IN SUPREME COURT
Court of Appeals
Anderson, G. Barry, JJ.
Wensmann Realty, Inc., et al.,
Filed: July 12, 2007
Office of Appellate Courts
S Y L L A B U S
A city does not lack a rational basis for declining to amend its comprehensive plan to permit residential development of golf course property, where retention of the existing land use designation preserves open and recreational space and reaffirms historical land use designations and where the proposed amendment raises concerns regarding traffic and school overcrowding.
Under the circumstances presented in this case, a city’s denial of an application to amend its comprehensive plan to permit residential development of golf course property constitutes a regulatory taking under the Minnesota Constitution if the denial leaves no reasonable use of the property.
Affirmed in part, reversed in part, and remanded.
Heard, considered, and decided by the court en banc.
O P I N I O N
Realty, Inc., entered into a purchase agreement with appellant Rahn Family LP
for golf course property located in respondent City of
This land use
dispute concerns 120 acres in
In 1996, the original owner of the golf course sold the property to Rahn for $3.6 million. At the time, the comprehensive plan designation for the property was “Public Facilities.” Rahn bought the property shortly after the city denied a request to amend the comprehensive plan to permit residential development of the property. Rahn was aware of the city’s action. Rahn had experience operating golf courses and intended to operate a golf course on the property. Rahn acknowledges that it had no intention at the time of purchase of selling the property for development purposes.
In 1999, Rahn obtained a loan in excess of $3 million to pay off the contract for deed on the property and to pay for capital improvements to the golf course. Rahn asserts that the cost of the capital improvements at Carriage Hills “totaled well in excess of $300,000.” But approximately $500,000 of the loan was used for a different golf course owned by Rahn.
In 2000, Rahn and the city entered into an assessment agreement for sewer, water, and street improvements. The city assessed charges for three parcels of land, each representing a portion of the property, but for two of the parcels, the parties agreed to defer payments “until subdivision or development.” The parties agree that the only payments Rahn has made under the assessment agreement have been related to its operation of the golf course on the property. At around the same time the assessment agreement was signed, a city engineer told Rahn that provisions were being made for future street extensions near the golf course “to accommodate future development of the Carriage Hills property.”
When the city updated its comprehensive plan in 2001, the three golf courses in the city, including Carriage Hills, were designated as “P” (Parks, Open Space and Recreation), a category that “provides areas for public and private parks, open space, and recreational facilities.” According to the comprehensive plan, “[p]arks, trails, open space and natural areas, athletic complexes, ice arenas, and golf courses are examples of desired uses in this category.” To achieve consistency with the comprehensive plan, the property was rezoned to “P” (Park), a zoning district “intended for public and private park uses and related facilities.” The permitted uses in a park district include camping grounds, golf courses, parks, playgrounds, swimming pools, and tennis courts. The city has recognized Carriage Hills as a component of the city’s parks and recreation system, which the city has described as a “public-private partnership.”
Although the golf course initially was profitable for Rahn, an economic downturn and an overbuilding of golf courses in the region have led to a more competitive industry. Rahn claims that the golf course has incurred significant cumulative losses amounting to hundreds of thousands of dollars. The city contends, however, that when debt service on the 1999 loan is excluded, the golf course operated at a profit through 2002.
The continuing losses led Rahn to conclude that the property was no longer economically sustainable as a golf course. Rahn agreed in 2003 to sell the property to Wensmann, a developer and builder of residential homes. The agreement was contingent on government authorities reclassifying and rezoning the property to permit residential development.
In May 2004, Wensmann applied for an amendment to the city’s comprehensive plan to allow residential development of the property. The application requested a land use designation of “Low Density Residential.” Wensmann’s proposal contemplated 480 housing units consisting of a mix of single-family homes, twin homes, townhomes, and empty nest housing. The proposed development would preserve 40 to 45 acres of park and open green space.
