Fifth Amendment Takings and Land Use Exactions
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1 Fifth Amendment Takings and Land Use Exactions Lee Craig (Moderator) Butler Weihmuller Katz Craig LLP Tampa, FL Mary Massaron Plunkett Cooney Bloomfield Hills, MI Dwight Merriam Robinson & Cole LLP Hartford, CT Dana Berliner Institute for Justice Arlington, VA
2 Lee Craig is a partner with Butler Weihmuller Katz Craig in Tampa, FL. He has been in private practice for more than 30 years, mainly handling coverage analysis and litigation of first-party insurance disputes. His specialties include bad faith and other matters involving alleged extra-contractual damages. In the DRI, Lee has been a National Director, Chair of the insurance Roundtable and Chair of the Insurance Law Committee. At the 2010 annual meeting of DRI, he was given the Davis Carr Outstanding Committee Chair Award. Presently he is a member of the DRI Law Institute. Mary Massaron is a partner of Plunkett Cooney PC in Bloomfield Hills, Michigan, and is a past president of DRI. She is president of the Lawyers for Civil Justice and chairs its Class Action Reform Committee. She is a fellow in the American Academy of Appellate Lawyers, a member of the American Law Institute, and has served as chair of the ABA Council of Appellate Lawyers, a division of the Appellate Judges Conference, the ABA TIPS Appellate Advocacy Committee, and the Appellate Practice Section of the state Bar of Michigan. Dwight H. Merriam, of the law firm Robinson & Cole LLP, has taught Land Use Law at Vermont Law School, UConn Law School, and Quinnipiac Law School. He is a fellow, and past president, of the American Institute of Certified Planners. He is a past chair of the ABA Section of State and Local Government Law. Mr. Merriam s publications include more than 200 articles and 10 books. He is co-editor of the leading treatise, Rathkopf s Zoning and Planning Law, and lead author of the casebook Planning and Control of Land Development. Dana Berliner serves as senior vice president and litigation director at the Institute for Justice, where she oversees all of IJ s litigation, including in the areas of civil forfeiture, eminent domain, home searches, fines and fees for property code violations, and other systemic procedural due process problems. The focus of Dana s litigation has been property rights, particularly eminent domain. She served as co-counsel in Kelo v. New London from the trial court to the U.S. Supreme Court and was lead counsel on many other eminent domain and due process cases. Manuscript prepared by Devala Janardan, staff counsel for the National Association of Home Builders in Washington, D.C.
3 Fifth Amendment Takings and Land Use Exactions Table of Contents I. Introduction...5 II. Land Use Exactions and the Fifth Amendment...6 Fifth Amendment Takings and Land Use Exactions Craig et al. 3
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5 Fifth Amendment Takings and Land Use Exactions I. Introduction The panel will explore limitations on the sovereign power of eminent domain under the takings clause of the Fifth Amendment. The discussion will range far and wide over this once arcane, but increasingly germane, field of law. It will, perhaps, touch on inverse condemnation; exactions; energy-related takings, such as pipeline easements and wind generation fields; and regulatory takings; as well as the futures of economic development takings and judicial takings. Fifth Amendment Takings and Land Use Exactions Craig et al. 5
6 II. Land Use Exactions and the Fifth Amendment Land Use Exactions and the Fifth Amendment National Foundation for Judicial Excellence Thirteenth Annual Judicial Symposium Devala Janardan Staff Counsel National Association of Home Builders 6 NFJE Thirteenth Annual Judicial Symposium July 2017
7 TABLE OF CONTENTS TAB Summary of Fifth Amendment Takings...1 Land Use Exactions...2 Constitutional Treatment of Exactions Nollan/Dolan/Koontz...4 Nollan v. California Coastal Commission The Essential Nexus...5 Dolan v. City of Tigard The Roughly Proportional Standard...6 Open Questions after Nollan/Dolan...8 Koontz v. St. Johns River Water Management District...9 What is the Legal Remedy for a Koontz Violation The Special Case of Legislative Exactions Conclusion Fifth Amendment Takings and Land Use Exactions Craig et al. 7 i
