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v.

IN THE SUPREME COURT OF THE UNITED STATES - - - - - - - - - - - - - - - -X LINDA LINGLE, GOVERNOR OF HAWAII, ET AL., Petitioners : : : : : No. 04-163

CHEVRON U.S.A. INC.

- - - - - - - - - - - - - - - -X Washington, D.C. Tuesday, February 22, 2005 The above-entitled matter came on for oral argument before the Supreme Court of the United States at 11:13 a.m. APPEARANCES: MARK J. BENNETT, ESQ., Attorney General, Honolulu, Hawaii; on behalf of the Petitioners. EDWIN S. KNEEDLER, ESQ., Deputy Solicitor General, Department of Justice, Washington, D.C.; on behalf of the United States, as amicus curiae, supporting the Petitioners. CRAIG E. STEWART, ESQ., San Francisco, California; on behalf of the Respondent.

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ORAL ARGUMENT OF MARK J. BENNETT, ESQ.

C O N T E N T S PAGE

On behalf of the Petitioners EDWIN S. KNEEDLER, ESQ. On behalf of the United States, as amicus curiae, supporting the Petitioners CRAIG E. STEWART, ESQ. On behalf of the Respondent REBUTTAL ARGUMENT OF MARK J. BENNETT, ESQ. On behalf of the Petitioners

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P R O C E E D I N G S (11:13 a.m.) JUSTICE O'CONNOR: Lingle v. Chevron U.S.A. Attorney General Bennett. ORAL ARGUMENT OF MARK J. BENNETT ON BEHALF OF THE PETITIONERS MR. BENNETT: please the Court: For 70 years the Federal courts have deferentially reviewed both the efficacy and the wisdom of legislation, even when it affects property interests. This case squarely presents the question, should we now turn back the clock? We make two main arguments: first, that the Justice O'Connor, and may it We will hear argument next in

substantially advance test should not be a standalone test for determining whether regulation affects a taking because such a test is fundamentally divorced from a major principle of the regulatory takings doctrine itself, economic injury; and second, if there is such a standalone test, it ought to be no more searching than the rational basis test of due process. As this Court has stated in First English, the Just Compensation Clause is not designed to interfere with the ability of government to affect property interests,

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but rather to require just compensation in the event of an otherwise valid taking. In this particular case, we had a circumstance where one single Federal judge conducted a fact trial where she evaluated the demeanor and credibility of one expert from Chevron and one expert from the State of Hawaii in order to make a determination of whether or not garden variety economic regulation was constitutional or unconstitutional. There was no -- the test applied would

have been no different if this had been an act of Congress instead of an act of the Hawaii State legislature. this case, what the district court did was wholly inconsistent, we submit, with any reasonable concepts of federalism, and if it had been an act of Congress that this district court judge was sitting in judgment of, it would have been entirely inconsistent with the respect that this Court has consistently said is due to a coequal branch of government. A particular irony of the way the Ninth Circuit applied what it believed to be the Agins test, which it indicated the standard of review fell somewhere between rational basis and rough proportionality, but the -- the supreme irony of that, we suggest, is that if that test were applied, it would have the effect of overruling the very cases that Agins cited in supporting the language it In

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-- it used, that if indeed you have this type of intermediate scrutiny, cases like Nectow and Euclid v. Village of Ambler could not stand because, as this Court has said, those cases set out a rational basis test, whether the object was in the power of the legislature or -- or the municipal authority and whether the means used to achieve it were rational. And the test the Ninth

Circuit set up in this case, and as applied by the district court, would have overruled those very cases because there would have been a fact trial necessary to determine whether or not the -- the zoning ordinances at issue in that -- in those cases were efficacious or inefficacious. JUSTICE O'CONNOR: Well, does the fact that

discrete or individual property rights are being affected and, indeed, taken justify some higher level of scrutiny than we would apply to general economic regulation by the State? MR. BENNETT: No, Your Honor. We -- we would

think, first of all, this -- this Court has established that it doesn't look at whether some stick in the bundle of rights is affected by the regulation. parcel as a whole. And second, this Court has said that it is shying away from per se tests, and indeed, it -- it looks It looks at the

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at these types of cases under the rubric of Penn Central where the primary factor that the Court looks at is the extent of the economic injury and also the extent to which it interferes with reasonable investment-backed expectations. A particular irony of this case is that the Ninth Circuit has said this particular statute of the Hawaii legislature affects a taking without any regard to whether or not it caused any economic injury to Chevron at all. This Court has found that when the major flaw in

legislation or the -- the major argument as to why legislation should be deemed to be unconstitutional turns on the legitimacy of the legislation, that finds a natural home in the due process analysis, rather than in an analysis that looks at whether or not the legislation actually effects a taking or not. Indeed, this Court, Your Honor, despite what it said in Agins in relying on the due process analysis, has never found a taking based upon doubt as to the likely efficacy of economic legislation. JUSTICE SCALIA: though, haven't we? Well, we've said it a lot,

Why do we keep on saying it? Well, Your Honor, I think that in

MR. BENNETT:

-- in Del Monte Dunes, every opinion in the case discussed this language and -- and said that the Court has never