In connection with the application, Wensmann presented the city with two feasibility studies of Carriage Hills prepared by golf course analysts McMurchie Golf Management, Inc., and Hughes & Company, Inc. The McMurchie analysis concluded that, as of July 2004, the property had a supportable purchase price of $967,000 as a golf course. The McMurchie analysis also concluded that the golf course would need a minimum of $516,000 in improvements to maintain operations. The Hughes analysis indicated that the golf course is “functionally obsolete and has significant physical deterioration.” “Even if the course is improved over time,” the Hughes analysis stated that “there is barely enough cash to upgrade and effectively no return to ownership for taking such a risk.” The Hughes analysis concluded that “the financial feasibility of future operation as a golf course is seriously impaired.”
Wensmann’s proposed development has faced substantial citizen opposition. An advisory planning commission recommended that the city deny the application. And in August 2004, the city council unanimously declined to amend the comprehensive plan to permit residential development of the property.
In support of its decision, the city council made numerous findings and conclusions, including concerns about burdening an already overcrowded school system; disrupting neighborhoods in the area with a significant increase in traffic; balancing the amount of residential and other types of land use classifications within the city; and maintaining the integrity of the comprehensive plan. The city council also concluded that Wensmann “failed to produce sufficient evidence to indicate that the existing Comprehensive Guide Plan designation makes the Property not viable for use as a golf course.”
After the city denied the application and sometime in the fall of 2004 (the record does not disclose when), a representative of Wensmann made a multi-million dollar oral offer to Rahn to purchase the property with no conditions attached regarding the success or failure of the legal action or Wensmann’s ability to pursue residential development of the property. Rahn turned down the offer, but closed Carriage Hills at the end of the 2004 golf season. The golf course has not reopened.
On September 1, 2004, Wensmann and Rahn entered into an option agreement, granting Wensmann the exclusive right to buy the property. The option expires in September 2007, and a provision in the agreement required Wensmann to commence litigation against the city to try to compel the city to grant the necessary permits and approvals to develop the property for residential use.
Wensmann and Rahn commenced
this action in Dakota County District Court.
They sought declaratory relief that the city’s denial of Wensmann’s
application for a comprehensive plan amendment is “arbitrary, capricious and
unreasonable and effects a regulatory taking of the Property without just
compensation.” In the alternative, they petitioned
for a writ of mandamus directing that the city commence eminent domain
proceedings. The complaint alleged
violations of the
Based on the allegations of violation of federal law, the city removed the action to federal court. Pursuant to a stipulation between the parties, the federal court dismissed the federal claims without prejudice and remanded the remaining state claims to the Dakota County District Court. The federal claims have not been refiled. Thus, this action involves solely claims of violations of state law.
In 2005, the district court considered cross-motions for summary judgment and granted declaratory relief and alternatively a writ of mandamus in favor of the property owner. The district court concluded that the city’s reasons for denying the comprehensive plan amendment “are legally insufficient and are not supported by the facts in the record.” The district court also concluded that “[o]perating a golf course on the property is no longer a reasonable use” of the property, and “none of the conditional or permitted uses currently allowed under the City Code would be reasonable uses.” According to the district court, “if the City wants the property to remain as exclusively open space or a community recreational opportunity, it must acquire the property through eminent domain.” Therefore, the district court ordered the city to “immediately amend” the comprehensive plan to change the land use designation for the property to Low Density and submit the amendment to the Metropolitan Council for approval. If the city did not comply with the order within 30 days, the city would be required to commence eminent domain proceedings.
The court of
appeals reversed the district court’s decision.
Wensmann Realty, Inc. v. City of
On appeal from
summary judgment, we determine whether there are any genuine issues of material
fact and whether a party is entitled to judgment as a matter of law. Christensen
v. Milbank Ins. Co., 658 N.W.2d 580, 584 (
We turn first to the
city’s land use decision, and we review such decisions under a rational basis
standard of review. Mendota Golf, LLP v. City of
We have observed that “a wide range of value judgments” are considered in the municipal planning process. Honn, 313 N.W.2d at 417. In this case, the city articulated several reasons for declining to amend the comprehensive plan, including preservation of open and recreational space and reaffirmation of historical land use designations. We recently upheld these reasons as rational bases supporting a city’s land use decision that declined to alter a historical land use designation for property. See Mendota Golf, 708 N.W.2d at 181-82. The property owner conceded at oral argument that these two reasons provide a rational basis for the city’s decision here consistent with our analysis in Mendota Golf. We agree.
