July 01, 2015 Urban Lawyer

Recent Developments in Exactions & Impact Fees

by W. Andrew Gowder, Jr.

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.

This past term the United States Supreme Court again heard arguments in a case in which they had rendered a decision at the conclusion of the 2013 Term — Horne v. USDA.1 As I reported in last year’s recent developments article,2 the Supreme Court in that opinion decided that the Hornes, raisin growers in California, had standing to challenge in the United States District Court, rather than the Court of Claims, the program that required them to divert a share of their raisins from the open market in order to control prices and supply.3 The Court remanded the case to the Ninth Circuit to review the case on the merits.4 The Ninth Circuit did so, analyzing the Hornes’ challenge as an exaction under the Nollan and Dolan line of cases.5 Rather than ad- dressing the program as an exaction, the Supreme Court held that the raisin program of the USDA effected a physical, per se taking.6

This article will begin by reviewing Horne and then will review other cases decided over the last 12 months that address exactions and impact fees under the analysis developed by the Supreme Court in the Nollan and Dolan cases.7

I.  Horne v. USDA

This case came to the Ninth Circuit on remand from the United States Supreme Court, to review the findings of the district court in light of the Supreme Court’s opinion.8 As background, in the 1920s and 1930s, a widely varying raisin supply resulted in substantial price fluctuations in the raisin market ranging from $40 to $235 per ton.9 To respond to this problem, Congress passed the Agricultural Marketing Agreement Act of 1937, which authorized the Department of Agriculture to pass a Marketing Order regulating the raisin supply.10 A Raisin Administrative Committee (RAC), created by the legislation, set an annual reserve tonnage of raisins—a percentage of the overall crop.11 The reserve tonnage was diverted from the market by the RAC and the rest — the “free tonnage” — was available to be sold by producers.12 By definition, “producers” grow the raisins and “handlers” process the raisins.13 Handlers are bound by the Marketing Order, producers are not.14

The Hornes, raisin farmers, decided to take on both the producer and handler functions in an attempt to get around the regulation.15 The Secretary of Agriculture took issue with this, and fined them.16 The fine worked its way through the courts and the Ninth Circuit found that the Hornes were producers and had to take their claim to the Court of Federal Claims, not to the United States District Court.17 The United States Supreme Court disagreed and said that the Hornes raised their claim as “handlers” and as such had standing to assert a takings claim against the agency in District Court.18 Based on the record at the district court (which had granted summary judgment to the agency on all counts) the Ninth Circuit reviewed the trial court decision de novo.19

The Ninth Circuit articulated the issue as whether a federal program under which California producers of raisins had to divert a percentage of their annual crop to a reserve, and which allowed the Secretary of Agriculture to impose a penalty on producers who failed to comply with the diversion program, constituted a taking under the Fifth Amendment.20

After an analysis using the Nollan and Dolan tests as a framework, the court decided that (1) there was a “sufficient nexus between the means and ends of the Marketing Order” and (2) the goal of eliminating the severe price fluctuations common in the raisin industry prior to the implementation of the reserve requirement was at least roughly proportional to the end of stabilizing the domestic raisin market.21

In beginning its analysis, the court quickly decided that the Hornes had standing to challenge the penalty, since they were the ones being penalized.22 The next task was to identify the property that was being taken. The court looked to the Supreme Court’s Koontz23 decision from the previous Term and decided to analyze the constitutionality of the penalty against the backdrop of the reserve requirement; if the Secretary works a taking by accepting the reserved raisins, then under the unconstitutional conditions doctrine, the Secretary cannot lawfully impose a penalty for noncompliance.24 The court observed that no raisins were seized from the Hornes’ land and no money was removed from their account, so, this situation had to be addressed as a regulatory taking.25

The Hornes argued that the Loretto line of cases applied, since the diversion of the raisins from the open market was more like a permanent physical invasion of real property than anything else, but the Secretary of Agriculture countered that the regulation was more like an exaction in a land development setting and so the Nollan and Dolan cases should applied.26

