Machipongo Land & Coal Co. and R.T.G., Inc.: When is an Area Unsuitable for Mining a Regulatory Taking and When is it Not?

Joel R. Burcat
Julia M. Glencer

The law of regulatory takings remains in constant flux. Determinations by the United States Supreme Court seem to point the way in which the high Court will proceed, only to be contradicted a short while later by the same Court. The states, perhaps confused by the United States Supreme Court’s inability to forge a definitive statement of the law, when reviewing cases with almost identical factual patterns, are now going in opposite directions, despite application of identical Federal Constitutional principles.

Two recent decisions of the high courts in Pennsylvania and Ohio exemplify this unfortunate pattern. These states share more than a geographic border; they boast a similar past in relation to the prevalence and importance of coal mining. Pennsylvania and Ohio also share a similar legal framework – one that recognizes and protects the coal estate as a separate and valuable interest in land. The two states recently parted ways, however, when their high courts reached polar opposite conclusions in factually similar cases where an aggrieved landowner alleged a regulatory taking of property interests in coal. In both cases, the affected landowner challenged a regulation designating certain portions of their property unsuitable for mining as an unconstitutional regulatory taking. In Machipongo Land and Coal Company Inc. v. Commonwealth Department of Environmental Protection, 569 Pa. 3, 799 A.2d 751 (2002), cert denied 123 S. Ct. 486 (2002), the Supreme Court of Pennsylvania refused to define the vertical component of the “relevant parcel” – a key concept in the law of regulatory takings – to include only the coal estate. In State ex. Rel. R.T.G., Inc. v. The State of Ohio, 98 Oh.3d 1, 780 N.E.2d 998 (2002), reconsideration denied 98 Oh.3d 1401, 781 N.E.2d 220 (2003), the Supreme Court of Ohio reached the opposite conclusion.

I. Machipongo

A. Background
The Machipongo litigation involved two landowners. One, the Machipongo Land and Coal Company, Inc., held approximately 1,000 acres of land in Clearfield County, Pennsylvania. The land was purchased in the early 1900’s by the grandfather of Machipongo’s current vice-president, and held for the purpose of coal mining. 799 A.2d at 756-757. The second landowner, the Victor E. Erickson Trust and Joseph Naughton (collectively, Erickson/Naughton), owned approximately 1,150 acres in Clearfield County. The land was held jointly, with Naughton holding a 1/5 interest and Victor E. Erickson (who ultimately placed his interest in a trust) holding the other 4/5ths interest. Id. at 757.

In 1989, the Brisban Recreation Board and Locust Grove Sportsmen Club filed a petition with the Pennsylvania Department of Environmental Resources (DER) seeking to have the Goss Run Watershed (Watershed), located in Clearfield County declared unsuitable for mining under the authority of Section 4.5(b) of the Surface Mining Conservation and Reclamation Act. Id. at 756. The original petition covered 1,830 acres, and included land owned by Machipongo and Erickson/Naughton (collectively “Coal Owners”). The purpose of the petition was to create a recreation area and stocked trout fishery for nearby residents. Coal mining, it was alleged, would adversely impact the quality of the water in Goss Run, which fed into the Brisban Dam.

After the Department completed its study, it recommended to the Pennsylvania Environmental Quality Board that certain areas of the Watershed be declared UFM. Id. at 758. The recommendation did not cover all of the areas identified in the petition but rather, excluded the area of two surface mines already in operation. Two other mines were also located within the vicinity of the area covered by the Department’s recommendation. The ensuing regulation, issued by the Environmental Quality Board, covered 555 acres and took effect on May 23, 1992. The regulation was eventually set forth in 25 Pa. Code § 86.130(b)(14).

B. Procedural History
After the regulation took effect, Coal Owners filed a petition for review in the Commonwealth Court of Pennsylvania, claiming that the UFM designation worked a regulatory taking of their property. For eight years, the parties engaged in procedural skirmishing related to the Department’s repeated attempts to have the case dismissed. See Machipongo Land & Coal Co. v. Commonwealth, Department of Environmental Resources, 155 Pa. Cmwlth. 72, 624 A.2d 742 (1993) (Machipongo I) (referring the claim to the Pennsylvania Environmental Hearing Board under the administrative agency doctrine of primary jurisdiction); rev’d in part, 538 Pa. 361, 648 A.2d 767 (1994) (Machipongo II) (directing the case to the Court of Common Pleas, Clearfield County), modified, 544 Pa. 271, 676 A.2d 199 (1996) (Machipongo III) (remanding to the Commonwealth Court for further proceedings), on remand, 719 A.2d 19 (Pa. Cmwlth. 1998) (Machipongo IV) (denying the Commonwealth’s motion for summary judgment and setting forth the issues for trial). Finally, a trial was held before a single judge of the Commonwealth Court in January 2000.

