This article originally appeared in the Daily Business Review on January 26, 2023, and was written by Alicia Gonzalez.
On Oct. 7, 2022, Florida’s Second District Court of Appeal issued an opinion that focuses on the threshold question in all regulatory takings cases: does the plaintiff own property protected by the takings clauses of the Florida and U.S. Constitutions? The answer is usually clear in cases concerning tangible property—houses, cars, artwork, land, etc. It is usually undisputed that, if government appropriates or destroys those things, the takings clause will require compensation. However, there isn’t always a clear-cut answer in cases that concern nontraditional, intangible property interests, including rights that attach to tangible property.
When analyzing whether intangible property interests are protected by the takings clause, the vague, general answer that most cases provide is that constitutionally protected property interests are created and defined by existing rules or understandings that stem from an independent source, such as state law. Very few Florida appellate cases have explored what this means exactly. This new Second District opinion—Hillsborough County v. Gulf Coast Transportation—takes a deep dive into that question and helps to clarify this otherwise amorphous concept of what constitutes a constitutionally protected property interest. Most importantly, it creates a bright line rule—the Legislature can eliminate property that exists solely by virtue of legislation without paying compensation under the takings clause. In other words, the Legislature can destroy property that it creates without consequence. The majority decision drew a vigorous dissent.
The plaintiffs in the Gulf Coast case were a number of taxicab companies operating in Hillsborough County. The taxicab companies sued the county and the state of Florida for the repeal of state legislation that previously granted the taxicab companies permits for the operation of their taxicabs. These permits were known as “medallions.” The analysis in the Second District opinion focused, in part, on the history of taxicab operations in the county to determine whether the medallions constituted a protected property interest.
In 1976, the Florida Legislature enacted a special law that created a taxicab commission in Hillsborough County. The taxicab commission was given the power to regulate taxis, including issuing licenses, requiring background checks, setting fees, etc. There were changes to the special act throughout the years, but the commission’s powers remained largely the same. The most significant changes came in 2012 when the legislature passed a new special act concerning the commission—Chapter 2012-247. The new act stated, among other things, that the taxicab medallions issued by the commission are “the private property of the holder.” It further authorized medallion holders to sell, lease and otherwise transfer the medallions, subject to commission approval and rules. The 2012 special act additionally recognized the existing limits on the number of medallions that could be issued, which already existed under the commission’s adopted rules.
The 2012 special act, therefore, seemingly gave the taxicab medallions every semblance of property that is protected by the takings clause. It defined the medallions as “private property” and created a market for the medallions by allowing their transfer and acknowledging their scarcity. These are both attributes of land, which is unequivocally property protected by the takings clause.
In 2017, however, the state legislature repealed all prior special acts concerning the commission that were still in effect, including the 2012 legislation, and dissolved the commission. The 2017 legislation did not address the status of existing medallion holders. However, because it dissolved the commission, which was the entity that issued the medallions and enacted the rules that made the medallions valuable, the medallions were thereafter worthless. The 2017 legislation also failed to specify whether the existing holders of the now worthless medallions would be compensated for their loss.
Once the commission was dissolved, Hillsborough County was authorized to regulate taxicabs and chose only to require those wanting to operate a taxicab to obtain a certificate and permit from the county tax collector. The new county regulations did not recognize the previously issued medallions, did not maintain the scarcity of the previously issued medallions, and did not preserve the medallion holders’ rights to transfer the medallions. The taxicab companies that operated under the previous 2012 special act could still operate, but now their permits to operate were no longer the valuable medallions that they used to hold.
The taxicab companies operating in Hillsborough County concluded that their existing medallions were now worthless. The companies filed an inverse condemnation action against the state and the county for the taking of their medallions without compensation. The county prevailed on a motion for summary judgment claiming that it could not be responsible for a taking, because it did not pass the legislation that eliminated the medallions. In the same order that granted the county’s motion for summary judgment, the trial court denied the state’s motion to dismiss, which argued that the taxicab companies failed to state a claim because the medallions were not “property” protected by the takings clause. The Second District affirmed the judgment entered in favor of the county, and reversed the decision to deny the state’s motion to dismiss. The Second District found that the taxicab companies did not have a protected property interest in the medallions, despite the explicit statement in the 2012 special act that the medallions constituted “private property,” and despite the fact that the special act gave the medallions qualities consistent with ownership of private property.
This holding may seem perplexing to those that are not familiar with the takings clause and its history. How could a medallion that is specifically identified as private property and that has the attributes of a protected property interest not be considered a compensable property interest under the takings clause? The Second District’s holding, however, followed existing law when it held that the labels given to a thing are unimportant. The question of what constitutes a protected property interest turns, instead, on whether the thing is recognized as “property” independent of the law that regulates it. By way of explanation, the court provided the example of trade secrets. It explained that the value of trade secret information’ “was obtained or generated by the companies, independent of any law protecting them as trade secrets.”
Because the medallions in this case were created by legislation and did not exist independent of that legislation, the Legislature could also terminate that interest without owing compensation under the takings clause.
The holding in this case is remarkable for several reasons. First and foremost, this holding does something that is rarely done in takings cases: it creates a bright line rule. A property interest created by legislation, that would not exist absent that regulation, is not “taken” when it is regulated out of existence. In other words, the Legislature can destroy property interests it created without paying just compensation.
Second, the decision reminds practitioners to ask the important preliminary question in every takings clause case, no matter how obvious the answer may seem: is the claim based on the taking of a compensable property interest? Finally, the majority opinion and the dissent explain how property interests have been traditionally defined, thus giving more guidance for future cases in which this issue is bound to arise.
The opinion is currently not final, and the taxicab companies moved for rehearing on Nov. 18, 2022. Perhaps our understanding of property interest will change once more upon reconsideration.
Alicia Gonzalez is a partner at Weiss Serota Helfman Cole + Bierman and represents private and public sector clients in litigation involving real property and local governments.
Read the original article published in the Daily Business Review here.
