W. Andrew Gowder, Jr. is a shareholder, Pratt-Thomas Walker, P.A., Charleston, South Carolina. J.D. cum laude, Wake Forest University School of Law; B.A., summa cum laude, Phi Beta Kappa, Wofford College. Mr. Gowder is the immediate past Chair of the American Bar Association’s Section of State and Local Government Law. He focuses his practice on land use, state and local government, business litigation, business entity formation and governance.
October 10, 2014 Urban Lawyer
After Koontz: Recent Developments in Exactions & Impact Fees
by W. Andrew Gowder, Jr.
Exactions are conditions imposed on developers in exchange for permission to develop land, to aid local government in providing public infrastructure.1 Exactions come in many forms, including conveyances of an interest in land and development impact fees.2 Exactions are typically imposed to provide land or funding for facilities such as water and sewer lines, road construction, new schools, parks, and open space.3 The power to impose exactions is part of local government’s police power.4 If that power is exercised properly, an exaction that serves the same legitimate police power as a refusal to issue a permit will not constitute a taking. On the other hand, an exaction that, outside the context of the permitting process, would constitute a taking and require just compensation may run afoul of the doctrine of unconstitutional conditions as articulated in the decisions of Nollan v. California Coastal Commission5 and Dolan v. City of Tigard.6
The Supreme Court’s decision last term of Koontz v. St. Johns River Water Management District7 brought renewed attention to this doctrine as developed in the Nollan and Dolan decisions. This annual update will review the aftermath of the Koontz case on remand following the Supreme Court decision, and the Florida court’s opinion illustrating the continuing disagreement about what that case held and what it did not. This article will then explore the remand of another Supreme Court decision from last term, Horne v. U.S. Department of Agriculture,8 and how the Koontz opinion influenced the federal appeals court’s decision of that case. Finally, a California decision, Powell v. County of Humboldt,9 will illustrate how at least one state appellate court views the current state of Nollan and Dolan jurisprudence after Koontz.
I. Nollan and Dolan: A Refresher
In Nollan, the California Coastal Commission approved the construction of a three bedroom ocean-front house, replacing the bungalow that had been located on the site, subject to Nollan’s dedication of a public access easement across a portion of their property to the beach.10 The Commission contended the easement was required to assist the public in viewing the beach and in overcoming a perceived “psychological barrier” to using the beach.11 The owners challenged the easement, arguing the condition violated the Takings Clause of the Fifth Amendment,12 which provides that private property cannot be taken for public use without just compensation.13 The Supreme Court struck down the condition as unconstitutional. Although protection of the public’s ability to view the beach was a legitimate governmental interest, no nexus existed between the identified impact of the project (obstruction of the beach view) and the easement condition (physical access to the beach).14 There being no “essential nexus” between the adverse impacts of the development and the required easement, the decision to impose the condition was not proper and could amount to a taking.15
In 1994, the Dolan16 decision took on the issue left unanswered by Nollan: how close must the connection, or “nexus,” be for a regulation to “substantially advance” a “legitimate state interest?” Dolan applied to the city for a building permit to develop a site in the business district of Tigard, Oregon, along Fanno Creek, which flows through the southwestern corner of the lot and along its western boundary.17 Dolan planned to double the size of the store and pave a 39-space parking lot.18 The Planning Commission conditioned the grant of Dolan’s permit subject to certain conditions, including the requirement that Dolan “dedicate the portion of her property lying within the 100-hundred year flood plain for improvement of a storm drainage system along Fanno Creek and [to] dedicate an additional 15-foot strip of land adjacent to the floodplain as a pedestrian/ bicycle pathway.19
A divided court held that a city must demonstrate that development conditions placed on a discretionary permit must have a “rough proportionality” to the development’s impact, and if it does not, the condition may constitute a taking.20 In making an adjudicative decision, a city must demonstrate a “required reasonable relationship” between the conditions to be imposed on the development permit and the development’s impact.21 The court determined the exactions on Dolan’s permit were unconstitutional because the city failed to show the conditions were roughly proportional to the negative impacts caused by the development.22
Following Nollan and Dolan, courts have distinguished between a local government’s decision to require a dedication of land as a condition of approval (e.g., building or development permits, plat approvals) from legislative requirements applicable to all development permits of a certain kind or size, where no individual bargaining or determinations are involved. In addition, in Nollan and Dolan, the permitting authorities approved the permits, but conditioned the approval on an exchange for real property belonging to the applicant. If the landowners rejected the conditions, they would give up the permits and the right to develop their properties.23
In City of Monterey v. Del Monte Dunes at Monterey, Ltd., the court emphasized it has “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.”24 In Lingle v. Chevron U.S.A. Inc., the Court noted “Nollan and Dolan both involved dedications of property so onerous that, outside the exactions context, they would be deemed per se physical takings.”25
Since Nollan and Dolan, state and federal courts have continued to refine the “essential nexus” and “rough proportionality” tests and apply them to various kinds of exactions, both in real property dedications and in fee payment required of owners as a condition of developing real property.