1. Crafting a Test – Commonwealth Court’s Summary Judgment Decision
In a prior decision (subsequently used by the court and the parties as a road map for trial), which denied the Commonwealth’s motion for summary judgment, a panel of the three judges of the Commonwealth Court devised a test to determine the relevant parcel to be used in conducting the takings analysis. 719 A.2d 19 (Pa. Cmwlth. 1998).

The Commonwealth Court first addressed how it would identify the horizontal aspect of the property to be analyzed. Coal Owners argued that the court should consider only the land they owned inside the UFM designation. The Commonwealth argued that that all of Coal Owners’ land – land both inside and outside the UFM designation – should be considered and that only this approach was consistent with Penn Central’s parcel as a whole rule. The Commonwealth Court considered each of the parties’ proposed tests plus a third it distilled from case law, which considered a multitude of factors. Id. at 26-28. The multi-factored approach would have considered: “whether the landowner had investment-backed expectations, whether any land that could be part of the denominator was sold or developed prior to the regulation’s enactment or enforcement, the dates of acquisition, the extent to which the parcel had been treated as a single unit, and the extent to which the protected land enhances the value of the remaining land.” Id. at 27. The court ultimately crafted its own modified related land approach – unique in the law of takings:

[T]he property interest by regulation approach is the best one to determine the denominator, but with some important modifications . . . while the regulated land would first be considered under this approach, to determine whether it actually would be the denominator would depend on the answers the courts received to the following questions:

• whether the regulated land had value prior to the regulation;
  
• whether the regulated land has a separate use from the non-regulated contiguous parcel(s) – i.e., whether it may be profitably used if it is the only parcel; and
  
• if the regulated land has value separate from the contiguous land, whether all of its economic benefit is gone.

  If the regulated land had no value prior to the regulation because it had no viable use, it could not serve as the denominator . . . if the regulated land had an economically viable use separate and apart from any other contiguous land that was owned and became valueless after the regulation, it would become the denominator . . . This approach is best because it fosters predictability, focuses on the effect of the governmental regulation on the property and not on the circumstances of the property owner, and results in fairness because it treats all property owners the same. 719 A.2d at 28 (footnotes omitted).
  

The Commonwealth Court next addressed the vertical aspect of the property to be considered. The Commonwealth argued that Coal Owners’ coal rights in the property were but one strand of a bundle of rights owned. As the court acknowledged, “[i]f we were to do so, there would be no taking because Coal Owners do not dispute that they have surface rights that can be used and they would not be deprived of all economically beneficial use of their land.” Id. at 28. Coal Owners argued, however, that only the coal estate, which was recognized in Pennsylvania law as a separate estate in land, should be considered. The Commonwealth Court agreed to use only the coal estate, because, as it explained:

[i]n most other states, coal estates are not treated as separate estates from surface estates. However, Pennsylvania is unique from other states in that it has long recognized three separate estates in land – surface, coal/mineral and the right of support. All three estates may be owned separately and taxed separately … [o]wners of coal estates that do not own the surface rights have the right to remove the coal by using portions of the surface as reasonably necessary to remove the coal. Because separate estates create separate interests, the appropriate denominator by which to determine whether Coal Owners have lost all viable economic use of their land is solely the coal estate in the UFM designated area. Id. at 28-29 (internal citations omitted, emphasis added).

Importantly, in light of the Pennsylvania Supreme Court’s later treatment of the vertical aspect of the takings analysis, the Commonwealth Court cited the United States Supreme Court’s decision in Keystone, noting that the high court had, in that case, tied the support estate to either the surface or the mineral rights. The Commonwealth Court noted, however, “we need not address here whether the Supreme Court’s interpretation of Pennsylvania law in this area is accurate.” Id. at 29 n.24.

