2013 Annual Meeting

Planning and Takings in the Aftermath of Koontz

Moderator:

Darius W. Dynkowski, Ackerman Ackerman & Dynkowski, Bloomfield Hills, MI

Speakers:

Paul J. Beard II, Pacific Legal Foundation, Sacramento, CA (argued for Petitioner)

Paul Wolfson, WilmerHale, Washington, DC (argued for Respondent)

Professor David Callies, University of Hawaii, William S. Richardson School of Law, Honolulu, HI

Steven J. Eagle, George Mason University School of Law, Arlington, VA

August 9, 2013 Grand Hyatt

San Francisco, CA

SPEAKERS

Paul James Beard, II Pacific Legal Foundation

930 G St Sacramento, CA 95814-1802

Phone: 916-419-7111 pjb@pacificlegal.org

Darius W. Dynkowski Ackerman Dynkowski & Acherman

100 W Long Lake Rd Ste 210 Bloomfield Hills, MI 48304-2774

Phone: 248-537-1155 darius@nationaleminentdomain.com

Steven J. Eagle George Mason Univ. School of Law

3301 Fairfax Dr. Ste 201 Arlington, VA 22201-4426

Phone: 703-993-8054 seagle@gmu.edu

Paul R. Wolfson WilmerHale

1875 Pennsylvania Ave NW Washington, DC 20006-3642

Phone: 202-663-6000 Fax: 202-663-6363

paul.wolfson@wilmerhale.com

American Bar Association

Section of State and Local Government Law

2013 Annual Meeting

Planning and Takings in the Aftermath of

Koontz v. St. Johns River Water Management District

Paul J. Beard II

Principal Attorney

Pacific Legal Foundation

August 8-11, 2013

Moscone Center West

San Francisco, CA

Synopsis of the Case

Coy Koontz, Sr., sought to develop about 3.7 acres of his 15-acre commercial lot in Orlando,

Florida. The area surrounding his vacant lot was well-developed, and the project site had no

viable wetlands or endangered/threatened species. Nevertheless, because the lot was in a zone

that presumptively labeled it wetlands, he had to obtain permits from St. Johns River Water

Management District (a state agency).

At his permits hearing, the District demanded that he first agree to (1) place the remaining

portion of his lot into a conservation easement and (2) finance wetlands-related improvements to

ditches to District-owned land located miles away. The District justified its demands on the

project’s alleged impacts to wetlands and wildlife, but made no showing and presented no

evidence of such impacts.

Koontz reluctantly agreed to the conservation easement requirement. But he refused to pay for

the off-site improvements. Because of his refusal to submit to the second demand, the District

simply denied his permit applications.

Koontz sued the District in state court, alleging (among other things) that the District’s demands

bore no connection or proportionality to the impact of his project, and therefore imposed an

unconstitutional burden on Koontz’s right to just compensation under the Takings Clause,

pursuant to Nollan v. California Coastal Commission and Dolan v. City of Tigard. In Nollan, a

state agency approved a permit to remodel a home, on the condition that the owner give up a

public-access easement. The United States Supreme Court held that such an exaction was

unconstitutional under the Takings Clause, because it lacked an “essential nexus” to the impact

of the project: Because the owner’s remodel project had no impact on existing public access, the

agency’s demand was nothing more than an “out-and-out plan of extortion.” Several years later,

in Dolan, the Court refined the Nollan test, holding that an exaction also must be “roughly

proportional” to the impact of the proposed use of the land. Like in Nollan, in Dolan, an agency

approved a permit on the condition that the owner give up interests in her land.

The trial court ruled in Koontz’s favor, forcing the District to issue the permits without the

offending exaction. The trial court also awarded Koontz damages under Florida law for the

temporary taking of Koontz’s property during the period when the District unlawfully withheld

permits. The Florida court of appeals affirmed. But the Florida Supreme Court reversed,

holding that Nollan/Dolan did not apply and therefore Koontz had no claim.

First, the court held that Nollan/Dolan apply only to exactions of interests in real property—not,

as in this case, to monetary exactions. Second, the court ruled that Nollan/Dolan apply only

where a permit has issued with conditions. Because permits in this case had been denied, nothing

had ever been “taken” from Koontz, and therefore Koontz could not state a claim for a “taking”

even under Nollan and Dolan. The court failed to recognize that in both Nollan and Dolan, the

plaintiffs never obtained permits for their projects; instead, the plaintiffs received contingent

approvals with conditions—which, substantively, is no different than a permit denial for refusal

to submit to conditions.

The Questions Presented

1. Whether the government violates the Takings Clause when it refuses to issue a land-use permit

on the sole basis that the permit applicant did not accede to a permit condition that, if applied,

would violate the essential nexus and rough proportionality tests set out in Nollan and Dolan.

2. Whether the nexus and proportionality tests set out in Nollan and Dolan apply to a land-use

exaction that takes the form of a government demand that a permit applicant dedicate money,

services, labor, or any other type of personal property to a public use.

Holdings

1. The United States Supreme Court unanimously held that both conditions precedent and

conditions subsequent to permit approval are subject to Nollan/Dolan scrutiny.

2. In the land-use permitting context, where the unconstitutional conditions doctrine is in play,

money is “property” protected by the Takings Clause. Therefore, monetary exactions are subject

to Nollan/Dolan scrutiny in the same way that exactions of real property interests are.

Summary: Permitting agencies will have to demonstrate that monetary exactions, like exactions

of real property interests, bear an essential nexus and rough proportionality to the impact of the

applicant’s proposed use of land.

American Bar Association Section of State and Local Government Law

2013 Annual Meeting

Koontz v. St. Johns River Water Management District:

Sic Semper Nexus and Proportionality

David L. Callies, FAICP Benjamin Kudo Professor of Law

William S. Richardson School of Law University of Hawaii at Manoa

 

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Land Development Conditions After

Koontz v. St. Johns River Water Management District:

Sic Semper Nexus and Proportionality

By

David L. Callies, FAICP

Benjamin Kudo Professor of Law

William S. Richardson School of Law

University of Hawaii at Manoa

I. Introduction: A Summary of the Court’s Holding

On June 25, 2013, the United States Supreme Court rendered its long-anticipated decision

in Koontz v. St. Johns River Water Management District, ___U.S. ___ (2013). Writing for a

five-Justice majority, Associate Justice Alito held (1) that a government’s demand for money or

land from a land use permit applicant must satisfy the nexus and proportionality requirements of

the Court’s previous Nollan/Dolan requirements even when it denies the permit, and (2) the

government’s demand for property from a land use permit applicant must satisfy these

Nollan/Dolan requirements even if the demand is for money—like impact fees, in-lieu fees, and

other money exactions—rather than a dedication of an interest in real property, like an easement.

In holding that monetary exactions must satisfy the nexus and proportionality requirements of

Nollan and Dolan, the court explained the required direct link between the government’s demand

and a specific parcel of real property: the property interest is the landowner’s parcel for which

government development permission is sought, not the character of the exaction as an interest in

real property, as many have urged and some lower courts have held. In this case,

 

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. . . the monetary obligation burdened the petitioner’s ownership of a specific parcel of land. . . . The fulcrum this case turns on is the direct link between the government’s demand and a specific parcel of real property. Because of that direct link, this case implicates the central concern of Nollan and Dolan: the risk that the government may use its substantial power and discretion in land-use permitting to pursue governmental ends that lack an essential nexus and rough proportionality to the effects of the proposed new use of the specific property at issue, thereby diminishing without justification the value of the property.

Koontz, slip op. at 16-17.

II. The Background: What the Constitution Requires and the Lower Court Splits

The Fifth Amendment to the United States Constitution ensures that private property shall not be

taken for public use unless just compensation is paid. U.S. CONST. amend. V. The Takings

Clause does not specify the precise types of governmental action that qualify as a taking, but the

Supreme Court of the United States has identified three types of actions that qualify. These

actions include physical invasions, over-regulation, and land use exactions. This paper will

focus on the last type of governmental action. See Loretto v. Teleprompter Manhattan CATV

Corp., 458 U.S 419 (1982) (physical invasions); Penn Cent. Transp. Co. v. N.Y.C., 438 U.S. 104

(1978) (over-regulation); Nollan v. Cal. Coastal Comm’n, 483 U.S. 825 (1987) (land use

exactions); see also Dolan v. City of Tigard, 512 U.S. 374 (1994). In Nollan v. California

Coastal Commission, the Court held that land use exactions require an “essential nexus” between

the nature of the condition and a public need generated by the proposed development. 483 U.S.

at 837. The Court again considered the constitutionality of land use exactions in Dolan v. City of

Tigard, adding an additional requirement that there be “rough proportionality” between the

exaction and the harms caused by the regulated activity. 512 U.S. at 391.

After the Court articulated the heightened scrutiny of the Nollan/Dolan standard for

exactions, courts have struggled with the application. Does the standard apply to all types of

 

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exactions or only to land based exactions? Two cases, Erhlich and Lingle, have dealt with the

subject matter of exactions but neither developed a bright line application. In Erhlich, the Court

remanded a monetary exaction claim for further consideration in light of the recent Dolan

decision. Ehrlich v. City of Culver City, 114 S.Ct. 2731 (1994). In Lingle, the Court, in dicta,

gave an overview of all regulatory takings analyses and could be read to imply that the

Nollan/Dolan test would apply to land based exactions only. Lingle v. Chevron U.S.A., Inc., 544

U.S. 528 (2005). Other courts have since used both of these cases to go either way on this

exactions question.

