This article traces the roots of the current muddle in the Supreme Court’s regulatory takings jurisprudence to an ill-considered “phantom incorporation” holding in Penn Central v. New York (1978), the seminal case of the modern regulatory takings era. The Penn Central Court anachronistically misread a long line of Fourteenth Amendment Substantive Due Process cases as Fifth Amendment Takings Clause cases, misattributing to Chicago Burlington & Quincy v. Chicago (1897) (“Chicago B & Q”) the crucial holding that the Fifth Amendment Takings Clause applied to the states. Like other cases of its era, Chicago B & Q was decided strictly on Fourteenth Amendment Due Process grounds, and was utterly silent on the Fifth Amendment Takings Clause, its relation to the Fourteenth Amendment, and its applicability to the states. Nor did Chicago B & Q overrule Barron v. Baltimore (1833), which had specifically held that the Fifth Amendment Takings Clause applied only to the federal government. Indeed, for another half century after Chicago B & Q, the Court continued to cite Barron as good law. Nor did Chicago B & Q or subsequent cases understand the Fourteenth Amendment Due Process and Fifth Amendment Takings prongs of just compensation law to be doctrinally identical requirements. Prior to Penn Central, courts scrupulously distinguished the two doctrines, relying exclusively on Fifth Amendment Takings Clause concepts and precedents to decide claims against the federal government, and Fourteenth Amendment Due Process Clause concepts and precedents in claims against states.
Penn Central, not Chicago B & Q, was the first case to incorporate the Fifth Amendment Takings Clause against the states. It did so without analysis (apart from its erroneous citation to Chicago B & Q), without briefing on the incorporation issue, without benefit of prior adjudication in the courts below, and without considering the implications of its incorporation holding for property law. Blending elements of Substantive Due Process and Fifth Amendment Takings doctrine into an incoherent pastiche, Penn Central’s incorporation holding sowed enormous doctrinal confusion. Its most important consequence was to deprive states of their principal defense against Due Process-based just compensation claims. All states had long claimed as a “background principle of property law” that all property was held subject to the state’s reserved police power to regulate to protect the public health, safety, morals, and welfare. On pre-Penn Central understandings, a valid police power regulation could never result in a compensable “taking” of property, for the simple reason that the claimant’s property rights were subject to the inherent limitation that such rights could be modified or limited by the state’s exercise of its police power. Armed with the police power defense, states had considerable latitude to make dynamic adjustments in property law in response to changing social needs, conditions, and understandings, even at the height of Lochner-era Substantive Due Process jurisprudence. Stripping state property law of its historically dynamic and progressive character, and sharply curbing the role of state law in determining the extent of a claimant’s property rights for purposes of adjudicating when a regulation amounts to a “taking” of property, the Court’s current regulatory takings jurisprudence has made a hash of federalism principles that historically lay at the center of our constitutional law of property.
While stare decisis counsels against reversing on the question of Fifth Amendment incorporation, this Article urges adjustments in Takings Clause doctrine to afford a prominent role for the police power as a judicially cognizable “background principle” of state property law, consistent with historic understandings. More generally, the Court must acknowledge that a determination whether a taking of property has occurred requires, as a logically prior question, an inquiry into the boundaries and limitations of a claimant’s legal property rights under state law. That inquiry is seldom made under current doctrine, which emphasizes diminution of value as measured against market expectations while largely ignoring any limitations on the scope of the claimant’s entitlements under state law