The Commonwealth Court then set forth the takings test in easy to understand terms:

In this case, using the regulated land standard to determine whether there is a taking would result in the following fraction:

the interest in the land taken (numerator)
the regulated land (denominator)

If the result of the fraction is 1, then a taking has occurred; conversely, if the fraction is anything less than 1, no compensatory taking has occurred [.] Id. at 29.

Having established the property interests it would consider in applying the takings analysis, the Commonwealth Court then identified the remaining issues of fact to be determined at trial:

To make that [takings fraction] calculation, it must be determined if the coal estate had value prior to the UFM designation, whether it had a separate use from the non-regulated contiguous land Coal Owners owned, and whether all of its economic benefit was gone as a result of the regulation. If, after that determination is made, the result of the fraction is less than 1, then a taking has not occurred. In this case, specific evidence would have to be adduced as to whether the coal can be extracted by subsurface mining; whether the land in the regulated area cannot be surface mined without using the contiguous parcel; and whether the grade of coal is insufficient in amount or quality to economically mine. With that evidence, the denominator can be fixed and we can then determine whether the regulation has resulted in an unconstitutional taking[.] Id. at 29.

In another critical pre-trial ruling, the Commonwealth Court prohibited the Commonwealth from “introduc[ing] evidence [at trial] on the issue of whether Coal Owners’ proposed mining activities constitute a public nuisance, except to the extent that Coal Owners would be denied a permit to mine coal under the Surface Mining Act or the regulations promulgated thereunder.” As the court explained, “[a]t common law, Coal Owners could not have been prevented from mining the coal reserves on their property. Even though this is now a regulated activity that requires coal owners to alleviate the deleterious effects, as the Commonwealth and Coal Owners have stipulated, ‘[t]he right to mine the coal is a property [right] that inheres in [Coal Owners] title subject to obtaining a permit from the Department.’” Machipongo, slip op. at 8 (unpublished opinion, Oct. 28, 1999). Thus, since mining is not a nuisance per se under Pennsylvania law, evidence regarding nuisance would be limited at trial.

2. The Trial
At trial, Coal Owners presented their takings claims in the form of three proposals: the Erickson/Naughton surface mine, the Machipongo surface mine and the Machipongo deep mine. The three proposals were designed to access the coal reserves in accordance with the laws and regulations of Pennsylvania, and to limit the adverse environmental effects of mining on the Goss Run Watershed. Coal Owners presented evidence that significant coal reserves underlay the areas of the proposed mines, and that these proposed mines could be readily, easily and profitably mined.

In August 2000, the Commonwealth Court issued an adjudication which invalidated the UFM designation as applied to the Erickson/Naughton surface reserves and the Machipongo underground reserves, finding both reserves to be substantial, valuable and economically mineable. The decision (Machipongo VI) was unreported. Machipongo VI, slip op. at 23-24. The court refused to invalidate the designation as to the Machipongo surface reserves, finding them insufficient in quantity to sustain mining. Id. at 24. The order suggested that any damages for the temporary taking could be recovered “through the normal eminent domain process.”, Id. at 38. The taking was characterized as “temporary” because the court’s order had struck down the regulation thereby imposing an end point on the taking.

The Commonwealth appealed and Coal Owners cross-appealed to the Pennsylvania Supreme Court.

C. The Pennsylvania Supreme Court Decision
The Supreme Court of Pennsylvania (hereinafter “Machipongo Court”) first summarized the two tests used to assess regulatory takings claims – i.e., the categorical takings analysis of Lucas and the partial takings analysis of Penn Central. It noted that, under either test, identifying the relevant parcel was the critical threshold issue. 799 A.2d at 765.

The Machipongo Court acknowledged that the case before it involved two severance issues: 1) the horizontal, the physical division of property – “is the relevant parcel all the land in a given geographic area that one owns or some smaller portion of that acreage,” and 2) the vertical division of property – “can the parcel be divided among air rights, surface rights, and mineral rights.”

1. The Vertical
The Machipongo Court set forth the linchpin of its analysis of the vertical context in the first paragraph of its discussion on “Vertical Conceptualization of Property”:

The U.S. Supreme Court has expressly rejected Pennsylvania’s division of estates within a single parcel of land for the purposes of takings analysis. Specifically, the [Keystone] Court stated:

Pennsylvania property law is Pennsylvania property law is apparently unique in regarding the support estate as a separate interest in land that can be conveyed apart from either the mineral estate or the surface estate. Petitioners therefore argue that even if comparable legislation in another State would not constitute a taking, the Subsidence Act has that consequence because it entirely destroys the value of their unique support estate. It is clear, however, that our takings jurisprudence forecloses reliance on such legalistic distinctions within a bundle of property rights.