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indicated that this sets out a more exacting test than rational basis other than in the rough proportionality context of Nollan and Dolan. And I think the language

used in Agins, which came from due process cases, has somewhat taken on a life of its own, and the lower courts and the -- the supreme courts of the several States have had quite -- have had a great deal of difficulty in -- in dealing with what exactly the language means. We believe,

as we've set forth in our brief, that to the extent it establishes this intermediate scrutiny, as the Ninth Circuit felt it did, that it would be dicta in Agins, but if the Court viewed it as not dicta, we think that the Court ought to reconsider the constitutional rule under the standards for such reconsideration that the Court has identified in cases like Payne v. Tennessee. JUSTICE BREYER: Suppose -- suppose a person has

a piece of property, and they zone it suddenly, no building -- no building -- which destroys the value of the property pretty much. Now, should we just -- I think

those might be the cases where this language began to appear, something like that. rational basis review too? Should that be just a simple Because I'm trying to put the

case where it might be -- arguably you should have something stronger since the property value is -- is seriously hurt and --

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MR. BENNETT:

Your Honor, if -- if the claim was

that the legislation was irrational, that it -JUSTICE BREYER: No. They're going to say,

well, we can imagine a reason, but if you look at it realistically, you know there's no good reason. MR. BENNETT: No -I mean, if you put your mind to

JUSTICE BREYER:

it, you can make one up, which is sort of the test for rational basis in the economic context. But as soon as we It

become more realistic, there isn't much of a reason.

can't satisfy the stronger test, though it could satisfy the weaker. MR. BENNETT: No, Your Honor. We would suggest

that this Court's jurisprudence indicates that that type of a claim of a taking ought to be analyzed under the Penn Central test where you first do look at the extent of the economic devaluation, if you will, of the property and you look at whether there is an interference with reasonable investment-backed expectations -JUSTICE BREYER: What are we supposed to do, to

return to Justice Scalia's question, with the fact that this appears -- I counted about 12 cases, I mean, where it implicitly or explicitly appears, something like it. Are

we supposed to just, oh, say all those cases were wrong and -- what are we supposed to do about that?

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MR. BENNETT:

Well, we would suggest, Your

Honor, that what the Court does is say that -- that in Agins, what the Court was essentially doing was restating a due process test, and either say -JUSTICE O'CONNOR: MR. BENNETT: Would you speak up a little? We would

I'm sorry, Your Honor.

-- we would say that the Court ought to say that in Agins the Court was restating a due process test, and if this is to be a standalone test, it ought to be part of due process. But if it finds a home in the Just Compensation

Clause, it ought to find a home in the -- in the public use portion of the Just Compensation Clause where if, indeed, the economic impact in a regulatory takings context is so severe that it constitutes a taking, then whether it rationally advances a State goal ought to be -ought to inform the question of whether or not it's a public use, but that it shouldn't be a standalone test for really sitting as a super-legislature to determine whether or not this really advances the government's goals as opposed to whether it could rationally have advanced the -JUSTICE SCALIA: JUSTICE KENNEDY: JUSTICE SCALIA: Why would you feel -So you want us to put -Why would you feel better about

our doing that in order to determine whether -- whether

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there's a public use than you would feel our doing it in order to decide whether there's been a taking? MR. BENNETT: Well -I mean, wouldn't all of your --

JUSTICE SCALIA:

all of your objections apply equally? MR. BENNETT: rational basis. Certainly if it were more than

So we're -- we're suggesting that it

oughtn't, wherever it's put, be more than a rational basis test. JUSTICE SCALIA: You're -- you're not really

urging us to -- to defer the -- the evil day and simply say, well, this test, which is more than rational basis, may well apply to -- to whether there's been a -- a public use or not, but it certainly doesn't apply to whether there's been a taking. MR. BENNETT: -- it shouldn't -JUSTICE SCALIA: MR. BENNETT: I hope you won't do that. No, absolutely not. It shouldn't

-- it shouldn't apply to -- to

either one, and wherever this -- if the Court wants to say that this language needs to find a home somewhere and it isn't in due process, then it shouldn't be more than a rational basis test wherever it's put. In many ways, Your Honor, this statute, Act 257 of the Hawaii legislature, is -- is almost identical,

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although less intrusive, than the statute that this Court upheld in Exxon v. Maryland. both cases was the same. The goal of the statute in

It was to preserve competition

in the retail market, and in Hawaii, where we have at the refinery level a duopoly and at the wholesale level an oligopoly, it certainly was rational for the legislature to believe that trying to prevent the -- the oligopolist from projecting their market share into the retail level would have the effect of preserving competition. And it

was certainly rational for the -- the legislature to believe that limiting the rents that oil companies could charge their independent service stations so that they couldn't charge excessive or predatory rents would serve the goal of preserving competition in the retail market in a State where the oil -- where the gasoline prices at the pump are the highest in the country and the -- the market at the two levels above the retail level is extraordinarily concentrated. This Court, indeed, has said -JUSTICE KENNEDY: Well, suppose it were clear,

from what the legislature said, that the only purpose of this legislation was to help out some local dealers who were politically powerful and the gasoline prices would go up. I assume you would be here defending the statute. MR. BENNETT: Well, Your Honor, what we would

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say is that this Court's jurisprudence is that in applying a rational basis test, one doesn't look at what the legislature said was the purpose of the statute, but one looks at what could be advanced as a purpose for the statute and -JUSTICE KENNEDY: And you would be here

defending the statute on -- in my hypothetical case. MR. BENNETT: Yes, Your Honor, and we would --

we would be, I imagine, positing additional reasons why the statute would pass a rational basis test than those actually reflected in the legislative history because I think, as this Court has indicated a number of times, that requiring the legislature to state reasons or, indeed, looking at the precise reasons stated by the legislature in deciding whether the statute furthers those goals as opposed to other goals the legislature might have had, simply sets this Court up as a -- as I said, a superlegislature, and -- and really opens the door to the type of intrusive review of legislative acts that this Court has not engaged in for more than 70 years. The number of cases that the Court has looked at in which it has indicated that it is not going to get into the business of determining efficacy or wisdom is, indeed, legion, and really since the New State Ice era, the Lochner era, this Court has not engaged in that type of

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review.

