By Michael M. Berger
Partner, Manatt, Phelps & Phillips
The United States Supreme Court recently devoted more attention to the 5th Amendment’s protection of private property rights than it has in decades, handing down decisions in three important cases. The first dealt with federal government liability for Corps of Engineers projects that flood property. (The Court held that there can be liability, even though the Corps argued that such a rule would cripple its ability to do its job.) The second dealt with agricultural marketing orders (this case involved raisins) and how private citizens may challenge them. (The Government argued that a citizen had to pay the fines in advance and then sue to get them back, or wait for the Government to sue – while the fines continued to mount. The Court held that the citizens could sue to invalidate the fines.)
The third case was probably the most important of the three, and will form the subject of this column. It dealt with issues surrounding the use of regulatory exactions in the land use permit process. Its facts are not particularly unusual to people involved in the land use process. A landowner owned undeveloped property that he wanted to use. It had wetlands. He offered to restrict the use of the bulk of the property in order to preserve any wetlands in exchange for permission to develop the rest. Not enough for the agency. It demanded that Koontz either provide the money or labor or both to upgrade some wetlands owned by the agency. That land was miles away and had nothing to do with the Koontz project.
Previously, the Court had established two standards by which to measure the validity of conditions attached to land use permits. First, in Nollan v. California Coastal Commission, the Court held that there must be a nexus between the condition imposed and the impact that the proposed project would have on the public. Second, in Dolan v. City of Tigard, the Court held that – beyond the existence of a nexus – any condition imposed must be roughly proportional to the impact of the project on the public. Moreover, the regulator would bear the burden of proving that rough proportionality existed.
This year’s addition – Koontz v. St. Johns River Water Management Agency – dealt with a twist. In the earlier cases (as in most cases that have been litigated under them), the regulator actually issued a permit subject to conditions. The property owner then challenged the validity of the conditions by filing suit. The regulator in Koontz took a different tack. It imposed no condition directly. Instead, it told Mr. Koontz what it wanted and, when Koontz refused, simply denied the permit. Thus, one of the hard-fought issues in the case was whether the Nollan/Dolan rules apply to permit denials in addition to permit grants with conditions.
Although the Court issued what was nominally a 5-4 decision, it was unanimous that wordplay would not be decisive. All 9 agreed that, whether couched as a condition attached to the grant of a permit or the basis for denying a permit, the same rules applied – and those were the Nollan/Dolan rules.
The majority (through Justice Alito) ruled for the property owner, basing its decision on the “unconstitutional conditions” doctrine, i.e., the idea that an agency with the power to grant something (even if the applicant has no right to it) cannot condition that grant on the relinquishment of a constitutional right. Here, the majority concluded that the agency was conditioning the permit on relinquishing the right to just compensation for property taken.
The important addition to Nollan and Dolan was that the property in this case took the form of money, rather than dirt. The majority held that money is property and permit issuance cannot be conditioned on an invalid demand for money.
The dissent (through Justice Kagan) was vehement that money cannot be the equivalent of property in this context. Buying into the government’s “Chicken Little” argument (which the Court had unanimously rejected in the earlier Corps of Engineers case), the dissent concluded that, once the Nollan/Dolan concepts are applied to money alone, then cities would be in the impossible position of having to apply the constitutional exaction rules any time they asked anyone for money for any purpose – including taxes, even though the majority expressly disavowed that it would have anything to do with taxes.
The majority was plainly vexed with the regulator. Its opinion uses the word “extortionate” four times in describing the agency’s conduct. The case was remanded to the Florida Supreme Court for further litigation. The rest of us can view from afar. Meanwhile, it will be interesting to watch the impact of the High Court’s harsh language on the actions of land use regulators in the future.
Mr. Berger is in the Los Angeles office office of Manatt, Phelps & Phillips. He co-chairs the firm’s Appellate Practice Group and has argued four constitutional land use cases in the U.S. Supreme Court.