November 01, 2013

Koontz v. St. Johns River Water Management District: Monetary exactions in the land-use permit process

Paul J. Beard II

In June 2013, the U.S. Supreme Court decided the last in a string of important property rights cases for the Term: Koontz v. St. Johns River Water Management District, 133 S. Ct. 420 (2013). The decision limits the power of government entities to impose financial obligations—i.e., “monetary exactions”—on applicants as conditions of obtaining permits. The decision also rejects the notion, long-advocated by government entities in many jurisdictions, that exactions precedent to permit approval should be treated differently from exactions subsequent to permit approval. Courts will now have to apply heightened constitutional scrutiny to all attempts to condition permit approval on the applicant’s relinquishment of property (whether personal or real).

Koontz’s land-use permits are denied after he refuses to accede to a monetary exaction

The case began almost 20 years ago, when a property owner, Coy Koontz, Sr., wanted to develop 3.7 acres of his 15-acre commercial lot located in Orlando, Florida. The lot lies within a state-designated “Riparian Habitat Protection Zone” (RHPZ), meaning that all of the properties within the zone are presumptively (although not necessarily) wetlands. While much of the Koontz lot contained wetlands, the particular 3.7 acres that Koontz wanted to develop did not. The only standing water on the project site lay in ruts along an easement road owned by the state.

Because the Koontz lot fell within the RHPZ, he was required to obtain wetland permits from the St. Johns River Water Management District (District), a state agency. As District regulations required, in his application Koontz offered to dedicate a conservation easement over the remaining 11-plus acres. He did this despite the fact that his proposed development caused no impact to wetlands. But the District wanted more.

At his permit hearing, and as a condition of permit approval, the District demanded that Koontz also agree to finance wetlands-related improvements to 50 acres of state-owned land located miles away. The proposed improvements included replacing culverts, plugging ditches, and building a new road. The cost of the work was estimated to be as high as $150,000. Given the cost of the off-site improvements, Koontz refused to acquiesce to the District’s demand, and the District denied Koontz’s permit applications.

Koontz sues—and ultimately loses—in the Florida courts

Koontz sued the District in state court. Among other things, he claimed that the District’s demand that he finance off-site improvements bore no connection or proportionality to the impact of his project. Consequently, Koontz alleged, the condition imposed an unconstitutional burden on Koontz’s right to just compensation under the Takings Clause of the U.S. Constitution, as interpreted in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 687 (1994). Koontz sought an order requiring the District to approve his permit applications without the offending condition.

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 U.S. 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.”

Nollan left open the question of how close a nexus there must be between a permit exaction and the impact of a proposed land use to pass constitutional muster. Several years later, in Dolan, the Court answered that question, holding that a permit exaction also must be “roughly proportional” to the impact of the proposed use of the land. Like in Nollan, the agency in Dolan approved the permit on the condition that the owner give up some of her land.

Relying on Nollan and Dolan, the Florida trial court in Koontz declared the off-site mitigation exaction to be an unconstitutional condition and ordered the District to issue Koontz’s permits without it. 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 the permits. The Florida court of appeals affirmed. But the Florida Supreme Court reversed, holding that Nollan and Dolan did not apply and therefore Koontz had no valid claim that the exaction was unconstitutional. Siding with the District, the Florida Supreme Court decided to strictly limit Nollan and Dolan to the specific facts of those cases.

The Florida Supreme Court held that both Nollan and Dolan involved conditions attached to permit approval, not so-called “failed” conditions—i.e., conditions leading to permit denial. The court also held that Nollan and Dolan involved attempts to take interests in land without payment of just compensation and that those precedents did not apply to attempts to confiscate other kinds of private property, like money.

The Florida Supreme Court’s decision eradicated the basis for Koontz’s damages award—i.e., that the District had unlawfully withheld the permits. Koontz subsequently petitioned for certiorari in the U.S. Supreme Court, which granted his petition.

The U.S. Supreme Court reverses the Florida Supreme Court

In a 5–4 decision authored by Justice Alito, and joined by Chief Justice Roberts and Justices Scalia, Kennedy, and Thomas, the Court reversed the Florida Supreme Court’s decision.

First, the Court reiterated that Nollan and Dolan are special applications of the unconstitutional conditions doctrine. The doctrine, the Court explained, prohibits the government from burdening enumerated constitutional rights—here, the Fifth Amendment right to just compensation—by coercing an individual into giving up a right in exchange for a government benefit or the exercise of another right.