A. The Nollan/Dolan standard does not apply to monetary exactions.

Even before Lingle, monetary exactions had been treated by some courts as different

from real property exactions. See Clajon Prod. Corp. v. Petera, 70 F.3d 1566, 1578 (10th Cir.

1995) (declining to apply Dolan to fees imposed on landowners as a condition of exercising their

property right to hunt on their own land because no physical occupation is involved);

Commercial Builders of N. Cal. v. City of Sacramento, 941 F.2d 872, 875-76 (9th Cir. 1991)

(declining to extend holding in Nollan to purely monetary exaction); Commonwealth Edison Co.

v. United States, 271 F.3d 1327, 1340 (Fed. Cir. 2001) (“Requiring money to be spent is not a

taking of property”); McCarthy v. Leawood, 894 P.2d 836 (Kan. 1995) (concluding that nothing

in Dolan supports making the critical leap from property dedications to impact fees). "Unlike real

or personal property, money is fungible." United States v. Sperry Corp., 493 U.S. 52, 62 n.9

(1989).

For some of these courts, Lingle enforced the distinction between the traditional Takings

Clause real property dedications and the mere imposition of the obligation to pay money. The

Ninth Circuit has held that monetary exactions, which are imposed legislatively and advance a

 

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related interest to the new development, are not analyzed under the Nollan/Dolan standard.

McClung v. City of Sumner, 548 F.3d 1219, 1225 (9th Cir. 2008). The Court declined to

determine the appropriateness of using the Nollan/Dolan standard for monetary exactions, which

are adjudicatively imposed. Id. at n.3. The lack of a physical invasion of land is generally the

focal point of courts’ reasoning for not using the heightened standard. See Kamaole Pointe Dev.

LP v. County of Maui, 573 F. Supp. 2d 1354, 1370 (D. Haw. 2008) (declining to apply the

Nollan/Dolan standard where there is no physical invasion of land); Ramsey Winch, Inc. v.

Henry, 555 F.3d 1199, 1209 (10th Cir. 2009) (“A per se taking in the constitutional sense

requires a permanent physical occupation or invasion, not simply a restriction on the use of

private property”); Iowa Assur. Corp. v. City of Indianola, 650 F.3d 1094, 1098-1099 (8th Cir.

2011) (declining to apply the takings test articulated in Nollan because there was no dedication

of land); Conklin Dev. v. City of Spokane Valley, 448 Fed. Appx. 687, 689 (9th Cir. 2011)

(unpublished; requiring a per se physical taking to apply Nollan/Dolan). In West Linn Corporate

Park, L.L.C. v. City of West Linn, 240 P.3d 29 (Or. 2010), cert denied, 132 S. Ct. 578 (2011),

the Supreme Court of Oregon reasoned that because the City could not use its power of eminent

domain to compel the off-site mitigation or monetary exaction, the Nollan/Dolan standard was

not applicable. Id. at 86-87. In the unpublished companion case in the Ninth Circuit, the court

there came to the same conclusion based on the fact that there was no dedication of real property

but only the obligation for the property owner to use its own money, which the court

characterized as personal property. West Linn Corporate Park L.L.C. v. City of West Linn, 428

Fed. Appx. 700, 702 (9th Cir. 2011).

Perhaps the strongest case for not applying Nollan/Dolan after Lingle comes from the

recent federal circuit court decision in Alto Eldorado Partnership LLC v. County of Santa Fe,

 

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New Mexico, 634 F.3d 1170 (10th Cir. 2011), cert. denied, 132 S. Ct. 246 (2011). In a decision

that found Nollan/Dolan inapplicable in virtually every sense, the appeals court sharply limited

their application to only physical takings, flatly rejecting all attempts to apply the doctrine to any

other interference with property rights, as well as the application of the doctrine of

unconstitutional conditions. The appeals court held unequivocally that Nollan/Dolan are Fifth

Amendment takings cases and that any attempt to apply them further after Lingle must fail (634

F.3d at 1178-79).

B. The Nollan/Dolan standard does apply to monetary exactions.

After the Supreme Courts remand in Erhlich for analysis of a monetary exaction under

the Nollan/Dolan standard, many courts found sufficient direction to apply the heightened

scrutiny to monetary exactions. See Ehrlich v. City of Culver City, 911 P.2d 429, 447 (Cal.

1996) (applying the Nollan/Dolan standard for recreational fees: “But when a local government

imposes special, discretionary permit conditions on a development by individual property

owners—as in the case of the recreational fee at issue in this case—Nollan and Dolan require

that such conditions, whether they consist of possessory dedications or monetary exactions, be

scrutinized under the heightened standard”); Home Builders Ass'n v. City of Beavercreek, 729

N.E.2d 349, 357 (Ohio 2000) (adopting the Nollan/Dolan standard for impact fee ordinances:

“Once a reasonable relationship is found to exist between the city’s need to construct new

roadways and the traffic generated by a new development, the second prong of the test requires

Beavercreek to demonstrate a reasonable relationship between the fee imposed on a developer

and the benefits accruing to the developer.”); Benchmark v. City of Battle Ground, 972 P.2d 944,

950 (Wash. Ct. App. 1999) (applying Nollan/Dolan for off-site mitigation requirement); Town of

Flower Mound v. Stafford Estates L.P., 135 S.W.3d 620, 639-640 (Tex. 2004) (applying the

 

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Nollan/Dolan standard because the court finds no important distinction between a dedication of

real property and the requirement of off-site mitigation.); Twin Lakes Dev. Corp. v. Town of

Monroe, 801 N.E.2d 821, 825 (N.Y. 2003) (applying Nollan/Dolan to recreational impact fees).

Even after Lingle, courts have still determined that Nollan/Dolan applies to non-property

exactions. Sefzik v. City of McKinney, 198 S.W.3d 884, 898-899 (Tex. App. 2006); B.A.M.

Dev., L.L.C v. Salt Lake County, 196 P.3d 601, (Utah 2008) (applying Nollan/Dolan standard);

Toll Bros., Inc. v. Bd. of Chosen Freeholders of Burlington, 944 A.2d 1, 13 (N.J. 2008)

(applying Nollan/Dolan standard to developer’s share of roadway improvement costs); City of

Carrollton v. RIHR Inc., 308 S.W.3d 444 (Tex. App. 2010); Greenville Concerned Citizens, Inc.

v. Floyd Cnty. Plan Comm’n, No. 22A01-0902-CV-92, 2009 Ind. App. Unpub. LEXIS 1713,

*23-26 (Ind. Ct. App. Oct. 14, 2009) (applying, without holding, the Nollan/Dolan standard to

the monetary exaction). One court has found that the question of whether money can constitute

property, which can be taken under the Takings Clause, and thus analyzed under Nollan/Dolan,

is to be decided under state law. City of New Orleans v. BellSouth Telcoms., Inc., No. 09-151,

2011 U.S. Dist. LEXIS 125254, *27-28 (E.D. La. Oct. 27, 2011) (holding that under Louisiana

state law, money is property which can be taken under the Takings Clause); but see West Linn

Corporate Park L.L.C. v. City of West Linn, 428 Fed. Appx. 700 (9th Cir. 2011) (characterizing

money as personal property). The New York court has clarified post-Lingle that the

Nollan/Dolan standard applies to both physical dedications of land and in-lieu-of fees.

Consumers Union of U.S., Inc. v. State, 840 N.E.2d 68, 82-83 (N.Y. 2005) (citing Twin Lakes

Dev. Corp. v. Town of Monroe, 801 N.E.2d 821, 825-26 (N.Y. 2003) (applying Nollan/Dolan to

impact fees) and In re Smith v Town of Mendon, 822 N.E.2d 1214 (2004) (finding that

 

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Nollan/Dolan only applies to dedications of significant property rights (the right to exclude) but

not lesser property rights (right to apply for a variance))).

III. The Koontz Decision and Analysis

A. The Decision in Detail

The facts in the case are ably set out in papers and materials submitted by others

participating in this webinar. Suffice it to observe that the Court focused on those parts of the

decisions below which upheld the state agency requirement that Koontz spend money to mitigate

the cost of his developing part of the subject property which constituted a wetland. Koontz

declined to do so and the District consequently denied the wetland resources management permit

required under state law. This, observed the Court, raised questions of federal constitutional law

on which lower state and federal courts were divided, leading to the grant of a petition for

certiorari to review them.

First, the Court addressed the District’s position that, since it had denied the permit

because the applicant refused to comply with the permit condition, the nexus and proportionality

standards of Nollan/Dolan did not apply. Initially, the Court observed that Nollan and Dolan

allow government to condition approval of a permit on a dedication of property to the public so

long as there is a nexus and rough proportionality between the property that the government

demands and the social costs of the applicant’s proposal. Slip op. at 8. Then the court clearly

stated: “The principles that undergird our decisions in Nollan and Dolan do not change

depending on whether the government approves a permit on the condition that the applicant turn

over property or denies a permit because the applicant refuses to do so.” Slip op. at 8-9. Further

observing that it had often concluded that denials of governmental benefits were impermissible

under the unconstitutional conditions doctrine, the Court admonished: “A contrary rule would be

 

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especially untentable in this case because it would enable the government to evade the

limitations of Nollan and Dolan simply by phrasing its demands for property as conditions

precedent to permit approval. . . . Our unconstitutional conditions cases have long refused to

attach significance to the distinction between conditions precedent and conditions subsequent.”