And in fact, in Lochner itself, the -- the Court

stated that we do not believe in the soundness of the views which uphold this law, and one can take that and look at the Ninth Circuit opinion in this case in which the Ninth Circuit does essentially the same thing. Your Honor, in our representative democracy, decisions as to the wisdom of economic legislation are for the political branches, not the courts. The voters of

Hawaii have a remedy if their elected officials fail them. It is in that forum that the wisdom of Act 257 should be debated. Justice O'Connor, I'd ask to reserve the remainder of my time. JUSTICE O'CONNOR: Very well, General Bennett.

We'll hear next from Mr. Kneedler. ORAL ARGUMENT OF EDWIN S. KNEEDLER ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONERS MR. KNEEDLER: please the Court: The reasons why this Court has applied the rational basis standard to review economic legislation of the sort involved here go to the heart of the role of courts in our democratic society. Legislatures, not Justice O'Connor, and may it

courts, are elected to enact the laws, and courts,

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therefore, do not substitute their judgment for the economic wisdom of legislation for that of the legislature. And courts typically lack the fact-finding

ability and expertise of legislatures, especially to make the sort of predictive judgments that the Ninth Circuit relied upon in this case. These fundamental principles about the role of courts in our society would be greatly undermined if a plaintiff could simply -- could obtain heightened scrutiny of legislation by simply recasting his claim as a takings claim. And therefore, it's not surprising that this

notion doesn't find support in the Just Compensation Clause. When the government affirmatively exercises the power of eminent domain to take property, the requirement that compensation be paid doesn't rest on the proposition that the legislation is ineffective. To the contrary, the

taking presupposes that the -- that the action will -will further a legitimate governmental purpose or at least that the legislature could have rationally so concluded. Any inquiry into the legitimacy of the governmental purpose or whether it will be served, instead, arises under the Public Use Clause, not whether there is a taking. And if those purposes are not served

or the legislature could not rationally so conclude, it is

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not a public use and it's invalid and it should be enjoined, the consequences not to trigger the payment of -- of compensation. And the -- the same analytical approach applies for regulatory takings. In deciding whether there is a

regulatory taking, this Court has developed tests to look to see whether the nature of the government's restrictions are essentially the functional equivalent of the exercise of the power of eminent domain or appropriation. And that

-- that the Court has done by looking principally at the impact on the property owner, not the rationality of what the legislature has done. That has not been part of it.

For example, in the Lucas case, the -- the test for finding a taking is whether all economic value has been destroyed. Or in the physical appropriation cases,

the Court has said that's such a fundamental interference burden on the landowner that there is a per se taking. And similarly under the Penn Central test, the central inquiry is on the economic impact and the interference with investment-backed expectations, things that look to the impact on the -- on the landowner. JUSTICE GINSBURG: JUSTICE KENNEDY: Mr. Kneedler -Well, if you're going to use

the public use prong of the -- of the -- the Constitution for what we think are regulatory takings, then what

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happens is you just invalidate the regulation. pay compensation. MR. KNEEDLER:

You don't

That's -- that's correct,

although I -- although I should say -JUSTICE KENNEDY: use, then you can't -MR. KNEEDLER: correct. Right. No. That -- that's If Because if it's not a public

And I think that's -- that's the difference.

something doesn't -- if the legislature couldn't rationally conclude that -- that the measure will -- will serve a legitimate governmental purpose, it's invalid and -- and therefore not a taking. action. JUSTICE GINSBURG: What about substantially It's improper governmental

advances a legitimate State interest, which does sound like it's a higher standard? And it has been said, as was

pointed out, in several cases of this Court -- not that it made any difference to the bottom line, but that language is -- sounds -- sounds like it's a more toothful standard than rational basis. MR. KNEEDLER: Well, in -- in fact, the point

you made that it has not actually affected the outcome I think is an important consideration for this Court. And

-- and now that the Court is focusing on the question of whether this really does logically fit into the Just

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Compensation Clause jurisprudence, I -- I think it -- I think it's important to consider that the Court has not actually ever struck down a measure under the Just Compensation Clause outside the exactions situation which present the different consequence of -- of a physical appropriation. The Court has not ever actually struck

down a statute on -- on that basis. But with respect to that language, it -- it arose in Agins. There was a little bit of discussion

along those lines in Penn Central, but in Agins, which most people see as -- as the origin of it, the Court, as was pointed out, relied upon Village of Euclid and upon Nectow, both of which were due process cases and both of which applied a rational basis test. And in fact, on

pages 24 and 25 of our brief, we set out the quotations from Nectow and Euclid which show that the Court -- the Court there was using the notion of whether the measure will -- will further a substantial or has a substantial relation to the public health, really in contradistinction to something that is irrational. JUSTICE BREYER: MR. KNEEDLER: JUSTICE BREYER: MR. KNEEDLER: JUSTICE BREYER: What about Moore? Excuse me? What about Moore? Moore? Yes, City of East Cleveland

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where they had the grandmother and the -- the -MR. KNEEDLER: Right. Well, cases -- cases

involving the -- the family unit I think -- I mean, those are -- those go beyond simply the question of the -- of regulating property. Those -- those get into -- those get

into questions of -- of who's occupying -- who's occupying the house. But -- but in Village of Belle Terre, the --

the Court applied a rational basis test to the -JUSTICE BREYER: So -- so we might still keep a