Id. at 766 (quoting Keystone Bituminous Coal Association v. DeBenedictis, 480 U.S. 470, 500 (1987) (emphasis in the original).

The Machipongo Court then cited Penn Central and its parcel as a whole language, viewing the case as a another example in which the United States Supreme Court refused to separate out of the bundle of rights a singular strand – there, the air rights.

The Machipongo Court acknowledged that footnote 7 in Lucas and language in Palazzolo revealed that some Justices have “misgivings about whether to apply that [the parcel as a whole] test in all situations,” but nonetheless, the Machipongo Court believed that the United States Supreme Court had recently reaffirmed the validity of the parcel as a whole rule in Tahoe-Sierra, and that it remained controlling. Id. at 767-768. It summarized its rationale for rejecting the Commonwealth Court’s conception of the vertical as solely the coal estate in the UFM designated area:

As we have noted above, the U.S. Supreme Court has not instructed conclusively how the denominator problem should be resolved. However, that Court has refused to allow: vertical severance of the mineral estate in Keystone; vertical segmentation of the air and surface rights in Penn Central; or temporal division of property in Tahoe-Sierra. Thus, in this case, the relevant parcel cannot be vertically segmented and must be defined to include both the surface and the mineral rights. Id. at 768.

2. The Horizontal
In defining the horizontal context of the relevant parcel, the Machipongo Court rejected the approach offered by the parties and by the Commonwealth Court. It disparaged the Commonwealth Court’s approach (i.e., only the coal estates within the UFM designated area) as under-inclusive and the Commonwealth’s approach (i.e., all of Coal Owners’ property in Clearfield County) as over-inclusive. 799 A.2d at 768. Instead, the Machipongo Court adopted what it called a “flexible approach, designed to account for factual nuances,” largely derived from takings decisions of the Federal Circuit. A non-exclusive list of factors was suggested, including:

unity and contiguity of ownership, the dates of acquisition, the extent to which the proposed parcel has been treated as a single unit, the extent to which the regulated holding benefits the unregulated holdings, the timing of transfers, if any, in light of the developing regulatory environment, the owner’s investment-backed expectations and, the landowner’s plans for development.

Id. (citing Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1181 (Fed. Cir. 1994); Florida Rock Industries v. United States, 791 F.2d 893, 901 (Fed. Cir. 1986)); District Intown Properties Ltd. Partnership v. District of Columbia, 198 F.3d 874, 879 (D.C. Cir. 1999)).

The Machipongo Court determined, however, that because the record did not contain information pertaining to some these factors, a remand was in order to allow the Commonwealth Court to determine, in the first instance, the appropriate horizontal conceptualization of the property. Id. at 769.

3. Application of the Takings Tests
Having set forth the governing principles of severance, the Machipongo Court then analyzed the case in terms of the two takings tests. It first addressed the Lucas – categorical takings test, noting that “[t]o conduct a Lucas analysis, we need to determine whether the subject regulation ‘deprives a landowner of all economically beneficial’ use of his or her property.” Id. Notwithstanding the remand for the Commonwealth Court to define the horizontal component of the relevant parcel, the Machipongo Court determined that it could apply the Lucas test to the Machipongo property. Specifically, in rejecting the claim, it reasoned:

[Coal Owners] conceptualize this case as a Lucas categorical taking. They claim that because they own coal estates in the UFM area and are not permitted to mine that coal, all of their interest in the land has been taken. … As we have stated, though, the relevant parcel must be defined to include both the surface and mineral rights of the parties. …Machipongo owns 373 acres in fee simple within the UFM area and 1000 acres outside of the UFM area. Machipongo owns surface rights as well as mineral rights… Machipongo admits that it benefits from its surface rights by selling timber and entering into leases for gas development …[i]n 1994, …Machipongo received $60,000 for 35.93 acres of its property…if Machipongo sold the remaining 373 acres of undeveloped land within the UFM area …it would earn, in 1994 dollars, at least $622,878. Clearly, the regulation does not deny Machipongo ‘all economically beneficial’ use of its property. Accordingly, we find that the regulation, as it relates to Machipongo, passes the Lucas test. Id. at 769-770 (internal record citations and case citations omitted).