II. Koontz and Horne on Remand
A. St. Johns River Water Management District v. Koontz
The Florida District Court of Appeal received the Koontz case on remand from the United States Supreme Court after the Court’s decision reversing the Florida Supreme Court. The court pointed out that it addressed this case for the fifth time. The last time the case was before this court, it certified to the Florida Supreme Court the question:
DO THE FIFTH AMENDMENT TO THE UNITED STATES CONSTITUTION AND ARTICLE X, SECTION 6(a) OF THE FLORIDA CONSTITUTION RECOGNIZE AN EXACTIONS TAKING UNDER THE HOLDINGS OF NOLLAN V. CALIFORNIA COASTAL COMMISSION, 483 U.S. 825 [107 S.Ct. 3141, 97 L.Ed.2d 677] (1987), AND DOLAN V. CITY OF TIGARD, 512 U.S. 374 [114 S.Ct. 2309, 129 L.Ed.2d 304] (1994), WHERE THERE IS NO COMPELLED DEDICATION OF ANY INTEREST IN REAL PROPERTY TO PUBLIC USE AND THE ALLEGED EXACTION IS A NON LAND–USE MONETARY CONDITION FOR PERMIT APPROVAL WHICH NEVER OCCURS AND NO PERMIT IS EVER ISSUED?26
The Florida Supreme Court, in St. Johns River Water Management District v. Koontz,27 answered the certified question in the negative, holding that an “exactions taking” had not occurred. On review, the United States Supreme Court reversed the decision of the Florida Supreme Court, Koontz v. St. Johns Water Management District,28 concluding that an exactions taking may occur even in the absence of a compelled dedication of land and even when the unconstitutional condition is refused and the permit is denied. The Supreme Court declined to address certain state law issues raised by Appellant during that proceeding, concluding that the resolution of those issues was more appropriately addressed to the Florida Supreme Court.29
Since none of the issues left open by the United States Supreme Court fell within the scope of the certified question, the Florida Supreme Court remanded this case back to this court for “further proceedings consistent with [the United States Supreme Court’s] decision.”30 Rather than go into any detailed analysis, though, the court, in a 2-1 decision, adopted its earlier decision (Koontz IV) in its entirety and affirmed the judgment below.31 It specifically denied the Appellant’s request to reopen the briefing.32
The majority opinion stated that the constitutional issues decided by the United States Supreme Court were fully briefed, and that the holding did not set forth a new legal construct with which it must re-analyze these issues. To the extent that the water district sought to brief the state law issues left open by the Supreme Court, the Florida district court concluded that those issues were either disposed of in Koontz I or Koontz IV, or they were not preserved and presented in those proceedings.33
In dissent, Judge Griffin disagreed with the court’s action, stating that is was both incorrect and unfair and that if there was to be a summary disposition of this case, in light of the United States Supreme Court’s decision, that disposition must be in favor of the St. Johns Water Management District, not Koontz.34 The dissent pointed out that the majority sidestepped the question of whether a taking had occurred, as opposed to an unconstitutional condition:
There is, however, a difference between a constitutionally cognizable injury burdening the right not to have property taken without just compensation, and the “taking” of property. It is certainly possible, as in Nollan/ Dolan, to have an exactions “taking” of property, but if no property is taken, there has been no “taking;” rather, the agency has committed a legal wrong that may be redressed in a variety of ways, including a damages remedy if authorized by state law.35
The question whether Koontz had a damages remedy under the Florida statute was not addressed by the majority, though the dissent pointed out that under the statute, “damages” are available whenever a state agency’s action is an “unreasonable exercise of the state’s police power constituting a taking without just compensation.”36 The dissent reasoned that unless the language of the Florida statute is considered to be broad enough to authorize the payment of damages for a “taking without just compensation” even though there was no “taking” for Fifth Amendment purposes, Koontz simply has no claim.37
Judge Griffin concluded by stating that, after the decision of the United States Supreme Court, “there is much for this court to do, especially if the majority is determined to uphold the judgment in favor of Koontz that his property was taken without just compensation.”38 Since, in his view, the decision of the United States Supreme Court found that the District did not commit a “taking without just compensation”, affirmance of the judgment is impossible: “[t]he basis for this Court’s affirmance in Koontz IV has simply disappeared. A new basis will have to be found. Failing that, the [water district] is entitled to judgment in its favor.”39