The court held that “the Marketing Order does not fall within the ‘very narrow’ scope of the Loretto rule.27 Further, “the Marketing Order operate[d] on personal, rather than real property.”28 Citing the Lucas29 decision, the court said that takings claims “afford[] less protection to personal than to real property.”30 There is less protection for commercial personal property — “over which the government exerts a ‘traditionally high degree of control’ ” — than for real property, and the Loretto case expressly only applied to real property.31

Here, the court observed that the regulatory framework was “carefully crafted to ensure the Hornes are not completely divested of their property rights” in the reserve raisins.32 In fact, they reserve rights to proceeds from the sale of reserve raisins, though at times that share may be zero.33 Nevertheless, they have an equitable stake in reserves that fund the administration of an industry committee that represents raisin producers and stabilizes the field price of raisins.34

Consequently, the Ninth Circuit believed that Nollan/ Dolan applied in this fact situation, though in footnote 18 of the opinion, the court noted that Nollan/ Dolan may not apply on all use restrictions on personal property, but they are applicable here “given the significant but not total loss of the Hornes’ possessory and dispositional control over their reserved raisins.”35

Having decided which test to apply, the court then quickly concluded that the regulatory legislation provided a nexus between orderly market conditions/ stable prices and controlling the raisin supply through the Marketing Order.36 Rough proportionality was assured by the program’s annual adjustment of the reserve requirement by RAC in more or less actual proportion to the end of stabilizing the market.37 By annually modifying the extent of the reserve requirement to keep pace with changing conditions, the RAC reduces the potential instability of this particular market, to the producer’s benefit, while ensuring that its program does not overly burden the producer’s ability to compete.38

In summary, the court observed that the Hornes may have a point that, in the second decade of the twenty-first century, the program may be a historic anachronism and no longer needed.39 The court, however, stated that reform or elimination of the program is a legislative, regulatory task and not one suited to the courts, which are not equipped to modify wholesale complex regulatory schemes such as this one.40

The Supreme Court disagreed on both which analysis to employ and the result, reversing the Ninth Circuit after determining that the program effected a physical, per se taking of the Horne’s property.41

II.  Cheatham v. City of Hartselle42

In this case, the United States District Court for the Northern District of Alabama ruled on the parties’ cross motions for summary judgment.43 The plaintiffs purchased property outside the city limits, but within the planning jurisdiction of the City Planning Commission (CPC).44 No zoning law applied to the parcel.45 The plaintiffs developed a recreational vehicle (RV) park on the site.46 Neither the city nor the county has authority to regulate the development of land on the site, though the CPC does approve subdivisions.47 The plaintiff landowners sought to subdivide the parcel, in order to sell a house on the property, separate from the RV Park.48 The CPC has jurisdiction throughout the city, as well as up to one and a half miles outside the city, inside county limits.49 The county requires a “sixty foot right-of-way for minor roads,” as part of its subdivision regulations.50 The subdivision request by the plaintiff landowner was denied because the right of way on the existing road to the land to be subdivided was thirty feet, not sixty.51 To comply with the county regulations would require a dedication of an additional fifteen-foot right-of-way without compensation “to facilitate future widening of the road.”52 The plaintiffs filed a §1983 action seeking declaratory and injunctive relief, arguing that the fifteen-foot right of way dedication requirement was a regulatory taking.53

In its examination of that charge, on a motion for summary judgment, the court considered whether the required dedication “substantially advance[d] legitimate state interests” without “den[ying the] owner economically viable use of his land.”54 Further, the court considered whether there was rough proportionality between the requested subdivision certificate and the requirement for the fifteen-foot right-of-way dedication.55 In its decision, the court granted summary judgment for the plaintiff landowner and enjoined the county to approve the subdivision request without requiring a right-of-way dedication.56

