After 40 years and a lawsuit that went all the way to the U.S. Supreme Court, Anthony Palazzolo still can't develop his Rhode Island property. But his landmark case, which was decided by justices last week, goes a long way toward limiting the power of government agencies to do as they please regarding the regulation of private property.

In a 5-4 split decision, the Supreme Court essentially ruled in Palazzolo V. Rhode Island that government entities cannot use smoke or mirrors to prevent private property owners from disputing environmental regulations in court.

Way back in the late 1950s, Anthony Palazzolo and his business partners bought 18 acres on the Rhode Island coast for about $13,000. Palazzolo essentially controlled the partnership interests as well and was sole owner of the property by 1978.

From the 1960s to 1986, Palazzolo applied for land use permits five times. He wanted to fill the property, subdivide it and build 74 single-family homes. He estimated that his profits from this venture would add up to about $3 million.

But city and state agencies deemed Palazzolo's property to be wetlands. According to Rhode Island, the land serves as a "refuge and feeding area for larval and juvenile finfish and shellfish and for migratory waterfowl and wading birds." What's more, state regulations require "scenic diversity," which Rhode Island said would be harmed by Palazzolo's proposed development.

In 1988, Palazzolo filed suit claiming $3 million in damages -- the amount of profit he could have realized from subdividing and developing the land.

Rhode Island, however, claimed that environmental land-use restrictions were already in place when Palazzolo obtained sole ownership in 1978. This put him "on notice," the state argued, meaning that he should not have expected to be able to develop the land. And the Rhode Island Supreme Court agreed, saying that land buyers or successive title holders are barred from arguing against regulations already in place when they acquire property.

Fortunately, the U.S. Supreme Court struck down that portion of the lower court's ruling. The court said that this would allow the state to put even the most unreasonable land-use regulations in place. Then, when the owner died or other circumstances caused the property to switch hands, those regulations would be in effect for future generations. Instead, the Supreme Court noted, property owners continue to have the right to challenge land-use restrictions, no matter when they were enacted.

Rhode Island also had argued that Palazzolo's claim was not "ripe" for trial. Even though he applied for development permits several times, Rhode Island argued that he should have applied for other permits detailing alternate uses of the property. The Supreme Court denied this argument, with the majority ruling that state agencies already had made it clear that they were not inclined to grant permits for any development. Therefore, Palazzolo should not have to jump through more hoops before having his day in court.

Palazzolo did not, however, prevail on every issue before the Court. The justices ruled that he did not prove a complete taking of his land by the state, rendering it economically valueless. In fact, he developed one small portion of the land at a value of $200,000. Palazzolo can, however, sue for a partial taking. That issue was remanded to a lower court for trial.

At the end of the day, Palazzolo did not directly win the right to develop his land. Nor did he win damages from the state. But the courts in Rhode Island now will be forced to give him a proper hearing.

"The real story in this case is not whether a property owner won or lost, but simply that the highest court in the land said the property rights and takings claims of private landowners can and must be heard in courtrooms across America, and in a timely manner," said Bruce Smith, president of the National Association of Home Builders.

So the "taking" clause of the Fifth Amendment survived to see another day. But what the state of Rhode Island -- which showed so little regard for Mr. Palazzolo's rights as a property owner in the first place -- does with the Supreme Court's ruling remains to be seen. Don't be surprised if the aging developer ends up in Washington, D.C. again before this is all over.

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Published: July 5, 2001

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net