By Robert I. McMurry
The United States Supreme Court announced Tuesday its decision in a major land use case concerning the government's leverage to exact concessions and money payments in exchange for permits for land use development.
In a 5-4 opinion issued Tuesday, the U.S. Supreme Court reversed the lower court's decision dismissing a property owner's takings claim against a water reclamation district, holding that the Nollan/Dolan takings requirements apply even when a governmental body denies a permit, and where the government imposes monetary exactions. Koontz v. St. Johns River Water Management District
This decision had been widely speculated to be perhaps the most important Supreme Court land-use decision in 20 years, depending on how reaching the court's ruling was (See hypothesizing as to the possible outcomes.) For once, the Supreme Court made a significant and substantial contribution to land-use constitutional law, an area in which even the court had conceded its inability to fashion clear law. Koontz could have a significant effect on the balance of power between land-use developers seeking permits and public entities using that process to exact all manner of "free concessions" ranging from new city halls to substantial monetary payments.
In 1994, Koontz sought to develop land lying within a Riparian Habitat Protection Zone in Florida. Because most of the property was wetlands, Koontz was required to obtain a permit from the St. Johns River Water Management District. In order to mitigate the impact from the development, the District required Koontz either to lower the scale of his proposed development and restore and enhance at least 50 acres of wetlands on a parcel 4.5 miles away or perform similar off-site mitigation at a site seven miles away. The District also demanded on-site mitigation through a conservation easement or deed restriction on the rest of his property. Koontz took exception, rejected each of the District's proposals, and as a result, his permit was denied. Koontz, who apparently was noted as somewhat stubborn, filed suit, arguing that the District was liable for a taking of his property requiring compensation. (Unfortunately, Koontz died before he could see the result.) The District argued that the takings analysis of Nollan and Dolan do not apply to the denial of Koontz's permit because no dedication of land was required and no damages were incurred. The Florida Supreme Court held that the takings test adopted by the U.S. Supreme Court in the seminal Nollan/Dolan cases did not apply because (1) the District did not impose conditions on approval and (2) there is a distinction between a demand for real property and a demand for money. Koontz had argued vigorously that in terms of the effect on the landowner, there was little difference between conditioning a land-use approval on allegedly illegal exactions, and denying a permit if the landowner refused to accede to the same exactions.
The Supreme Court agreed, and reversed the Florida Supreme Court. First, the Court summarized the Nollan and Dolan cases as protecting the Fifth Amendment right to just compensation for property the government takes from a land owner as part of the land use permitting process. The Court acknowledged that a government can avoid the payment of just compensation if it can establish a nexus and rough proportionality between the property that the government demands and the social costs of the owner's proposal. The Court extended the Nollan/Dolan test beyond the traditional situation where a government approves with conditions, holding that the government's demand for property from a land-use permit applicant must satisfy the constitutional test even when the government denies the permit. In the Court's opinion, the owner forfeits a constitutional right whether it is coerced into accepting a condition or is denied benefits for refusing to accept that condition. The Court emphasized that a contrary rule would enable a government to evade the takings requirements by imposing conditions precedent to permit approval: a city, for example, could approve a project conditional on the payment of money or the construction of significant public improvements which would not be permissible under Nolan or Dolan, withholding approval until the conditions precedent were satisfied. Instead the Court determined that a taking can occur even where no property of any kind was actually taken. The Court's view is that a constitutionally cognizable injury occurs when a property owner refuses to give up a constitutional right in the face of government "coercive pressure." (Of course, what constitutes "coercive pressure" is quite another analysis, based on the Nolan/Dolan line of cases.)
This ruling by itself was a significant holding. Notwithstanding that denying a permit seems arguably to be functionally equivalent to granting it with specified conditions, the fact is that government jurisdictions and regulators had been using exactly this technique as an end run around the Nollan/Dolan line cases which were perhaps the best defense for landowners against government takings. Government entities simply negotiated whatever conditions they wanted for a land-use permit, and if the landowner was not cooperative, the government could simply deny the permit. The result was that governmental entities, particularly those in tax-starved and recession-strapped California jurisdictions, could exact huge concessions in exchange for a land use permissions. (One city councilmember in negotiating exactions reportedly used a sports league's advertising slogan and told the developer to "Go Big or Go Home.")