B. Horne v. U.S. Department of Agriculture
The Agricultural Marketing Agreement Act of 1937, as amended, 7 U.S.C. § 601 et seq. (“AMAA”), was passed to bring consistency and predictability to the nation’s agricultural markets.40 To ensure stable market conditions, the Secretary of Agriculture, administering a complex regulatory program, requires California producers of certain agricultural products to divert a percentage of their annual crop to a reserve facility, which disposes of those products outside of the normal agricultural market.41 The Hornes challenged this regulatory program as running afoul of the Takings Clause of the Fifth Amendment in that it works a constitutional taking by depriving raisin producers of their personal property, the diverted raisins, without just compensation.42
Under AMAA regulations, growers were characterized as “producers” and those who cleaned, packed and shipped products were “handlers.”43 Handlers were required to redistribute varying levels of produced goods (raisins), into reserves, depending on the year’s circumstances, to keep the supply of raisins steady.44 The Hornes then purchased their own handling equipment and cleaned, packed, and shipped the raisins they produced.45 The Hornes believed they did not fall within the regulatory definition of “handler” with respect to their own or third-party producers’ raisins that they cleaned, packed and shipped and that “the requirements of the Marketing Order would not apply to them, relieving them of the obligation to reserve any raisins.”46
The Secretary of Agriculture disagreed and after a series of administrative proceedings, “a U.S.D.A. Judicial Officer found the Hornes liable for numerous regulatory violations and imposed a monetary penalty of $695,226.92.”47 The district court disagreed with the Hornes in their assertion that they were not “handlers” within the meaning of the regulation and that “the agency’s order violated the Takings Clause and the Eighth Amendment’s prohibition against excessive fines,” and granted summary judgment in favor of the Secretary on all counts.48 The Court of Appeals affirmed.
The Supreme Court granted certiorari and reversed, holding “(1) the Hornes brought their takings claim as handlers, and (2) the Hornes, as handlers, may assert a constitutional defense to the underlying agency action in district court.”49 On remand, the Court of Appeals reviewed the merits of the Hornes’ takings claim.50
First, the court rejected the Secretary’s argument that the Hornes had no standing to challenge the fine attributable to the raisins processed for third parties since they never owned them and had no standing to object.51 The court rejected this, recognizing that the Hornes were challenging the fine, not the order obligating them to reserve raisins. A favorable ruling for the Hornes would address their challenge, so, under federal precedent, the Hornes had standing.52 Under the constitutional challenge, the court set up the analytical framework by observing that “the Takings Clause does not prohibit the government from taking property for public use; rather, it requires the government to pay ‘just compensation’ for any property it takes.”53 Thus, a takings challenge follows a two-step inquiry. First, whether a “taking” has occurred; that is, whether the complained-of government action constitutes a “taking,” thus triggering the requirements of the Fifth Amendment. If so, the court determines whether the government provided just compensation to the former property owner.54
No raisins were ever conveyed to the reserve facility. Rather, the Secretary fined the Hornes for their failure to comply with the Marketing Order. “In general, the imposition and collection of penalties and fines does not run afoul of the Takings Clause.”55 The Hornes argued though, that the penalty is linked to a specific governmental action they allege to be a taking. The court followed Koontz to analyze the constitutionality of the penalty imposed on the Hornes against the backdrop of the reserve requirement. If the Secretary works a constitutional taking by accepting the reserved raisins, then, under the unconstitutional conditions doctrine, the Secretary cannot lawfully impose a penalty for non-compliance. “But if the receipt of reserved raisins does not violate the Constitution, neither does imposition of the penalty.”56 There was no “paradigmatic” taking because no raisins were conveyed and no money was removed from the Horne’s bank account.57 The court then looked to see whether the Secretary’s actions had worked a regulatory taking under the Penn Central Transportation Company v. City of New York58 analysis or one of three categories of such takings: Loretto v. Teleprompter Manhattan CATV Corp.59 (permanent physical invasion), Lucas v. South Carolina Coastal Council60 (depriving owners of all economically beneficial use of their real property) and Nollan/ Dolan (grant of a land use permit requiring the forfeiture of a property right constitutes a taking unless the condition (1) bears a sufficient nexus with and (2) is roughly proportional to the specific interest the government seeks to protect through the permitting process).61
