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On June 23, 2017, in Murr v. Wisconsin, the U.S. Supreme Court addressed whether adjacent properties owned by the same owner may be combined for purposes of determining if there has been a regulatory taking without compensation.

The Court ruled that a Wisconsin regulation preventing the owners of two adjacent parcels from selling or developing one of the two parcels did not effect a regulatory taking without compensation of the parcel which could not be sold or developed because takings analysis permitted the adjacent parcels be combined under the facts presented to determine if the regulation went too far.  Justice Kennedy wrote the decision for the 5-3 majority decision, and Justice Roberts filed a dissenting opinion arguing there was a taking requiring compensation in which Justices Alito and Thomas joined.

The Constitution does not bar the government from taking private property; it merely requires that it be done for a “public purpose” and that it pay “just compensation” to the owner.[i]  For many years, it was thought that the taking clause applied only to direct appropriation of property, or the functional equiva­lent of a practical ouster of the owner’s possession, like the permanent flooding of property.[ii]  In 1922, in Pennsylvania Coal Co. v. Mahon,[iii] however, the Supreme Court recognized that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” Thus, the Mahon Court recognized that a regulation may be so burdensome as to become a taking, but it did not formulate more detailed guidance for determining when this limit is reached.

While subsequent cases dealing with alleged regulatory takings were based on the facts of each case, two guidelines evolved to guide case-by-case analysis:

First, “with certain qualifications . . . a regulation which ‘denies all economically beneficial or productive use of land’ will require compensation under the Takings Clause.” Palazzolo v. Rhode Island, 533 U. S. 606, 617 (2001) (quoting Lucas, supra, at 1015). Second, when a regulation impedes the use of property without depriving the owner of all economically beneficial use, a taking still may be found based on “a complex of factors,” including (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action.[iv]

Even though the complete deprivation of economic use generally is deemed a “categorical” taking requiring compensation, the relevance of state law and land-use customs can lead to a contrary conclusion.  The complete deprivation of use will not re­quire compensation if the challenged limitations “inhere . . . in the restrictions that background principles of the State’s law of property and nuisance already placed upon land ownership.”[v]

The Court in Murr stated that regulatory taking analysis “must reconcile two competing objectives central to regulatory taking analysis.”  One is “the individual’s right to retain the interests and exercise the freedoms at the core of private property ownership,” and the other “is the government’s well-established power to “adjus[t] rights for the public good.”[vi]  In all instances, the analysis must be driven “by the purpose of the Takings Clause, which is to prevent the government from ‘forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.’” [vii]

This brings us to the issue before the Supreme Court in Muir, stated by the Court to be as follows:[viii]

This case presents a question that is linked to the ulti­mate determination whether a regulatory taking has occurred: What is the proper unit of property against which to assess the effect of the challenged governmental action? Put another way, “[b]ecause our test for regulatory taking requires us to compare the value that has been taken from the property with the value that remains in the property, one of the critical questions is determining how to define the unit of property ‘whose value is to fur­nish the denominator of the fraction.’” Keystone Bitumi­nous Coal Assn. v. DeBenedictis, 480 U. S. 470, 497 (1987) (quoting Michelman, Property, Utility, and Fairness, 80 Harv. L. Rev. 1165, 1992 (1967)).

Here are the basic facts presented to the Supreme Court.  The petitioners are four siblings who own two parcels along the St. Croix River.  This River originates in northwest Wisconsin, and travels 170 miles until it intersects with the Mississippi River, forming a boundary between Wisconsin and Minnesota.  The St. Croix expands in southern Wisconsin and forms Lake St. Croix, recognized for its “picturesque grandeur.”  In 1960, petitioners’ parents purchased a parcel along the River referenced as “Lot F,” and built a recreational cabin on it.  In 1961, petitioners’ parents transferred title to Lot F to the family plumbing business.  In 1963, petitioners’ parents purchased adjacent parcel “Lot E” which they took title to in their own names.  Lot E has approximately 60 feet of river frontage, and Lot F has approximately 100 feet. Though each lot is approximately 1.25 acres in size, because of the waterline and the steep bank they each have less than one acre of land suitable for development. Even when combined, the lots’ buildable land area is only 0.98 acres due to the steep terrain.