But the court had one more surprise in store. The Court overturned the Florida Supreme Court's dismissal of the case because, the Florida court said, the District asked Koontz to spend money rather than give up an easement on his land. The Supreme Court held that "in lieu" fees are functionally equivalent to other types of land use exactions, and must satisfy the nexus and rough proportionality requirements of Nollan and Dolan. "Because of the direct link between the government's demand and a specific parcel of real property, this case implicates the central concern of Nollan and Dolan: the risk that the Government may deploy its substantial power and discretion in land use permitting to pursue government ends that lack an essential nexus and rough proportionality to the effects of the proposed use of the property at issue." The Court applied a per se takings test because it found a direct link between the District's demand for money and Koontz's property interest. The Court rejected the District's and dissents' argument that its ruling would restrict a government's ability to impose property taxes or user fees without implicating the takings clause. "It is beyond dispute that 'taxes and user fees are not' "takings", yet this Court has repeatedly found takings where the government, by confiscating financial obligations, achieved the result that could not have been obtained through taxation."
Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented from the majority opinion (to put it mildly). First, the dissent agreed with the majority that the Nollan/Dolan takings requirements apply to both approvals with conditions subsequent, as well as denials with conditions precedent, a rare show of concurrence in an area, land use, which often divides conservative and liberal factions. However, the dissent parted ways with the majority as to whether the takings requirements apply to the payment or expenditure of money. In the dissent's view, the Florida decision should be affirmed because (1) the District never demanded anything (including money) in exchange for a permit and (2) Koontz never agreed to the demand and, therefore, no property changed hands. As a result, the dissenters felt Koontz should not be entitled to money damages.
The dissenters were particularly upset about what they perceived as the majority's extension of the Takings Clause to monetary exactions. The dissent cites to the Court's earlier decision in Eastern Enterprises v. Apfel holding that a government requirement that a company pay money for health benefits did not result in a taking. Applying that holding to the current case, the dissent concluded that "a requirement that a person pay money to repair public wetlands is not a taking." In the dissent's view, the majority opinion will impact cities and towns across the nation that impose permitting fees every day, requiring governments to meet the Nollan/Dolan test for every land use fee.
Depending on how Koontz is applied by lower courts, this decision could be a significant reexamination of takings jurisprudence. Beginning with the First English Evangelical Lutheran Church v. Los Angeles County, 482 U.S. 304 (1987) case in 1987, and Palazzolo v. Rhode Island, 533 U.S. 606 (2001) the Court has seemed willing to recognize that the takings clause imposes at least some restriction on the limits of government regulation of private property. Also, in Kelo v. City of New London, 545 U.S. 469 (2005), the Supreme Court set off a wave of protest, including numerous "corrective" state laws, after concluding that essentially government could take private property in order to further other private projects which were of allegedly greater public benefit - a decision which ironically enough, was strongly in line with prior Supreme Court precedents, going back to Berman v. Parker in the 1960s upholding the taking of property for urban renewal. (Even more ironically, the Kelo property at issue was never developed after the condemnation by the City of New London and was most recently used as a storage area for hurricane debris.)
The most difficult and surely the most controversial part of the decision, however, will be the extension of takings law to monetary exactions. With property exactions, such as the Koontz wetlands extraction, there was at least physical property on which an exaction could be based, and courts have always been more willing to balance a landowner's right to develop some portions of his property in exchange for giving up rights on the rest of it. After all, if the developer did not take advantage of the right to develop, he didn't have to give up anything, at least. Now, however, there is the potential that development rights may also come at a monetary price and that could change the way in which developers, governmental entities, and courts view the entire balance of takings jurisprudence. Although the Supreme Court stated that "The rule that Nollan and Dolan apply to monetary exactions has been the settled law in some of our nation's most populous states for many years, and the protections of those cases are often redundant with the requirements of state law," a great many property owners would disagree with that assessment of state laws.
Koontz will set off a flurry of speculation over how it is to be applied. One thing, however, is quite certain: Koontz will significantly alter the way in which private property rights, government regulation, and exactions for public benefits will play out in the future, and everyone needs to understand it thoroughly.
Robert I. McMurry focuses on land use, environmental, and water issues. Mr. McMurry has 30 years of experience in all aspects of major land development, including entitlements, water issues and drafting, advice and litigation on CEQA documents, for projects including residential, commercial, redevelopment, public institutions, and parks/open spaces. He has successfully litigated numerous cases at both the trial and appellate level. His special area of expertise includes the planning and implementation of all necessary steps involved in guiding Master Plan Communities from original design to completion, including challenges to project approvals. He has been named as one of the Top 25 Land Use Lawyers in California and is included in The Best Lawyers in America. Contact him at RMX@JMBM.com or 310.201.3559.