Slip op. at 9.

Next, the Court addressed the question which caused the major split among lower state

and federal courts: “We turn to the Florida Supreme Court’s alternative holding that petitioner’s

claim fails because respondent asked him to spend money rather than give up an easement on his

land.” Slip op. at 14. Noting that such an argument would render it easy for land-use permitting

officials to evade Nollan/Dolan limitations by simply substituting an in-lieu fee for an exaction

of an interest in real property like an easement, the Court held: “For that reason and for those

that follow, we reject respondent’s argument and hold that so-called ‘monetary exactions’ must

satisfy the nexus and proportionality requirements of Nollan and Dolan.” Slip op. at 15. The

property interest necessary for cases such as these is not a required dedication of land itself but

rather the effect of any exaction on the owner’s subject parcel: “unlike Eastern Enterprises, the

monetary obligation burdened petitioner’s ownership of a specific parcel of land. . . . The

fulcrum this case turns on is the direct link between the government’s demand and a specific

parcel of property.” Slip op. at 16-17.

The dissent makes much of the confusion between impact fees and property taxes/user

fees that will result from the majority opinion. However, as the Court rightly observes, the two

are fundamentally different and based on fundamentally different legal theories. Land

development conditions such as impact fees and other monetary exactions find their authority

and roots in government exercise of the police power. Property taxes, on the other hand, are

 

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rooted in government authority to raise revenue—the power to tax, which requires no

demonstration of nexus and proportionality to any activity by the taxpayer. User fees are merely

charges on users for services rendered by the charging government, like building permit fees.

B. The Decision Applied: Impact Fees, Mitigation Fees, In-Lieu Fees, and Affordable Housing Set-Asides

1. In-Lieu Fees

Clearly and most obviously the nexus and proportionality requirements of Nollan and

Dolan are now applicable to fees often charged by local government in lieu of a dedication of a

property interest per se. Thus, for example, where local government charges such a roadbuilding

fee as a condition for approving a residential subdivision rather than requiring dedication of road

and street easements, the fee, like the easements, will have to bear a nexus to the need for roads

generated by the subdivision, and the fee will have to be proportional to that generated need as

well. The Court specifically singled out such in-lieu fees in its opinion, as noted above in Part A.

2. Impact Fees

The decision by its terms also applies to impact fees and mitigation fees as well, the latter

for the obvious reason that it was a species of mitigation fee which Koontz challenged in this

case. The same is true for the ubiquitous impact fee charged by government to pay for public

facilities such as schools, public parks, and wastewater treatment plants. All are clearly

embraced by the Court’s term “monetary exaction” and thus all are now subject to nexus and

proportionality requirements of Nollan and Dolan.

3. Mandatory Inclusionary Affordable/Workforce Housing Set-Asides: Sic Transit

But what of the linkage of affordable/workforce housing fees or minimum set-asides of

such housing increasingly often attached to land development permits of all kinds? Surely the

 

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provision of such housing is a public good and hardly any court in the country considers it

anything but a governmental public use or purpose also covered by a state or federal

constitutional welfare clause. Nevertheless, because such fees are a form of exaction, they are

subject to the “essential nexus” takings test under Nollan. Nollan, 483 U.S. at 837. See

Commercial Builders of N. Cal., 941 F.2d at 874. Under Nollan, “a permit condition that serves

the same legitimate police-power purpose as a refusal to issue the permit should not be found to

be a taking if the refusal to issue the permit would not constitute a taking.” Nollan, 483 U.S. at

836 (emphasis added). In addition, under Nollan, the government bears the burden of proving

this nexus. Dolan, 512 U.S. at 391 n.8 (citing Nollan, 483 U.S. at 836). In the context of linkage

fees in particular, one treatise explains that linkage fees satisfy this test “only if the municipality

can show that downtown development contributes to the housing problem the linkage exaction is

intended to remedy.” 1 LAND USE LAW § 9.23.

For example, in Commercial Builders of N. Cal. v. Sacramento, 941 F.2d 872 (9th Cir.

1991), the Ninth Circuit held that an ordinance which imposed a linkage “fee in connection with

the issuance of permits for nonresidential development of the type that will generate jobs,” (i.e.,

a workforce affordable housing requirement) was constitutional under Nollan. Id. at 875.

Plaintiffs challenged the ordinance directly on Nollan grounds: lack of nexus or connection

between the development and the affordable housing condition.

First, the court addressed the holding of Nollan: where there is no evidence of a nexus

between the development and the problem that the exaction seeks to address, the exaction cannot

be upheld. Id. The court then explained that “the [o]rdinance was implemented only after a

detailed study revealed a substantial connection between development and the problem to be

addressed.” Id. The Court related at some length what the City of Sacramento did to establish

 

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the “substantial connection between the development and the problem” of affordable housing.

First, it commissioned a study of the need for low-income housing, the effect of nonresidential

development on the demand for such housing, and the appropriateness of exacting fees in

conjunction with such developments to pay for housing. The study:

Estimat[ed] the percentage of new workers in the developments that would qualify as low-income workers and would require housing. [The study] also calculated fees for development. . . . Also as instructed, however, in the interest of erring on the side of conservatism in exacting the fees, it reduced the final calculation by about one-half. Based upon this study, the City of Sacramento enacted the Housing Trust Fund Ordinance [which] . . . included the finding that nonresidential development is ‘a major factor in attracting new employees to the region’ and that the influx of new employees ‘creates a need for additional housing in the City.’ Pursuant to these findings, the Ordinance imposes a fee in connection with the issuance of permits for nonresidential development of the type that will generate jobs.

Id. at 873. Consequently, the court found “that the nexus between the fee provision here at issue,

designed to further the city’s legitimate interest in housing, and the burdens caused by

commercial development is sufficient to pass constitutional muster.” Id.

Even courts that had declined to apply heightened Nollan/Dolan scrutiny to housing fees

nonetheless apply some form of relationship or causation test. For instance, in San Remo Hotel

L.P. v. City & County of San Francisco, 41 P.3d 87 (Cal. 2002), although the California

Supreme Court reaffirmed that legislatively imposed, ministerial impact fees are not subject to

the tests in Nollan or Dolan, it nonetheless required that there “be a ‘reasonable relationship’

between the fee and the deleterious impacts for the mitigation of which the fee is collected.” Id.

at 102-03 (citations omitted). Similarly, in Holmdel Builders Ass’n v. Twp. of Holmdel,

although the Supreme Court of New Jersey concluded that legislative fees are not subject to the

heightened scrutiny of its “but-for,” “rational-nexus” test, it still required some relationship

between the development and the harm caused. 583 A.2d 277, 288 (N.J. 1990). The court

 

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essentially explained that the “relationship between the private activity that gives rise to the

exaction and the public activity to which it is applies,” must be “founded on [an] actual, albeit

indirect and general, impact.” Id.

Notably, the only part of the Nollan test that was not applied in San Remo or Holmdel

Builders Ass’n, is the shifting of the burden of proof to the government. That the burden of

proof shifts to the government was not clear in Nollan; however, the Court clarified this in

Dolan. There, the Court cited to Nollan when it said that “the burden properly rests on the city.”

Dolan, 512 U.S. at 391 n.8 (citing Nollan, 483 U.S. at 836). What is important, however, is that

all jurisdictions at least require some form of nexus between the harm caused by the

development and the interest which the exaction purportedly serves. Thus, even under the

California or New Jersey approach, Nollan’s requirement that the “same” interest be served by

the exaction, still applies, albeit in different form than Nollan, 483 U.S. at 836. After Koontz,

the test must now be identical to Nollan.

The second issue is, provided the regulation satisfies a nexus requirement, what

reasonable percentage of affordable or workforce housing will meet the constitutional

proportionality test under Dolan or some similar proportionality requirement. As one recent

commentator noted: “[a]n inclusionary zoning ordinance deserves . . . judicial deference . . .

provided that the program addresses a lack of affordable housing at a level proportionate to each

development and it can be defended through sufficient planning by each municipality.” Lerman,

Mandatory Inclusionary Zoning—The Answer to the Affordable Housing Problem, 33 B.C.

ENVTL. AFF. L. REV. 383, 398-399 (2006). Much is clearly dependent upon the circumstances in

each case, but as one treatise on land use has observed, while “[s]et-aside percentages and

 

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development size requirements vary across the country[,] [m]ost set-asides range from ten to

twenty percent.” 3 ZONING AND LAND USE CONTROLS §3.07 (2007).

