U.S. SUPREME COURT HANDS DOWN KOONTZ CASE

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Blog on Koontz from Professor John Nolon

U.S. SUPREME COURT HANDS DOWN KOONTZ CASE

Editor’s Note: Special Thanks to Pace Law Professor John R. Nolon for posting his summary here:

Koontz v. St. Johns River Water Management District

U.S. Supreme Court 570 U.S.___ (2013)

June 25, 2013

Brief and Analysis

John R. Nolon – Professor of Law

Pace University School of Law

Introduction: Prior to this case, courts did not subject the denial of land use permits or the imposition of monetary conditions upon them to heightened scrutiny under its previous decisions in Nollan and Dolan. Those cases involved the imposition of a “title exactions:” a requirement that an easement or title to some of the property be dedicated to the public. To require such a title transfer, if done outside the land use permitting system, would be a taking of property requiring just compensation. Because of this, permit conditions that accomplished the same result were subjected in these cases to heightened scrutiny. Other actions, such as permit denials or monetary exactions, under U.S. Supreme Court jurisprudence, were deferred to by the courts, presumed valid, and the burden of proving that they constituted takings was borne by the applicant. Nollan established that title exactions must bear an essential nexus to the harm prevented; Dolan required that the condition imposed be roughly proportional to the adverse impact of the project on the community. This case, Koontz, extends the principles and standards of Nollan and Dolan to permit denials and monetary exactions greatly expanding the reach of Federal constitutional concerns deeply into the state and local land use system. Justice Alito wrote the majority opinion for 5 members of the court; Justice Kagan wrote for the 4 member minority.

Brief: Mr. Koontz owned 14.9 acres of highly constrained land at the intersection of two major thoroughfares in Florida. He proposed building on 3.7 of the less constrained acres. To build, he needed a permit from the St. John’s River Water Management District in compliance with two separate state statutes designed to protect water resources, including wetlands. Koontz offered to impose a conservation easement on 11 acres and to conduct other engineering work as mitigation measures. The District thought these were insufficient to protect the affected water resources in accordance with the relevant statutes. Using words such as “proposed” and “suggested,” the majority opinion of the Court describes the two concessions the District asked of the petitioner. One involved developing only one acre and building costly stormwater management facilities on site, and enlarging the land subject to the conservation easement to over 13 acres; the other would allow the 3.7 acre development, but require petitioner to consider methods of doing off site mitigation enhancing about 50 acres elsewhere in the watershed. The District suggested some such work including paying contractors to replace culverts and fill ditches indicating that it “would favorably consider” alternatives to its “suggested” offsite mitigation projects, if the petitioner proposed something “equivalent.” (Where a conservation easement is required, it exacts a property interest from the petitioner and is a title exaction; while asking an owner to pay for off-site mitigation work subjects her to a monetary exaction.)

Koontz stopped negotiating at this point saying that his proposal was “as good as it can get.” The District denied the permit and Koontz brought an action under a Florida statute that allows owners to recover monetary damages if a state agency’s action is “an unreasonable exercise of the state’s police power constituting a taking without just compensation.” Although he won in the trial and intermediate appeal court levels, the Florida Supreme Court supported the District’s actions and found that the higher scrutiny standards of the Nollan and Dolan cases were inapplicable because the District did not approve the project on the condition that petitioner accede to demands, but rather denied his application because he refused to make concessions. The Florida Supreme Court distinguished a demand for an interest in real property as found in Nollan and Dolan from a demand for money. As a result, that court held that neither the denial nor the monetary demand were subject to higher scrutiny. The majority of U.S. Supreme Court disagrees on both counts.

The Court holds that under the unconstitutional conditions doctrine, which prevents governments from coercing people to give up their constitutional rights, courts cannot distinguish between approving a permit on a condition and denying a permit because the applicant refused to agree to a concession. The Federal Constitution can be violated in permit denial cases, the Court notes, not because property interest were taken, but because extortionate demands burden the right not to have property taken without just compensation. “The impermissible denial of a government benefit is a constitutionally cognizable injury.”

The Court also holds that where “there is a direct link between the government’s demand and a specific parcel of property” the requirements of Nollan and Dolan apply. “Such so-called ‘in lieu of’ fees are utterly commonplace,…, and they are functionally equivalent to other types of land use exactions.”

While noting that land use agencies in the permitting process have vast discretion that can be abused, the Court also recognizes the legitimacy of land use requirements that require “landowners internalize the negative externalities of their conduct.” It notes that this practice is a “hallmark of responsible land use policy, and we have long sustained such regulations against constitutional attack.” Subjecting exactions of property interests and cash in lieu of to higher scrutiny under the essential nexus and rough proportionality tests of Nollan and Dolan, in the Court’s view, both allows internalization of externalities and prevents the abuse of discretion.