8 SUMMARY OF FIFTH AMENDMENT TAKINGS Exactions are conditions imposed upon property owners, by the government, in the land use permitting context. Exactions are legally distinct from other types of takings under the Fifth Amendment. A brief review of Fifth Amendment Takings provides a useful background before discussing the unique characteristics of exactions. The Fifth Amendment to the Constitution provides in part: nor shall private property be taken for public use, without just compensation. There are several ways in which the government might effectuate a taking that invokes the protection of the Fifth Amendment. If the government permanently and physically invades land it constitutes a per se taking, requiring the payment of just compensation. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982). One example is when the government builds a road that crosses or encroaches on private property, without first using the power of eminent domain or negotiating for just compensation. Even if the government doesn t invade private land physically, but passes a law that removes all economic value of the land that, too, is a per se taking. For example, a landowner owns a piece of coastal property. The government passes a law banning all further development on the coast, leaving the property worthless. Although there is no physical occupation or encroachment on the land, the regulation has the same effect, essentially, as a physical taking. Lucas v. South Carolina Coastal Council, 505 U.S (1992). What about a case in which there is no physical invasion or removal of all economic value, but there is a regulation that reduces economic value of the land? In 1 8 NFJE Thirteenth Annual Judicial Symposium July 2017
9 such a case where there is still some value left after the regulation, courts can find a regulatory taking. To determine if the regulation effectuates a taking requiring the payment of just compensation, a court engages in essentially ad hoc factual inquiries. Penn Central Trans. Co. v. New York City, 438 U.S. 104, 124 (1978). Such inquiries include the economic impact of the regulation, the magnitude of interference with the owner s reasonable investment-backed expectations, and the character of the governmental action. Id. at 125. As the law has developed, courts have been reluctant to rule in favor of property owners in regulatory takings cases. LAND USE EXACTIONS The rest of this paper concerns exactions, which are unique in the land use context. For most of the 20 th century, government bore the entire burden of providing infrastructure and other public facilities, funded through state/local taxes and issuance of bonds. But new land development, be it residential, office, or retail, often adds demand on such facilities. In today s development environment, governments increasingly seek to shift the costs of capital improvements and new infrastructure to the private sector. It is the natural result of a combination of factors, including: 1) declining federal/state aid to local governments; 2) increased burden on localities in the form of unfunded federal/state mandates; 3) rising service demands; 4) rising costs of construction and raw materials; and 5) taxpayer revolt laws, such as California Proposition Moreover, shifting the costs to the private sector often is of little political consequence for elected officials. 1 Arthur C. Nelson, Development Impact Fees: The Next Generation, 26 URB. LAW. 541 (1994). See also Alan A. Altshuler & Jose A. Gomez-Ibanez, Regulation for Revenue: The Political Economic of Land Use Fifth Amendment Takings and Land Use Exactions Craig et al. 9 2
10 One mechanism by which states and local governments shift the burden of paying for infrastructure and public facilities to the private sector, is through land use exactions. Before it will issue a permit, the government asks the developer for something in return to offset the impact of the development. That something is the exaction. It may be that the developer is required to deed a portion of real property to the government. It may be that the developer is required to build new infrastructure. Or it may be that the developer is required to make a direct monetary payment to offset the impact of the development. It isn t hard to see that an exaction is not a taking in the strict sense. For example, the government might demand, as a condition of permit approval, that the property owner preserve 75% of developable land to be used as a public park. If the property owner agrees to comply with the demand, one can argue that there has been no taking. On one hand, the property owner and government have simply reached a deal, as possible in any contractual negotiation between parties. On the other hand, if the property owner does not agree to comply with the demand, she still has the intact piece of property as before. Once again, arguably, there is no taking under traditional takings analysis, because the government has not altered the status quo of the land. Yet, clearly such governmental action has the potential to be unfair. No less than a conventional taking, an exaction can have the effect of forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole. Armstrong v. United States, 364 U.S. 40, 49 (1960). As the Supreme Court has further observed, land-use permit applicants are especially vulnerable... Exactions (1993); Alan C. Weinstein, The Ohio Supreme Court s Perverse Stance on Development Impact Fees and What to Do About It, 60 Clev. St. L. Rev. 655 (2012). 10 NFJE Thirteenth Annual Judicial Symposium July
