U.S. Supreme Court: Federal Nexus And Proportionality Analysis Applies To Land Use Permitting Fees And To Both Denial And Granting Of Permits

A Florida landowner seeking a permit to develop part of a wetlands property offered a conservation easement on the undeveloped portion of the parcel to the local water management district.  The district indicated it would not grant the permit and suggested instead that the property owner either place more of the parcel under the easement, or pay for offsite mitigation on other wetland property.  The landowner sued, challenging the district’s demand as an uncompensated government taking of property.

Although the Florida Supreme Court rejected the landowner’s challenge, the U.S. Supreme Court held that the nexus and proportionality requirements apply even when the government denies a permit and even when the demand is for money rather than property.  (Koontz v. St. Johns River Water Management District (--- S.Ct. ----, U.S.Fla., June 25, 2013).

Facts

Coy Koontz sought to develop his 14.9 acre parcel in Florida.  Because the property was classified as a wetland, Koontz applied for a state wetlands permit to develop the 3.7-acre northern portion of the parcel.  He also proposed to mitigate the environmental effects of the wetlands loss by placing a conservation easement on the undeveloped 11-acre southern portion of the parcel.

The permitting agency, St. Johns River Water Management District (“District”), informed Koontz that the11-acre easement would not be sufficient.  The District informed Koontz that it would approve the project only if he agreed to one of two alternatives.  First, Koontz could reduce the developed area to one acre, convey a conservation easement on the remaining 13.9 acres to the District, and add retaining walls and a subsurface stormwater management system to his design.  Alternately, Koontz could proceed with his proposal, provided he paid for mitigation work such as culvert replacement or ditch-filling on 50 acres of wetlands owned by the District several miles away.

Believing this demand to be excessive, Koontz sued in Florida state court, invoking a Florida law allowing awards of monetary damages for state agency actions that constitute “a taking without just compensation.”  The trial court ruled that Koontz’s offer of the 11-acre conservation easement was sufficient mitigation.  The trial court also held that the additional mitigation proposed by the District failed to meet the legal requirement that it have a nexus and rough proportionality to the level of environmental impact caused by Koontz’s proposed construction.  The Florida appellate court affirmed this decision, but the Florida State Supreme Court reversed it.

Decision

The United States Supreme Court reversed the Florida Supreme Court’s ruling in a 5 to 4 decision.  The U.S. Supreme Court held that a government demand for property from a land use permit applicant must satisfy the nexus and proportionality requirements even when the government denies the permit and even when its demand is for money rather than property. 

The Court relied upon the rule that property exactions for land use permitting meet nexus and proportionality requirements as stated in two earlier Supreme Court cases, Nollan v. California Coastal Commission (1987) 483 U.S. 825 and Dolan v. City of Tigard (1994) 512 U.S. 374.  These cases involved a “special application” of the unconstitutional conditions doctrine which prevents the government from coercing people into surrendering Constitutional rights.  The Court noted that this special rule was needed because land use permitting creates an opportunity for government coercion since land use permits are often much more valuable than the exactions requested.  In other words, landowners might feel pressured to surrender property to the government for free to secure a valuable permit, even though the Fifth Amendment would require the government to compensate the landowner if it were taking the property outright.

The Court explained that the same nexus and proportionality requirements apply irrespective of whether a land use permit is denied or granted.  To rule otherwise would allow government agencies to evade the nexus and proportionality requirements simply by rephrasing permit approval language to say a permit is “denied until” the landowner turns over property.

The Court agreed with the District that “so long as a permitting authority offers the landowner at least one alternative that would satisfy Nollan and Dolan, the landowner has not been subjected to an unconstitutional condition.”  The Court rejected, however, the District’s argument that it had offered such an alternative.  The Court concluded that the District’s alternate suggestion – limiting the developed area to one acre and conveying a larger conservation easement on the property – also implicated the nexus and proportionality requirements.  The Court stated that this was because asking for a larger easement also required Koontz to “spend money improving public lands” and because Koontz claimed he was “wrongfully denied a permit to build on those 2.7 acres.” 

The Court next explained that government's demand from a land use permit applicant must satisfy the nexus and proportionality requirements even when the demand is for money rather than property.  The Court stated that to rule otherwise would allow government agencies to get around the nexus and proportionality requirements simply by requiring a payment of money as an “in lieu” fee as an alternative to a real property transfer such as a conservation easement.

The Court observed that the Takings Clause applies when the government imposes obligations on an identified property interest.  The Court concluded that in Koontz’s case, the District demand for money did “operate upon” an identified property interest because it instructed Koontz, owner of a specified property, to pay money to the government.

The Court also rejected a policy-centered argument that subjecting monetary payments to the nexus and proportionality requirements would be difficult for local governments to apply because of the practical and legal difficulties of distinguishing permitting fees from taxes and user fees.  The Court opined that these difficulties were overstated, and that the law was clear that taxes and user fees were not takings. 

The Court similarly turned aside the dissent’s argument that the ruling would make it difficult for local governments to charge land use permitting fees generally.  The Court observed that a number of the most populous states already apply the nexus and proportionality requirements to land use permitting fees.

The Court ultimately remanded the case to the Florida Supreme Court for resolution of state law questions, such as whether the state law allowing awards of monetary damages for state government takings applied.

Note

As part of a detailed dissent, Justice Kagan noted that the majority opinion did not address whether the ruling applies only to land use permitting fees that are imposed ad hoc or also to fees that are generally applicable.  As noted by Justice Kagan, several states, including the California Supreme Court in Ehrlich v. Culver City (1996) 12 Cal. 4th 854, have distinguished between these two types of fees, but Justice Kagan suggested that the distinction may no longer exist.  Justice Kagan also expressed concern that local agencies will be forced to make the difficult distinction between fees which are subject to the takings clause, and taxes which are not.  Thus, Justice Kagan would limit application of the Nolan/Dolan test to situations in which specific property is taken and not when the government imposes a general financial obligation as part of the permitting process.

Topics:  Dolan v City of Tigard, Fifth Amendment, Koontz v St John's River Water Management, Land Developers, Nexus, Nollan v California Coastal Commission, Permits, Rough Proportionality Test, SCOTUS, Takings, Wetlands

Published In: Civil Procedure Updates, Constitutional Law Updates, Environmental Updates, Commercial Real Estate Updates, Zoning, Planning & Land Use Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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