STEALING YOUR PROPERTY OR PAYING YOU FOR OBEYING THE LAW? TAKINGS EXACTIONS AFTER KOONTZ v. ST. JOHNS RIVER WATER MANAGEMENT DISTRICT
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1 STEALING YOUR PROPERTY OR PAYING YOU FOR OBEYING THE LAW? TAKINGS EXACTIONS AFTER KOONTZ v. ST. JOHNS RIVER WATER MANAGEMENT DISTRICT American College of Real Estate Lawyers Spring Meeting Kauai, HI March 2014 Gregory M. Stein, David L. Callies, and Brian Rider 1 On June 25, 2013, the United States Supreme Court rendered its long-anticipated decision in Koontz v. St. Johns River Water Management District, 2 ending considerable speculation about how the Court would resolve two important unanswered questions. Writing for a five-justice majority, 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 set forth in the Court s previous Nollan/Dolan opinions even when the landowner does not accept the proposed exaction, and (2) that 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 such as impact fees, in-lieu fees, and other monetary exactions rather than a dedication of an interest in real property, such as an easement. I. BACKGROUND ON REGULATORY TAKINGS LAW The law of regulatory takings is one of the most complex topics facing real estate lawyers. Long ago, the Supreme Court recognized this body of law as the lawyer s equivalent of the physicist s hunt for the quark. 3 A more modern take describes it as the jurisprudential equivalent of a land war in Asia a quagmire from which any aggressive initial expedition will eventually have to extricate itself Duly warned, we proceed nonetheless, hoping that we 1 Gregory M. Stein (gstein@utk.edu) is Associate Dean for Faculty Development and Woolf, McClane, Bright, Allen & Carpenter Distinguished Professor of Law at the University of Tennessee College of Law. David L. Callies, FAICP, is the Benjamin A. Kudo Professor of Law at the University of Hawaii s William S. Richardson School of Law. He thanks Maile Miller for research and footnote-checking. Brian Rider is an attorney with Forestar (USA) Real Estate Group Inc. in Austin, Texas and serves as Adjunct Professor of Law at the University of Texas School of Law. The authors wish to clarify that this article is written in conjunction with a joint presentation they will be giving discussing the Koontz case and that some of the statements that follow are not supported by all three authors S. Ct (2013) (Koontz). 3 Williamson County Reg l Plg. Comm n v. Hamilton Bank of Johnson City, 473 U.S. 172, 199 n.17 (1985), quoting CHARLES HAAR, LAND-USE PLANNING 766 (3d ed. 1976). 4 Rick Hills, Koontz s Unintelligible Takings Rule: Can Remedial Equivocation save the Court from a Doctrinal Quagmire?, PRAWFSBLOG, June 25, 2013, available at 1
2 will not be bogged down in the swamps and rice paddies of mushy doctrinal distinctions and sniped at by local government guerrillas too elusive to pin down in open battle. 5 Lingle v. Chevron U.S.A. Inc., 6 a rare unanimous takings opinion from the United States Supreme Court, does offer some clarity and provides a helpful summary of the law as of The Court reaffirmed in Lingle that the Takings Clause of the Fifth Amendment 7 applies to the states. 8 It confirmed that takings for public use are not prohibited outright, but rather are permitted provided that compensation is paid. 9 It acknowledged that it has long distinguished between straightforward physical appropriations of property and regulatory takings of property, in which government regulation of private property may... be so onerous that its effect is tantamount to a direct appropriation. 10 It conceded that it has long had difficulty distinguishing between ordinary permissible regulations and those that go too far and thus warrant compensation from the government. 11 Within the category of regulations that may go too far and cross the takings threshold, the Lingle Court summarized the case law as recognizing two types of per se takings. Government actions that fall into either of these two pigeonholes automatically require compensation. First, permanent physical occupations are always takings for which the government must pay. 12 Second, government regulations that deprive an owner of all economically beneficial use of her property are always takings meriting compensation except in cases in which background principles of nuisance and property law already limited the owner s use of her property. 13 Any landowner who falls within the scope of these two categorical rules wins without further inquiry, no matter the government s justification for the land use restriction. Outside of these two categories which regulatory bodies have learned to avoid with care whenever possible things get considerably murkier. The Lingle Court unanimously reaffirmed the central role that Penn Central Transportation Company v. City of New York, will continue to play in most other regulatory takings cases. 14 The Penn Central Court, recognizing its inability 5 Id U.S. 528 (2005). 7 U.S. Const. amend. V (... nor shall private property be taken for public use, without just compensation. ). 8 Lingle, 544 U.S. at 536, citing Chicago, B. & Q.R. Co. v. City of Chicago, 166 U.S. 226 (1897). 9 Id. at Id. at Id. at Id. at 538, citing Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982). 13 Id., citing Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1019 (1992). 14 Id. at , citing Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104 (1978). 2
3 to develop rules to govern other types of regulatory takings cases, instead listed a series of significant factors for evaluating these claims. Primary among these are [t]he economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations. 15 Also relevant is the character of the governmental action, meaning whether it amounts to a physical invasion or instead merely affects property interests through some public program adjusting the benefits and burdens of economic life to promoted the common good. 16 The Lingle Court continued to be well aware that these formulations are hardly models of clarity, but noted that the Loretto, Lucas, and Penn Central formulations each seek to identify regulatory actions that are functionally equivalent to the classic taking in which government directly appropriates private property. 17 Lingle recognized one last category of claim: the land use exaction 18 arising under Nollan v. California Coastal Commission 19 and Dolan v. City of Tigard. 20 In short, the Lingle Court concluded, there are four categories of regulatory takings claims: a physical taking, a Lucastype total regulatory taking, a Penn Central taking, or a land-use exaction violating the standards set forth in Nollan and Dolan. 