Property rights and the Supreme Court

Description: The recognition, from the perspective of natural, constitutional, statutory, or common law, of the ways individuals, business entities, or organizations acquire, keep, use, and dispose of tangible or intangible things free from interference by others.

Significance:The Supreme Court’s evolving viewpoints regarding the meaning and constitutional status of property rights, something which results from conflicting theories, is a source of great controversy.

The Supreme Court’s involvement with property rights issues derives mainly from the Fifth Amendment, applicable to the federal government, and the Fourteenth Amendment, applicable to the states. Both amendments prohibit the deprivation of property without due process of law. Much controversy has followed the Court’s interpretation and application of the due process clause in the context of property rights. During the late nineteenth and early twentieth centuries, a concept of substantive due process evolved where the Court invalidated federal and state economic legislation based on the due process clause. However, a reaction to what was called “economic due process” occurred during the middle and late 1930s, when the Court reversed course and began to apply only a “rational basis” test to economic legislation. By the end of the twentieth century, the use of a substantive due process concept to protect property rights continued to be held in judicial disrepute.

The protection of property rights under the procedural rather than the substantive component of the due process clause was less controversial. However, during and after the 1970s the concept of property used in procedural due process discussions came to include positive legal rights created by regulatory legislation. Thus, the Court formulated procedures that must be followed when the government deprives a person of such modern legislative entitlements as welfare benefits and civil service employment.

The Fifth Amendment also contains the takings clause, which forbids the taking of private property for public use without “just compensation.” The takings clause is applied to state and local government by way of the Fourteenth Amendment. During the final decades of the twentieth century, the Court’s increasing use of the takings clause to protect property rights evoked controversy both inside and outside the Court.

The Court’s Early Understanding

The early justices on the Court shared the view of the founders of the nation that government was instituted to protect the life, liberty, and property of each person. Thus, in Calder v. Bull (1798), Justice Samuel Chase observed that a law that took property from one person and gave it to another would be contrary to the great first principles of the social compact. However, the compromise over slavery embodied in the original Constitution resulted in slaves being recognized as property by the Court. In 1857 the Court went so far as to hold, in Scott v. Sandford, that a free African American whose ancestors had been slaves could not be a “citizen” within the meaning of the Constitution.

The slavery question was resolved by the Civil War. The Thirteenth Amendment abolished slavery in 1865, and three years later, the Fourteenth Amendment granted citizenship to all persons born or naturalized in the United States and prohibited the states from abridging the privileges or immunities of such citizens and from denying to any person due process and equal protection of the laws.

Divergence in Property Rights Theory

The adoption of the Fourteenth Amendment left open the question of the extent to which the Court would apply the due process clause of that amendment to protect private property rights from encroachment by state and local governments. In the Slaughterhouse Cases (1873), a 5-4 majority held that the Fourteenth Amendment due process clause did not prevent the state of Louisiana from granting a monopoly on slaughtering livestock to a particular private company.

In Munn v. Illinois (1877), the Court held that the state of Illinois could control the prices charged by grain elevators in Chicago. Chief Justice Morrison R. Waite wrote for the majority that state governments may regulate property that becomes clothed with a public interest, and that property becomes clothed with a public interest when it is used in a manner that affects the public at large.

In dissent, Justice Stephen J. Field articulated a classic statement on property rights and their enforcement under the Fourteenth Amendment. Field pointed out that under the principle adopted by the majority, state government could regulate virtually all businesses, thus depriving property owners of the important right of free use of their property. He thought the majority view subverted the rights of private property and necessarily resulted in all property being held at the mercy of state legislatures. The common law doctrine that government could regulate property affected with a public interest referred only to property that had been specifically dedicated by its owner to public uses or to property that was affected by special governmental privileges. The majority had, in Field’s opinion, twisted this doctrine into a license for unlimited governmental infringement on property rights.

In the closing decades of the nineteenth century, Field’s views regarding the Fourteenth Amendment and property rights became the majority view of the Court. In several decisions, the Court held that state legislation affecting property rights violated the Fourteenth Amendment due process clause. This notion of substantive due process protection of property rights continued until the mid-1930’s. Many of these cases invoked the liberty component of the due process clause to protect freedom of contract. For example, in Allgeyer v. Louisiana (1897), the Court invoked a freedom of contract concept in the context of out-of-state insurance contracts, and in Lochner v. New York (1905), the Court used the same concept to invalidate state-imposed daily maximums placed on working hours.