The court examined the holdings of Loretto and Lucas and concluded that both were limited controversies involving real, not personal property.62 In addition, Lucas and Loretto did not control here because the Hornes did not lose all economically valuable use of their personal property.63 Rather, the court applied the “nexus and rough proportionality” rule of Nollan and Dolan to this case, seeing the reserve requirement constituting a use restriction on the Hornes’ personal property and then analogizing that use restriction to the land use permitting context.64
The court found that the reserve requirement was a use restriction applying to the Hornes only if they voluntarily chose to send their raisins into the stream of interstate commerce. The Secretary imposed a condition on the Hornes’ use of their crops by regulating their sale. The court observed that there are important parallels between Nollan and Dolan on one hand and the raisin diversion program on the other. All involve a conditional exaction, whether it be the granting of an easement, as in Nollan; a transfer of title, as in Dolan; or the loss of possessory and dispositional control, as in Horne. All conditionally grant a government benefit in exchange for an exaction. And, critically, all three cases involve choice. The Hornes could have avoided the reserve requirement of the Marketing Order by planting different crops, including other types of raisins not subject to this Marketing Order, or selling their grapes without drying them into raisins. Given these similarities, the court was satisfied that the rule of Nollan and Dolan governed this case.65
The court proceeded to examine, first, the nexus requirement: by smoothing the peaks and valleys of the supply curve, the program eliminated the severe price fluctuations common in the raisin industry prior to the implementation of the Marketing Order, making market conditions predictable for industry and consumers alike. On this basis, the court found that the Marketing Order satisfied the Nollan nexus requirement.66
Then, the court found the program also met the rough proportionality test: the percentage of raisins to be reserved is revised annually to conform to current market conditions. While Dolan does not require a “mathematical calculation,” neither does it prohibit the government from imposing a condition stated mathematically, i.e., as a percentage.67 Here, the imposition of the “reserve requirement was not just in ‘rough’ proportion to the goal of the program, but in more or less actual proportion to the end of stabilizing the domestic raisin market.”68
In conclusion, the court found the Marketing Order’s reserve requirements — and the provisions permitting the Secretary to penalize the Hornes for failing to comply with those requirements — do not constitute a taking under the Fifth Amendment.69
III. State Courts after Koontz: Powell v. County of Humboldt70
The Powells challenged the constitutionality of a county general plan requirement that they provide an aircraft overflight easement as a condition for obtaining a building permit to make minor alterations to their residence, contending the requirement constituted a taking of their property without payment of just compensation under Nollan and Dolan. The trial court granted summary judgment in favor of Humboldt County (County). The California Court of Appeal affirmed.71
The Powells owned residential property within a mile of the Arcata — Eureka Airport and within an “Airport Compatibility Zone C” (Zone C), a zone that is not under a runway approach to the airport, but over which aircraft routinely fly at or below an altitude 750 of 1,000 feet. Under the Airport Land Use Compatibility Plan (ALUCP) and the county’s general plan, all owners of residential real property located in Zone C must dedicate an overflight easement as a condition for the issuance of a building permit.72 The purpose of the plan and the easement requirement is to “(1) allow flights and the noise inherent thereto in the airspace over the property; (2) regulate or prohibit the release into the air of substances such as smoke, dust, or steam that would impair visibility; (3) regulate or prohibit light emissions that might interfere with pilot vision; and (4) prohibit electrical emissions that would interfere with aircraft communication or navigational systems.”73 “The easement would run with the land as long as the airport is operational.”74