After describing the facts and test in Dolan, the court first found that the essential nexus between the requested dedication and the legitimate state interest in having the ability to widen the existing road does exist.57 Next, the court examined “the required degree of connection between the exaction[] . . . and the projected impact of the proposed development,” the subdivision of the house parcel from the RV Park.58 Significantly, the proposed development under consideration was the subdivision of the house lot from the rest of the parcel, not the development of the RV Park, which was not within the city’s jurisdiction.59 “Under the ‘rough proportionality’ test, the [city] fail[ed] to meet its burden.”60 Dividing the house parcel from the rest of the property has no impact on the traffic on the existing road, so the city cannot use its subdivision authority to achieve goals not contemplated by the statute.61

III.  City of N. Las Vegas v. 5th & Centennial, LLC62

This case came to the Nevada Supreme Court on cross-appeals from the decision of the trial court in an eminent domain case.63 “Beginning in 2002 . . . the City . . . planned, adopted, and began construction on a seven-mile-long, eight-lane . . . super-arterial roadway . . . to relieve regional traffic congestion.”64 The defendants are property owners of twenty acres, five parcels of which are in the path of the northern part of the highway project.65 The property owners intended to sell their land to developers.66 The economy stalled in 2008, and as a consequence, the public highway project stalled.67 Under existing municipal regulations, upon approval of a development application, a property owner would be required to dedicate a seventy-five-foot right-of-way on its land abutting the project.68

Here, no permit was submitted and no eminent domain proceeding was filed, because the highway, though planned, was not ready for construction.69 The property owner filed a lawsuit, alleging a taking and precondemnation damages.70 The trial court found over $4,000,000 in precondemnation damages, but dismissed the takings claim without prejudice as not ripe.71 The Nevada Supreme Court agreed with the trial court that the takings claim was not ripe for review.72

The property owner claimed the city’s actions were a per se physical taking.73 The court observed that a per se taking can occur when governmental action is a “permanent physical invasion,” citing Loretto.74 Here though, there was no such physical invasion; “the mere planning of a project is [not] a taking.”75 Though neighboring properties that sought development permits were required to construct elements of the highway as a condition of development, this property owner had not yet sought a permit and therefore had no such requirement.76 The city had not entered the physical space owned by the property owner and had not had the opportunity to consider the owner’s application and consider the appropriate conditions to place on the property as a result, so the court could not determine the economic impact on the property or the appropriateness of any conditions under Nollan and Dolan.77

Some other action would be necessary, such as a development application or an ordinance imposing conditions on dedication requirements, to support a finding that a taking had occurred.78 As a result, the suit for a taking was premature and not ripe.

IV.  City of San Marcos v. Loma San Marcos, LLC79

This case came to the California Court of Appeals after the trial court entered judgment for the City in a judicial foreclosure on the landowner defendant’s appeal.80 The defendant owner bought land that had been a recycling facility, but which the prior owner had planned for a movie studio.81 The prior owner had entitled the property through a CUP (conditional use permit), which was conditioned on payment of public facility fees and a “fair share contribution towards improvements to roadways and public infrastructure offsite.”82 The street improvement fair share fee was $1.116 million and the public facility fee was $1.238 million.83 These were to be paid in installments according to phases of the site’s development.84 Failure to pay could result in termination of the CUP.85 Costs related to enforcing the notice would be a lien on the property.86

The defendant owner acquired an interest in an entity that bought the property and sought an extension of the deadlines under the agreement with the City.87 Eventually, the owner entered into an amended agreement with the City.88 The economy faltered, and the development did not go forward.89 The owner did not make payments according to the Agreement.90 The City accelerated the total amount due (over two mil- lion dollars, plus interest) and sent demand for payment.91 The owner did not respond.92 The City then sent notice of termination of the CUP.93 After sending the notice, the City filed judicial foreclosure and the owner crossclaimed for rescission, saying “the fees were illegal” and there was “mutual mistake of [] fact because the use permitted was not viable.”94 After a five-day bench trial, the court concluded the amended agreement was enforceable and that the owner was not entitled to rescission.95 The court also rejected the owner’s argument that the fee was illegal, finding “a reasonable relationship between the fees imposed, the . . . public facilities funded by the fees and the amount of public facility needs . . . attributed to the studio project.”96