-- a stronger test where a zoning ordinance affects the number of people that could live in a house or -MR. KNEEDLER: number of people. JUSTICE BREYER: MR. KNEEDLER: JUSTICE BREYER: MR. KNEEDLER: Or who could live in the house. That case concerned -Grandparents --- a family, the -- the question No, not the number -- not the

of interfering -- possible interference with a family unit. But in Village of Belle Terre, the Court applied a

-- a rational basis test to a zoning ordinance that regulated unrelated people living in -- living in the same house. So the phrase, substantially advance, while it may have that ring to it, in fact its origins, when you look at page 25 of our brief, the -- the Court in Nectow

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explained the test as being a -- a court may not set aside the determination of public officers unless it's clear that it has no foundation in reason and is a mere arbitrary or irrational exercise, having no substantial relation to the public health. JUSTICE GINSBURG: synonyms. The Court was --

Well, they don't sound like

So I'm asking you what you would recommend that If you say that the standard is the same

this Court do.

as rational basis, perhaps this confusing phrase should be eliminated. MR. KNEEDLER: Yes. I'm sorry. I We think it

misunderstood, if that was the question.

definitely should be eliminated, and the -- and the Court should say that it is applying the rational basis test. And I think it's instructive in the -- in the post-Agins era to look at the Keystone decision, both the dissent and the majority in that case. It was -- the

Court was essentially unanimous that the -- that the taking provision of a clause does not authorize an inquiry into the efficacy of legislation. And in fact, on that

point, the dissent quoted this Court's decision in Midkiff. JUSTICE KENNEDY: Of course, when you have a

physical invasion of property and a inverse condemnation is tantamount to a physical invasion, then we've built up

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some doctrine in order to protect the concept of physical invasion so that that can't be avoided. Perhaps that's

not applicable to a -- to an economic regulation. MR. KNEEDLER: Well, I -- yes, this -- this -Even though this is a

JUSTICE KENNEDY: leasehold interest.

I -- I understand that. But the Court applied a rational

MR. KNEEDLER:

basis test in Pennell under the Due Process Clause and it would be odd to apply a -- a higher test. I mean, it would be a different question if there was a claim of -- of confiscation of the property, but Chevron has stipulated that it could not make out a taking claim on the basis of -- of its economic impact. So we're talking about a standalone inquiry into the efficacy of the legislation. JUSTICE SCALIA: But, Mr. Kneedler, simply

giving -- giving the phrase, substantially advance, the -the more modest meaning that you argue for doesn't solve the problem. incorrect. The -- the statement in Agins would still be Agins says that the application of a general

zoning law to a particular property effects a taking if the ordinance does not substantially advance legitimate State interests. MR. KNEEDLER: point -Yes. Now I -- and that was the

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JUSTICE SCALIA: no matter what we do. (Laughter.) JUSTICE SCALIA:

I mean, so we have to eat crow

Right?

So why -- why go through all

the trouble of, you know, redefining substantially affects? MR. KNEEDLER: Right. No. I -- I didn't mean

to say that -- that it should -JUSTICE SCALIA: MR. KNEEDLER: Yes. -- be a rational basis test and In --

therefore the Court would conclude it was a taking.

in the regulatory area, if the court -- if a taking is not made out on the basis of economic impact under -- under Penn Central or one of those tests, there's no taking. You don't get to the public use requirement then because that only kicks in if there is a taking. So it's the due And

process rational basis test that -- that would apply.

-- and as I said, I think Keystone, with -- with respect to applying a rational basis test on the efficacy question is -- is dispositive on that -- on that question. Now, the -- the Court did say you can look at the character of the governmental action, what -- what the government is doing as part of the Penn Central test, but not this sort of means-end efficacy question. And we do

think it would be appropriate for the Court to jettison

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that. I would point out that throughout the course of history, the Court has sometimes used takings and due process kind of interchangeably. And we -- we quote, for

example, the -- this Court's Rowan decision which refers to the plaintiff's constitutional claim as saying that the regulatory action violates the Fifth Amendment because it constitutes a taking without due process of law. I think

sometimes the Court has used or parties have used those terms interchangeably, and that may well be what the Court was doing in Agins. And I think if you look at Penn Central where that phraseology was -- was used, the same is true where the Court was -- was relying upon the due process part of Goldblatt, and the Court put the word taking in -- in quotes, I think perhaps indicating that it was not looking at a literal taking. JUSTICE O'CONNOR: Mr. Stewart. ORAL ARGUMENT OF CRAIG E. STEWART ON BEHALF OF THE RESPONDENT MR. STEWART: the Court: The issue in this case is the content of this Court's regulatory takings doctrine and, in particular, Justice O'Connor, may it please Thank you, Mr. Kneedler.

