In a potentially groundbreaking land-use decision, the U.S. Supreme Court recently ruled in a sharply divided decision that the denial of a permit to develop wetlands property in Florida could be a taking of property under the Fifth Amendment. What this decision means to local government agencies that issue development permits remains to be sorted out. The justices who dissented warned that the majority opinion places a dark cloud of uncertainty over land use permit fees relied upon by local governments throughout the United States. The majority opinion, on the other hand, suggests that the dissent’s fears are exaggerated, if not entirely off the mark. In California, it would not be surprising if some developers attempt to use the decision to challenge land use decisions and permit fees. But existing California law already lines up to some extent with the decision rendered by the nation’s highest court.
In Koontz v. St. Johns River Water Management District, the estate of Coy Koontz, Sr. owned 14 acres of wetlands in Florida. Facing the rapid disappearance of its wetlands, Florida law imposed requirements to create, protect or enhance wetlands elsewhere before allowing an owner to develop wetlands property. Koontz applied to St. Johns River Water Management District to develop 3.7 acres of the 14 acres. As mitigation, Koontz offered to place a conservation easement on the balance of the parcel. The water management district rejected Koontz’s proposal. It gave Koontz two choices: Reduce the development to one acre while putting a conservation easement on the rest of the parcel or proceed with the 3.7 acre development but pay to enhance 50 acres of wetlands several miles from his property.
Koontz didn’t like either choice and brought a takings claim under a Florida statute. The state trial court found that the district’s requirements were excessive under existing U.S. Supreme Court cases on land dedications. These cases held that requiring an owner to dedicate land as a condition of development would be an unconstitutional taking if the dedication didn’t mitigate negative impacts from the proposed development, or if the amount of land being required to be dedicated was more than needed to mitigate the impacts. These are known, respectively, as the “nexus” and “rough proportionality” tests.
The water management district appealed to the Florida Supreme Court, which reversed. The court found the U.S. Supreme Court dedication cases didn’t apply. It found that those cases only apply when a permit is issued conditioned on land dedication. Here, in Koontz’s case, a permit was denied, not issued. And the alternative to spend money to enhance wetlands property was not a land dedication.
The U.S. Supreme Court, in its 5-4 ruling in June, reversed the Florida Supreme Court. In an opinion authored by Justice Samuel Alioto and joined by Chief Justice John Roberts, Antonin Scalia, Anthony Kennedy and Clarence Thomas (often identified by commentators as the “conservative” wing of the court), the court held that the “nexus” and “rough proportionality” tests could apply to development permit denials and to requirements to pay money for mitigation.
Justice Elena Kagan wrote a strongly worded dissent joined by Justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayer (often labeled by commentators as the “liberal” wing of the court). The dissent agreed that the “nexus” and “rough proportionality” tests could apply to permit denials. The majority opinion and the dissent therefore reflect a unanimous consensus that distinguishing between issuing and denying a permit would create an intolerable loophole to the court’s land dedication decisions. But the dissent took issue with extending these tests to monetary payments or land development fees.
Justice Kagan expressed the worry that the majority opinion did not make clear if the decision applied only to specific individualized parcel fees or if strict “nexus” and “rough proportionality” tests would also apply to more general, across-the-board legislative enactments that set permit fees on broad classes of properties.
It remains to be seen if Justice Kagan’s fear that the majority opinion casts a dark cloud over land-use permit fees proves justified for the country or for California. The California Supreme Court several years ago already ruled that the “nexus” and “rough proportionality” tests applied to individually assessed parcel permit fees. In this regard, California was already in accord with the decision. At the same time, the California Supreme Court distinguished such fees from broader, legislative permit fee enactments under California’s Mitigation Fee Act. This is where Justice Kagan warned that the majority’s silence on this distinction created uncertainty. It would not be surprising if some developers in California argue that the “nexus” and “rough proportionality” tests have to be applied on a parcel-by-parcel basis instead of on an across-the-board legislative basis or that the nexus test under the Mitigation Fee Act is not strict enough. Given the California Supreme Court has already weighed in on this issue, it would not be surprising if California state courts rejected this argument. Federal courts located in California, which are not bound by state court decisions, could have a different take on the argument.
It should be noted that the majority ruling by the U.S. Supreme Court did not actually find that Koontz suffered a taking. It sent the case back to the Florida courts to apply Florida law. The water management district had argued that there were procedural problems with Koontz’s claims under state law. The majority deferred to Florida to see if Koontz had a viable claim in the context of the principles it laid out but also in the context of state law. It is entirely possible that Koontz will end up empty handed. In this regard, the decision can be taken as a re-affirmation of the principle that owners claiming an unconstitutional taking still have to navigate and meet state procedural and substantive requirements.
At the same time, the majority expressed an attitude of distrust about local land use authority. It asserted that so long as a building permit is more valuable than “any just compensation the owner could hope to receive for the right of way,” property owners may be victims of “extortionate demands.” In contrast, the dissent expressed deep concern that the decision will discourage local land use authorities from trying to work with developers because local government now might be better off outright denying a permit than discussing informally alternatives that would allow development. How these contrasting attitudes will resonate in future decisions by state and federal courts in interpreting this decision is anyone’s guess.
Kendall H. MacVey is a partner in the Riverside office of Best Best & Krieger LLP, where he leads the firm’s eminent domain practice group. His practice focuses on matters involving eminent domain, public agency litigation, business and complex litigation. He can be reached at email@example.com