The handfuls of cases upholding inclusionary housing programs are easily

distinguishable. Commercial Builders of Northern California v. City of Sacramento is already

discussed above, where the Ninth Circuit held that a City of Sacramento ordinance was

constitutional under Nollan. To reiterate:

We . . . agree with the City that Nollan does not stand for the proposition that an exaction ordinance will be upheld only where it can be shown that the development is directly responsible for the social ill question. Rather, Nollan holds that where there is no evidence of a nexus between the development and the problem that the exaction seeks to address, the exaction cannot be upheld. Where, as here, the Ordinance was implemented only after a detailed study revealed a substantial connection between development and the problem to be addressed, the Ordinance does not suffer from the infirmities that the Supreme Court disapproved in Nollan.

Commercial Builders of N. Cal., 941 F.2d at 875. Also in Home Builders Ass’n of Northern

California v. City of Napa, the city enacted an inclusionary zoning ordinance requiring that 10%

of all newly constructed units must be affordable, but again only after the city made significant

findings and studied possible affordable housing solutions, much like the City of Sacramento.

Home Builders Ass’n of N. Cal., 108 Cal. Rptr. 2d 60, 62 (Cal. Ct. App. 2001). Moreover, the

court specifically recognized that “[t]he City’s inclusionary zoning ordinance imposes significant

burdens on those who wish to develop their property.” Id. at 64. Therefore, the Court noted

specifically that “the ordinance also provides significant benefits to those who comply with its

terms . . . [including] expedited processing, fee deferrals, loans or grants and density bonuses.”

Id. Also, Napa supplied over seven hundred pages of documentation for its program, and limited

its required set-aside to only 10%.

 

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Moreover, this decision must be read in the context of California’s statutory mandatory

bonus requirements. CAL. GOV. CODE §§ 65915 – 65918 (West, Westlaw through Ch. 10 of

2013 Reg. Sess.). As recently amended and effective on January 1, 2005, the statute requires a

20% density bonus as soon as a developer reaches a set-aside threshold of 5% of its units

affordable to very low income households or 10% of its units are affordable to low income

households, and increases in density bonus increments of 2.5% for each additional increase of

1% of very low income units, 1.5% for each additional 1% in low income units, and 1% for

increase in moderate income units, up to a maximum density bonus of 35% when a project

provides either 11% very low income units, 20% low income units, or 40% moderate income

units.

The California Court of Appeals echoed the decision in San Remo by failing to apply the

Nollan/Dolan intermediate scrutiny test to a legislatively enacted ordinance but still requiring a

reasonable relationship between the ordinance’s means and ends. Bldg. Indus. Ass’n of Cent.

Cal. v. City of Patterson, 90 Cal. Rptr. 3d 63 (Cal. Ct. App. 2009). There, the city entered into a

development agreement that provided for an affordable housing in-lieu fee of $734 per market

rate unit to be paid by the developer to the city with a caveat that allowed for a “reasonably

justified” increase in the fee based on the findings of an updated affordable housing fee analysis.

Id. In accordance with the updated analysis, the city raised the affordable housing fee from $734

to $20,946 per market rate unit. Id. The court held that the development agreement’s increased

affordable housing in-lieu fee was not “reasonably justified” because the fee had no reasonable

relationship to the “deleterious public impact” the planned sub-division would have on

affordable housing. Id. at 73. Although the court’s ruling only held that the development

agreement’s increased affordable housing in-lieu fee was not reasonably justified and thus

 

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impermissible, the language of the court’s decision goes much further than this development

agreement: “[t]he level of constitutional scrutiny applied by the court in San Remo Hotel must

be applied to City’s affordable housing in-lieu fee and is one of the legal requirements

incorporated into the Development Agreement.” Id.

In developing the affordable housing in-lieu fee, the city examined subsidies that would

bridge the affordability gap between moderate, low-, and very low-income households and the

price of market rate units. The city calculated the total subsidy that would be required to bridge

the affordability gap based on the requirement of 642 units of affordable housing allocated to the

city by the 2001 to 2002 Regional Housing Needs Assessment for Stanislaus County. This total

subsidy of $73.5 million was spread over the 3,507 unentitled units left to be constructed

according to the city’s general plan. Although this calculation has a direct relationship to the

city’s overall need for affordable housing, it has no relationship to the effects of a new

development on the need for affordable housing.

While the court never comments on the constitutionality of the original fee, in concluding

that the increased fee violated the development agreement, the court clearly finds that even

outside of the development agreement context, the new in-lieu housing fee is impermissible:

“the fee calculations . . . do not support a finding that the fees to be borne by Developer’s project

bore any reasonable relationship to any deleterious impact associated with the project.” City of

Patterson, 90 Cal. Rptr. 3d at 74.

There is now no basis whatsoever for government saddling the developer of a residential

housing project with a mandatory affordable/workforce housing set aside or quota (so-called

inclusionary zoning or linkage). Only commercial projects which demonstrably generate a need

for nearby workforce housing will pass the Nollan/Dolan nexus and proportionality tests as

 

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explained by the Court in Koontz. Thus, for example, California needs to get it right. Recently,

a California appeals court got it very wrong.

In California Building Industry Ass’n v. City of San Jose, __Cal. Rptr. 3d __(6th Dist.

2013) the court of appeals overturned the trial court which had applied a nexus standard to strike

down a mandatory affordable housing requirement imposed by the City on a residential

development. According to the Court of Appeals, the standard is whether the housing set-aside

requirement was justified under the general welfare clause of the City’s police power—like a

traditional zoning ordinance—not whether there was a nexus or reasonable relationship of the

housing requirement to any need or problem generated by the market-price housing

development. The Court looked to California’s Housing Accountability Act which recognizes

lack of housing as a critical problem and requires local government to address regional housing

needs through implementing housing elements in a community general plan. This the City did

by passing the challenged inclusionary housing ordinance, with “incentives” for affordable

housing constructed on-site and waivers if there was no reasonable relationship between the

impact of the proposed residential development and the affordable housing set-asides required by

the ordinance. This case is at odds with another appellate district court’s decision in City of

Patterson, 90 Cal. Rptr. 3d 63 (2009), which, as noted above, could find no reasonable

relationship between a large affordable housing mitigation fee and a market price residential

development, and also arguably with the Ninth Circuit Court of Appeals’ decision in

Commercial Builders of Northern California v. City of Sacramento, 941 F.2d 872 (9th Cir.

1991), which found such set-asides valid for commercial developments (to house low-paid

workers) but only after studies showing the need for workforce housing generated by the

 

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commercial development. Indeed, the 2013 California case does not cite Commercial Builders at

all. Following Koontz, attorneys for the building industry are petitioning for rehearing.

IV. Conclusion: Where Do We Go From Here?

After Koontz, state and local government will obviously be required to consider both

nexus and proportionality when placing conditions on land development permits, whether or not

such conditions require the dedication of interests in land or exactions of money. This is true

whether the condition is precedent (agree to the condition or no permit) or subsequent (here’s

your permit, but only on the following conditions). How this will play out in practice may be

another story. At least two senior commentators on the land use scene suggest either that state

and local governments will simply stop negotiating entirely on land use permitting matters

and/or leave it to a landowner to offer sweeteners like workforce housing, oversized water and

sewer pipes and community recreational facilities to facilitate their permitting and rezoning

requests. See Michael M. Berger, Commentary, Supreme Court Limits Land Development

Permit Conditions, June 26, 2013, http://www.manatt.com/Real_Estate_and_Land_Use/

Supreme_Court_Limits_Conditions.aspx; John Echeverria, Op-Ed., A Legal Blow to Sustainable

Development, N.Y. TIMES, June 26, 2013, http://www.nytimes.com/2013/06/27/opinion/a-legal-

blow-to-sustainable-development.html?_r=0 . The latter would convert the land development

permitting process to something akin to Virginia’s infamous “proffer” system which virtually

requires such offers.

An equally likely alternative is more frequent use of the development agreement.

Development Agreements are essentially statutorily-authorized agreements between local

governments and landowners for the guidance of a multiphase land development. Authorized by

 

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statute in thirteen states (most prominently Hawaii and California), the development agreement

is designed in part to permit local government to require public facilities and improvements

beyond those which it may legally require as generated by a proposed land development project.

Thus, for example, a local government could require adequate streets and parks to serve the

projected residents of a land development project, but under the rules laid down by the United

States Supreme Court in Koontz, Nollan, and Dolan, it could not require an expensive and

lengthy bypass road to alleviate preexisting traffic conditions. Under a development agreement,

it could do so. Widely used in California, the development agreement has withstood legal

challenges there that it authorizes the bargaining away of the police power or illegally binds

future elected governments because the rights of the landowner to proceed with the development

vest for a period of ten to twenty years. Over one thousand have been successfully negotiated.

See D. CALLIES, C. BARCLAY AND J. TAPPENDORF, DEVELOPMENT BY AGREEMENT (2012).