The Court does not discuss what remedies might be available for a “Nollan/Dolan unconstitutional conditions violation either here or in other cases.” It did not decide whether the conditions complained of by Koontz would violate the nexus and proportionality standards of Nollan/Dolan. It did not find that the conditions subjected were demands. In fact, the majority refused to characterize precisely how the conditions to the permit were communicated. “We decline to reach the respondent’s argument that its demands for property were too indefinite to give rise to liability under Nollan and Dolan.” The boundaries of what constitutes a monetary exaction were not made clear by the majority. These matters were remanded to the Florida courts for resolution, to the extent that they are relevant to Mr. Koontz’s claims, which must now decide whether the suggestions made by the District were sufficiently distinct to constitute demands; whether those demands meet the nexus and proportionality requirements of Nollan and Dolan, and whether Mr. Koontz suffered any damages for which there is a state remedy.

Analysis:

Higher Scrutiny Now Applies to Permit Denials and Monetary Exactions: It is not clear whether Koontz is a regulatory taking or due process case. It is sufficient for the moment to recognize that the principles and standards of Nolan and Dolan, concededly takings cases, were applied to the facts of Koontz under the unconstitutional conditions doctrine, which applies to many settings having nothing to do with takings. Saying that citizens do not hold their constitutional rights subject to unconstitutional conditions fundamentally sounds in due process. Permit denials and monetary exactions bear no constitutional relationship to title exactions, which can “take” fundamental property rights including the right to exclude others. In one sense, this distinction doesn’t matter because under Koontz permit denials and monetary exactions are now subject to higher scrutiny.[1] From this flow several other consequences and concerns.

Land Use Decisions are Subject to Doubt Rather than Deference: The case extends the reach of Federal constitutional law deeply into the state and local land use system. There is a fundamental and far-reaching difference between deference and doubt as a judicial attitude toward land use decisions. Before Koontz, all but title exactions were subject to a judicial presumption of validity and a burden imposed on the applicant to prove that denials or monetary exactions were unreasonable, arbitrary, or capricious. Post-Koontz, denials of permits where applicants fail to properly mitigate project impacts by following suggestions made by agency representatives and any monetary conditions imposed on permits are now subject to higher scrutiny, a judicial standard that requires the government to prove that its actions bear a “essential nexus” to the property’s impacts and that the monetary conditions required are “roughly proportional” to the project’s impact on the community. One serious concern here is that Federal takings law is notoriously vague and flawed. All of the many conflicting, perplexing, and complex doctrines of this body of law are now seated at the head of the table regarding the many land use decisions to which Koontz might be applied. This will not benefit developers uniformly because it may sap the system of predictability, could lead to more restrictive zoning standards, and might require them to pay the costs of the now-required municipal studies.

Land Use Decision Processes are Subject to Doubt: Post-Koontz the land use decision-making process, which has been characterized by give-and-take negotiations among applicants, affected stakeholders, and land use boards, is also subjected to doubt. Under the majority’s decision and using its terminology, suggestions that the applicant modify the proposed project to mitigate environmental conditions or enhance its sustainability are potentially unconstitutional conditions that will be subjected to higher scrutiny and that can result in monetary damage awards against state and local agencies. This consequence of Koontz will impose a near-term chill on the land use decision making process to the detriment of communities and developers. Lawyers for land use boards will be extraordinarily cautious about authorizing discussions about project modifications that will be more beneficial to the community. The twin prospects here are that more projects may be simply turned down or inferior projects approved.

Corollary Matters:

·         If Koontz imposes new costs to conduct studies to prove the proportionality of conditions, will these costs be imposed on developers as additional permit fees?
·         How much will Koontz affect the SEQRA process? Will developers have to pay more fees here as well to pay for municipal studies needed to carry the burden of proof that lead agencies now have?
·         Are legislated exactions, such as wetland banking, solid waste impact fees, or mandatory affordable housing requirements, that apply through some formula, subject to Koontz, or is the case limited to individual permit conditions aimed at a specific project’s impact such as those involved in Nollan and Dolan? If legislated and formulaic exaction systems are subject to Koontz, will the “individualized determination” requirement of Dolan, not mentioned by either the majority or dissent, be implicated? If so, how greatly will this affect area- or community-wide impact fees and other exactions?
·         What constitutes a monetary exaction? Does anything that costs a developer money impose a monetary condition? Did the majority truly intend such a consequence?
·         Will Koontz lead to new forms of negotiations? Will pre-application processes become routine in order to divorce suggestions made from the formal permitting process? Will the effect of this be to prolong the land use approval process to the developer’s detriment?
·         Will local governments be tempted to make zoning standards more restrictive if they fear losing the ability to negotiate community benefits in the decision-making process?
·         Will non-regulatory community- or area-wide plans, floating zones, and more flexibility techniques be relied on that offer developers choices that they may voluntary choose as an alternative to the now more-restrictive zoning?
·         Was it wise for a 5-4 decision of the U.S. Supreme Court to subject thousands of state and local land use agencies to all this doubt and prospect of further litigation? What benefits to developers and the public does the Koontz case realize? The majority fails to say.
[1] In another sense it does. Under Lingle, the Court carefully distinguished due process from takings law, setting aside decades of confusion over how a regulation that fails to advance a substantial governmental interest can possibly be a taking. Substantive due process claims, Lingle points out, are subject to rational basis testing with courts deferring to regulators.