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whether that doctrine includes the inquiries called for by the substantially advances test, which this Court articulated in Agins, but which is grounded in principles the Court has long recognized both before and after Agins. JUSTICE KENNEDY: Is it a regulatory taking in

your view because the substantially advances test is not met, or is a regulatory taking and then I ask if it substantially advances? MR. STEWART: The -How do I know that this is a

JUSTICE KENNEDY:

regulatory taking, in other words? MR. STEWART: It's a -- it's a regulatory taking

because the government has not physically appropriated the property or condemned it. Instead, by operation of its

regulation, it has taken the property interest from Chevron. It's like -JUSTICE SOUTER: No, but that -- that means if

it's a taking at all, it's got to be a regulatory taking. But Justice Kennedy's question is what is the test for determining whether it is a taking. MR. STEWART: And I believe that question, Your

Honor, is answered by Pennsylvania Coal where the Court found that the fact that the statute at issue there prevented Pennsylvania Coal from mining a certain amount of the coal that was in the ground that it was otherwise

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entitled -- be entitled to mine -- took that property just as assuredly as a condemnation of it would. And then the

Court said, but the seemingly absolute protection of the Just Compensation Clause in the context of a -- of a regulation that affects that kind of appropriation, as opposed to an outright condemnation of it, that that protection is subject to an implied limitation that exists to allow the government to serve its purposes, as Pennsylvania Coal described it, if the government could hardly function at all, if it were required to pay for every interference with property rights occasioned by its regulation. So what we have growing out of Pennsylvania

Coal is a -- a rationale for allowing the government to interfere with private property rights that would otherwise be protected and otherwise could not be taken without compensation in order that the government may serve its legitimate purposes. JUSTICE BREYER: And then the question, of

course, is let's imagine you're either right or you're wrong as to its being a regulatory taking. And maybe if

it's -- they have no reason for it at all, they can't do it. Period. And if they have some reason for it, even a But if that's the

sort of bad one, they can do it.

context -- we're in the game where they can do it -- why should it matter, in respect to paying compensation,

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whether their reason is quite a good one or just barely good enough? And that's -- that's the puzzle, I think,

that the other side is putting to you, and I must say I'm rather moved by their argument because it seems to me whether it's a very good reason or just a barely adequate reason has nothing to do with whether they should pay compensation. MR. STEWART: I think it goes to the difference,

Your Honor, between the public use standard and the -which governs in a situation in which the government is paying compensation. And in that standard, as we've been

discussing today, in that context, the Court has applied a very deferential standard because the -- the burden on property rights is lesser and the -- the impediment -JUSTICE BREYER: MR. STEWART: greater. JUSTICE BREYER: Maybe I'm not -- I thought -But the burden on --

-- to governmental action is

are we in the world in which you agree the government can do it even though their reason -- or is your basic argument, no, they can't do this at all? it's not a compensation question. In which case

It's a question of

whether the Constitution of the United States forbids them from doing it. Period. We -- we believe, Your Honor, that

MR. STEWART:

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it is a compensation issue. JUSTICE BREYER: JUSTICE SOUTER: money judgment? It's a compensation issue. So you want money? You want a

I thought you wanted them to stop it. We wanted a declaration from the

MR. STEWART:

court that the -- that they cannot proceed with a statute that takes our rents without paying -- paying for us. What's happened here is that this legislature has enacted -JUSTICE SOUTER: But -- but isn't -- I thought

your premise was that because the statute doesn't authorize any payment, that is a way of stopping it. MR. STEWART: authorize payment. JUSTICE SOUTER: So if -- if Hawaii modifies its Yes. The statute does not

statute and says, we will give to you the difference between, you know, whatever the rent we -- if we can figure it out -- whatever the rent would be and -- and what our statute requires, you'd be perfectly happy. MR. STEWART: Yes, Your Honor. Okay.

JUSTICE SOUTER: MR. STEWART:

What we are arguing about here is

compensation, and the standard that we -JUSTICE O'CONNOR: Well, it would seem that

you're arguing about whether this amounts to a taking --

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MR. STEWART:

Yes. -- at all. And you have to

JUSTICE O'CONNOR:

look at how severely the State law burdens the property rights. Don't you? MR. STEWART: Your Honor, the -- in Lucas, this

Court found that a -- a complete deprivation of the economic value of property constitutes a categorical taking. But the Court has not held -- it did not hold in

Lucas and it has not otherwise held -- that a regulation that affects less than a complete destruction of economic value is categorically not a taking. The point of the

Court's regulatory takings doctrine and the inquiries that it mandates is to determine those circumstances in which a deprivation that is less than a complete destruction of economic value require compensation. JUSTICE BREYER: Well, the -- let me go back to And I'm

my question because I haven't heard the answer.

in a world, imaginative if you like, where Hawaii passes this statute, and what we're interested in is not whether they can do it, but whether they have to pay compensation. And my question is, what in heaven's name has the goodness or badness of their reason to do with that question? After all, I can imagine instances in which their reason for the regulation is pretty bad. It just barely And I can

survives, and they shouldn't have to pay.

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imagine cases where their reason is wonderful and they should have to pay or maybe they shouldn't. a necessary nor a sufficient condition. do with whether you should have to pay. Now, that's their argument I think, or at least as I understand it, and I want you to explain to me why the goodness or badness of the reason, once it has passed the minimal point, has anything to do with whether you should have to pay compensation. MR. STEWART: And my answer to that, Your Honor, It's neither

It has nothing to

is that it goes -- it stems from the rationale expressed in Pennsylvania Coal for allowing the government to interfere with private property -JUSTICE BREYER: Holmes said, though he didn't

hold that -- what he said was you have to pay when the regulation, a legitimate regulation, goes too far. will repeat. So I

Why does the goodness or badness of the

reason, past the minimal point, have anything to do with whether a regulation goes too far? MR. STEWART: Well, part of the question whether

the regulation goes too far is whether there is a basis for imposing the burden on a particular property right. Here we have -JUSTICE KENNEDY: Yes, and in that respect, He said just when

Holmes did not use the word legitimate.