The New Issue of Zoning

An early exception to the substantive due process protection of property rights emerged in the context of zoning. At the beginning of the twentieth century, the question arose whether municipal zoning regulations were unconstitutional deprivations of property rights. The Court addressed this issue in Euclid v. Ambler Realty Co. (1926). In that case, a municipal zoning ordinance limited a portion of the property owner’s land to residential use. The property owner and its amicus curiae argued that the zoning ordinance violated the fundamental nature of property ownership, confiscated and destroyed a great part of the land’s value, constituted a cloud on the title of the land, and accordingly deprived the property owner of liberty and property without due process of law in derogation of the Fourteenth Amendment.

The Court disagreed with the position of the property owner, holding instead that general zoning regulations satisfy the requirements of the Fourteenth Amendment due process clause unless they are clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare of the community. Although the precise holding of Euclid was limited to the context of injunctive relief, the practical effect of this decision was to make it almost impossible to challenge zoning regulations under a due process theory for many decades. Accordingly, when the resurgence of Court recognition of property rights in zoning cases finally came, it arrived under the rubric of the Fifth Amendment takings clause (as applied to states and their political subdivisions by the Fourteenth Amendment), not under a due process theory.

The New Deal Cases

The stock market crash of 1929 and the ensuing Great Depression led to President Franklin D. Roosevelt’s New Deal policies of the middle and late 1930’s. To try to revive the economy, the New Deal proposed a vast new role for the federal government in the economy. Many state governments also commenced what were then considered to be radical interventions in economic matters. The Court’s initial reaction to the new governmental programs was to hold several of them unconstitutional under substantive due process concepts.

President Roosevelt’s attempt to increase the number of justices sitting on the Court (in order to allow him to appoint justices favorably disposed toward New Deal legislation) led to a revolution in Court jurisprudence in economic matters. For example, in United States v. Carolene Products Co. (1938), the Court held that legislation affecting ordinary commercial transactions would henceforth enjoy the presumption that it rested on some rational basis within the knowledge and experience of the legislators. In contrast, the presumption of constitutionality was narrower when legislation appeared on its face to be within a specific prohibition of the Constitution, for example, specific prohibitions in the Bill of Rights. For the remainder of the twentieth century, the Court was reluctant to invalidate economic legislation under the Fifth Amendment and Fourteenth Amendment due process clauses, and substantive protection of property rights was largely confined to the takings clause.

Renewed Interest in Property Rights

After decades of quiescence, the constitutional protection of property rights began a long journey toward renewed recognition in the late twentieth century. In Lynch v. Household Finance Corp. (1972), Justice Potter Stewart authored a plurality opinion that expressed a rationale for constitutional recognition of property rights in the context of a jurisdictional issue. Although Justice Byron R. White, joined by Chief Justice Warren E. Burger and Justice Harry A. Blackmun, dissented on the basis of a jurisdictional issue not linked to the property rights question, the dissenters expressed agreement with the plurality’s statements regarding property rights.

The plurality opinion observed that it is difficult to draw a line between personal liberties and property rights with any consistency or principled objectivity. Accordingly, the dichotomy between personal liberties and property rights is a false one. The right to enjoy property without unlawful deprivation is as much a “personal” right as is the right to speak or the right to travel. A fundamental interdependence exists between the personal right to liberty and the personal right in property. In articulating this position, the plurality opinion cited such classic statements of property rights as John Locke’s Of Civil Government (1690) and Sir William Blackstone’s Commentaries (1765-1769).

Although Lynch appeared to presage the possible rehabilitation of substantive due process to protect property rights, no such reprise of economic due process occurred. Rather, the Court confined its renewed interest in property rights to the takings clause.

The Takings Clause Cases

In Pennsylvania Coal Co. v. Mahon (1922), the Court held that the takings clause could be invoked in the context of governmental regulation. Writing for the Court, Justice Oliver Wendell Holmes made the well-known statement that although property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking. Holmes observed that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a circumventing the constitutional way of paying for the change.

The Court has recognized a variety of property interests as being “private property” within the meaning of the takings clause, for example, contracts (Lynch v. United States, 1934), leaseholds (United States v. General Motors Corp., 1945), air space (United States v. Causby, 1946), an interpleader fund and the interest accruing thereon (Webb’s Fabulous Pharmacies v. Beckwith, 1980), trade secrets (Ruckelshaus v. Monsanto Co., 1984), fractional interests in land (Babbit v. Youpee, 1997), and interest earned on state-mandated attorney trust accounts (Phillips v. Washington Legal Fund, 1998). In Phillips, the Court restated its well-established principle that property is more than economic value, also consisting of the group of rights that an owner exercises over a thing, such as the right to possess, use, and dispose of it.