Under the Wild and Scenic Rivers Act, the St. Croix River was designated, by 1972, for federal protection.[ix]  The law required the States of Wisconsin and Minnesota to develop “a management and development program” for the river area.[x] In compliance, Wisconsin authorized the State Department of Natural Resources to promulgate rules limiting development to “guarantee the protection of the wild, scenic and recreational qualities of the river for present and future generations.”[xi]

For the area where petitioners’ property is located, the Wisconsin rules prevent the use of lots as separate build­ing sites unless they have at least one acre of land suitable for development.[xii] A grand­father clause relaxes this restriction for substandard lots which were “in separate ownership from abutting lands” on January 1, 1976, the effective date of the regula­tion.[xiii] The clause permits the use of qualifying lots as separate building sites. The rules also include a merger provision, however, which provides that adjacent lots under common ownership may not be “sold or developed as separate lots” if they do not meet the size requirement.[xiv] The Wisconsin rules require localities to adopt parallel provisions, so the St. Croix County zoning ordinance contains identical restrictions.   The Wisconsin rules also authorize the local zoning authority to grant variances from the regulations where enforcement would create “unnecessary hardship.”

The lots remained under separate ownership, with Lot F owned by the plumbing company and Lot E owned by petitioners’ parents, until transfers to petitioners. Lot F was conveyed to them in 1994, and Lot E was conveyed to them in 1995.

A decade later, petitioners wanted to move the recreational cabin to a different location on Lot F, and wanted to sell Lot E to finance the work.  Because the lots were then under common ownership, and the lots separately did not meet the minimum size requirements, petitioners sought a variance, but were denied.

Petitioners then sought compensation in State Court, claiming the regulations deprived them of “all, or practically all, of the use of Lot E because the lot cannot be sold or developed as a separate lot.”  Appraisals established the following values of the parcels, separately and combined:  $698,300 for the lots together as regulated; $771,000 for the lots as two distinct buildable properties; and $373,000 for Lot F as a single lot with improvements and approximately $40,000 for Lot E as an undevelopable lot, based on the counterfactual assumption that it could be sold as a separate property.

Summary judgment was granted the State, and the Court of Appeals affirmed.  It found that petitioners could not reasonably have expected to use the lots separately because they were “‘charged with knowledge of the existing zoning laws’” when they acquired the property. Thus, “even if [petitioners] did intend to develop or sell Lot E separately, that expectation of separate treatment became unreasonable when they chose to acquire Lot E in 1995, after their having acquired Lot F in 1994.” The court also discounted the severity of the economic impact on petitioners’ property, recognizing the Circuit Court’s conclusion that the regulations diminished the property’s combined value by less than 10 percent. The Supreme Court of Wisconsin denied discretionary review, and the U.S. Supreme court granted review.

The Supreme Court affirmed the Wisconsin’ court’s finding that there was no taking.  It was careful to state, however, that there is no categorical rule that “property rights under the Takings Clause should be coextensive with those under state law.”  This view, the majority found, would improperly grant to “States the unfettered authority to ‘shape and define property rights and reasonable investment-backed expectations,’ leaving landowners without recourse against unreasonable regulations.” [xv] In addition, such deference could remove improper State regulations from taking review, the Court said, giving as an example a state law inconsistent with reasonable investment backed expectations by consolidating for purposes of takings analysis all properties owned by the same person, regardless of where they are located.[xvi]

Three factors should be considered by a court:  the treatment of the land under state and local law; the physical characteristics of the land; and the prospective value of the regulated land.

First, courts should give substantial weight to the treatment of the land, in particular how it is bounded or divided, under state and local law. The reasonable expectations of an acquirer of land must acknowledge legitimate restrictions affecting his or her subsequent use and dispensation of the property, the Court said.[xvii]  While a valid takings claim will not evaporate just because a purchaser took title after the law was enacted, a reasonable restriction that predates a landowner’s acquisition, can be one of the objective factors that most landowners would reasonably consider in forming fair expectations about their property. In a similar manner, a use restriction which is triggered only after, or because of, a change in ownership should also guide a court’s assessment of reasonable private expectations.[xviii]

Second, the Court found, “courts must look to the physical characteristics of the landowner’s property. These include the physical relationship of any distinguishable tracts, the parcel’s topography, and the surrounding human and ecological environment. In particular, it may be relevant that the property is located in an area that is subject to, or likely to become subject to, environmental or other regulation.”[xix]

