Facts
- Hawaii enacted Act 257, capping rent oil companies could charge independent dealers leasing company-owned service stations, citing concerns about market concentration and gasoline prices.
- Hawaii’s gasoline market was highly concentrated, with few refineries and distributors; Chevron was a major refiner/marketer in the state.
- Chevron leased stations to independent dealers under an arrangement involving monthly rent tied to sales margins and supply commitments for gasoline products.
- Chevron sued in federal court seeking declaratory and injunctive relief, alleging Act 257 effected an uncompensated taking under the Fifth and Fourteenth Amendments.
- The district court held Act 257 effected a taking because it did not “substantially advance” Hawaii’s asserted interest; the Ninth Circuit affirmed on the same theory.
- The Supreme Court granted review to determine whether the “substantially advances” formula is a valid test for a Fifth Amendment regulatory taking.
Issues
- Whether a regulation “effects a taking” under the Fifth Amendment if it does not “substantially advance legitimate state interests.”
- Whether the “substantially advances” inquiry belongs in takings analysis or instead reflects a due process means-ends review.
- Whether Chevron’s takings claim, resolved below solely under the “substantially advances” theory, could stand without application of established takings tests.
Decision
- The Court unanimously held that the “substantially advances” formula is not an appropriate test for determining whether a regulation effects a Fifth Amendment taking.
- The Court overruled prior precedent to the extent it had been understood to establish the “substantially advances” inquiry as an independent takings test.
- The Court vacated the Ninth Circuit’s judgment and remanded because Chevron could not establish a taking merely by showing Act 257 failed to substantially advance a legitimate state interest.
- The Court did not decide whether Act 257 constituted a taking under the established per se rules or under the Penn Central factors, noting the case had been litigated on the improper theory.
- A concurrence agreed the “substantially advances” inquiry is not a takings test and noted that arbitrary or irrational regulations may raise due process concerns distinct from takings liability.
Legal Principles
- The Takings Clause secures compensation when otherwise lawful government action burdens property in a manner functionally equivalent to appropriation or ouster; it is not a vehicle for judging regulatory wisdom or efficacy.
- Per se regulatory takings are limited to categories such as permanent physical invasions and regulations that eliminate all economically beneficial use; outside those categories (and apart from exactions doctrine), regulatory takings are assessed under the Penn Central multifactor framework.
- Means-ends scrutiny asking whether a regulation effectively advances a legitimate public purpose is characteristic of substantive due process review and is conceptually distinct from takings analysis.
- A regulation’s failure to advance a stated objective does not, by itself, show the magnitude or character of the burden on property required to establish a compensable taking.
Conclusion
The Court removed “substantially advances legitimate state interests” from Fifth Amendment takings doctrine, holding that takings liability turns on established per se rules and the Penn Central inquiry into the nature and severity of the burden on property, not on whether the regulation is an effective policy measure.