11 [because] the government often has broad discretion to deny a permit that is worth far more property than it would like to take. Koontz v. St. Johns River Water Management District, 133 S.Ct. 2586, 2595 (2013). Thus, the government can pressure an owner into voluntarily giving up property for which the Fifth Amendment would otherwise require just compensation. Id. State statutes and constitutions determine whether the state/local jurisdiction has the power to demand that developers to give up money or property rights in exchange for a permit. But the Fifth Amendment determines when a government has gone too far. We now will look at some Supreme Court decisions that have addressed the problem of exactions. These are the cases to which lower courts should turn when weighing the constitutionality of exactions. CONSTITUTIONAL TREATMENT OF EXACTIONS - NOLLAN/DOLAN/KOONTZ To ensure that private property rights are protected from overreaching demands, the Supreme Court has developed a heightened scrutiny standard specifically for exactions. It was developed in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994), and is referred to as Nollan/Dolan scrutiny. Nollan/Dolan gives private property owners the protection of more judicial scrutiny than is applied to a regulatory taking but looser scrutiny than is applied to a per se physical taking. The judicial application of Nollan/Dolan also shifts the burden to the government to produce sufficient evidence showing why the exaction at issue is constitutional. Finally, the Supreme Court s most recent exactions case, Koontz v. St. Johns Water Management District, cited above, was a strong affirmation of Fifth Amendment Takings and Land Use Exactions Craig et al. 11 4
12 Nollan/Dolan, and established that heightened scrutiny applies to permit denials and government demands for monetary payment. NOLLAN V. CALIFORNIA COASTAL COMMISSION THE ESSENTIAL NEXUS In Nollan, the owners of a beachfront property applied to the California Coastal Commission for a permit to demolish a small bungalow in disrepair, and to build, in its place, a three-bedroom house. The Commission approved the permit but concluded that the development created the need for an easement. The beach immediately behind the property lay between two public beaches. The Commission believed that the larger house would create a psychological barrier by denying visual access to the beach which would, in turn, discourage the desire of the public to access the beach when driving by the house. The Commission concluded that an easement was necessary to allow the public to traverse along the beach between the seawall and the mean high tide level, which was the owner s private property, behind the house. The Commission granted the permit with the easement as a condition. Had the Commission created the easement by condemnation, it would have been a taking that required just compensation. But that is not what the Commission did. Instead, it conditioned the very approval of the permit on the owners agreement to grant the easement. Thus, it was an exaction. The landowners petitioned for a writ of mandamus that the condition be removed. The Superior Court granted the writ. The Commission appealed. The Court of Appeal reversed on several grounds including that the Fifth Amendment did not pose an 12 NFJE Thirteenth Annual Judicial Symposium July
13 obstacle to the exaction. The landowners petitioned the U.S. Supreme Court on the constitutional issue alone. In ruling against the government on the condition of the exaction, Justice Scalia, writing for the majority, created the first part of an eventual two-part test for exactions. There must be an essential nexus between the exaction and the government s legitimate purpose. In Nollan that nexus was absent. The government had claimed that the purpose of the easement was to remove a psychological barrier to accessing the beach from the street. However, as the opinion rightly noted an easement behind the house and along the beach did not connect with the government s claimed purpose of removing psychological barriers for those wanting to access the beach from in front of the house. Justices Brennan and Marshall dissented. DOLAN V. CITY OF TIGARD THE ROUGHLY PROPORTIONAL STANDARD In this case, Florence Dolan owned a store with a gravel parking lot in the City of Tigard, Oregon. There was a creek on one side of the property, and some of the property extended into the floodplain. Dolan applied for a permit to expand the store and to create a paved parking lot to accommodate her growing clientele. The City s granted the permit, but as in Nollan, imposed conditions. First, Dolan would be required to dedicate the 10% of the land in the floodplain for the City to use for the improvement of drainage into the creek. Second, she would be required to dedicate a15-foot easement for a pedestrian/bicycle pathway alongside the creek. Dolan appealed to the local zoning board of appeals and all the way to the Oregon Supreme Court on the ground that she was being forced to choose between Fifth Amendment Takings and Land Use Exactions Craig et al. 13 6