In addition, the city cited the disruption of surrounding neighborhoods due to increased traffic and burdens on the school system. The property owner does not contend that concerns about traffic and school overcrowding cannot be a rational basis to support a land use decision. Instead, the property owner argues that there is not factual support for these concerns in the record. We disagree. Our review of the record demonstrates factual support for the city’s traffic and school population concerns.
Based on our review of the record and given the highly deferential standard of review, we conclude that the property owner has failed to establish that the city lacked a rational basis for its decision to deny Wensmann’s application or that the decision was not supported by an adequate factual basis.
We turn next to
the question of a taking. The property
owner argues that even if the city’s denial of the comprehensive plan amendment
was supported by a rational basis, the denial nonetheless results in a
regulatory taking under the Minnesota Constitution for which just compensation
must be paid. Whether a governmental
entity’s action constitutes a taking is a question of law that we review de
novo. Alevizos v. Metro. Airports Comm’n, 298
Constitution provides that “[p]rivate property shall not be taken, destroyed or
damaged for public use without just compensation.”
The purpose of the
Takings Clause “is to ensure that the government does not require ‘some people
alone to bear public burdens which, in all fairness and justice, should be
borne by the public as a whole.’” Westling v. County of Mille Lacs,581 N.W.2d 815, 823 (
It is well
established that the government need not directly appropriate or physically
invade private property to effectuate a taking.
See Penn. Coal Co. v.
Determining where a regulation ends and a
taking begins “calls as much for the exercise of judgment as for the
application of logic.” Andrus, 444
Penn Central, the Supreme Court identified
“several factors that have particular significance” in the takings analysis. 438
used the Penn Central framework in other cases to analyze takings claims
arising under the
We look first at
the economic impact of the city’s denial of the comprehensive plan
amendment. The inquiry under this factor
“turns in large part, albeit not exclusively, upon the magnitude of a
regulation’s economic impact and the degree to which it interferes with
legitimate property interests.” Lingle, 544
disagree about how to measure the economic impact in this case. The city argues that the economic impact should
be measured by comparing the value of the property as a golf course before and
after the denial of the comprehensive plan amendment. See,
e.g., Keystone Bituminous Coal Ass’n
v. DeBenedictis, 480
proposed method is not well suited to measure the economic impact of the
government’s decision to maintain the status quo. We have recognized that such status quo
decision-making can result in an unconstitutional taking. Czech
v. City of
property owner’s method is not appropriate because it presupposes a right that the
property never enjoyed under the city’s regulatory scheme. A taking does not result simply because the
property owner has been deprived of the most profitable use of the
property. See Andrus v. Allard, 444
We conclude that the
most appropriate method in cases like this, where the government chooses to maintain
an existing comprehensive plan designation, is to determine whether the city’s
decision leaves any reasonable, economically viable use of the property. A land use regulation that leaves no
reasonable use of the property has an unduly severe impact on the legitimate
interests of the property owner. We have
applied this standard in other takings decisions involving zoning. See,
e.g., Hubbard Broad., Inc. v. City of
On this record, however, we cannot determine whether the city’s denial of the comprehensive plan amendment leaves any reasonable use of the property. To begin with, it is disputed whether a golf course continues to be an economically viable use of the property. Rahn has closed Carriage Hills, claiming that “it cannot be operated profitably.” But the McMurchie analysis concluded that the property had a supportable purchase price of $967,000 as a golf course. In addition, the parties disagree about whether debt service should be factored into the golf course’s profitability analysis. The property owner asserts that the golf course has not earned a profit since 1999, but the city argues that when debt service for the 1999 loan is excluded, Carriage Hills was profitable during every year of Rahn’s ownership except 2003. The Hughes analysis notes that the golf course operation is losing money “after paying debt service.” Although this is a close question, we conclude that genuine issues of material fact prevent us from resolving whether a golf course continues to be a reasonable use of the property.