In its review of the lower court’s decision, the appellate court considered whether the amount of impact mitigation fees the owner agreed to pay violated the Mitigation Fee Act by failing to demonstrate a reasonable relationship between the fee and type of development and failing to use a valid method to assess the fee.97 The court also reviewed whether the fees violated the Takings Clause if the City, as the owner alleged, could not show a nexus between its interests and the permit fee and could not show rough proportionality between the public impact of the land use change and the fee.98

The appeals court affirmed the trial court in finding that the owner did not have a regulatory takings claim.99 The previous owner had waived its right to challenge the fees by entering into the first agreement.100 The defendant owner not only bought the property subject to the agreement (and waiver) but it, too, waived its rights by entering into the amended agreement.101

The City met its burden of showing “a reasonable relationship be- tween the impacts . . . projected from the new development and the public facilities financed” by the payments.102 “The City also [] showed a rough proportionality between the public impact of the land use change and the fees.”103

V.  Jerman v. Township of Berkeley104

In this case filed in the trial court of New Jersey, the plaintiff filed a complaint in lieu of prerogative writs to invalidate an ordinance.105 The Town passed an ordinance prescribing that “sidewalks and curbing are required along all street frontage as a condition related to any land use application.”106 The ordinance “allows the Planning Board to waive the installation of curbing and sidewalks based on [listed factors], but requires [the] applicant to make a payment equal to the cost of constructing the same to [a pedestrian safety fund],” to pay for future pedestrian safety projects.107 The Planning Board may not waive both the construction and the payment of the fee.108 “The Ordinance allows any developer to seek an appeal to the Township Council within thirty (30) days of their approval to request to be relieved of payment of monies into the pedestrian safety fund.”109 The plaintiff filed a complaint to invalidate the ordinance.110

The court examined whether the ordinance imposed an unlawful exaction on applicants for subdivision and site plan approval by forcing them to pay into the fund, resulting in no improvement to their property under review, and whether, consequently, it failed the “rational nexus” test of New Jersey statutory law.111 The court decided that the ordinance did in fact “exceed[] the Township’s authority under the [state’s] Municipal Land Use Law,” and was invalid.112

The Municipal Land Use Law provided:

The governing body may by ordinance adopt regulations requiring a developer, as a condition for approval of a subdivision of site plan, to pay the pro-rata share of the cost of providing only reasonable and necessary street improvements and water, sewerage and drainage facilities and easements therefor, located off-tract but necessitated or required by construction or improvements within such subdivision or development.113

The New Jersey Supreme Court had interpreted this statute to “requir[e] a ‘rational nexus’ between ‘the needs created by, and benefits conferred upon, the development and the cost of the off-tract improvements.’ ”114

The court recognized that an earlier New Jersey case had upheld an ordinance that allocated costs to extra traffic for each subdivision approved but had struck down ordinances requiring payment for township-wide road improvements based on “trip generation” and not impact caused by that project under review.115 Here, the ordinance allowed the Planning Board to waive the construction requirement when curbing and sidewalks are unnecessary, but still required the applicant to pay the cost of construction into the fund to defray the cost of designing, constructing, and installing various pedestrian safety projects within the Township.116 The court found this ordinance analogous to the ordinance invalidated by New Jersey Supreme Court imposing township-wide road improvement fees.117 These fees were not imposed “as a direct consequence of ” development of a particular project within the township and so it lacked the nexus between the needs created by a development and the required payment.118