For the Erickson/Naughton property, the Machipongo Court was unable to conduct the Lucas analysis due to an ambiguity in the record as to whether both surface rights and coal rights or just coal rights were held. The Court noted that “[t]his would appear to distinguish them from the Machipongo property owners.” 799 A.2d at 770. The case was remanded for the Commonwealth Court to conduct the Lucas test on the Erickson/Naughton property once the interests held and the horizontal extent of the property were defined. Id.

Because “the regulation, as to Machipongo (and possibly to Erickson/Naughton) survives Lucas, a traditional takings analysis [i.e., a Penn Central – partial takings analysis] must be performed.” Id. As the Commonwealth Court had defined the case in terms of Lucas, focused on the coal estates, and limited the inquiry at trial to economic mineability, the Machipongo Court found the record was devoid of information pertaining to the three Penn Central factors. Id. at 771. Thus, a remand was in order to permit the Commonwealth Court to conduct the analysis in the first instance.

Ultimately, the Machipongo Court remanded the case back to Commonwealth Court for a determination on four issues, which would lead to a determination on whether or not there had been a taking:

[The case is remanded to:] (1) horizontally define the relevant property; (2) conduct the Lucas analysis with regard to the property of the Naughton/Erickson Property Owners; (3) conduct the Penn Central analysis with regard to the property of both Property Owners; and, if necessary, (4) determine whether the proposed use would constitute a nuisance or would otherwise violate state property law. Id. at 775.

D. The Aftermath
Coal Owners filed a petition for a writ of certiorari with the United States Supreme Court. In seeking discretionary review, they contended, inter alia, that the Supreme Court of Pennsylvania erred in its conceptualization of the vertical and horizontal components of the takings denominator. Specifically, regarding the vertical component, Coal Owners argued that the state court had misinterpreted the United States Supreme Court opinion in DeBenedictis and ignored its own precedent recognizing and protecting separate estates in property. As for the horizontal component, Coal Owners argued that the test adopted, which differentiates between property owners according to the amount of land held, was inherently unfair. The petition repeatedly stressed the need for the United States Supreme Court to finally clarify the law. The petition was denied on Nov. 4, 2002. Machipongo Land & Coal Co. v. Pennsylvania, et al., 123 S.Ct. 486 (2002).

Pursuant to the Machipongo Court’s remand, Coal Owners and the Commonwealth continue to litigate the case, more than ten years after the petition for review was first filed.

II. R.T.G.

A. Background
In the 1980’s, R.T.G., a coal mining company, began investigating whether it could viably conduct surface mining on land located in Valley Township, Ohio. After test-drilling revealed the presence of high quality coal, R.T.G. acquired approximately 500 acres of property in the area. R.T.G. 780 N.E.2d at 1001. R.T.G. held the property in two ways: approximately 200 acres were held in fee (meaning that R.T.G. owned both the surface and the coal rights); in the other 300 acres, R.T.G. owned or leased only the coal rights. Id. The Ohio Supreme Court noted that because the record was unclear regarding the exact amount of property held in each category and whether it was inside or outside the regulated area, the acreages cited in the opinion were estimates. Id. n.1.

R.T.G. subsequently sought a permit from the state of Ohio to mine 21.8 acres of its property. Id. at 1002. Because the land was located close to a well field providing water to the nearby Village of Pleasant City, the Ohio Department of Natural Resources, Division of Reclamation required R.T.G. to determine, through the installation and testing of monitoring wells, whether mining would interfere with the water supply. On May 20, 1986, after a pump test clarified that the monitoring wells were in a different acquifer than the village’s wells, the state issued a mining permit. Id. R.T.G. then spent a substantial sum preparing the land for mining. Id. Specifically, R.T.G. spent $100,000 to build a sedimentation pond, establish drainage controls, remove and segregate topsoil, and construct roads and a ramp to facilitate excavation. Id. On June 5, 1987, the permit area was revised to include an additional 77.2 acres adjacent to the original permit area. In revising the permit, the state agency found that ground water monitoring had not indicated any changes in the quality or quantity of the water in the Village wells.

