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By Nancy E. Stroud
On May 24, 1999, the Supreme Court issued a long-awaited opinion that recognized for the first time a right to a jury trial in a regulatory taking case. City of Monterey v. Del Monte Dunes at Monterey, Ltd., 119 S. Ct. 1624 (1999). The 5-4 decision, authored by Justice Kennedy, upheld a $1.45 million jury award to a landowner under narrowly defined circumstances. Although the decision found that the "rough proportionality" test established in Dolan v. City of Tigard, 114 S. Ct. 2309 (1994), did not apply to the site planning circumstances in Del Monte Dunes, it left open for continuing debate the question of whether the test should be applied to land use exactions other than land dedications.
Facts of the Case
Del Monte Dunes involved undeveloped beach property north of the City of Monterey, California, which had been zoned for multi-family residential use since the early 1970s. An oil company had used the 37.6 acre parcel as a terminal and tank farm. The parcel included 15 foot man-made dunes covered with jute matting, a sewer line, tank pads, an industrial complex and various debris including pipe, concrete and oil-soaked sand. The oil company had introduced a non-native ice plant to the property to prevent soil erosion, and the plant had spread to approximately 25% of the parcel and threatened the remaining natural vegetation. Del Monte Dunes, 119 S. Ct. at 1631.
The parcel was considered environmentally sensitive and important for its native fauna and flora, including the buckwheat plant, the only known habitat for the endangered Smith's Blue butterfly. Much of the property included sand dunes "that are among the largest and best preserved in any of the Central California dune systems," according to the petitioner's brief. A state park adjoined the property to the northeast. Id.
Ponderosa Homes owned the property before its sale to Del Monte Dunes at Monterey, Ltd. (Del Monte). Beginning in 1981, Ponderosa made successive applications to develop the property for residences. The first application proposed a planned unit development for 344 residential units, well within the residential density that the zoning code and general plan permitted. The planning commission denied this proposal, advising that it would favorably receive a proposal for 264 units. The planning commission later denied the revised 264 unit project and then suggested that it would favorably receive a plan with 224 units. When the planning commission denied the revised 224 unit proposal, Ponderosa appealed to the city council. The city council overruled the planning commission and asked it to consider a 190 unit development. The planning commission later denied the revised 190 unit proposal, which, on appeal, the city council approved. The approval granted an 18 month conditional use permit with 15 conditions, including protection of rare plants and approval of butterfly habitat preservation by the California Department of Fish and Game and the U.S. Fish and Wildlife Service.
Shortly after the conditional approval in September 1984, Del Monte purchased the property for approximately $3.7 million. Del Monte prepared a detailed site plan and a restoration plan. Acting against its staff's recommendation, the planning commission denied approval for the final development plan. With two months remaining before the conditional use permit would expire, Del Monte appealed this decision to the city council and sought a further 12 month extension. Although the city council approved the extension, it denied the final development plan in June 1986.
At the time of the plan's denial, the plan devoted 17.9 of the 37.6 acres to public open space, including a public beach and areas for the restoration and preservation of the buckwheat habitat. The plan included a buffer zone between the development and adjoining state park, view corridors and restoration and preservation of "as much of the sand dune structure and buckwheat habitat as possible consistent with development and the City's requirements." Del Monte Dunes, 119 S. Ct. at 1632. The city council's denial raised several concerns, including the adequacy of access, potential damage to the environment and specifically the disruption to the Smith's Blue butterfly habitat.
After the June 1986 denial, Del Monte filed suit against the city, alleging violations of due process and equal protection and a regulatory taking under 42 U.S.C. § 1983. The district court dismissed the claims as not ripe, and in 1990 the court of appeals reversed. As part of its decision, the Ninth Circuit found that, at the time the city issued its final denial, California did not provide a compensatory remedy for temporary regulatory taking. Thus, Del Monte was not required to pursue relief in state court as a pre-condition to federal relief. During the litigation, in 1991, Del Monte sold the property to California for $4.5 million.
On remand, the district court reserved the substantive due process claim to itself and, over the city's objections, submitted the taking and equal protection claims to a jury. The jury delivered a general verdict for Del Monte on its taking claims, rendered a separate verdict on the equal protection claim and awarded temporary taking damages of $1.45 million. At the same time, the district court ruled that the city did not violate Del Monte's substantive due process rights. According to the district court, the city asserted valid regulatory reasons for denying Del Monte's development application. The parties did not appeal this finding.