Finally, the Koontz decision leaves unresolved a last major constitutional conditions/land

development conditions issue: whether an exaction legislatively applied is free from

Nollan/Dolan nexus and proportionality scrutiny, as compared with a quasi-judicial, ad hoc, one-

off exaction, which is presumably not. While it is relatively well settled that the Nollan/Dolan

analysis applies to exactions levied by adjudicative governmental agencies on an ad hoc basis,

there is a split of authority on whether to apply the tests to legislative determinations. Parking

Ass’n of Ga., Inc. v. City of Atlanta, 515 U.S. 1116, 1117 (1995) (Thomas, J., dissenting),

denying cert. to 450 S.E.2d 200 (Ga. 1994). See also David L. Callies, Regulatory Takings and

the Supreme Court: How Perspectives on Property Rights Have Changed from Penn Central to

Dolan, and What State and Federal Courts Are Doing About It, 28 STETSON L. REV. 523, 572-73

(1999), David L. Callies & Glenn H. Sonoda, Providing Infrastructure for Smart Growth: Land

 

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Development Conditions, 43 IDAHO L. REV. 351, 367 (2007), Christopher T. Goodin, Dolan v.

City of Tigard and the Distinction Between Administrative and Legislative Exactions: “A

Distinction Without a Constitutional Difference,” 28 U. HAW. L. REV. 139, 148 (2005), Jane C.

Needleman, Exactions: Exploring Exactly When Nollan and Dolan Should Be Triggered, 28

CARDOZO L. REV. 1563, 1574 (2006). In his dissent to the denial of certiorari in Parking Ass’n

of Georgia, Inc. v. City of Atlanta, Justice Thomas noted that “[t]he lower courts are in conflict

over whether Tigard's test for property regulation should be applied in cases where the alleged

taking occurs through an act of the legislature.” 515 U.S. at 1117.

Recall that in Dolan, where the Court added a second requirement to evaluating the

constitutionality of governmental exactions, it left unclear what distinction, if any, exists

between adjudicative and legislative exactions. Chief Justice Rehnquist, in footnote eight,

distinguished the Dolan case from Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926):

“[h]ere, by contrast, the city made an adjudicative decision to condition petitioner's application

for a building permit on an individual parcel.” Dolan, 512 U.S. at 391. Another section of the

opinion implies that the Nollan/Dolan analysis applies only to exactions arrived at by

adjudicative decisions:

The sorts of land use regulations discussed in the cases just cited, however, differ in two relevant particulars from the present case. First, they involved essentially legislative determinations classifying entire areas of the city, whereas here the city made an adjudicative decision to condition petitioner's application for a building permit on an individual parcel.

Id. at 385. The Court did not conclusively settle the issue of whether legislative exactions are

subject to Nollan/Dolan analysis, but many courts have ruled that the Dolan test does not apply

to legislative decisions.

 

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For instance, in Home Builders Ass’n of Central Arizona v. City of Scottsdale, the

Supreme Court of Arizona held that “[b]ecause the Scottsdale case involves a generally

applicable legislative decision by the city, the court of appeals thought Dolan did not apply. We

agree, though the question has not been settled by the Supreme Court.” 930 P.2d 993, 1000

(Ariz. 1997). The Supreme Court of Georgia adopted similar reasoning in rejecting a Dolan

analysis of a legislatively enacted barrier and landscaping zoning requirement. Parking Ass'n of

Ga., Inc. v. City of Atlanta, 450 S.E.2d 200, 203 n.4 (Ga. 1994), cert. denied, 515 U.S. 1116

(1995). In Krupp v. Breckenridge Sanitation District, 19 P.3d 687 (Colo. 2001), the Supreme

Court of Colorado also held that the Nollan/Dolan test did not apply, because the impact fee

exacted was based on legislation. 19 P.3d at 695-96. In Ehrlich v. City of Culver City, the

Supreme Court of California noted that

It is not at all clear that the rationale (and the heightened standard of scrutiny) of Nollan and Dolan applies to cases in which the exaction takes the form of a generally applicable development fee or assessment—cases in which the courts have deferred to legislative and political processes to formulate “public programs adjusting the benefits and burdens of economic life to promote the common good.”

911 P.2d at 446.

Other jurisdictions, however, have applied the Nollan/Dolan test in the context of

legislative exactions. In Schultz v. City of Grants Pass, the Oregon Court of Appeals applied the

Dolan test to a City ordinance requiring the dedication of rights-of-way for street widening

purposes. 884 P.2d 569 (Or. Ct. App. 1994); see also J.C. Reeves Corp. v. Clackamas Cnty., 887

P.2d 360 (Or. Ct. App. 1994). The court reasoned that

the character of the restriction remains the type that is subject to the analysis in Dolan. In drawing its distinction between the legislative land use decisions that are entitled to a presumption of validity and the exactions that are not, the Supreme Court noted that what triggers the heightened scrutiny of exactions is the

 

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fact that they are "not simply a limitation on the use" to which an owner may put his or her property, but rather a requirement that the owner deed portions of the property to the local government.

Schultz, 884 P.2d at 573. The Oregon Court of Appeals has subsequently applied Nollan/Dolan

to legislative exactions. J.C. Reeves Corp., 887 P.2d at 365 (“The nature, not the source, of the

imposition is what matters”) (citing Dolan, 512 U.S. at 383). In Dakota, Minnesota & Eastern

Railroad v. South Dakota, the United States District Court for the District of South Dakota

considered a state statute that required railroad companies to dedicate an easement in order to

obtain development permits. 236 F. Supp. 2d 989 (D.S.D. 2002), aff’d, 362 F.3d 512 (8th Cir.

2004). The court held that the legislative nature of the exaction “does not mean that a regulatory

taking analysis is the wrong framework for this case.” Dakota, Minn. & E. R.R , 236 F. Supp. 2d

at 1026. The Supreme Court of Washington and Illinois Court of Appeals have also applied the

Nollan/Dolan test to legislative exactions. Amoco Oil Co. v. Vill. Of Schaumberg, 661 N.E.2d

380, 380-90 (Ill. App. Ct. 1995) (applying Nollan/Dolan analysis to a legislative land dedication

requirement); Sparks v. Douglas Cnty., 904 P.2d 738 (Wash. 1995) (en banc) (holding a road

dedication requirement reviewable under Dolan). In Town of Flower Mound v. Stafford Estates,

cited supra, the Texas Supreme Court suggested, without holding, that it also favors applying the

Nollan/Dolan test to legislatively-imposed exactions: “We think the Town’s argument, and the

few courts that have accepted it, make too much of the Supreme Court’s distinction in Dolan.

By the same token, we need not risk error in the opposite direction by undertaking to describe

here in the abstract whether the Dolan standard should apply to all ‘legislative’ exactions—

whatever that really means—imposed as a condition of development.” 135 S.W.3d at 641.

 

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Justice Thomas, in his aforementioned dissent to the Court’s denial of certiorari in

Parking Association of Georgia, questioned the legislative/adjudicative distinction in the context

of exactions:

It is hardly surprising that some courts have applied Tigard’s rough proportionality test even when considering a legislative enactment. It is not clear why the existence of a taking should turn on the type of governmental entity responsible for the taking. A city council can take property just as well as a planning commission can. Moreover, the general applicability of the ordinance should not be relevant in a takings analysis . . . . The distinction between sweeping legislative takings and particularized administrative takings appears to be a distinction without a constitutional difference.

515 U.S. at 1117-18 (Thomas, J. & O’Connor, J., dissenting). The same United States

Supreme Court has yet to decide whether legislative exactions should be analyzed under

Dolan and the lower courts remain in disagreement over the issue.

A final—and ironic—observation: Koontz may yet lose under application of

Florida law to his particular circumstances. The court noted that Koontz’s damage claims

depend on Florida law issues either not raised in the Petition for Writ of Certiorari or not

addressed by the Florida courts. Slip op. at 11-13.

American Bar Association Section of State and Local Government Law

2013 Annual Meeting

Koontz Presents Some Answers and Many Questions

Steven J. Eagle

* Professor of Law, George Mason University, Arlington, VA 22201, sea-gle@gmu.edu. This paper was prepared for presentation at the 2013 Annual Meeting of the American Bar Association, joint program on “Planning and Tak-ings in the Aftermath of Koontz,” sponsored by the Sections on State and Local Government Law and Real Property, Probate and Trust Law, on August 8, 2013.

Koontz Presents Some Answers and Many Questions

By Steven J. Eagle*

On June 25, 2013, the U.S. Supreme Court handed down Koontz v. St. Johns River Water Management District, ___ S.Ct. ____, 2013 WL 3184628 (June 25, 2013). Justice Alito wrote for the Court, and Justice Kagan issued a dissent joined by Justices Ginsburg, Breyer, and Sotomayor. The 5-4 Koontz decision sketches an extension of the Court’s approach to land use development approvals that are conditioned on exactions. The significance of Koontz might be modest or great, depending on how the case is interpreted by state and lower federal courts, and ultimately by the Supreme Court itself.

I. The Koontz Decision

A. The Holding in Brief

Koontz reaffirmed the heightened scrutiny accorded demands that landowners relinquish real property interests as a condition of land use development approv-als, first enunciated by the Court in Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994). The Court held that “the government’s demand for property from a land-use per-mit applicant must satisfy the requirements of Nollan and Dolan even when the government denies the permit and even when its demand is for money.” Koontz, 2013 WL 3184628 at *16. The Justices unanimously agreed the Nollan-Dolan principle is applicable to de-nials of development approvals because owners refuse to relinquish the de-manded property interests. However, the majority and dissenting opinions dif-fered sharply on whether Nollan-Dolan should be extended to demands for monetary exactions, on the mechanisms by which Nollan-Dolan should be en-forced where there is no actual transfer of property from the landowner to the State, and on the effects that the Court’s decision in Koontz is apt to have on government regulation of real property uses generally.