After 1987 the Court used the takings clause to foster greater protection of property rights in land. In First English Evangelical Lutheran Church of Glendale v. County of Los Angeles (1987), the Court adopted the doctrine that a temporary governmental regulation prohibiting all development of land results in a temporary taking for which just compensation is due to the landowner for the period of the taking. In Nollan v. California Coastal Commission (1987), the Court held that a state requirement of a public easement as a prerequisite of a development permit violated the takings clause under the circumstances of that case. The Court held in Lucas v. South Carolina Coastal Council (1992) that a governmental deprivation of all economically beneficial or productive use of land is a taking of that land within the meaning of the Fifth Amendment.

In Dolan v. City of Tigard (1994), the Court held that certain municipal exactions associated with building permits would be subject to a stricter test than the traditional rational basis test for due process evaluation of economic legislation. Writing for the Court, Chief Justice William H. Rehnquist reflected the increasing concern for property rights when he stated that the takings clause was as much a part of the Bill of Rights as the First or Fourth Amendments and should therefore not be relegated to the status of a poor relation.

Legislative Entitlements as Property Rights

The Court has sometimes recognized legislative entitlements as property interests sufficient to trigger procedural due process. In Goldberg v. Kelly (1970), the Court observed that welfare entitlements were more in the nature of property than a gratuity and that such property interests created by governmental programs are entitled to certain procedural due process protections. Similarly, in Board of Regents v. Roth (1972) and Perry v. Sindermann (1972), the Court determined that a person’s interest in a governmental benefit is a property interest if there are rules or mutually explicit understandings that support the person’s claim of entitlement to the benefit. Where state entitlements are concerned, the property interests are created and their dimensions are defined by state law. If, for example, a state creates a tenure system for governmental employees whereby the employee may be discharged only for good cause, then federal procedural due process protections are implicated.

Therefore, in Cleveland Board of Education v. Loudermill (1985), the Court held that Ohio’s statutory system of classified civil service employees triggered the procedural component of the Fourteenth Amendment due process clause and that such due process required Ohio to afford tenured employees pre-termination proceedings before they could be discharged, even though Ohio law provided no such pre-termination procedure. In Memphis Light, Gas and Water Division v. Craft (1978), the Court held that a customer of a utility service had a property interest in such service for procedural due process purposes where a state law provided that such utility service could not be terminated except for cause.

Reticence About Economic Due Process

During the 1990’s the Court continued to apply only a rational basis test to property rights cases brought under the substantive component of the due process clauses. For example, in United States v. Carlton (1994), the Court applied the rational basis test to a retroactive amendment to the Internal Revenue Code that cost the relying taxpayer $631,000. The majority opinion, authored by Justice Blackmun, reiterated the Court’s long-standing disregard of the pre-New Deal precedents that required exacting review of economic legislation. In an opinion concurring in the judgment, Justice Antonin Scalia (joined by Justice Clarence Thomas) restated his position that the very concept of substantive due process is an oxymoron and that the due process clause should be applied only to procedural matters.

In Eastern Enterprises v. Apfel (1998), the Court considered the imposition by Congress of retroactive and substantial financial liabilities under the Coal Industry Retiree Health Benefit Act of 1992 (Coal Act). A plurality opinion of four justices considered it a violation of the takings clause for Congress to impose financial liability on a company in which such liability was based on the company’s conduct far in the past and was unrelated to any commitment that the company made or to any injury it caused. However, five justices rejected a takings clause analysis, arguing that the term “private property” in that clause referred only to specific property, not general financial resources. Justice Anthony M. Kennedy, applying a substantive due process analysis to the retroactivity question, joined the four justices supporting a takings theory to invalidate the provision. The other four justices, applying a fundamental fairness test to the retroactivity issue, concluded that the provision did not offend substantive due process.

Thus, the Court continued its decades-long refusal to invoke substantive due process to invalidate economic legislation. However, the Court showed increasing willingness to consider the protection of property rights under the Fifth Amendment takings clause.

Issues concerning property rights continue to occupy the consistent attention of the U.S. Supreme Court. For example, in June 2021, the court ruled against a law enforcement officer who had entered an individual's house to serve him a ticket for drunk driving. The driver had entered his own property before the arresting officer had turned on his flashing lights. The Court ruled that the police officer had intruded on the driver's right to private property in entering his house without a warrant. Later that year the Supreme Court facilitated the ability of complainants to bypass lower state courts and to present their claims directly to federal courts. Federal courts are deemed to be more favorable for cases involving personal property, and hence the Supreme Court wished to encourage this practice.

Bibliography

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