The city appealed. The Ninth Circuit determined that the inverse condemnation claim was triable to a jury and upheld the verdict. Del Monte Dunes, 119 S. Ct. at 1634. Characterizing the issue of whether the city's action advanced a legitimate public purpose as "largely a reasonableness inquiry," the Ninth Circuit stated that "significant evidence supports Del Monte's claim that the City's actions were disproportional to both the nature and extent of the impact of the proposed development. . . ." (citing Dolan, 114 S. Ct. 2309). See Del Monte Dunes at Monterey, Ltd. v. City of Monterey, 95 F.3d 1422, 1432 (9th Cir. 1996).
The court also determined that the jury could reasonably have found that the city denied Del Monte all economically viable use of its property, where the city progressively denied the use of various portions of the dune until no part remained available for use other than in its natural state. It held that, even though the state bought the property for $800,000 more than Del Monte paid, the evidence was that the property was no longer commercially marketable.
The city petitioned the Supreme Court for certiorari on whether issues of regulatory taking liability were properly submitted to the jury, whether the appeals court impermissibly based its opinion on a standard that allowed the jury to re-weigh the reasonableness of the city's land use decision and whether the appeals court erred in applying the Dolan rough proportionality standard.
The Supreme Court Opinion and "Rough Proportionality"
As in many of the Court's recent decisions, the justices issued a split decision. All of them agreed that the Dolan rough proportionality test did not apply in this case. On the issue of whether the matter was properly submitted to a jury, Justices Kennedy, Rehnquist, Stevens and Thomas concluded that, in this narrow circumstance, the seventh amendment provided the right to a jury trial. Justice Scalia concurred in an opinion that departs from the plurality to find a broad right to a jury trial in all section 1983 actions. Justice Souter, joined by Justices O'Connor, Ginsberg and Breyer, dissented on the basis that the seventh amendment provides no right to a jury trial for section 1983 regulatory taking claims.
On "rough proportionality" in particular, the Court confirmed that Dolan established a requirement that, when dedications are demanded as a condition of development, they must be roughly proportional to the anticipated impacts of the development. The Court, however, firmly refused to extend that requirement to this case, explaining that Dolan was "not designed to address, and . . . not readily applicable to, the much different questions arising where, as here, the landowner's challenge is based not on excessive exactions but on denial of development." Del Monte Dunes, 119 S. Ct. at 1635. The Court described "exactions" as "land-use decisions conditioning approval of development on the dedication of property to public use." Id. The dissent also rejected the use of the Dolan standard for general review of land use regulations. Id. at 1650.
Del Monte Dunes raises an important question. To what extent does Dolan's rough proportionality requirement apply to exactions that are not land dedications, such as impact fees? Justice Kennedy's opinion states:
[W]e have not extended the rough-proportionality test of Dolan beyond the special context of exactions-land-use decisions conditioning approval of development on the dedication of property to public use. The rule applied in Dolan considers whether dedications demanded as conditions of development are proportional to the development's anticipated impacts. It was not designed to address, and is not readily applicable to, the much different questions arising where, as here, the landowner's challenge is based not on excessive exactions but on denial of development.
Id. at 1635. (Citations omitted.)
It is difficult to tell from this terse statement whether the majority considers exactions to include only dedications of property-that is, the transfer of title to real property. The sentence structure suggests that the Court views exactions and dedications to be one and the same. Indeed, the Dolan case involved the required dedication of a bike path and floodplain easements to the city. Dolan, 114 S. Ct. at 2513-15. In this paragraph, the Court itself describes Dolan as a dedication case.
Since the Dolan decision, some courts have refused to apply Dolan to cases that do not involve land dedication. For example, in McCarthy v. City of Leawood, 894 P.2d 836 (Kan. 1995), the Kansas Supreme Court read Dolan to apply only to land dedications and upheld a traffic impact fee ordinance under the "reasonable relationship" due process test. Likewise, the Arizona Supreme Court rejected the application of Dolan to a water resource development fee, distinguishing a fee as a "more benign" form of regulation than land dedication. Home Builders Ass'n of Cent. Arizona v. Scottsdale, 930 P.2d 993, 1000 (Ariz. 1997), cert. denied, 117 S. Ct. 2512 (1997).
Both the federal Fifth and Tenth Circuits have explained the Dolan test as being limited to land dedication cases. The Tenth Circuit concluded, that Dolan is limited to "development exactions where there is a physical taking or its equivalent." Clajon Prod. Corp. v. Petera, 70 F.3d 1566, 1578 (10th Cir. 1995). Because it did not extract benefits in the sense of requiring dedication of property to the city, the Fifth Circuit determined that an ordinance regulating the location of manufactured homes was not reviewable under Dolan or Nollan v. California Coastal Commission, 107 S. Ct. 3141 (1987). Texas Manufactured Hous. Ass'n v. Nederland, 101 F.3d 1095, 1105 (5th Cir. 1996), cert. denied, 117 S. Ct. 2497 (1997).