VI.  Scheinberg v. County of Sonoma119

This case is an appeal to the California Court of Appeals from a trial court’s grant of an easement by declaratory judgment.120 The property owner held twenty acres of land near Sebastopol, California, split by former railroad right-of-way.121 The owner conveyed the right-of-way to the County for public use, in exchange for a seventy-foot-wide easement to allow access across the right of way between parcels.122 This right of way became incorporated in an extensive hiking trail system that was widely used by the public.123

The owners — husband and wife — died, and the trustee of their estate negotiated the sale of their property to Santa Rosa Junior College for a satellite campus.124 At that time, it was discovered that the easement had not been recorded.125 The trustee and the college entered into a purchase and sale agreement that required the trustee to convey a deed for an easement with a seventy-foot right-of-way over and across the railroad property.126

The County learned of the trustee’s plans and was concerned about the college’s location there and the effect it might have on the trail and the safety of its users.127 The County was also concerned that the college “would be able to exempt itself from zoning and local regulations.”128 The trustee insisted that the County convey an easement “without restrictions beyond those in the dedication agreement,” but the County presented numerous proposals for granting the easement with varying degrees of restriction.129 Eventually, the college terminated the sales agreement and the trustee sued the County.130 After a month long trial, the court granted the County a directed verdict on the takings claim, and the jury found for the County on the breach of contract and intentional interference claim.131 The court, however, did grant a seventy-foot-wide easement to the trustee on the claim for declaratory relief.132

Among other issues, the court reviewed whether the trial court properly awarded the directed verdict on the takings claim.133 The court concluded that the trial court did properly rule against the trustee on that claim.134

Under a California decision, County of Ventura v. Channel Island Marina,135 a takings claim cannot arise from a breach of contract.136 The trustee had no right to an easement apart from the dedication agreement, so his claim was barred by Ventura because the claimed taking was a breach of an agreement to convey an interest that did not exist independently of the contract at issue.137

The trustee argued, however, that the claim was “independently viable under Nollan [/Dolan,] because ‘the County conditioned performance of a pre-existing obligation on the donation of additional property.’ ”138 The court did not accept that argument, responding that “the property Scheinberg claim[ed] was ‘taken’ was the easement, but the easement is not what Scheinberg alleges the County was demanding be donated.”139 The court concluded that the easement was “not subject to the takings claim because the [trustee] never possessed it and only had a right to it by virtue of the dedication agreement.”140