The Powells applied for a building permit to improve the carport to their mobile home (that had been built illegally without a permit by the previous owners); however, when the County advised them it would not approve the permit application without dedication of an overflight easement, the Powells took no further administrative action, such as obtaining a denial of the application, seeking a variance, or taking an appeal from an adverse ruling on the permit or variance application to the County’s board of supervisors, and their application expired one year after it was submitted.75
The Powells filed an action against the County challenging the condition on the basis that it was an unconstitutional condition under Nollan/ Dolan. The trial court held on cross motions for summary judgment that the Powells failed to demonstrate a genuine issue of fact existed with regard to whether the overflight easement itself was either “(1) a compensable taking; or (2) was to be imposed on them on an individual, discretionary basis as opposed to being a uniform requirement for all building permits issued in Zone C.”76 After an examination of a procedural issue, the California Court of Appeal examined the case under the Nollan and Dolan decisions. It began by examining those cases through the lens of Lingle v. Chevron U.S.A. Inc.77 The Lingle court outlined the history of takings jurisprudence and noted that each of the three categories of takings inquiries — physical invasion (Loretto), complete deprivation of beneficial use (Lucas), or the Penn Central multifactor test — “shared a common focus on identifying regulatory actions that are ‘functionally equivalent’ in whole or in part to a direct appropriation of the property or ouster of the owner.”78 The court then noted that the Lingle court pointed out that as opposed to these other categories of takings cases, Lingle saw Nollan/ Dolan challenges as
a special application of the “doctrine of ‘unconstitutional conditions,’ ” which provides that “the government may not require a person to give up a constitutional right — here the right to receive just compensation when property is taken for a public use— in exchange for a discretionary benefit conferred by the government where the benefit has little or no relationship to the property.”79
Nollan applies only to dedication requirements
“so onerous that, outside the exactions context, [they] would be deemed [a] per se physical taking” [and] both Nollan and Dolan depend upon the premise “the easement in question … would have been a per se physical taking” if simply appropriated by the government.80
The court then looked briefly at the most recent Nollan/ Dolan case, Koontz, and stated that:
Koontz confirms that Nollan and Dolan are unconstitutional conditions cases that apply only when the government seeks to pressure property owners to accept an uncompensated Fifth Amendment taking of their property for public use and that the unconstitutional conditions doctrine “protects the Fifth Amendment right to just compensation for property the government takes when owners apply for land-use permits.” If there is no taking, Nollan and Dolan do not apply.81
Turning to the merits of this case, the court stated that:
[b]efore Nollan scrutiny of a permit approval condition is required, a court must make a threshold determination whether the condition would rise to the level of a compensable taking for Fifth Amendment purposes if applied to the landowner outside the permitting process. Unless that test is satisfied, the government is not in fact demanding the landowner to trade a constitutional right — the right to just compensation for the taking of property — in order to receive a discretionary government benefit.82
So, the court examined whether the overflight easement, if granted, would constitute a taking. “Under California law … the Powells’ property rights do not include a right to exclude airplanes from using the navigable airspace above their property in accordance with applicable safety regulations.”83 “Unless the overflight easement in this case by its own terms authorizes frequent incursions into the Powells’ private airspace at altitudes causing noise and disturbance to the Powells, it does not effectuate a taking under federal or state law.”84 The court made a point of emphasizing that the County conceded that the “easement does not preclude a takings claim by the Powells or their successors in interest if there is an increase in noise or overflights in the future that causes a measurable reduction in the value of the property.”85 Based on the record in the case, however, there was no such evidence of harm as a result of actual overflight activity, and the mere grant of an easement was no taking.
