York City, supra, the Court surveyed some of the general principles governing the Takings Clause. The Court noted that no set formula existed to determine, in all cases, whether compensation is constitutionally due for a government restriction of property. Ordinarily, the Court must engage in essentially ad hoc, factual inquiries. Id., at 124. But the inquiry is not standardless. [The Court then went on to discuss what have become the balancing factors of [1] the economic impact of the regulation, [2] investment-backed expectations, and [3] the character of the governmental action.] Application of International Paper, Gerlach, and Dugan is similarly not standardless. To the critics of Casitas, who are, I think, one in the same with those who are the dichotomists who would universalize a physical vs. regulatory takings framework -- i.e., they have a Penn Central hammer ever in 22 Casitas, 543 F.3d 1276, (emphasis added) (quoting International Paper, 282 U.S. at 407). 10

11 quest of nails -- I paraphrase Shakespeare, in Hamlet: There are more things in heaven and earth -- and in our watercourses -- Penn Central Dichotomists, than are dreamt of in your philosophy. For my next feat, I d like to consider the process by which an approach the Supreme Court established as a balancing test of multiple factors has descended into a test in which the government always wins, especially in the Federal Circuit. And there I can paraphrase Justice Thurgood Marshall in Fullilove: Penn Central is merely strict in theory, but [it s turned out to be] fatal in fact. 23 But, I see my time has elapsed.... * * * * 23 Fullilove v. Klutznick, 448 U.S. 448, 519 (1980) (Marshall, J., concurring). 11