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B. Basic Facts

1. The Landowner Rejects Proposed Agency Exaction

In Koontz, the petitioner owned a 14.9-acre parcel near Orlando, with a heavily traveled highway abutting to the north. A high-voltage electric transmission line bisected the parcel east to west, with a 3.7-acre northern segment, on which Koontz wanted to construct a building and parking lot. He applied to the Water Management District for the required wetlands management permits. Koontz of-fered to raise the grade of the northernmost part of the 3.7 acres along the high-way, where the structure would be placed, to grade the segment sloping down to the transmission line, to install a dry-bed pond to absorb and gradually release stormwater runoff from the building and its parking lot, and to deed a conserva-tion easement to the District over the 11 acres south of the transmission line The District deemed these mitigation measures insufficient, and informed Koontz that development approval would be conditioned on his agreement to one of two proposed concessions. The first was that the developed area be limited to only one acre, with a costly underground stormwater management system replacing the dry pond. The dedicated conservation easement would include the additional land north of the transmission line, as well as all land south of it. The alternative District proposal was that the landowner could hire contractors and make sub-stantial improvements to District-owned land miles away. Koontz refused and the permit was denied. Koontz, 2013 WL 3184628 at *4-5.

2. Mixed Determinations in the Florida Courts

The Florida trial court found that the environmental quality of the northern seg-ment already had been “seriously degraded.” That, together with petitioner’s offer to dedicate nearly three-quarters of his land to the District, led the trial court to conclude that “any further mitigation in the form of payment for offsite improve-ments to District property lacked both a nexus and rough proportionality to the environmental impact of the proposed construction.” Id. at *6. The Florida District Court affirmed, 5 So.3d 8 (Fla. App. 2009). The Florida Supreme Court reversed, 77 So.3d 1220 (Fla. 2011). It deemed Nol-lan-Dolan inapplicable because the landowner did not agree to the exaction de-mands and thus there was no taking. Also, the landowner had the choice of pay-ing money instead of deeding over real property.

C. Koontz Reaffirms the Nollan-Dolan Principle

In Nollan, the Coastal Commission demanded a lateral easement of way be-tween the Nollans’ house and the ocean as a condition of approval of their appli-cation to expand the structure. The Supreme Court held, in an opinion by Jus-

3

tice Scalia, that there was not an “essential nexus” between the commission’s power to protect public access to the ocean and its imposition of a lateral ease-ment behind the Nollans’ house. Justice Scalia noted that a limitation on the height of the house, or a prohibition on fences blocking the view of the ocean from the highway, might permissibly further the Commission’s other police power goals.

“The evident constitutional propriety disappears, however, if the condition substituted for the prohibition utterly fails to further the end advanced as the justification for the prohibition. When that es-sential nexus is eliminated . . . . [t]he purpose then becomes, quite simply, the obtaining of an easement to serve some valid govern-mental purpose, but without payment of compensation. Whatever may be the outer limits of “legitimate state interests” in the takings and land-use context, this is not one of them. In short, unless the permit condition serves the same governmental purpose as the de-velopment ban, the building restriction is not a valid regulation of land use but “an out-and-out plan of extortion.

Nollan, 483 U.S. at 837. In Dolan, the landowners applied for a permit to expand their plumbing supply store and pave its parking lot in downtown Tigard, Oregon, a suburb or Portland. The City was concerned about the flooding of Fanno Creek, behind the Dolans’ store, and about congestion on downtown streets. Hence, it conditioned the granting of the permit on a dedication of land behind the store for an open flood-plain, which also would be used as a greenway, and a dedication of land in front of the store for a pathway for pedestrians and bicycles. Dolan 512 U.S. at 378. Chief Justice Rehnquist, writing for the Court, allowed that the Dolans’ planned expansion would increase water runoff and downtown traffic, thus distinguishing the City’s demands from those in Nollan, where the connection between the pro-posed house expansion and the Commission’s exaction did not meet “even the loosest standard.” Id. at 386. After discussing more and less stringent state ap-proaches, the Court settled on the requirement that there be “rough proportional-ity” between the exaction demanded and the police power burdens that the de-velopment would place upon the City. Id. at 391. The Court in Dolan rejected the demand for the greenway behind the store, on the grounds that the alleviation of flooding was not sufficiently connected to pub-lic access, and rejected that there had been an “individualized determination” that the dedication for the pedestrian and bicycle path was proportional to the extra congestion that would result from the expanded store. Id. at 394-96.

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In Koontz, the dissent took as its starting point the implicit validity of the “para-digmatic” Nollan-Dolan case, in which “the government approves a building per-mit on the condition that the landowner relinquish an interest in real property, like an easement.” Koontz, 2013 WL 3184628 at *17 (Kagan, J., dissenting).

D. Koontz Extends Nollan-Dolan to Encompass Permit Denials Following Applicant Rejections of Exactions

Writing for the Court, Justice Alito emphasized that Nollan and Dolan “‘involve a special application’ of [the constitutional conditions] doctrine that protects the fifth Amendment right to just compensation for property the government takes when owners apply for land-use permits.” Koontz, 2013 WL 3184628 at *7 (quoting Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 547 (2005)). He noted the two trenchant realities of the permitting process: First, the government’s broad discre-tion in considering development permits allows it to “pressure an owner into vol-untarily giving up property” less valuable than the permit to be obtained. How-ever, many development proposals do involve placing burdens on localities that can be offset by exactions. Id. “Nollan and Dolan accommodate both realities by allowing the government to condition approval of a permit on the dedication of property to the public so long as there is a ‘nexus’ and ‘rough proportionality’ between the property that the government demands and the social costs of the applicant’s proposal.” Id. at *8. “The principles that undergird our decisions in Nollan and Dolan do not change depending on whether the government approves a permit on the condition that the applicant turn over property or denies a permit because the applicant refuses to do so.” Id.. A contrary interpretation, that government might rephrase its de-mands as a condition precedent to permit approval, instead of as a condition subsequent, “would effectively render Nollan and Dolan a dead letter.” Id. The dissent agreed, stating that the majority got this point “right.” Id. at *17 (Kagan, J., dissenting). The Court concluded: “We hold that the government’s demand for property from a land-use permit applicant must satisfy the requirements of Nollan and Dolan even when the government denies the permit and even when its demand is for money.” Id. at *16.

E. Koontz Extends Nollan-Dolan to Include Exactions of Money

A primary issue in Koontz was whether exactions of money should be within the scope of the Nollan-Dolan doctrine, in addition to exactions of real property. The raison d'être of Nollan and Dolan was that a naked demand that a landowner convey a part of his or her property to the government would constitute a com-pensable taking. Therefore, where government demands a conveyance of prop-

5

erty beyond that required to offset the burdens imposed on a locality by the per-mitted development, the excess likewise constitutes a taking. While an exaction of real property is the paradigmatic case of a possible taking, an exaction of money generally is not a taking. Eastern Enterprises v. Apfel, 524 U.S. 498 (1998). In Eastern Enterprises, the four-justice plurality deemed the federal government’s imposition of a substantial and severely retroactive mone-tary assessment to constitute a taking. The four dissenting justices deemed the assessment permissible under the Due Process Clause. Justice Kennedy wrote the swing opinion. As explicated by Justice Alito in Koontz, “[a]lthough Justice Kennedy concurred in the result on due process grounds, he joined four other Justices in dissent in ar-guing that the Takings Clause does not apply to government-imposed financial obligations that “d[o] not operate upon or alter an identified property interest.” Koontz, 2013 WL 3184628 at *12 (citing E. Enters., 524 U.S. at 540 (Kennedy, J., concurring in judgment and dissenting in part). Justice Alito also quoted Jus-tice Breyer’s dissent, noting that “[t]he ‘private property’ upon which the [Takings] Clause traditionally has focused is a specific interest in physical or intellectual property.’” Id. (quoting E. Enters., 524 U.S. at 554–556 (Breyer, J., dissenting)). Justice Alito asserted for the majority that, unlike in Eastern Enterprises, the money demand in Koontz “did ‘operate upon . . . an identified property interest’ by directing the owner of a particular piece of property to make a monetary pay-ment.” 2013 WL 3184628 at *12. He added that “the monetary obligation bur-dened petitioner’s ownership of a specific parcel of land.” Id. In dissent, Justice Kagan stated that the majority’s analysis “runs roughshod over Eastern Enterprises” Id. at *17 (Kagan, J., dissenting). The significance of this dispute lies in Justice Kagan’s view that the Court might be using Koontz as a wedge for much greater constitutional restrictions on state and local government land use regulation. See Part III.B, infra.

F. Koontz Postulates Damages for Burdening Takings Clause Rights

The majority and dissent in Koontz agreed that the refusal of a landowner to ac-cede to an exaction demand, thus leading to a development permit denial, results in no property actually being taken. On what basis, then, might an unconsum-mated taking violate the Takings Clause? Justice Alito stated for the Court:

Extortionate demands for property in the land-use permitting con-text run afoul of the Takings Clause not because they take property

6

but because they impermissibly burden the right not to have prop-erty taken without just compensation. As in other unconstitutional conditions cases in which someone refuses to cede a constitutional right in the face of coercive pressure, the impermissible denial of a governmental benefit is a constitutionally cognizable injury.