As a result,
the overflight easement in this case did not as a matter of law effect a taking of the Powells’ private property or airspace under Fifth Amendment jurisprudence or California law, and the Powells failed to come forward with evidence sufficient to either establish the practical effect of the easement was to bring about such a taking, or to demonstrate there are triable issues of material fact with respect to that question.86
- Dolan v. City of Tigard, 512 U.S. 341, 378-80 (1994).
- Id.
- Id.
- Dolan, 512 U.S. at 384-85.
- 483 U.S. 825 (1987).
- 512 U.S. 374 (1994).
- 133 S. Ct. 2586 (2013).
- 750 F.3d 1128 (9th Cir. 2014).
- 166 Cal. Rptr. 3d 747 (Cal. Ct. App. 2014).
- Nollan, 483 U.S. at 828-29.
- Id. at 835.
- U.S. CONST. amend. V. The Fifth Amendment is incorporated into and made applicable to the states by the Fourteenth Amendment. Chicago, B. & Q. R. Co. v. City of Chicago, 166 U.S. 226, 239 (1897). State constitutions also require the payment of just compensation when property is taken for public use. See, e.g., CAL. CONST., art. I, § 19.
- Nollan, 483 U.S. at 829.
- Id. at 838-39.
- Id. at 837.
- Dolan, 512 U.S. at 386.
- Id. at 379.
- Id.
- Id. at 379–80.
- Id. at 391.
- Id. at 394-95.
- Id. at 394–95.
- See David Hill Dev., LLC v. City of Forest Grove, No. 3:08–cv–266–AC, 2012 WL 5381555, at *11 (D. Or. Oct. 30, 2012).
- 526 U.S. 687, 702 (1999).
- 544 U.S. 528, 547 (2005).
- St. Johns River Water Mgmt v. Koontz, 77 So. 3d 1220, 1222 (Fla. 2011), cert. granted, 133 S. Ct. 420 (2012), rev'd, 133 S. Ct. 2586 (2013), remanded to, 129 So. 3d 1069 (2013).
- 77 So. 3d 1220 (Fla. 2011).
- 133 S. Ct. 2586 (2013).
- Id. at 2602.
- Id. at 2603.
- St. Johns River Water Mgmt. Dist. v. Koontz, No. 5D06-1116, 2014 WL 1703942, at *1 (Fla. Dist. Ct. App. Apr. 30, 2014).
- Id.
- Id.
- Id. at *2.
- Id. at *3.
- Id. at *4.
- Id.
- Id. at *6.
- Id.
- Horne v. U.S. Dep’t of Agric., 750 F.3d 1128, 1133 (9th Cir. 2014).
- Id. at 1132.
- Id.
- Id. at 1133.
- Id. at 1141.
- Id. at 1128-34.
- Id. at 1134.
- Horne, 750 F.3d at 1135.
- Id.
- Id.
- Id.
- Id. at 1136.
- Id.
- Id.
- Id.
- Id. at 1137 (citing Koontz, 133 S. Ct. at 2601 (listing cases)).
- Id. at 1138 (citing Koontz, 133 S. Ct. at 2596 (discussing the unconstitutional conditions doctrine)).
- Id.
- Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104 (1978) (holding that being denied the ability to exploit an available property interest does not necessarily constitute a taking).
- Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 421 (1982) (holding that physical occupation of an owner’s property as authorized by the government did constitute a taking).
- Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1006 (1992) (holding that depriving owners of all economically beneficial uses of their land is a taking).
- Horne, 750 F.3d at 1139.
- Id. at 1140.
- Id.
- Id. at 1141.
- Horne, 750 F.3d at 1142-43.
- Id.
- Id. at 1143.
- Id.
- Id. at 1144.
- 166 Cal. Rptr. 3d 747 (Cal. Ct. App. 2014).
- Id. at 749.
- Id. at 749-50.
- Id.
- Id. at 750.
- Id.
- Id. at 752.
- 544 U.S. 528 (2005).
- Powell, 166 Cal. Rptr. 3d at 755.
- Id. at 756 (quoting Lingle, 544 U.S. at 547).
- Id. (quoting Lingle, 544 U.S. at 547).
- Id. at 757 (quoting Koontz, 133 S. Ct. at 2594).
- Id.
- Id. at 759.
- Id. at 760.
- Id. at 761.
- Id. at 763.