21 Because the Court s most recent excursion into the law of regulatory takings the June 2013 decision in Koontz v. St. Johns River Water Management District 22 raises exaction issues and falls squarely within this fourth and final category of takings cases, we must examine Nollan and Dolan more carefully. This Article proceeds as follows. Part II discusses Nollan, Dolan, and the tests they established. These two cases left several important issues unresolved, and Part III notes some of these issues. Part IV discusses the facts of Koontz and the manner in which the Florida courts resolved that case, and Part V focuses on the two constitutional questions the United States Supreme Court agreed to decide. Part VI discusses the Court s Koontz opinion, Part VII describes the dissent, and Part VIII examines and analyzes both of these opinions. Koontz is likely to have repercussions for property owners, governmental bodies that regulate land use, and lower courts, and Part IX examines some of these effects and some of the issues that remain open even after Koontz. Part X concludes. 15 Id. at , citing Penn Central, 438 U.S. at Id. at 539, citing Penn Central, 438 U.S. at Id. at 539; see also id. (noting how the Penn Central factors have given rise to vexing subsidiary questions ). 18 Id. at U.S. 825 (1987) U.S. 374 (1994). 21 Lingle, 544 U.S. at S. Ct (2013). 3
4 II. NOLLAN, DOLAN, ESSENTIAL NEXUS, AND ROUGH PROPORTIONALITY The touchstones for the assessment of constitutionality in exaction cases are the principles set out in Nollan v. California Coastal Commission 23 and Dolan v. City of Tigard. 24 Nollan arose from an effort by the Nollans to demolish an old small house along the California coast and replace it with a modern larger house. The part of the property on which the house was located was separated from the beach area by a tall seawall. Redevelopment of the lot required the Nollans to obtain a coastal development permit from the California Coastal Commission. The Commission was willing to grant the permit on the condition that the Nollans grant to the public an easement of passage across the beach area of the lot. 25 The Nollans objected to the condition and sued, claiming that the condition was a taking. While the Commission s appeal of a lower court decision in the Nollans favor was pending, the Nollans demolished the old house and built the new one without satisfying the condition requiring the dedication of the easement along the shore. The California Court of Appeal reversed the trial court and upheld the Commission s decision. 26 The United States Supreme Court reversed and held that a condition on a permit requiring the granting of an easement would be constitutional only if the condition substantially advanced a valid governmental purpose and a substantial nexus existed between the condition and the governmental purpose to be served by the condition. 27 Here, the court found that an easement of passage across the beach did not adequately advance the goals asserted by the Commission, including preserving the public s ability to view the beach and avoiding congestion. Lacking that nexus, the building restriction was not a valid regulation of land use but an out-and-out plan of extortion. 28 The Dolan case arose from a redevelopment plan for a plumbing and electrical supply store in Tigard, Oregon. Dolan wanted to double the size of her store and to pave what had been a gravel parking lot. The City conditioned the granting of the permit on her dedication to the public of a part of the property for greenway and open space so as to reduce the burden on its storm drainage system. The City also required her to dedicate to the public an additional 15-foot strip of land for a pedestrian and bicycle pathway. Dolan objected to the conditions and requested a variance, which the City denied. The Oregon Court of Appeals and the Oregon Supreme Court both affirmed the decision of the Land Use Board of Appeals in the City s favor U.S. 825 (1987) U.S. 374 (1994). 25 Nollan, 483 U.S. at Id. at Id. at Id. at 837, quoting J.E.D. Assocs., Inc. v. Atkinson, 432 A.2d 12, (1981) (footnote omitted). 29 Dolan, 512 U.S. at
5 The Supreme Court held that Nollan required the Court to determine whether the conditions imposed showed the required degree of connection to the projected impact of the proposed development. The Court found that the permit conditions did have the required nexus with the legitimate interests of flood control and avoidance of traffic congestion. 30 In addition, the Court added a second requirement of rough proportionality. 31 This new part of the exaction test required the governmental entity to... make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development. 32 Applying this test to the Dolan redevelopment conditions, the Court found that no justification had been shown for a requirement of a public dedication of the greenway land as opposed to a private restriction against development of the land. 33 The Court also found that the requirement of dedication of the pathway was not supported in the record before the Court because no showing had been made that the pathway would or was likely to offset some of the traffic demand created by the proposed development. No precise calculation was required, but some individual findings were required beyond mere conclusory statements of benefits from the dedications. 34 III. ISSUES THAT NOLLAN AND DOLAN DID NOT RESOLVE The United States Supreme Court left several issues unresolved in Nollan and Dolan, and Koontz only partly resolved them. These issues include the following: 1. What precisely does the Court mean by essential nexus and rough proportionality? Having rightfully eschewed the mechanistic standard applied by some state courts with respect to proportionality, the Court leaves us with only a rough notion of intermediate or heightened scrutiny, without much in the way of concrete guidelines. However, the parameters of these decisions have become somewhat discernible in the decisions around the country applying these cases, together with learned commentary on these cases. 2. What if the landowner refuses the deal outright? Here a unanimous Koontz Court agrees that such a land use condition precedent ( you can have your permit if.... ) falls into the same category as a condition subsequent ( here s your permit, but.... ) and should be addressed under the Nollan/Dolan standards. 3. What if the government seeks to exact something other than real property? This is the nub of the 5-4 decision in Koontz: Monetary exactions are to be treated in the same 30 Id. at Id. at Id. at 391 (footnote omitted). 33 Id. at Id. at
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