Third, and perhaps most important with regard to the facts before the Court, the Court said:

[C]ourts should assess the value of the property under the challenged regulation, with special attention to the effect of burdened land on the value of other holdings. Though a use restriction may decrease the market value of the property, the effect may be tempered if the regulated land adds value to the remaining property, such as by increasing privacy, expanding recreational space, or preserving surrounding natural beauty. A law that limits use of a landowner’s small lot in one part of the city by reason of the landowner’s nonadjacent holdings elsewhere may decrease the market value of the small lot in an unmitigated fashion. The absence of a special relationship between the holdings may counsel against consideration of all the holdings as a single parcel, making the restrictive law susceptible to a takings challenge. On the other hand, if the landowner’s other property is adjacent to the small lot, the market value of the properties may well increase if their combination enables the expansion of a structure, or if development restraints for one part of the parcel protect the unobstructed skyline views of another part. That, in turn, may counsel in favor of treatment as a single parcel and may reveal the weakness of a regulatory takings challenge to the law.

The Supreme Court rejected petitioners’ position that the Court adopt a presumption that lot lines define the relevant parcel in every instance, making Lot E the necessary denominator for determining the percent reduction in value caused by a regulation.   This position, the Court responded, “ignores the fact that lot lines are themselves creatures of state law, which can be overridden by the State in the reasonable exercise of its power. In effect, petitioners ask this Court to credit the aspect of state law that favors their preferred result (lot lines) and ignore that which does not (merger provision).” Further, “This approach contravenes the Court’s case law, which recognizes that reasonable land-use regulations do not work a taking.” [xx]

The Court concluded that “The merger provision here is likewise a legitimate exercise of government power, as reflected by its consistency with a long history of state and local merger regulations that originated nearly a century ago. *** Merger provisions often form part of a regulatory scheme that establishes a minimum lot size in order to preserve open space while still allowing orderly development.”[xxi]

The Court explained the importance of finding that merger provisions do not per se create a taking for which compensation must be paid:[xxii]

When States or localities first set a minimum lot size, there often are existing lots that do not meet the new requirements, and so local governments will strive to reduce substandard lots in a gradual manner. The regulations here represent a classic way of doing this: by implementing a merger provision, which combines contiguous substandard lots under common ownership, alongside a grandfather clause, which preserves adjacent substandard lots that are in separate ownership. Also, as here, the harshness of a merger provision may be ameliorated by the availability of a variance from the local zoning authority for landowners in special circumstances.

Significantly, although the Supreme Court affirmed the conclusion that the two adjacent parcels owned by the petitioners could be merged for purposes of taking analysis, the Court was careful to state that, “To the extent the state court treated the two lots as one parcel based on a bright-line rule, nothing in this opinion approves that methodology, as distinct from the result.”[xxiii]  It thus concluded that the Wisconsin court’s decision that there was no taking in this case should be affirmed, but only because of the facts of the case presented:

Like the ultimate question whether a regulation has gone too far, the question of the proper parcel in regulatory takings cases cannot be solved by any simple test. *** Courts must instead define the parcel in a manner that reflects reasonable expectations about the property. Courts must strive for consistency with the central purpose of the Takings Clause: to “bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” *** Treating the lot in question as a single parcel is legitimate for purposes of this takings inquiry, and this supports the conclusion that no regulatory taking occurred here.

CONCLUSION

The Supreme Court’s ruling in Murr v. Wisconsin provides support for State, County and local laws that employ merger requirements to help protect sensitive properties, or preserve open space.  The lesson to be learned is that adjacent parcels should not be owned by the same person or entity.  If adjacent properties are owned by different persons or entities, and the laws applicable to those parcels change in a way that renders the parcels substandard, generally, they become legal non-conforming parcels which may be developed.  If the adjacent parcels have the same owner, the new zoning or regulation may be fully applicable to the parcels, limiting their economic use.

[i] U.S. Const. 5^th Amendment, made applicable to the States though the Fourteenth Amendment.

[ii] Lucas v. South Caro­lina Coastal Council, 505 U. S. 1003, 1014 (1992).

[iii] Pennsylvania Coal Co. v. Mahon, 260 U. S. 393 (1922).

[iv] Palazzolo v. Rhode Island, 533 U. S. 606, 621 (2001), quoting Lucas v. South Caro­lina Coastal Council, 505 U. S. 1003, 1024 (1992).