Even if we accept the property owner’s contention that a golf course is no longer a reasonable use of the property, we cannot determine on this record whether the denial of the comprehensive plan amendment leaves any other reasonable uses of the property. The property owner submitted affidavits wherein proffered expert witnesses opined that there was not a reasonable use left for the property other than residential development. Other than the argument regarding use as a golf course, which we have discussed above, the city does not specifically dispute these opinions or argue that the other permitted and conditional uses of the property under the comprehensive plan are reasonable uses for the property. Rather, the city argues that the property retains substantial value as investment property. See MacLeod v. County of Santa Clara, 749 F.2d 541, 547 n.7 (9th Cir. 1984) (suggesting that “[h]olding property for investment purposes can be a ‘use’ of property” for purposes of deciding a takings claim). As evidence of the investment value of the property, the city cites Wensmann’s multi-million dollar oral offer for the property, and argues that this offer demonstrates that the property is “anything but worthless.”
If we were to accept the oral offer
as the true value of the property with the land use restrictions in place, not
only can Rahn not show “serious financial loss,” the figure represents a
significant return on Rahn’s investment in the property, and thus could support
a finding that holding the property for its investment value is a reasonable
The district court in this case refused
to consider the “speculative value” of the property in view of the city’s
anticipated approval of residential development in the future. But, as the Federal Circuit noted in Florida Rock, speculative value or uses are
to be distinguished from “a relevant market made up of investors who are real
but are speculating in whole or major part.”
The property owner acknowledges that the oral offer was made. The parties dispute, however, the weight the offer should be given. The city argues that the offer represents “the amount that a willing buyer would pay for the property following the City’s denial of the reguiding application,” suggesting that the offer reflects the actual value of the property subject to the current comprehensive plan designation. But the property owner argues that it should be ignored because it is inconsistent with the terms of the parties’ written agreement. According to the property owner, the true value of the property, in the absence of success in this litigation, is closer to $1 million taking into account the land use restrictions.
The district court did not address the oral offer in its analysis of the takings claim, and the record is not fully developed on this point. The district court simply noted that the city had not challenged the property owner’s evidence that “none of the conditional or permitted uses currently allowed under the City Code would be reasonable uses.” Accordingly, we cannot determine the value of the property as investment property and thus whether holding or selling the property for investment purposes is a reasonable use.
In sum, we cannot decide on this record whether the golf course remains a reasonable use of the property and whether there is another reasonable use under the current comprehensive plan designation. Therefore, we are unable to determine the economic impact of the denial of the comprehensive plan amendment.
The second Penn Central factor requires that we examine
whether the city’s denial of the comprehensive plan amendment has interfered
with Rahn’s “distinct investment-backed expectations.” Penn
In this case, when the property was acquired in 1996, Rahn had no expectation of using the property for anything other than a golf course and Rahn was aware that the city had recently refused to allow residential development of the property. Therefore, the city argues that Rahn had no reasonable investment-backed expectation regarding residential development.
The fact that
residential development of the property was prohibited when Rahn purchased the
property is relevant to determining the reasonableness of Rahn’s expectations,
but Rahn’s awareness of the restrictions does not automatically defeat the
takings claim. The Supreme Court made
this clear in Palazzolo, explaining
that there is no per se rule that prohibits a Penn Central takings claim by the “mere fact that title was
acquired after the effective date of the state-imposed restriction,” 533 U.S.
at 630; otherwise, “the postenactment transfer of title would absolve the State
of its obligation to defend any action restricting land use, no matter how
extreme or unreasonable.”
Even though Rahn intended to use the subject property as a golf course at the time of purchase, the property owner asserts that Rahn’s expectations subsequently changed when the golf course proved to be unprofitable. The property owner asserts that Rahn, like any other property owner, had a general expectation of making a reasonable rate of return on its investment. In addition, the property owner cites the assessment agreement with the city as supporting a reasonable expectation of developing the property. The property owner also stresses that permitting residential development of the property would be consistent with the residential nature of the surrounding property.
