Inverse Condemnation

Posted on November 15 2014 by Gabriela Ocampo

Inverse condemnation is not a term often heard by the public at large, and is not even commonly discussed in legal circles because of its relative infrequency of occurrence. As a matter of fact, even in the arena of legal actions it can be said to be a niche practice, an area not engaged in by the majority of law firms.

One of the reasons for this is that by its very nature, any inverse condemnation case can be expected to be difficult to prosecute. The ‘inverse’ part of the phrase refers to the fact that the typical order of the two parties in such a case is reversed, i.e. the plaintiff is some kind of property owner and the defense is generally an agency of government, local or otherwise. By contrast, a direct condemnation case would be one in which the government sues the owner in order to take property.

What is inverse condemnation?

Paraphrasing the American Bar Association’s “Eminent Domain – a Handbook of Condemnation Law”, it is considered to be a proceeding undertaken by a property owner seeking just compensation under the Fifth Amendment for the taking of property by some body of government. One of the key words in this definition is ‘taking’ – it need not be a physical taking of the property by government, but can also mean the implementing of regulations which have the effect of reducing property value to a fraction of fair market value, thereby rendering it nearly useless to its owner.

This form of taking is known as ‘regulatory taking’, and it is by far the most disputed aspect of inverse condemnation, because the basis for it has never been clearly defined. In 1922, Justice Oliver W. Holmes Jr. decided in Pennsylvania Coal Company vs. Mahon that compensation was justified when the extent of a regulatory taking went too far in reducing the value of the property. The problem with that ruling is that the phrase ‘too far’ was not then and has never been since, precisely qualified.

Apart from physical taking and regulatory taking, there is a third situation in which a taking is considered to have occurred. That happens when a governmental body insists that as a precondition to issuance of a permit, an owner relinquish property to the government. Any other form of taking beside these three must be considered on an ad hoc basis by the courts, and their decision will be based upon the three factors identified in the 1978 ruling from Penn Central Transportation Company vs. New York City:

• the nature of the regulation implemented by government
• the impact in economic terms on the property in question
• the degree to which regulation affects an owner’s reasonable economic expectations

Here again however, it is not really possible to anticipate a court ruling on these three factors, because such vagueness exists about the weight that should be assigned to each of them. It should also be remembered that the property referred to in eminent domain or condemnation law need not be actual land, it can be intellectual property or personal property as well, although the same interpretations for governmental taking would apply.

Sorting it all out

The difficulty in preparing a case involving inverse condemnation is largely due to the vagaries of interpretation by the courts, and it’s another reason that many law firms avoid such cases. One law firm that has a wealth of experience in this area of practice, and always represents the property owner, is the California-based firm, Century Law Group. If you need help with inverse condemnation, this is the firm to call.