In September 1988, the United States Environmental Protection Agency designated the aquifer supplying water to the Village as a “sole-source aquifer.” Soon after, the Village petitioned the state agency to designate 833 acres of land in Valley Township unsuitable for mining. In support of its petition, the Village alleged that mining would adversely affect the aquifer. The Department of Reclamation, agreeing that mining could ultimately reduce the long-term productivity of the Village wells, designated approximately 275 acres UFM. R.T.G., 780 N.E.2d at 1002. A portion of R.T.G.’s land was included in this designation, prompting the company to appeal the designation to the Ohio Reclamation Board of Review. The Village, dissatisfied that not all of the land was designated, also appealed. In June 1994, the Board designated all 833 acres UFM, thereby preventing R.T.G. from mining most of its property. Id. In the meantime, R.T.G.’s mining permit was revised to permit mining on an additional 8.4 acres. Id.

B. Procedural History
R.T.G. immediately filed a legal action in state court, alleging a regulatory taking of its land. Specifically, the company sought a writ of mandamus to compel the state to appropriate and pay for the coal it could no longer mine. The complaint was initially dismissed by the trial court, but on appeal, the Tenth District Court of Appeals reversed and remanded the matter for a hearing. R.T.G. then dismissed its initial complaint, and asked the Tenth District Court of Appeals to issue a writ of mandamus compelling the state to initiate appropriation proceedings. Id. at 1002-1003.

The matter was referred to a magistrate, before whom the state filed a motion for judgment on the pleadings. Id. at 1003. As a precursor to conducting the takings analysis, the magistrate divided R.T.G.’s land into two parcels – one, consisting of tracts owned in fee within the UFM designated area, and the other, land in which R.T.G. owned or leased only coal rights within the UFM designated area. Id. at 1003. The magistrate then applied a different takings test to each parcel. For the land owned in fee, the magistrate applied the partial takings test of Penn Central and determined that even though the UFM designation deprived R.T.G. of its ability to mine the coal, no taking had occurred because the surface estate still retained some value. Id. To the land in which R.T.G. owned or leased only coal rights, the magistrate applied the Lucas categorical takings test and determined that R.T.G. had been completely deprived of the value of its coal rights. Despite the latter finding, because the magistrate also determined that coal mining would constitute a nuisance, no compensation for the taking of R.T.G.’s coal rights was awarded. Id.

The Tenth District Court adopted the magistrate’s decision in its entirely except for the nuisance finding. Ruling that mining was not a nuisance, the appellate court issued a writ of mandamus compelling the state to appropriate the land in which only coal rights were taken, id. at 1003-1004. The state appealed. R.T.G. cross-appealed that portion of the judgment requiring the state to begin appropriation proceedings. Id. at 1004. R.T.G. also filed a separate appeal of the order denying its request for attorneys fees and costs.

C. The Ohio Supreme Court Decision
The Ohio Supreme Court [hereafter “R.T.G. Court”] first differentiated between the partial and the categorical takings tests. Id. at 1007. Then, echoing Palazzolo, it acknowledged that determining the relevant parcel was a “persistent and difficult issue,” and a critical one “because it usually determines the applicable takings test:” Thus,

[t]he more broadly the relevant parcel is defined, the less likely that a regulation will result in a complete economic deprivation and that the Penn Cent[ral] test will apply; conversely, the more narrowly the relevant parcel is defined, the more likely that a regulation will result in a complete economic deprivation and that the Lucas test will apply. Id.

The R.T.G. Court then proceeded to consider how appropriately to define the relevant parcel in the case before it.

1. The Vertical
The R.T.G. Court first addressed the vertical component of the relevant parcel. R.T.G. argued, and the R.T.G. Court agreed, that the relevant parcel in the vertical context should be defined to exclude rights retained in the surface estate. 570 N.E.2d at 1007. The R.T.G. Court traced the evolution of the Penn Central “parcel as a whole” concept, noting that some of the United States Supreme Court Justices had expressed misgivings about it and had decried the uncertainty it had created. Id. at 1008. It then quoted footnote 7 of Lucas – to wit, that “the solution to the difficult issue of determining the denominator ‘may lie in how the owner’s reasonable expectations have been shaped by the State’s law of property …’”. Id. (quoting Lucas, 505 U.S. at 1017 n.7). Acknowledging that the Lucas language was dicta, the R.T.G. Court nonetheless explained that “property rights are defined by state law.” From there, it analyzed Ohio property law on the coal estate:

We find that the criticism in Lucas regarding how to define the relevant parcel for the takings analysis particularly relevant to coal rights in Ohio. Unlike other individual rights within the bundle of rights that make up a complete property estate, mineral rights are recognized by Ohio law as separate property rights. Therefore, because the ownership of the coal is ‘both severable and of value in its own right, it is appropriate consider the effect of regulation on that particular property interest.’ Accordingly, in determining the relevant parcel in the takings analysis pursuant to the Takings Clause of the Ohio Constitution, Section 19, Article 1, coal rights are severable and may be considered as a separate property interest if the property owner’s intent was to purchase the property solely for the purpose of mining the coal. Id. at 1008 (emphasis added).