Koontz, 2013 WL 3184628 at *9. The dissent agreed that “[t]he owner is entitled to have the improper condition removed; and he may be entitled to a monetary remedy created by state law for imposing such a condition; but he cannot be entitled to constitutional compensa-tion for a taking of property.” Id. at *17 (Kagan, J., dissenting).

II. Important Unanswered Questions

A. Does Nollan-Dolan Extend to Legislative Determinations?

Prior to Koontz, there were three important unanswered questions regarding the scope of the Nollan-Dolan doctrine; did it apply to permit denials, did it apply to monetary exactions, and did it apply to decisions made by legislative bodies as well as those made by administrative agencies? The case answered the first two questions, but not the third. In Dolan, the Supreme Court notably required that the “rough proportionality” be-tween the police power burdens imposed by development and the related prop-erty exaction be measured with respect to the claimant property owner, as op-posed to through use of a general formula. “No precise mathematical calculation is required, but the city must make some sort of individualized determination.” 512 U.S. at 391. In its subsequent review of its takings jurisprudence in Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (2005), the Court reiterated that “[b]oth Nollan and Dolan in-volved Fifth Amendment takings challenges to adjudicative land-use exactions.” Id. at 546. Most state zoning and land use planning statutes are modeled on the U.S. De-partment of Commerce model Standard Zoning Enabling Act (1924) (SZEA). Section 7 of SZEA allocated to administrative agencies, referred to as “zoning boards of adjustment,” the power “[t]o authorize, upon appeal in specific cases, such variances from the terms of the ordinance as will not be contrary to the pub-lic interest, where, owing to special conditions, a literal enforcement of the provi-sions of the ordinance will result in unnecessary hardship, and so that the spirit of the ordinance shall be observed and substantial justice done.”

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Individual zones cover substantial areas of a community, and it is impractical that zoning ordinances take into account all of the idiosyncrasies pertaining to individ-ual parcels. From the outset, zoning administrators have had the power to grant variances in appropriate situations. Concomitantly, it seems impractical that local legislatures could fashion zoning ordinances that made the sort of parcel-by-parcel “individualized determinations” about land uses required by Nollan-Dolan. On this basis, the doctrine should be limited to adjudicative determinations. On the other hand, the first paragraph of the majority Koontz opinion referred to Nollan and Dolan providing an “important protection against the misuse of the power of land-use regulation,” and that the respondent “believe[d] that it circum-vented Nollan and Dolan because of the way in which it structured” its permitting process. Koontz, 2013 WL 3184628 at *4. It is not implausible to suggest that, were Nollan-Dolan limited to agency adjudicative determinations, that local legis-latures could sweep unjustified exactions into very detailed local ordinances. The issue was raised forcefully in the Supreme Court almost two decades ago, in Parking Association of Georgia, Inc. v. City of Atlanta, 515 U.S. 1116 (1995). There, upcoming Summer Olympic Games led the city to enact requirements that downtown surface parking owners devote substantial parts of their lots to land-scaping, which would be purchased and installed at their own expense. A divided Supreme Court of Georgia held that the ordinance could not constitute a taking, because it was a “legislative determination.” Parking Ass’n, 450 S.E.2d 200, 203 n.3 (Ga. 1994). In an impassioned dissent from denial of certiorari, in which he was joined by Justice O’Connor, Justice Thomas declared:

It is not clear why the existence of a taking should turn on the type of governmental entity responsible for the taking. A city council can take property just as well as a planning commission can. Moreover, the general applicability of the ordinance should not be relevant in a takings analysis. If Atlanta had seized several hundred homes in order to build a freeway, there would be no doubt that Atlanta had taken property. The distinction between sweeping legislative tak-ings and particularized administrative takings appears to be a dis-tinction without a constitutional difference.

Parking Ass’n, 515 U.S. at 1117 (Thomas, J., dissenting from denial of cert.). Resolving whether legislative determinations should be encompassed by Nollan-Dolan will force courts to balance concerns about imposing unreasonable re-

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quirements on legislatures to include individualized determinations on the one hand, and concerns that narrowly-targeted legislation will be used to circumvent the Nollan-Dolan and impose unconstitutional conditions in the form of unreason-able exactions on a few for the benefit of others.

B. Standards for Determining Demands for Exactions from Suggestions

The Koontz majority declined to consider the District’s argument that the de-mands for property were “too indefinite to give rise to liability under Nollan and Dolan,” and instead left to the Florida courts on remand to consider “how con-crete and specific a demand must be to give rise to liability under Nollan and Do-lan.” 2013 WL 3184628I at *11. One lesson of Koontz for regulators would be that only what Justice Scalia termed “stupid staff” would make a demand for an exaction too specific. See Lu-cas v. South Carolina Coastal Council, 505 U.S. at 1025 n.12 (1992) (noting that “[s]ince [a harm-preventing] justification can be formulated in practically every case, this amounts to a test of whether the legislature has a stupid staff). Plan-ning officials and developers with whom they deal on a regular basis are able to signal their expectations without the need for explicit directives. See Steven J. Eagle, “Public Use in the Dirigiste Tradition: Private and Public Benefit in an Era of Agglomeration,” 38 Fordham Urb. L.J. 1023, 1079 (2011) (noting mechanisms for subtle signaling). On the other hand, Justice Kagan argued in dissent that the danger of awareness of the possibility of subtle coercion is not that such demands would escape de-tection, but rather that municipal good faith suggestions of possible was of ame-liorating the burdens that development places on localities would be miscon-strued as possibly impermissible burdens on applicants’ Takings Clause rights. “If every suggestion could become the subject of a lawsuit under Nollan and Do-lan, the lawyer can give but one recommendation: Deny the permits, without giv-ing Koontz any advice—even if he asks for guidance. 2013 WL 3184628I at *25 (Kagan, J., dissenting). From this observer’s perspective, it is unlikely that courts will readily infer coer-cive demands from everyday discussions between planning staff and developers. One reason for this is that such conservations are valuable aids in planning, a fact well known to judges. Another is the difficulty plaintiffs would face in proving coercive exactions. Emblematic of the problem is the Second Circuit’s decision in Goldstein v. Pataki, 516 F.3d 50 (2d Cir. 2008). In that highly publicized matter, the issue was whether the condemnation for revitalization of a large area in downtown Brooklyn, New York, was for a public use or, conversely, primarily for the benefit of the developer of the high-profile Atlantic Yards project. While the plaintiffs had some well-grounded suspicions of collusion, without discovery they

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could not obtain proof. The court upheld the denial of discovery, since the plain-tiffs could not state a claim for relief that was plausible on its face under the rule in Twombly and Iqbal. Id. at 62 (quoting Bell Atlantic Co. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009)).

C. Adjudicating Undue Burdens on Takings Clause Rights Cases

As noted in Part I.F, supra, Justice Alito’s majority opinion in Koontz declared that an unconstitutional condition imposed on the Fifth Amendment right to just com-pensation constitutes an “impermissible denial of a governmental benefit [that] is a constitutionally cognizable injury.” Koontz, 2013 WL 3184628 at *9. Since Koontz involved a state law cause of action, he added, “the Court has no occa-sion to discuss what remedies might be available.” Id.

1. Review in State Courts

If the law of the relevant state, or federal law, contained a specific remedy for a Takings Clause impermissible burden claim, the litigant would have a ready availability of recourse. In her Koontz dissent, Justice Kagan observed that Flor-ida law imposed damages only for an actual taking, and the tenor of her opinion indicated her grave doubts that other states provide causes of action for burden-ing Takings Clause rights, as opposed to takings themselves. Id. at *26 (Kagan, J., dissenting).

2. Review of Federal Claims in Federal Courts

If a federal agency denies a development permit because of the landowner’s re-fusal to accede to a demand for an impermissible exaction, what recourse is available to the claimant? The Tucker Act, 28 U.S.C. § 1491, establishes the U.S. Court of Federal Claims as the primary forum in which claims against the federal government for regula-tory takings are litigated:

The United States Court of Federal Claims shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.

28 U.S.C. §!1491(a)(1). [T]he Tucker Act is an “implied promise” to pay compensation!…!. For this reason, “taking claims against the Federal Government are premature until the property

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owner has availed itself of the process provided by the Tucker Act.” Preseault v. Interstate Commerce Comm’n, 494 U.S. 1, 11–13 (1990) (citations omitted). The Supreme Court has found the Takings Clause to be “self executing,” so that a takings claimant need not rely on a statute as a basis for recourse. See United States v. Clarke, 445 U.S. 253, 257 (1980). It is possible that the placing of an impermissible burden on a landowner’s rights under the Takings Clause is itself a taking. See Dames & Moore v. Regan, 453 U.S. 654, 689 (1981) (suggesting the availability of Tucker Act relief where the government abrogates owners’ claims against a foreign state). However, both the majority and dissent in Koontz were clear that there was no taking. Koontz, 2013 WL 3184628 at *9; Id. at *17 (Kagan, J., dissenting).