[v] Lucas v. South Caro­lina Coastal Council, 505 U. S. 1003, 1029 and 1030–1031 (listing factors for courts to consider in making this determination).

[vi] Palazzolo, supra, at 617– 618 (quoting Armstrong v. United States, 364 U. S. 40, 49 (1960).

[vii] Muir v. Wisconsin, Slip Op. at 9.

[viii] Muir v. Wisconsin, Slip Op. at 9 (citations deleted).

[ix] Muir v. Wisconsin, Slip Op. at 2, citing Wild and Scenic Rivers Act, §3(a)(6), 82 Stat. 908, 16 U. S.

1. §1274(a)(6) (designating Upper St. Croix River); Lower Saint Croix River Act of 1972, §2, 86 Stat. 1174, 16 U. S. C. §1274(a)(9) (adding Lower St. Croix River).

[x] 41 Fed. Reg. 26237 (1976).

[xi] Wis. Stat. §30.27(l) (1973).

[xii] Wis. Admin. Code §§ NR 118.04(4), 118.03(27), 118.06(1)(a)(2)(a), 118.06(1)(b) (2017).

[xiii] Wis. Admin. Code § NR 118.08(4)(a)(1).

[xiv] Wis. Admin. Code § NR 118.08(4)(a)(2).

[xv] Muir v. Wisconsin, Slip Op. at 11.

[xvi] Muir v. Wisconsin, Slip Op. at 11.

[xvii] Muir v. Wisconsin, Slip Op. at 12.

[xviii] Muir v. Wisconsin, Slip Op. at 12.

[xix] Muir v. Wisconsin, Slip Op. at 12.

[xx] Muir v. Wisconsin, Slip Op. at 14-15.

[xxi] Muir v. Wisconsin, Slip Op. at 15-16.

[xxii] Muir v. Wisconsin, Slip Op. at 16.

[xxiii] Muir v. Wisconsin, Slip Op. at 19.

The Dodd-Frank Act, signed into law in 2010, established a program for whistleblowing related to securities and commodities law violations.  It created a private cause of action for whistleblowers to sue their employers for retaliation after reporting company misconduct.  However, federal circuit courts are split as to when employees are eligible for anti-retaliation protection under Dodd-Frank.  The answer hinges on whether the SEC must be notified of the potential misconduct or if an internal company complaint will suffice.

The Fifth Circuit, in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), held that the employee must report information to the SEC to qualify as a whistleblower, whereas the Second Circuit and the Ninth Circuit have held that Dodd-Frank protects internal whistleblowers as well as those who report to the SEC.  See Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015); Somers v. Digital Realty Trust, Inc., 2017 WL 908245 (9th Cir. Mar. 8, 2017) (finding that Somers was wrongfully fired after he complained to upper management that a supervisor violated Sarbanes-Oxley internal-control requirements, but before Somers was able to report the same to the SEC).  On April 26, 2017, Digital Realty Trust, Inc. petitioned the U.S. Supreme Court in hopes of a definitive resolution to the circuit split.  See Digital Realty Trust, Inc. v. Somers, U.S., No. 16-1276.

If the U.S. Supreme Court hears the case and determines that individuals must report to the SEC to be eligible for protection, expect internal compliance programs to be ignored as would-be whistleblowers head straight to the SEC for protection.  Although Dodd-Frank was designed to promote U.S. financial stability and improve financial transparency, absent a definitive ruling from the nation’s high court, an employee lodging an internal complaint could be fired as he or she is dialing the SEC’s number to report misconduct – just in time to render the employee ineligible for anti-retaliation protection under Dodd-Frank.

In the Second Circuit and the Ninth Circuit, employers are not permitted to terminate the employment of anyone who raises an internal complaint about how the company is conducting its business and must proceed with caution, even if the employee should be terminated on other grounds.  If and until the U.S. Supreme Court opines, employees and employers alike should seek legal counsel to advise as to whether Dodd-Frank’s anti-retaliation protections are applicable with respect to internal reporting of alleged unlawful activity.

Note: we are monitoring proposed changes to Dodd-Frank, most of which focus on tax and regulatory relief, and will report on these issues in a future article.