Other cases decided after Dolan have not limited the rough proportionality test to land dedication. In particular, the case of Ehrlich v. City of Culver City captured early attention. Ehrlich v. City of Culver City, 911 P.2d 429 (Cal. 1996), cert. denied, 117 S. Ct. 299 (1996). Before the Dolan decision, the California appellate court in Ehrlich upheld the city's condition of development that the developer pay a recreational fee and a fee in lieu of participating in the city's art in public places program. The Supreme Court accepted certiorari of the case and, a day after deciding Dolan, vacated the opinion and remanded it for further consideration in light of Dolan. Ehrlich v. City of Culver, 114 S. Ct. 2731 (1994). On further reconsideration, the California appeals court applied Dolan to once again uphold the recreational mitigation fee but found that the public art fee was not reviewable under Dolan because it was a legislative determination applicable to all large development projects. Ehrlich, 911 P.2d at 436. The California Supreme Court agreed that Dolan was not limited to land dedications and did not apply to the public art fee. The court then remanded the case to the trial court to determine if the recreational fee in fact was roughly proportional to the impact caused by the proposed development. Id. at 433.
One interpretation of the Supreme Court's treatment of Ehrlich is that Dolan should be read expansively to include exactions generally. Indeed, other court decisions have cited Dolan to strike down subdivision drainage requirements. See, e.g., Christopher Lake Development Co. v. St. Louis County, 35 F.3d 1269 (8th Cir. 1994). Dolan has been expanded to strike rent control provisions. See, e.g., Manocherian v. Lenox Hill Hospital, 643 N.E.2d 479 (N.Y. 1994), cert. denied, 115 S. Ct. 1961 (1995). (The New York court has since reversed course in Bonnie Briar Syndicate, Inc. v. Town of Mamaroneck, 721 N.E.2d 971 (N.Y. 1999), cert. denied, 120 S. Ct. 1735 (2000).)
Dolan has also been cited in finding a taking resulting from the state construction of a beachfront boat ramp and jetty. See, e.g., Peterman v. Michigan Dept. of Natural Resources, 521 N.W.2d 499 (Mich. 1994). Courts have also applied Dolan to uphold parkland fees in Washington, transportation impact fees in Illinois and street improvements as a condition to subdivision approval in Michigan and Oregon. See Trimen Dev. Co. v. King County, 877 P.2d 187 (Wash. 1994) (en banc); Northern Illinois Home Builders Ass'n v. County of DuPage, 649 N.E.2d 384 (Ill. 1995); Dowerk v. Charter Township of Oxford, 592 N.W.2d 724 (Mich. Ct. App. 1998); J.C. Reeves Corp. v. Clackamas County, 887 P.2d 360 (Or. Ct. App. 1994).
Del Monte Dunes should give pause to an expansive reading. Initial reactions by the courts to the case suggest that a more limited application of the rough proportionality test is in order. As mentioned earlier, after broadly applying Dolan to land use controls, the New York high court most recently held that Del Monte Dunes clarifies that rough proportionality only applies in exactions cases. Bonnie Briar, 721 N.E.2d 971. The Bonnie Briar court applied a reasonable relationship test to uphold the rezoning of golf course property from residential to recreational use zoning.
The California appellate court refused to find a taking from the denial of a hotel use permit after applicants would not comply with the condition of a monetary payment. The state supreme court initially granted review, but after Del Monte Dunes was decided, it dismissed the appeal as improvidently granted. Lambert v. City & County of San Francisco, 981 P.2d 41 (Cal. 1999), cert. denied, 120 S. Ct. 1549 (2000). The dismissal was perhaps in response to the limitations expressed in Del Monte Dunes.
Likewise, a Washington appellate court struck down a subdivision platting condition that required street improvements, on the basis that the requirement did not meet the Dolan rough proportionality test. Benchmark v. City of Battleground, 972 P.2d 944 (Wash. Ct. App. 1999). The Washington Supreme Court granted certiorari of the case, but vacated the appellate court ruling after Del Monte Dunes was decided and remanded the case for further consideration in light of the Supreme Court's opinion. Benchmark v. City of Battleground, 989 P.2d 1140 (Wash. 1999).
The Court's unanimous decision that rough proportionality does not apply in Del Monte Dunes, especially in view of the wide split on the other issues before it, on its face appears to be a remarkable convergence of opinion limiting Dolan. It remains to be seen if the unanimity will extend to an interpretation that "exactions" are limited to land dedications only and exclude fees or other improvements. The ultimate interpretation will be critically important to the methods by which local governments regulate land use.
Nancy E. Stroud is of counsel with Weiss Serota Helfman Pastoriza & Guedes in Ft. Lauderdale, Florida.