3. Review of Federal and State Claims Under 42 U.S.C. § 1983

More likely, a court would rule that unreasonably burdening a claimant’s rights under the Takings Clause would constitute a “constitutional tort” under the Civil Rights Act. Such a claim would be cognizable in the United States district courts.

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State . . . subjects . . . any citizen of the United States . . . to the deprivation of any rights, privileges, or im-munities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity . . . .

42 U.S.C.A. § 1983. However, land use claims have fared poorly under § 1983. First, the Supreme Court’s William County ripeness tests apply substantive due process claims, and it is highly likely that they would be applied to unreasonable burdens on Takings Clause rights as well. Williamson County Regional Planning Comm’n v. Hamilton Bank, 473 U.S. 172 (1985). The first prong of Williamson is a “finality” test, requir-ing that plaintiffs obtain a “final and authoritative determination of the type and intensity of development legally permitted.” MacDonald, Sommer & Frates v. Yolo County, 477 U.S. 340, 348 (1986). Especially in the case of unreasonable Takings Clause burden claims, landown-ers would face the daunting task of establishing that the planning authority and submitted a definitive exaction demand, although agencies almost undoubtedly would phrase their suggestions in terms of alternatives and make clear that they are receptive to developer proposals. In any event, modern planners, when con-sidering multipurpose development proposals, look at dozens or hundreds of variables, and there is no one metric that would allow a statement of “how much” development would be permitted. Nevertheless, most courts apply the Williamson

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County finality test to substantive due process claims. See, e.g., Kittay v. Gi-uliani, 252 F.3d 645, 646-47 (2d Cir. 2001). The Supreme Court has not ruled on the appropriate standards that should be used in evaluating property deprivation claims under substantive due process. In the absence of such guidance, the circuit courts of appeals have adopted test that make it difficult or impossible for plaintiffs to obtain relief. Thus, some courts have held that “the requisite arbitrariness and caprice must be stunning.” Aubu-chon v. Massachusetts Building Code Appeals Bd., 933 F.Supp. 90, 93 (D. Mass. 1996), or that the action complained of must be invidious or irrational. See Snaza v. City of St. Paul, 548 F.3d 1178 (8th Cir. 2008). In Rochin v. California, 342 U.S. 165, 172 (1952), the Supreme Court termed illegally pumping a suspect’s stomach for illicit drugs as “conduct that shocks the conscience.” Some courts of appeals, borrowing from Rochin, have imposed a “shocks the conscience” stan-dard for deprivations of property in land use cases. See, e.g., Bettendorf v. St Croix, 631 F.3d 421 (7th Cir. 2011). Furthermore, where approval of a development application is discretionary rather than ministerial, some court have held there can be no basis for a substantive due process claim regardless of whether government action is arbitrary. See, e.g., Ruston v. Town Board, 610 F.3d 55 (2nd Cir. 2010. Other courts state, however, that an ownership interest in the land for which a permit is sought suf-fices. See, e.g., DeBlasio v. Zoning Bd. of Adj., 53 F.3d 592, 601 (3d Cir. 1995). DeBlasio subsequently was partially overruled because it applied the less “de-manding ‘improper motive’ test” instead of the “shocks the conscience” standard. United Artists Theatre Circuit, Inc. v. Twp. of Warrington, 316 F.3d 392, 400 (3d Cir. 2003). These difficulties in raising substantive due process claims augur against federal courts considering Koontz-type claims in all but extraordinary situations.

III. Is Koontz a Necessary Protection for Landowners or a “Prophylaxis in Search of a Problem”?

A. Bright-Line Rules and Fairness Determinations

The essential difference between the Koontz majority and dissenting opinions re-flects the long-standing difference between a conservative approach favoring bright-line rules protecting landowners from undue regulation, and a progressive approach favoring generalized concepts of fairness and relief only for landowners deemed deserving. Emblematic of the bright-line approach are Justice Scalia’s opinion in Lucas, 505 U.S. at 1016 n. 7 (declaring a “deprivation of all economi-cally feasible use” a per se taking) and his article “The Rule of Law as a Law of Rules,” 56 U. Chi. L. Rev. 1175 (1989). The fairness approach is embodied in

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Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978) and the article that informed it, Frank I Michelman, “Property, Utility, and Fairness: Comments on the Ethical Foundation of ‘Just Compensation’ Law,” 80 Harv. L. Rev. 1165, 1234 (1967) (comparing an apartment house owner with an “invest-ment he depended on” with a “nearby land speculator.”). Thus, Justice Alito rejected the dissent’s assertion that Nollan-Dolan should not encompass monetary exactions:

“We note as an initial matter that if we accepted this argument it would be very easy for land-use permitting officials to evade the limitations of Nollan and Dolan. Because the government need only provide a permit applicant with one alternative that satisfies the nexus and rough proportionality standards, a permitting authority wishing to exact an easement could simply give the owner a choice of either surrendering an easement or making a payment equal to the easement's value. Such so-called “in lieu of” fees are utterly commonplace.”

Koontz, 2013 WL 3184628I at *12 On the other hand, Justice Kagan’s dissent declared

At bottom, the majority's analysis seems to grow out of a yen for a prophy-lactic rule: Unless Nollan and Dolan apply to monetary demands, the ma-jority worries, “land-use permitting officials” could easily “evade the limita-tions” on exaction of real property interests that those decisions impose. But that is a prophylaxis in search of a problem. No one has presented evidence that in the many States declining to apply heightened scrutiny to permitting fees, local officials routinely short-circuit Nollan and Dolan to ex-tort the surrender of real property interests having no relation to a devel-opment's costs.

Id. at *22 (Kagan, J., dissenting). Justice Alito rejected the dissent’s claim that landowners would adequately be protected from unreasonable monetary exactions by the Due Process Clause, and by the Court’s ad hoc, multifactor regulatory takings test developed in Penn Central. Id. at *16.

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B. Is Koontz a Prelude to More Sweeping Review of State and Local Land Use Decisions

On the same day that Koontz was handed down, the Supreme Court issued its opinion in Shelby County v. Holder, ___ S.Ct. ____, 2013 WL 3184629 (June 25, 2013). There, the Court held unconstitutional portions of the Voting Rights Act. Its decision emphasized that four years earlier, in Northwest Austin Municipal Utility District No. One v. Holder, 557 U.S. 193, 203-204 (2009), it warned that the pro-visions would have to be justified by current needs, but that Congress had not acted in the interim. Shelby County, 2013 WL 3184629 at *4. Might the Court’s unqualified application of the Nollan-Dolan principle to permit denials based on landowner refusals to accede to monetary exactions in Koontz similarly be a predicate to later, and more broad, federal review of ordinary local land use ordinances and permit negotiations? The gravamen of Justice Kagan’s dissenting opinion was that this might be the case. She observed that “[p]erhaps the Court means in the future to curb the in-trusion into local affairs that its holding will accomplish; the Court claims, after all, that its opinion is intended to have only limited impact on localities’ land-use authority.” Koontz, 2013 WL 3184628I at *22 (Kagan, J., dissenting). But, she added, “[a]t the least, the majority’s refusal ‘to say more’ about the scope of its new rule now casts a cloud on every decision by every local government to re-quire a person seeking a permit to pay or spend money.” Id. Justice Kagan also asserted that the Court’s extension of Nollan-Dolan to en-compass demands for monetary exactions “runs roughshod over Eastern Enter-prises v. Apfel, which held that the government may impose ordinary financial ob-ligations without triggering the Takings Clause's protections. The boundaries of the majority's new rule are uncertain. But it threatens to subject a vast array of land-use regulations, applied daily in States and localities throughout the country, to heightened constitutional scrutiny. I would not embark on so unwise an adven-ture, and would affirm the Florida Supreme Court's decision.” Id. at *17 (Kagan, J., dissenting). Furthermore, Justice Kagan expressed concern about future Supreme Court ad-herence to the adjudicative versus legislative determination distinction. She noted that “the majority might, for example, approve the rule, adopted in several States, that Nollan and Dolan apply only to permitting fees that are imposed ad hoc, and not to fees that are generally applicable. Id. at 22 (Kagan, J., dissenting) (citing Ehrlich v. Culver City, 911 P.2d 429 (Cal. 1996). “Maybe today’s majority accepts that distinction; or then again, maybe not. At the least, the majority’s refusal ‘to say more’ about the scope of its new rule now casts a cloud on every decision by every local government to require a person seeking a permit to pay or spend money. Koontz, 2013 WL 3184628I at *22 (Kagan, J., dissenting).

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C. Conclusion

Koontz opens the path for courts to prevent obvious abuses landowner rights through unaccountable permit denials or unreasonable cash exactions. In adjudi-cating the cases that collectively will shape the impact of Koontz, courts will have to tread a path between insufficient protection and playing too obtrusive a role. Despite Justice Kagan’s concerns, federal courts are quite aware of the problems in becoming “zoning broads of appeal,” Harlen Assocs. v. Inc. Vill. of Mineola, 273 F.3d 494, 505 (2d Cir. 2001), or acting as “Grand Mufti of local zoning boards.” Hoehne v. County of San Benito, 870 F.2d 529, 532 (9th Cir. 1989). Only as courts apply Koontz in common years will we learn whose fears might be justified. !