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the regulation goes too far, and if it's illegitimate, that tends to show -- I suppose the jurisprudence is -that this is not an accepted form of regulation in the usual course and therefore unnecessary. your argument. MR. STEWART: Well, I think, Your Honor, that I take it that's

the -- growing out of Pennsylvania Coal, the Court has recognized that one of the critical factors, if not the most critical factor, in regulatory takings analysis is the character of the government's action and the nature of the government's interest. It's not simply a matter of The question is the

how much property has been taken.

government's basis for taking that property. When we -- what we have here, Justice Breyer, is a -- is a -- a right specifically protected by the Constitution. The Constitution provides that private

property shall not be taken for public use without just compensation. And Justice Holmes in Pennsylvania Coal was

-- said that that seemingly absolute protection is qualified, and the -JUSTICE BREYER: this question. Let me give you an example that will make it clear. Let's take a case where there's the best reason in We're taking this property to But he -- he didn't go into

the world, fabulous reason.

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build a highway, which is absolutely necessary.

Would you

suggest that compensation doesn't have to be paid? MR. STEWART: paid. JUSTICE BREYER: Of course, it does. Compensation, of course, has to be

Now, let me suggest the other side of the coin, a really terrible reason. without using metal pipes. this State. You cannot build your house That's our building reg in

Now, everybody knows -- I'm imagining anyway

-- plastic pipes are just as good, but not quite, so they have a barely adequate reason. Do you think that they

have to pay compensation to have a general building code saying you can't use plastic pipes? MR. STEWART: Your Honor, I -- to me there's a

threshold question of whether a general building regulation of that type really would be a -- a regulation that would implicate the Takings Clause at all. JUSTICE BREYER: Well, it is an -- it does

regulate the use of your property and it means added cost, in fact, several thousand dollars added cost, to the building of a house, and come up here and argue we agree there's a rational reason, but it isn't so you can do it, but it isn't a really good reason, not substantial. do you think that has anything to do with paying compensation? Now,

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MR. STEWART:

Yes, Your Honor, I do.

And

because the -- the -- assuming -- on the assumption that this is really a -- a burden on property rights that would be subject to the Takings Clause, then that burden requires compensation unless there's some limitation on the compensation principle. And the limitation that the

Court has recognized, growing out of Pennsylvania Coal, is the need for the government to function. So we have an

inquiry into whether this furthers the governmental purposes. Now, in your example, Your Honor, I don't think there's any question that that inquiry would be satisfied. Our point is simply that the inquiry must be made. JUSTICE GINSBURG: Mr. Stewart, I'm trying to

understand not your theory but its concrete applications. Here we're dealing with the rent to be paid by a lessee of a gas station, but what you're saying, I take it, would go for any kind of rent control. argument. You could make the same

So you're -- so you are saying that rent

control is a taking and the State could do it with compensation? MR. STEWART: Yes, and -And -- and the measure of

JUSTICE GINSBURG: compensation would be?

How would the State -- let's take

a -- an ordinary rental property, and the city puts a rent

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control ordinance into effect.

You say that's a taking,

and how would one measure the compensation? MR. STEWART: The compensation would be measured

as the difference between the -- the rent that was allowed under the regulation or the statute and the rent that the -- that the landlord, the lessor, would otherwise be entitled to collect in the marketplace. JUSTICE SCALIA: I didn't understand you as I

saying that all rent control constitutes a taking. thought it is only unintelligent rent control that constitutes a taking. (Laughter.) JUSTICE SCALIA:

Or do you not think that any

rent control is intelligent? MR. STEWART: Honor. No, that is not our position, Your

The -- the -- and in fact, the -- the State has

specifically disclaimed any contention that -- that this is like the typical residential rent control. JUSTICE GINSBURG: So --

I'm asking for not the

State's position but your position. MR. STEWART: And our -And let's -- let's assume

JUSTICE GINSBURG:

that there's no better reason for the rent control for the building, residential building, than there is for the rent control on the lease for the gas station.

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MR. STEWART:

Your Honor, our -- the question

would be, under our analysis, is not the validity of the -- of the ends, of the legislative ends. That would be So -- so

taken care of in the inquiry under public use. the -- so the question of the legitimacy of the

government's interest in controlling rent would not be at issue. What would be at issue under our test is the connection between the -- the rent control, the burden on private -- private property rights that's imposed and the nature of the asserted interests and the degree to which that burden furthers that interest. Now, in the typical residential rent control circumstance, where the purpose of the statute -- where -where the -- where the legislature is concerned about the -- the price, the rent -- the rental amount that residents are having to pay, in that circumstance, the test that we're proposing would be easily met because the purpose of the statute would be to grant rent relief to the -- to the tenants. And that -JUSTICE SOUTER: And on your theory it would I -- I

easily be met no matter how severe the control.

take it on your theory, if -- if the -- if the rent control ordinance said, $5 an apartment, that's the top rent, fine with you because it's extraordinarily efficient

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in relieving poor renters from the -- from the burden of -- of high rents. MR. STEWART: I think our -That can't be the test.

JUSTICE SOUTER: MR. STEWART:

Well, I think our position, Your

Honor, is that there are -- this -- this is a threshold inquiry, the -- the hypothetical -JUSTICE SOUTER: But -- but it would -- in any

case it would pass the threshold inquiry on your test. You would say, boy, it doesn't get any more efficient than this until it gets to zero. MR. STEWART: inquiry. I think that it would pass the

I suppose you could -- you could -JUSTICE SOUTER: So you would say at the

threshold level, there's no taking. MR. STEWART: Yes. And what would you then do? Go

JUSTICE SOUTER: on to Penn Central? MR. STEWART:

Yes. Okay.

