544 U.S. 528 (2005), argued 22 Feb. 2005, decided 23 May 2005 by vote of 9 to 0; O’Connor for the Court, Kennedy concurring. In Agins v. City of Tiburon (1980), the Court declared that government regulation of private property “effects a taking if [such regulation] does not substantially advance legitimate state interests.” Although the Court quoted this formulation in subsequent cases, it did not decide a case based upon it. The issue was presented squarely for the first time in Lingle, and the Court repudiated its Agins formulation.
Chevron sold most of its products through independent dealers, who leased service stations from the corporation. The Hawaii legislature attempted to protect independent dealers and reduce retail gasoline prices by imposing ceilings on gasoline station rents. The lower federal courts determined that Hawaii's goals were legitimate, but they held that the rent-ceiling statute constituted a taking of property. The courts found that the statute would not substantially advance the state's goals, since rent ceilings could be offset by premiums the oil companies could charge for the transfer of station leases or by increases in wholesale gasoline prices.
The Supreme Court reversed, reasoning that the efficacy of a regulation had nothing to do with the magnitude or character of the burden that it placed on property owners, and that it was not germane to whether the burden “should be borne by the public as a whole” (Armstrong v. United States ). On the other hand, the Court opined that ineffectiveness relates to whether a regulation is so arbitrary as to violate the Due Process Clause of the Fifth or Fourteenth Amendment. It therefore concluded that the due process inquiry “is logically prior to and distinct from the question whether a regulation effects a taking, for the Takings Clause presupposes that the government has acted in pursuit of a valid public purpose” (p. 543). Justice Anthony M. Kennedy's concurrence adumbrated the possibility that a regulation might be so arbitrary or irrational as to violate due process, and that the failure of a regulation to accomplish its stated goal was relevant in that determination.
In Lingle, the Court distinguished Dolan v. City of Tigard (1994) as using the “substantially advances” formulation in the “entirely distinct” context of ensuring that government exactions of property interests in connection with development applications advanced the same interests as those that could justify application denials.
The Court also used Lingle to restate takings jurisprudence, which it asserted was directed towards identifying “regulatory actions that are functionally equivalent to the classic taking in which government directly appropriates private property or ousts the owner from his domain.” (p. 539). The Court described three inquiries as sharing this “common touchstone.” The first two concerned physical takings, which impose a “unique burden” (Loretto v. Teleprompter Manhattan CATV Corp. ) and are the equivalent of a physical appropriation, which results in the total deprivation of beneficial use (Lucas v. South Carolina Coastal Council ). The third inquiry, used for regulatory takings, involved an ad hoc, multifactor balancing test, stressing the economic impact of the regulation, its effect on the owner's investment-backed expectations, and the character of the regulation (Penn Central Transportation Co. v. City of New York ).