conclude that the investment-backed expectations factor favors the city. Rahn had no expectation of using the property
at the time of purchase for anything other than a golf course, and the purchase
price reflected the significant restrictions imposed on the use of the property. Furthermore, any losses that Rahn incurred subsequent
to the purchase were not the result of the city’s actions, but the result of
general market conditions. As the
Rahn may have
expected to earn a reasonable rate of return on its investment, but the Penn Central inquiry focuses on distinct investment-backed
Character of the Governmental Action
The last Penn Central factor focuses on the
character of the government action. For years, courts looked at whether a zoning
ordinance substantially advanced “legitimate state interests” in determining
whether a taking occurred. Agins v. City of Tiburon, 447
believe that the appropriate focus of the character inquiry should be on “the nature rather than the merit of the
governmental action.” Small Prop. Owners of
The property owner in this case asserts that by refusing to allow development of the property, the city has placed an extreme burden on one property owner while benefiting the public as a whole with open space for which the city did not pay. While the city focuses on the fact that the restrictions on the property were designed in aid of a comprehensive plan, the property owner focuses on the limited uses allowed under the “Park, Open Space and Recreation” comprehensive plan designation. According to the property owner’s land use expert, the language used in the city’s comprehensive plan and zoning ordinance is typical of language used “to describe public parks and publicly‑owned uses, not private business uses.” Moreover, according to this expert, it is not typical for a city to exclude other commercial, industrial, or residential uses and identify park and recreation uses as the only uses allowed in zoning districts that govern privately owned land.
The city’s “Park System Plans have consistently recognized Carriage Hills, a privately owned, open-to-the-public golf course, as a component of the community’s parks and recreation system.” According to the city, the “Park System Plans have always acknowledged the need for golf courses as part of the overall recreation system,” and the 2001 comprehensive plan contemplates that the city may “acquire land, if feasible, for parks.” Nonetheless, when Carriage Hills experienced financial difficulties, the city declined to buy the property from Rahn and has refused to allow the property owner to pursue other uses of the property.
Under these circumstances, we conclude that the character factor favors the property owner. This is not a situation where numerous property owners are subject to the same kind of land use restrictions, and a single property owner is asking the city to allow a new, different use. Instead, it appears that only a few private property owners in the city are subject to the “Parks, Open Space and Recreation” land use designation. The land use designation is extremely restrictive, and seems aimed at things that have been considered governmental functions. See, e.g., Minn. Stat. § 429.021, subd. 1(6) (2006) (granting the council of a municipality the power to “acquire, improve and equip parks, open space areas, playgrounds, and recreational facilities within or without the corporate limits”); Minn. Stat. §§ 473.301‑.351 (2006) (addressing the need to preserve, protect, and develop recreational open space areas in the metropolitan area and authorizing the Metropolitan Council to make grants to acquire or develop such areas). Moreover, the property owner here merely is asking the city to allow the same type of residential development that the city has approved in the past for neighboring property owners. One of the reasons there is apparently a greater need for open space in the area of the property now is because the city has permitted other open space surrounding the golf course to be developed.
On these facts, we
conclude that the burden of the comprehensive plan designation falls
disproportionately on the property owner.
The benefits of the open space provided by the golf course property are
widely shared through the community, but the costs are focused solely on the
property owner. We have trouble
discerning any reciprocity of advantage resulting from the comprehensive plan
designation for the property.
Balancing of Factors
The final step of
our takings analysis involves balancing the Penn
Central factors. How the balance is
struck will be driven by the facts of each particular case. In this case, having considered the economic
impact of the denial of the comprehensive plan amendment, Rahn’s
investment-backed expectations, and the character of the government action, we
conclude that the determinative factor in this case is whether the denial of
the comprehensive plan amendment leaves the property owner with any reasonable
use of the property. Even though Rahn
cannot demonstrate that it had any reasonable investment‑backed
expectations in the residential development of the property, if a golf course
is no longer an economically viable use of the property and the denial of the
comprehensive plan amendment leaves no other reasonable use of the property,
the city’s refusal to change the comprehensive plan designation places a
substantial, uncompensated burden on a single property owner. See
Although the ultimate determination of whether the facts are sufficient to constitute a taking is a question of law, we cannot determine on this record, as discussed above, whether the city’s denial of the comprehensive plan amendment leaves the property owner with any reasonable use of the property. Specifically, there is a factual dispute as to whether continued use of the property as a golf course is reasonable and whether holding or selling the property for investment purposes is a reasonable use. Therefore, we reverse the court of appeals’ conclusion on the takings issue and remand to the district court for further proceedings consistent with this opinion.