JUSTICE SOUTER: MR. STEWART:

You would have an inquiry into

whether there is a categorical taking under Lucas because it deprived essentially all economic value of the property and you would inquire under Penn Central whether -because the threshold inquiry into the nature of the

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government's interest is satisfied, you then inquire into whether the burden is such in light of the purposes to be served that we believe it goes too far -JUSTICE SOUTER: Okay. But if -- if the test is

going to be as unhelpful as it would be in my extreme hypothetical, why have the test at all? Because in the

more difficult case where it's not $5 an apartment, but a case like this in which the justification is ultimately a justification in gasoline prices and so on, the -- the inquiry is going to be much more complex. a way of approaching that complexity. Penn Central is

Why do we bother

with this threshold test which produces a bizarre result in one case and is going to be very difficult to apply in another case, in which event I don't see the reason for having it as distinct from the Penn Central difficulty test. What's -- what's its value? MR. STEWART: I mean -- part of my answer to

that, Your Honor, is that this test, in our view, does have very narrow application, which is the reason why we don't believe that the State is correct in suggesting that it will result in the invalidation of all kinds of economic regulation. Having said that, though, I do believe that it is an important threshold requirement that should be met, and if the government has not identified a basis for

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singling out a given property right and imposing on that the burden of a regulation and if it has not demonstrated that the burden it is imposing is related in a -- in a -in advancing the purpose for which the burden is being imposed, then in that circumstance, the -- the rationale for imposing that burden without compensation, in contravention of the compensation requirement in the Fifth Amendment, is missing. JUSTICE SOUTER: But isn't the sensible response

to the situation you posit that the government shouldn't be doing it? I mean, it's a little crazy to say the Therefore it -- it ought to

Government is acting crazy.

contribute money so the net economic effect is somehow zero. There's simply a transfer. The taxpayers bear a

burden as -- as opposed to somebody else. On the -- on the justification you're giving for the test, you would say, look, if it's not substantially advancing this interest, why let the government do it at all? I'm not saying that should be the test for whether But isn't that kind

the government should do it at all.

of the sensible tendency of the test, to suggest that the government shouldn't even be doing it? MR. STEWART: And I -- the distinction we're

relying upon there, Your Honor, is -- is the question whether the government can proceed with compensation as

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distinct from proceeding without compensation.

When the

government proceeds with compensation -- it's going to pay for the private property rights, the constitutionally protected private property rights, with which it's interfering -- then we demand a lesser showing. But when

there is a constitutional right at stake, the -- the showing should be higher. We're not asking whether the We're simply asking

government can proceed at all.

whether the government can proceed without compensation. And the without compensation is what triggers and infringes upon the very rights that are protected by the Just Compensation Clause. JUSTICE SCALIA: Souter. I must say I agree with Justice

It seems to me if you say -- you're saying it I think it

doesn't make sense, so you got to pay for it.

-- it's much more reasonable to say it doesn't make sense, so you can't do it. intelligent reaction? MR. STEWART: Your Honor, I -- the -- the Why isn't the latter the -- the

question of whether it makes sense turns upon the standard of review that the Court is going to apply to answer that question. And when we are -JUSTICE SOUTER: No. The -- I mean, it seems to

me that the -- the whole point of the argument you're making is it won't hurt me, the landowner, quite so much,

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but if it doesn't make sense at all, why should we even have to get to that question? Why isn't the more sensible

thing to say to the government, stop doing it? MR. STEWART: Because of the -- the -- the

difference in the relative interests at stake when we're talking about proceeding with compensation as against without compensation. In -- in the -- it's similar to the other protections extended under the Bill of Rights. The Court

has indicated that the Just Compensation Clause is just as much a part of the Bill of Rights as any of the other protections of the Bill of Rights. And there are There

circumstances in which the government may proceed.

would be a rational basis for it to proceed under a very deferential standard that would be applied under the Due Process Clause, but the Court, nonetheless, requires a higher showing because of the intrusion on constitutionally protected rights. JUSTICE GINSBURG: But isn't the effect of what Because you -- the

you're arguing that you can't do it?

government would have to pay the same amount that -- by the -- that the rent is being reduced. We'd have to

figure out how much higher the rent would have been, and -- so it -- it would be a -- a nonsensical thing for the government to engage in.

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MR. STEWART:

Your Honor, the State's position

in this case is that by preserving a network of lessee dealers, there will be benefits to the public in terms of lower gasoline prices. And I think their -- their theory

is that those benefits would far outweigh the -- the modest decrease in rent, lost rent to the oil companies. And so that it -- it would make sense if the government wished to make that choice and -- and to pay compensation, if the government's theory were correct. And one of the values of the Just Compensation Clause and the constitutional rights that it protects is that it forces that choice to be made. It -- it puts the

decision on budget as opposed to off budget. JUSTICE GINSBURG: Well, why wouldn't it make

sense then for the government to say, Chevron, you charge what you want and, station owner, we, the government, gives you -- Hawaii gives you this money so you'll be able to pay the excess rent? MR. STEWART: In fact, we believe that is -- is, There -- there is no

in essence, what is occurring here.

claim that the rents that Chevron or the other oil companies were charging are excessive or that they have been the cause of any problem in the State of Hawaii that Hawaii is trying to address. JUSTICE BREYER: Explain it -- explain your

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theory in terms of the example.