14 having a building permit and her right to receive just compensation for public easements. All found in favor of the City. However, the U. S. Supreme Court agreed with Dolan. In its ruling, the Supreme Court relied on the doctrine of unconstitutional conditions, which states that the government may not require a person to give up a constitutional right in exchange for a discretionary benefit conferred by the government. 512 U.S. at 385. In this case that was the right to receive just compensation. Writing for the majority, Chief Justice Rehnquist first looked at the test in Nollan, which, as discussed above, is whether there is an essential nexus between the exaction and a legitimate governmental purpose. The Court found that the government s action in Dolan passed the Nollan test. The prevention of flooding and reduction of traffic congestion were legitimate public purposes, and the exactions that the government demanded had a nexus to those public purposes. But the Court didn t stop there. Rather, the Court created a second analytical step. In addition to the nexus requirement of Nollan, there must also be a relationship between the exaction and the projected impact that the development would have. In the Court s words, there must be a rough proportionality between the exaction and the projected impacts of the proposed development. 512 U.S. at 391. While the Court clarified that rough proportionality is not a term with mathematical precision, it does require the government to perform an individualized determination that the specific exaction relates to the impact of the project. The City Tigard never made an individualized determination as to why granting a public easement was required in the interest of flood control. Nor had the City shown how 14 NFJE Thirteenth Annual Judicial Symposium July
15 pedestrian and bicycle traffic, presumably to be generated by the proposed development, related to the demand for the bicycle pathway. In summary, courts now apply the Nollan/Dolan test, which requires: 1) an essential nexus between the exaction and a legitimate government purpose, and; 2) a rough proportionality between the exaction and the projected impacts of the proposed development. OPEN QUESTIONS AFTER NOLLAN/DOLAN While Nollan and Dolan answered important questions in the context of exactions, the Court left some questions unanswered. First, does Nollan/Dolan scrutiny apply only to real property exactions (such as easements and land dedications) or does it apply also to monetary exactions? In Nollan and Dolan, of course, property owners had been forced to relinquish real property rights in exchange for a permit. And lower courts were split on whether governmental demands for money, such as fees-in-lieu, were to be treated the same as real property exactions. Second, does Nollan/Dolan scrutiny apply only when the government approves a permit with conditions, or does it also apply when the government denies a permit application because the permit applicant refuses to accept conditions? In Nollan and Dolan, the government conditionally-approved the permits. What is the scrutiny, if any, to which the denial will be subjected? In 2013, the Supreme Court answered these questions in Koontz v. St. Johns River Water Management District. 133 S.Ct (2013). Fifth Amendment Takings and Land Use Exactions Craig et al. 15 8
16 KOONTZ V. ST. JOHNS RIVER WATER MANAGEMENT DISTRICT In 1972, Koontz purchased 14.9 acres east of Orlando, Florida. The property was mostly designated as wetlands, so Koontz was required, among other things, to obtain a permit from the local water management district and show that the construction would not be contrary to the public interest. In 1994, he applied to the district for the permit. In return for the permit, he proposed to deed a conservation easement to the district that precluded any future development on 11.2 acres, thus leaving him with 3.7 acres on which to develop. The district refused Koontz s proposal but countered with two options: 1) he could reduce the size of his development to one acre and conserve the remainder; or 2) he could proceed with his original proposal but be required to pay for contractors to perform wetlands mitigation on 50-acres of offsite and government-owned wetlands. Koontz refused and the district denied his application. Koontz sued in state court. The case made its way through the lower courts and, eventually, arrived in the Florida Supreme Court, where Koontz lost. The Florida Supreme Court said that Nollan/Dolan scrutiny did not apply because the permit was never approved, as it had been in Nollan and Dolan. The Court reasoned that the denial of the permit did not change the property in any way; thus, the government s denial did not trigger Nollan/Dolan scrutiny. Secondly, the court said that Nollan/Dolan didn t apply because those cases had involved real property exactions, not demands for direct monetary payment. Koontz petitioned the U. S. Supreme Court on two issues: 1) whether Nollan/Dolan applies to situations where the government denies a permit because of 16 NFJE Thirteenth Annual Judicial Symposium July