Affirmed in part, reversed in part, and remanded.
ANDERSON, Paul H., J., and ANDERSON, G. Barry, J., took no part in the consideration or decision of this case.
 In 2001, Rahn offered to sell the property to the city, but the city declined.
 The exact dollar amount of the offer is in the record but is part of material the district court ordered to be held confidential. Accordingly, we do not include it in this opinion. We do note, however, that the amount of the offer was millions of dollars less than the amount Wensmann agreed to pay for the property in the 2003 written purchase agreement. The purchase price amount was also sealed by the district court.
 With regard to traffic, the city’s
planning report concluded that the proposed development could generate over
3,000 additional trips, much of it impacting traffic at
 The property owner also cites “substantial change to the
neighborhood” and asks us to hold that the city’s decision was invalid under Sun Oil Co. v. Village of New Hope, 300
Minn. 326, 220 N.W.2d 256 (1974). As we
noted in Mendota Golf, however, Sun Oil does not articulate a standard
of judicial review different from the rational basis standard we apply
here. 708 N.W.2d at 180 n.11 (discussing
Sun Oil). We did discuss in Sun Oil whether the village’s decision left the property owner with
any “reasonable use” for its property.
 We have observed, however, that the
language of the Takings Clause of the Minnesota Constitution can be construed
to provide broader protections than the Takings Clause of the U.S.
 The property owner also has suggested that
the city’s denial of the comprehensive plan amendment constitutes a categorical
taking under Lucas v. South Carolina
Coastal Council, 505
 The United States Court of Federal Claims has described three different methods that courts have used in measuring the economic impact of a regulatory action:
One method measures the value taken from the property by regulatory action against the overall initial value. A second measure looks to the claimant’s ability to recoup its capital. The third method examines a claimant’s return on equity under a given regulatory regime in comparison to the return on equity that would be received but for the alleged taking.
CCA Assocs., 75 Fed. Cl. at 195 (citations omitted).
 In the summary judgment order, the district court concluded that “rezoning the subject property LD—Low Density, is the most reasonable zoning classification for the property.” (Emphasis added.) Although we are uncertain whether the district court applied this analysis to the city’s land use decision or the takings analysis, the correct test in the takings context is not whether the city allows the most reasonable use of the property, but whether there is any reasonable use left. See Almquist v. Town of Marshan, 308 Minn. 52, 69, 245 N.W.2d 819, 828 (1976) (“It is too fundamental for citation of authorities that rezoning, which is otherwise valid, does not give rise to an action for damages because the land in question may be more valuable for some other purpose.”).
 The city argues that these affidavits are not admissible because they were not before the city council when it denied Wensmann’s application. But we are not considering the affidavits in our review of the city’s land use decision. The affidavits were before the district court on summary judgment and therefore are properly part of the record before us in connection with our review of the takings question. See Minn. R. Civ. P. 56.03 (describing record on summary judgment).
property owner argues that we should not give the oral offer any weight because
the statute of frauds prohibits the enforcement of oral contracts for the sale
of real property. See
 To the extent that Myron could be read to require the automatic rejection of a takings claim where the property owner knew at the time of purchase that the property was subject to a zoning restriction, it is overruled.
 The character factor has been described as “the most confused and confusing feature of regulatory takings doctrine.” John D. Echeverria, The “Character” Factor in Regulatory Takings Analysis, SK081 ALI-ABA 143, 145 (2005).
 In examining the character factor in Zeman, we emphasized the purpose of the regulation, concluding that there was no taking where the city ordinance served “a public harm prevention purpose”—deterring criminal activity in residential neighborhoods—and the ordinance was likely to achieve that purpose. 552 N.W.2d at 554-55. We recognize that this type of focus on the purpose of the regulation in Zeman and other cases has been called into question by Lingle. Of course, a regulation still may be susceptible to a due process challenge if the regulation fails to serve any legitimate governmental objective. That question is not before us.
 In McShane
v. City of Faribault, we observed
that “not all zoning regulations are comparable.” 292 N.W.2d 253, 257 (