That is, imagine that the

benefits of the network of dealers of gasoline into the community are fabulous and obvious. reason for doing this. So there's a great

Now, why is it that, on your

theory, the government shouldn't have to pay compensation then, but it should have to pay compensation just because the benefits are not obvious, that they're bizarre, that they don't -- may not really exist? I'm having a problem? MR. STEWART: better, Your Honor. Let me see if I can get to it That's -- you see why

One reading of the Takings Clause,

the Just Compensation Clause, would be that the government should pay compensation in those circumstances where it is depriving property owners of protected property rights. But in Pennsylvania Coal, the Court said in the regulatory takings area, because of the need for the government to function, we are going to allow the government in certain circumstances to -- to interfere with rights without paying for them. And the inquiry that we're saying the

Court should make is whether that need exists and whether the burden being imposed serves that need. And -- and again, I'd like to emphasize that this should not be considered an unfamiliar concept in constitutional law. This Court has consistently

recognized that when the government seeks to intrude on

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protected -- rights protected by explicit provisions in the Constitution, on the basis that its needs, its legitimate interests require that intrusion, then the court's role to enforce the constitutional protections is to make that inquiry into whether the need is -- is being actually served. Now, I'd like to at -- at this point emphasize that our position is not that no deference may be given to legislative judgments under this test. Our position is

simply that it must be more than a mere rational basis test. The reason why the Court, in repudiating the

Lochner-era cases, has held that mere rationality is enough to satisfy the constitutional standard is that there was no specific constitutional prohibition. In the

-- and -- and the Court specifically distinguished those circumstances in which there is a constitutional right -JUSTICE GINSBURG: But there are so many things And -- and so

that you could dress up as being a taking.

it seems to me that it's up to the artful pleader to say whether this is a due process excessive regulation or this is intrusive to the point where it amounts to a taking. I mean, the -- the -- would you -- rent control is one. What about -- suppose Hawaii had said, we're

going to cap the price of gas so it will make it easier for these stations to survive.

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MR. STEWART:

I think, Your Honor, that most

courts have recognized, although I don't know that it's settled, that a -- a control on the price of a product that -- that a business has produced would implicate the Takings Clause. And -- and in that circumstance, the

substantially advances test almost certainly would be met, and our -JUSTICE GINSBURG: Do we have a case involving

price control where we have analyzed that as a taking? MR. STEWART: Yes. The Florida Power case v.

the FCC where there was a regulation on the prices that telecommunications companies could charge for access to their poles. Back in the war era, there was cases

involving rent control where the Court found that the rent control was justified because there was a market distortion caused by the extraordinary imbalance in -JUSTICE GINSBURG: treated as taking cases. MR. STEWART: I believe they were, Your Honor, I didn't know that those were

and that they have been -- that this Court has discussed them in those terms. But I would like to, if I could, address the broader point that I believe Your Honor was -- was making, which is can these claims just simply be repackaged and -and sweep into the takings analysis all of the regulation

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and apply to it the very same test that the Court has repudiated in Lochner. is clearly no. The -- the Just Compensation Clause is limited to rights of private property, would not extend -- and I don't believe there's anything in this Court's precedents that would require it that it extend to the kinds of laws, minimum wage laws, wage and hour provisions, regulations on the size of bread loaves, that were the professional licensing requirements that were the subject of the Lochner-era cases. And the Due Process Clause extends even to expectancy interests or -- or reliance interests on governmental benefit programs. Nothing in our position And the answer to that I believe

here would -- would apply to that because those, we don't believe, have ever been held and -- and should not be held to be covered within the specific provision of the Just Compensation Clause. Your Honors, in Nollan and Dolan and First English, this Court recognized that the Just Compensation Clause is not a poor relation among the provisions of the Bill of Rights. In First English, the Court recognized

that the constitutional provisions by their very nature limit the freedom and flexibility of the government in order to protect constitutional rights. And the Court in

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First English said that the Just Compensation Clause of the Fifth Amendment is one such provision. And our position here is that this constitutional right, that private property shall not be taken without just compensation, should be entitled to the same protection as the other constitutional protections in the Bill of Rights, and that just as with respect to those rights, when the government seeks to intrude on those interests, the court should properly inquire into the nature of that intrusion and the justification for that intrusion. Thank you. JUSTICE O'CONNOR: Thank you.

Attorney General Bennett, you have 7 minutes remaining. REBUTTAL ARGUMENT OF MARK J. BENNETT ON BEHALF OF THE PETITIONERS MR. BENNETT: about compensation. Your Honors, this case is not

Indeed, Chevron's discussion of

compensation -- the first time that that occurred in the entirety of this case was in its brief in this Court, as we point out, in particular, in footnote 6 at page 11 of our reply brief. This case is, indeed, about whether this The Ninth Circuit's

economic regulation is legitimate.

test was it doesn't work well enough, so it is

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illegitimate.

That type of a test belongs under the Due

Process Clause, not under the Just Compensation Clause. This Court has time and time again said that it is not going to set up separate per se tests except in very limited circumstances and, indeed, it's not going to divide parcels in the way Chevron suggests here and whether it's in Tahoe-Sierra or Penn Central or Keystone, the Court has said, absent taking all value or use of the property or in Loretto, in the case of a physical invasion, it is going to allow these types of regulatory takings tests to be judged under Penn Central. What Chevron is arguing for here is a separate test outside of Penn Central, divorced from economic impact, that concerns solely the legitimacy of the regulation. We suggest that that belongs in due process.

We believe that what the Court should do is say that what was stated in Agins does not state a standalone test. Tests for judging the legitimacy of a regulation

belong in due process based upon a rational basis test and that other than the very limited per se categories that this Court has established, regulatory takings claims depend on economic impact and belong under the Penn Central analysis. Thank you. JUSTICE O'CONNOR: The case is submitted.

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(Whereupon, at 12:06 p.m., the case in the above-entitled matter was submitted.)

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