By Patrick McCormick

PowerPoint presentations have become a staple of law school classes, business presentations, and educational seminars – so it’s no surprise that they have also made their way into the courtroom.  But at what point does a PowerPoint cross the line from helpful to harmful?  The Court of Appeals recently addressed this question in People v. Williams, 2017 WL 1216063, 2017 N.Y. Slip Op. 02588, a criminal case that is still informative in commercial and other civil matters.

People v. Williams stems from a violent encounter in 2009 in which the defendant allegedly broke into the victim’s apartment, shot him, cut him with a knife, and poured bleach over his head.  Somehow, the victim survived, and testified at trial that he had been on the phone with his brother when the defendant and others broke into the apartment.  The victim’s brother had been driving near the victim’s block around the time of the attack.

At trial, the prosecutor displayed still photos of surveillance footage purportedly showing an SUV driving down the block shortly before the crime occurred.  The victim’s brother testified that the SUV in the images “looked like” the vehicle he had been driving that night.  He also testified that when driving down the block, he saw a few people on the sidewalk wearing hooded clothing.  While he admitted that he did not see the defendant’s face because it was dark outside and snowing, the brother testified that he thought one of these individuals was the defendant, describing him as “the only short person I know.”

Before closing arguments, the trial court advised the jury that they alone were the finders of fact, that the attorneys’ summations were “simply argument[s] submitted for your consideration” and not evidence, and that the jury’s recollection of the evidence presented controlled, no matter what the attorneys said in summation.

During his summation, the prosecutor showed PowerPoint slides containing images of the trial exhibits, including still photos of the surveillance video about which the victim’s brother had testified.  The slides were annotated with captions such as “[the victim’s brother’s] truck” and “[the victim’s brother] sees the defendant,” despite the fact that the brother had been unable to definitively identify the truck or the defendant.  Defense counsel raised objections throughout, some of which were sustained.  The trial court even expressed its own concern, advising the jury at one point to disregard the annotations on the slides and ultimately stopping the PowerPoint presentation in light of the “superimposed words.”  The defendant was ultimately convicted of burglary in the first degree, assault in the second degree, and criminal possession of a weapon in the second degree (he was acquitted of robbery in the first, second, and third degrees).

Defense counsel moved for a mistrial, and while the trial court said it was “sympathetic” to these arguments, it denied the motion.  The Second Department affirmed, finding that neither the PowerPoint presentation nor the prosecutor’s summation had deprived the defendant of a fair trial (123 A.D.3d 1152).

Upholding the order of the Appellate Division, Chief Judge DiFiore wrote for the Court of Appeals that “it is well-settled that attorneys are entitled to broad latitude in commenting on pertinent matters of fact in summation, so long as they limit themselves to relevant matters within the four corners of the evidence” (see People v. Ashwal, 39 N.Y.2d 105, 109 (1976)).  As to the PowerPoint, the Court found “no inherent problem” with its use, even noting “it can be an effective tool,” but cautioned that “the long-standing rules governing the bounds of proper conduct in summation apply equally to a PowerPoint presentation.  In other words, if it would be improper to make a particular statement, it would likewise be improper to display it” on a PowerPoint slide.  Therefore, if “counsel is going to superimpose commentary to images of trial exhibits, the annotations must, without question, accurately represent the trial evidence.”  See People v. Santiago, 22 N.Y.3d 740, 751 (2014).

At trial, while the slides may have misrepresented the trial evidence, “the trial court was very attuned to the annotated slides and, in the exercise of its discretion, ultimately stopped the slideshow and instructed the jury to disregard the slides.”  The Court of Appeals also discussed the numerous occasions that the trial court reminded the jury that the prosecutor’s arguments were not evidence, of which the jury was the sole judge.  Moreover, the actual exhibits “remained pristine for the jury’s examination.”  The Court of Appeals therefore found that the trial court’s “prompt corrective action cured any potential prejudice.”

Incorporating a PowerPoint presentation into your summation at trial may be an effective way to draw the jury’s attention to the evidence that best supports your case.  But this case teaches that it’s the evidence that’s key.  So keep the focus “within the four corners of the evidence,” and click away.

Patrick McCormick, Esq. is a partner at Campolo, Middleton & McCormick, LLP, a premier law firm in Ronkonkoma and Bridgehampton, where he chairs the Litigation & Appeals practice group.  A member of the board of directors of the Suffolk County Bar Association, Patrick is also the incoming dean of the Suffolk Academy of Law.