It was undisputed that R.T.G. held all of the property at issue – “whether in fee or through coal leases or purchases” – for the sole purpose of mining. Id. at 1008-1009. As the R.T.G. Court aptly stated, drawing on the pithy conclusion of Whitney Benefits: “The surface rights served as nothing more than an impediment to acquiring the coal. Thus, the right to mine the coal ‘is what, and only what, this suit is about.’” Id. at 1009 (quoting 926 F.2d at 1174). In analyzing the regulatory takings claim, the Court pledged to consider only the coal rights in the vertical context.

2. The Horizontal
R.T.G. asked that only the property located within the UFM designation be considered in fixing the denominator. The state, citing the parcel as a whole rule, urged consideration of all 500 acres of R.T.G’s property. Again, the state’s conception of the rule was rejected.

The R.T.G. Court explained that of the 500 acres at issue, approximately 100 acres were located outside the UFM designated area. R.T.G. admitted that coal existed in this land, but claimed that, if it was prevented from mining the coal inside the UFM designated area, it would not mine the minimal area outside the UFM area, for “economy of scale” reasons. 570 N.E.2d at 1009. On this record, the R.T.G. Court held, “[b]ecause there is no evidence that the coal outside the regulated area can be economically mined independent of the reserves in the regulated area, … the relevant parcel in the horizontal context is limited …to R.T.G.’s coal that is located within the UFM designated area.” Id.

3. Application of the Tests

Putting its analysis together, the R.T.G. Court held that “the relevant parcel in this case is the remaining coal located within the UFM designated area.” Id. With the denominator so defined, the Court easily concluded that a taking had occurred:

‘What makes the right to mine coal valuable is that it can be exercised with profit.’ The UFM designation makes it impossible for R.T.G. to mine coal, thereby depriving R.T.G. from exercising its coal rights for profit. Thus, imposition of the UFM designation deprived R.T.G.’s coal rights of all economic value. Accordingly, applying Lucas, we hold that the UFM designation resulted in a categorical taking of R.T.G.’s coal rights. Id. (quoting Mahon, 260 U.S. at 414).

And, because the R.T.G. Court adopted the lower court’s conclusion that mining did not constitute a nuisance, the taking was determined to be a compensable one. Thus, in the subsequent appropriations proceedings, “the value of R.T.G.’s coal within the UFM designated area will be the sole issue to be determined.” Id. at 1011.

The Ohio Supreme Court subsequently denied a petition for reconsideration, with two dissenting from that decision in an unreported memorandum. (Moyer, C.J., and Cook, J., dissenting from the denial of reconsideration). The State of Ohio allowed the deadline for a petition for certiorari to pass, so the R.T.G. determination is final.

III. Conclusion
The Courts seem incapable of agreeing on when government action relating to severe restrictions on mining is a taking. Depending upon which jurisdiction you are in, sometimes it is and sometimes it is not. The results of Machipongo and R.T.G. exemplify two different approaches to takings. This continuing difficult issue may yet be resolved by the United States Supreme Court. Stay tuned.

Joel R. Burcat is a partner with Saul Ewing in its Harrisburg, Pennsylvania office and is Vice Chair of the Firm’s Environmental Department. Julia M. Glencer is an associate with Kirkpatrick & Lockhart LLP in its Pittsburgh office. The authors, along with Carl A. Belin, Jr. of Belin & Kubista, are counsel to the landowners in the Machipongo litigation discussed herein. This article is for informational purposes only. Nothing herein is intended or should be construed as legal advice or a legal opinion applicable to any particular set of facts or to any individual’s or entity’s general or specific circumstances. The opinions expressed in this article are the authors’ and should not be attributed to any of the authors’ or their Firms’ clients. For more information, go to: www.regulatorytaking.com.