High Court Backs Compensation for Loss of Land Rights : Property: Justices rule that a state must prove it is blocking development to prevent public harm or pay the owner for his sacrifice.

In a decision widely anticipated both by property rights advocates and environmentalists, the Supreme Court on Monday made it easier for property owners to win compensation when government forbids them to develop their land.

Officials can prevent development without compensation if the land use would be a “nuisance” and cause clear harm to others, the court said, but they cannot refuse compensation simply because banning the development would benefit the public.

“When the owner of real property has been called upon to sacrifice all economically beneficial uses in the name of the common good,” he must be compensated for his loss, Justice Antonin Scalia wrote for the majority.

The 6-3 decision reverses a ruling by the South Carolina Supreme Court, which found that no compensation was owed to a man who paid $975,000 for two beachfront lots in 1986 but was blocked two years later by a new state law from building on them.

Returning the case (Lucas vs. South Carolina Coastal Council, 91-453) to the state for possible further action, the high court said that South Carolina would have to do more than demonstrate that banning construction would benefit the public interest--in this case, preserving the shoreline from erosion.

Instead, Scalia said, the state would have to show that the development would constitute a public nuisance, that is, actively do harm.

In a concurring opinion, Justice Anthony M. Kennedy wrote that a key test of compensation is whether the deprivation of property “is contrary to reasonable, investment-backed expectations” by the property owner.

The sharply circumscribed opinion was hailed as a victory by both sides in the philosophical dispute over ownership rights versus public interest.

In Orange County, the reaction among building industry representatives was one of satisfaction, while city officials said its impact would be modest since mechanisms already exist in the state to compensate landowners in such circumstances.

Building industry representatives said the ruling might play a role where endangered species listings, wetlands protections and other government-imposed restrictions have been used to limit development.

“We’re happy with it,” said Christine Diemer, Building Industry Assn. of Orange County executive director. “With any taking of property, we feel there must be reasonable, just compensation.”

Peter Zeughauser, vice president and general counsel for the Irvine Co., one of the largest landowners and developers in the state, said the ruling could play a part during negotiations with cities and other governmental agencies.

The Irvine Co. and two other large developers, Rancho Mission Viejo Co., and the Arvida Co., are in the middle of a temporary building moratorium on 26,000 acres of privately owned coastal sage scrub in the state’s effort to design preserves for the California gnatcatcher and other rare animals. The 18-month agreement was signed last month.

“I think it does indicate to me, generally speaking, that government at all levels would have to be more cautious in enacting sweeping land use laws that prohibit development,” Zeughauser said.

Glenn Sugameli, an attorney for the National Wildlife Federation, said that he sees the ruling as “a major setback to the special interest groups that . . . fraudulently claim that they are wise users of natural resources. Not even a conservative court accepts the extreme argument that property owners must always be compensated whenever regulations designed to protect the public affect the use or value of property.”

The case leading to Monday’s opinion arose from David H. Lucas’ 1986 purchase of two lots on the Isle of Palms, a barrier island near Charleston, S.C.

Since the late 1970s, Lucas had been a residential developer in the area. He paid $975,000 for the two parcels and planned to build single-family homes on them.

But in 1988, the South Carolina Legislature passed the Beachfront Management Act, designed to protect the state’s coastal area from overdevelopment and erosion. Under that law, no building was permitted on land subject to beach erosion. Overnight, Lucas’ lots had become virtually worthless.

Lucas filed suit, relying on the Fifth Amendment, which prohibits the taking of private property for public use without just compensation.

The lower court ordered that he be paid $1.23 million. But the state Supreme Court overturned that decision on grounds that the government need not pay compensation when it seeks “to prevent serious public harm,” in this instance to unstable coastline.

In a sharp dissent from the majority opinion on Monday, Justice Harry A. Blackmun said that with the decision “the court launches a missile to kill a mouse.”

The majority, he said, had relied on “an unreviewed (and implausible) state trial court finding” to grant a review of whether compensation must be paid in cases where state actions block the economic use of real estate.”

Times staff writer David Reyes contributed to this report from Orange County.