  1. 133 S. Ct. 2053 (2013) [hereinafter Horne 2013].
  2. W. Andrew Gowder, Jr., After Koontz: Recent Developments in Exactions and Impact Fees, 46 URB. LAW. 835 (2014).
  3. Horne 2013, 133 S. Ct. at 2062.
  4. Id. at 2064.
  5. Horne v. USDA, 750 F.3d 1128, 1136-44 (9th Cir. 2014) [hereinafter Horne 2014], cert. granted 135 S. Ct. 1039 (2015) (discussing Nolan v. California Coastal Com’n, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994)).
  6. Horne v. USDA, 135 S. Ct. 2419, 2428 (2015).
  7. For background on the holding in those cases, see the summary of them in W. Andrew Gowder, Jr., After Koontz: Recent Developments in Exactions and Impact Fees, 46 URB. LAW. 835 (2014).
  8. Horne 2014, 750 F.3d at 1135-36.
  9. Id. at 1133.
  10. Id.
  11. Id.
  12. Id.
  13. Id. at 1133-34.
  14. Id.
  15. Id. at 1134.
  16. Id. at 1134-35.
  17. Id. at 1135.
  18. Id. at 1135-36.
  19. Id. at 1136.
  20. Id.
  21. Horne 2014, 750 F.3d at 1144.
  22. Id. at 1136.
  23. Koontz v. St. John’s River Water Mgmt. Dist., 133 S. Ct. 2586 (2013).
  24. Horne 2014, 750 F.3d at 1137-38.
  25. Id. at 1138.
  26. Id. at 1138-39 (discussing the application of Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982)).
  27. Id. at 1139.
  28. Id.
  29. Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992).
  30. Horne 2014, 750 F.3d at 1140.
  31. Id.
  32. Id. at 1139.
  33. Id. at 1132.
  34. Id. at 1141.
  35. Id. at 1141 n.18.
  36. See id. at 1143.
  37. See id. at 1143-44.
  38. See id.
  39. Id. at 1144.
  40. Id.
  41. 135 S. Ct. at 2428-29.
  42. No. CV-14-J-397-NE, 2015 U.S. Dist. LEXIS 25360 (N.D. Ala. 2015).
  43. Id. at *1.
  44. Id.
  45. Id. at *2.
  46. Id. at *2-3.
  47. Id. at *3.
  48. Id.
  49. Id.
  50. Id. at *4.
  51. Id. at *5.
  52. Id. at *5-6.
  53. Id. at *7.
  54. Id. at *9 (quoting Agins v. City of Tiburon, 447 U.S. 225, 260 (1980)).
  55. Id. at *11.
  56. Id. at *17.
  57. Id. at *11-12.
  58. Id. at *12.
  59. Id. at *13.
  60. Id. at *13.
  61. See id. at *13-15.
  62. No. 58530, No. 59162, 2014 Nev. Unpub. LEXIS 482 (Nev. Mar. 21, 2014).
  63. Id. at *1.
  64. Id.
  65. Id. at *2.
  66. Id.
  67. Id.
  68. Id. at *2-3.
  69. See id.
  70. Id. at *3.
  71. Id. at *3-4.
  72. Id. at *28.
  73. Id. at *23.
  74. Id. at *24-25.
  75. Id. at 25.
  76. Id. at *26.
  77. Id. at *27-28.
  78. Id. at *28-29.
  79. 234 Cal. App. 4th 1045 (Cal. Ct. App. 2015).
  80. Id. at 1048.
  81. Id.
  82. Id. at 1049.
  83. Id.
  84. Id. at 1049-50.
  85. Id. at 1050.
  86. Id.
  87. Id.
  88. Id.
  89. Id. at 1051.
  90. Id.
  91. Id.
  92. Id.
  93. Id. at 1051-52.
  94. Id. at 1052.
  95. Id.
  96. Id.
  97. See id. at 1057-64.
  98. See id.
  99. Id. at 1060.
  100. Id.
  101. Id.
  102. Id.
  103. Id.
  104. No. OCN-L-2552-14, 2015 N. J. Super. Unpub. LEXIS 597 (March 12, 2015).
  105. Id. at *1.
  106. Id. at *2.
  107. Id. at *3.
  108. Id. at *3.
  109. Id. at *5.
  110. Id. at *5-6.
  111. Id. at *7-14.
  112. Id. at *14.
  113. Id. at *7-8 (quoting N.J. STAT. ANN. § 40:55D-42 (West 2015) (emphasis supplied by court)).
  114. Id. at *8.
  115. Id. at *9-10.
  116. Id. at *10.
  117. Id. at *13.
  118. Id. at *13-14.
  119. No. A135286, 2014 Cal App. Unpub. LEXIS 7428 (Cal. Ct. App. 2014).
  120. Id. at *2.
  121. Id. at *3.
  122. Id.
  123. Id. at *4.
  124. Id. at *5.
  125. Id.
  126. Id. at *6.
  127. Id. at *6-7.
  128. Id. at *7.
  129. Id. at *7.
  130. Id. at *10.
  131. Id. at *10-11.
  132. Id. at *11.
  133. Id. at *12-20.
  134. Id. at *20.
  135. 159 Cal. App. 4th 615 (2008).
  136. Id. at 624.
  137. Scheinberg, 2014 Cal App. Unpub. LEXIS 7428, at *12-20.
  138. Id.
  139. Id. at *19-20.
  140. Id. at *20.
  141. Id.