Turning to the land-use context, the Court concluded that the doctrine’s application does not change depending upon whether the government approves a condition provided that the applicant turn over property or deny a permit because the applicant refuses to do so. In both cases, the government burdens the constitutional right to just compensation, thereby implicating the doctrine and, more specifically, requiring heightened scrutiny under Nollan and Dolan. The Court found that to recognize the distinction advocated by the Florida Supreme Court would be to encourage the government to evade the Nollan/Dolan test through the artifice of phrasing its demands as conditions precedent to permit approval. Notably, all nine Justices agreed that the government’s demand for property from a land-use permit applicant must satisfy such scrutiny even when it denies the permit.

The majority further explained that it made no difference to the analysis in this case that nothing was actually taken from the Koontz family. The unconstitutional conditions doctrine, as applied in Nollan and Dolan, is concerned with the burdening—as opposed to the violation—of the right to just compensation. Therefore, Nollan and Dolan provide prophylactic rules designed to prevent an uncompensated taking from occurring—not to remedy a consummated taking with just compensation.

In its second holding, the Court held that the government’s demand for money or financing from a land-use permit applicant is subject to Nollan/Dolan scrutiny. The Court first highlighted the practical problem of allowing monetary exactions to escape such scrutiny: real property exactions also would escape review. A government entity with its eyes set on an applicant’s land could simply impose a monetary exaction on the applicant equivalent to the value of the land, escape Nollan/Dolan review of that exaction, and then turn around and purchase the land with the exacted funds.

The Court also relied on its precedents for the proposition that the Takings Clause protects against confiscations of money that “operate upon or alter an identified property interest.” For example, in cases involving the seizure of interest from an identifiable bank account (e.g., Brown v. Legal Foundation of Washington, 538 U.S. 216 (2003)) or the taking of a lien secured by identifiable real property (e.g., United States v. Security Industrial Bank, 459 U.S. 70 (1982)), the Court previously held that the Takings Clause applies. The same principle should apply in the land-use permitting context where a monetary exaction impacts an identified property interest by requiring the owner of a particular parcel of land to make a monetary payment.

The Court took on the dissent’s complaint that it would be impossible to distinguish between monetary exactions in the land-use context and those involving taxes. The majority stated that, in theory, it could be difficult to distinguish, but that, in practice, it has not been. The majority then pointed to many state jurisdictions that already subject monetary exactions to Nollan/Dolan review, and taxes have not been successfully challenged under the Takings Clause.

Finally, the majority explained that it was not working a revolution in land-use law pointing to many state jurisdictions—such as Texas, Illinois, and Ohio—that already subject monetary exactions to Nollan/Dolan review. Nevertheless, land-use regulation has continued unabated in those states.

The implications of Koontz

To summarize, Koontz makes clear that monetary exactions imposed on permit applicants trigger heightened scrutiny under Nollan and Dolan, whether or not the exaction results in permit denial. This means that government entities—at the federal, state, and local levels—now must demonstrate that their monetary exactions bear an essential nexus and rough proportionality to the impact of the proposed use of the land.

On the other hand, Koontz leaves open some questions. For example, Koontz does not directly address whether Nollan/Dolan scrutiny applies where the exaction is imposed pursuant to a legislative act, such as a statute or ordinance. For years, government entities have argued that Nollan/Dolan scrutiny should apply only where the exaction is imposed on an ad hoc, discretionary basis on a particular property owner—i.e., where the risk of extortion is greatest. Koontz arguably rejects this distinction, at least implicitly. The decision draws from the unconstitutional conditions doctrine’s precedents in the First Amendment and other contexts, which apply the doctrine regardless of the government actor (legislative or administrative) doing the coercing.

Other open questions include whether Nollan/Dolan scrutiny applies to facial challenges to laws that impose monetary exactions, or only to as-applied challenges (such as in Nollan, Dolan, and Koontz). Also, it is conceivable that property owners will push to have Koontz applied, not just to requirements that they expend money, but to other kinds of zoning regulations and restrictions that impose economic costs through, for example, the loss of property values. The extent to which Koontz would apply to these kinds of land-use regulations and restrictions is unclear. We will likely see many more questions under the new trifecta of land-use cases—Nollan/Dolan/Koontz—and the unconstitutional conditions doctrine.

Paul J. Beard II

Paul J. Beard II is a principal attorney in the Property Rights Section of Pacific Legal Foundation. He argued the case before the Supreme Court, on behalf of the Koontz family.