Inverse Condemnation

August 11, 2023


Inverse condemnation (sometimes called eminent domain) is a legal term that describes a situation where the government seizes private property and fails to pay compensation to the owner as required by the Fifth and Fourteenth Amendments to the US Constitution.

One of many judgment articles: I am a judgment broker, not a lawyer, and this article is my opinion, please consult with a lawyer if you need legal advice.

In some states, inverse condemnation also includes damaging property. In order to be compensated, the property owner often must sue the government. In such cases, the owner is the plaintiff, and that is why the action is considered to be inverse, because the position of the parties is reversed. This is in contrast to the usual case of a direct condemnation, where the government is the plaintiff, that sues a defendant-owner in order to take their property.

Government seizures can be physical (e.g., flooding, land seizure, deprivation of access, retention of possession of land after a lease to the government expires, deprivation of access, removal of ground support, etc.) or a regulatory seizure (when regulations are so onerous that they make the regulated property unusable by the owner for any economical or reasonable purpose).

Sometimes inverse condemnation goes too far and becomes controversial. See Pennsylvania Coal Co. vs Mahon, 260 U.S. 393 (1922), where the owner of a property lost value and reduced avability, denying them the benefits of property ownership without compensation.

Unfortunately, the US Supreme Court has not elaborated on what “too far” is. However, it has specified three situations where inverse condemnation occurs:

1) Physical seizures or occupation.

2) The reduction of the regulated property’s utility or value to such an extent that it is no longer capable of being economically viable.

3) On a precondition to the issuance of a permit, the government demands that the owner gives property to the government, even though there is no rational reason to. See Nollan v. California Coastal Commission, 483 U.S. 825 (1987).

Because of these three situations known as “per se” regulatory seizures, the decision whether or not a seizure has occurred is made by judicial consideration of three factors:

1) The nature of the government regulations.

2) The economic impact of the regulations on the owner’s property.

3) The extent to which the regulation interferes with the owner’s reasonable, investment-backed expectations.

These three factors are known as the “three-factor Penn Central test”, (after Penn Central Transportation Co. vs City of New York, 438 US 104, 124 [1978]). The Penn Central decision has been criticized for it’s controversial “taking issue” decision, because its three-factor approach was so vague it made it virtually impossible for attorneys to know before filing a lawsuit, what facts will be considered decisive by the court, and how to apply the three factors.

Railroads and other public utilities, are granted the power of condemnation (also called eminent domain) by state laws, and they can be liable for inverse seizing or the damaging of private property during their activities. This includes seizing personal property (e.g., supplies for the army in wartime); intellectual property (e.g., patents, copyrights, etc.); and contracts.

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