17 Koontz s refusal to accept the government s proposal; and 2) whether direct monetary payment exactions are subject to Nollan/Dolan analysis. Justice Alito, writing for the majority, answered both questions in the affirmative. The Court recognized that land use cases are particularly apt to extortion-like pressure from the government. The government has broad discretion to deny a permit and, in cases where the cost of receiving the permit is more than the value of the land itself, a developer will likely give up the land demanded by the government. Therefore [e]xtortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they burden the right not to have property taken without just compensation. Koontz at The Court rejected the notion that if the government need not confer a benefit at all, it can withhold the benefit because someone refuses to give up constitutional rights. Id. Because of this, it makes no difference if the government denies a permit, or conditionally approves a permit. In both cases the governmental action must face a Nollan/Dolan analysis. The Court also ruled that monetary exactions are subject to Nollan/Dolan scrutiny. The Court relied on the fact that there is a direct link between the government s demand and a specific piece of real property. Id. at Further, the Court mentioned that there was a risk that the government would simply stop using nonmonetary exactions if there was a lesser standard of review for monetary exactions. Justices Kagan, Ginsburg, Breyer and Sotomayor dissented. Fifth Amendment Takings and Land Use Exactions Craig et al
18 WHAT IS THE LEGAL REMEDY FOR A KOONTZ VIOLATION? As discussed above, the Supreme Court ruled in favor of Koontz not because the government committed a taking under the Fifth Amendment, but rather because the government violated the doctrine of unconstitutional conditions. As the Court stated, [w]here the permit is denied and the condition is never imposed, nothing has been taken. Id. at Here, Koontz brought his case under state law, not under the Fifth Amendment, and thus the Court held that the remedy for a Koontz violation is that which is available under state law. Since the case originated in Florida, Koontz relied on a Florida law that allows property owners to sue for damages whenever a state agency s action is an unreasonable exercise of the state s police power constituting a taking without just compensation. Fla. Stat. Ann. Sec THE SPECIAL CASE OF LEGISLATIVE EXACTIONS Exactions fall under two broad categories: ad-hoc and legislative. Ad-hoc exactions are those that are uniquely negotiated for a particular property. For example, when the government asks a developer to widen the street directly adjacent to the development, or requires the developer to donate land for a school for the children who will live in the development. While there may be a law that enables to government to negotiate exactions, the parameters of each exaction are not specified by the law; the law simply gives government the discretion. Legislative exactions are not uniquely negotiated for between the developer and government. Rather, they exactions are mandated by general law. The most common example of a legislative exaction is an impact/development fee. Unfortunately, 18 NFJE Thirteenth Annual Judicial Symposium July
19 the picture is less clear as to what legal test legislative exactions are subject to. The Supreme Court has not directly answered whether legislative exactions are subject to Nollan/Dolan scrutiny. Some lower courts, however, have refused to apply Nollan/Dolan to legislative exactions, treating them more like any generally applicable law that is subject only to the government s authority under the police power. See, e.g., Home Builders Ass n of Central Arizona v. City of Scottdale, 930 P.2d. 993 (Ariz. 1997). Courts provide great leeway to laws enacted under the police power. Some courts, on the other hand, apply Nollan/Dolan to legislative exactions. See, e.g., Town of Flower Mound v. Stafford Estates, 135 S.W.3d 620, 641 (Tex. 2004). CONCLUSION Exactions create a unique problem in land use law. Exactions are not takings in a strict sense, but there is no denying that exactions can force property owners from having to accede to unreasonable demands. The Nollan/Dolan/Koontz line of cases provides for heightened scrutiny by courts to ensure that the constitutional property rights of private owners are preserved. Fifth Amendment Takings and Land Use Exactions Craig et al
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