Navigating Unchartered Waters in Land Use Development Proceeding in the Wake of the Supreme Court’s Ruling in Koontz v. St. Johns River Water Management District

Highly publicized, recent decisions by the United States Supreme Court have dealt with a variety of social policy issues such as health care reform, marriage and civil rights. The Court’s decision in Koontz v. St. Johns River Water Management District (“Koontz”) has received much less public attention. Yet, Koontz has wide sweeping consequences for land owners, developers and local municipalities involved in the review and approval of applications for land-use permits. In fact, it has been feared that the decision will “work a revolution in land-use law”1 by depriving local governments of the ability to charge reasonable permit fees.

In Koontz, the developer sought permits from the Water District to build a shopping center on 3.7 acres of land that comprised part of a 14.9-acre tract of wetlands located on the south side of Florida State Road 50, east of Orlando. To build the shopping center, it was proposed that the 3.7 acres of the wetlands be filled; the remainder of the tract would remain as wetlands.

Florida law requires permit applicants seeking to build on wetlands to offset any resulting environmental damage with mitigation measures. Initially, the developer offered to mitigate the environmental effects of his plan proposal by deeding a conservation easement to the Water District that would cover nearly three-quarters of his property. The Water District rejected this proposal. The developer could obtain approval from the Water District for construction of the 3.7 acre shopping center only if he:

(1) reduced the size of his proposed development and, inter alia, deeded to the Water District a conservation easement on the resulting larger remainder of his property; or
(2) hired contractors to make im­provements to Water District-owned wetlands several miles away.

The developer objected that the Water District’s demands were unduly burdensome and the Water District denied the application.

The developer then filed suit against the Water District based upon state law that provides for money damages for agency action that is an “unreasonable exercise of the state’s police power constituting a taking without just compensation.”2 The Florida trial court found the Water District’s action unlawful having failed to satisfy the requirements of the U.S. Supreme Court’s prior rulings in Nollan v. California Coastal Comm’n and Dolan v. City of Tigard.3 The Nollan/Dolan cases held that “the government may not condition the approval of a land-use permit on the owner’s relinquishment of the owner’s portion of his property unless there is a ‘nexus’ and ‘rough proportionality’ between the government’s demand and the effects of the proposed land use.”4

The Florida District Court of Appeals affirmed the trial court, but the Florida State Supreme Court reversed on two grounds.

First, it held that the petitioner’s claim failed because, unlike in Nollan or Dolan, the Water District denied the developer’s application. In Nollan/ Dolan, the complaining landowners were granted approvals, but with conditions they alleged were burdensome and confiscatory.

Second, the Florida State Supreme Court held that a demand for money to mitigate the impacts of a development proposal by a municipal government as part of a land use approval cannot give rise to a claim under Nollan and Dolan. In Nollan/Dolan, the demands on the applicants were not conditioned upon the payment of money to offset perceived negative impacts of the approval. Rather, the demands were for the conveyance of property or property rights.

The developer filed a Petition for Writ of Certiorari from the decision of the Supreme Court of Florida. Based on the Writ, the issue before the U.S. Supreme Court was whether the denial of a land-use permit can invoke a violation of the Takings Clause under the U.S. Constitution.

In answering this question, Justice Samuel A. Alito, Jr. writing for the 5-4 majority, in which he was joined by Chief Justice Roberts along with Justices Scalia, Kennedy and Thomas, held that the long-standing principles of Nollan/Dolan, which “provide important protection against the misuse of the power of land-use regulation,” do not change depending on whether the land use application is approved or denied. The Court also held that a government’s demand for money as part of an approval from a land-use permit applicant must also satisfy the Nollan/Dolan test.

The Court’s analysis focused on whether the Water District’s actions satisfied the requirements of the “nexus and rough proportionality” tests established in Nollan and Dolan. The Court stated, in relevant part:

Nollan and Dolan accommodate both real realities by allowing the government to condition approval of a permit on the dedication of property to the public so long as there is a “nexus” and “rough proportionality” between the property that the government demands and the social costs of the applicant’s proposal. Our precedents thus enable permitting authorities to insist that applicants bear the full costs of their proposals while still forbidding the government from engaging in “out-and-out … extortion” that would thwart the Fifth Amendment right to just compensation. Under Nollan and Dolan the government may choose whether and how a permit applicant is required to mitigate the impacts of a proposed development, but it may not leverage its legitimate interest in mitigation to pursue governmental ends that lack an essential nexus and rough proportionality to those impacts.6

Koontz raises many questions and issues. For one, the Court uses the term “extortionate demands” to describe excessive requirements that municipalities place on land-use applicants that do not pass the Nollan/Dolan test.7 The opinion does not give a clear definition of that term. There is no bright line test as to whether a demand is “extortionate.” The Court explained that when an applicant is forced to relinquish property rights as a condition for a land-use approval, “[e]xtortionate demands of this sort frustrate the Fifth Amendment right to just compensation, and the unconstitutional conditions doctrine prohibits them.”8 To illustrate this point, the Court stated that:

[o]ur decisions in the [Nollan/Dolan] cases reflect two realities of the permitting process. The first is that land-use permit applicants are especially vulnerable to the type of coercion that the unconstitutional conditions doctrine prohibits because the government often has broad discretion to deny a permit that is worth far more than property it would like to take. By conditioning a building permit on the owner’s deeding over a public right-of-way, for example, the government can pressure an owner into voluntarily giving up property for which the Fifth Amendment would otherwise require just compensation. So long as the building permit is more valuable than any just compensation the owner could hope to receive for the right-of-way, the owner is likely to accede to the government’s demand, no matter how unreasonable.9

The Court was “[m]indful of the special vulnerability of land use permit applicants to extortionate demands for money …”10 The Court also recognized that “[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 impermissibly burden the right not to have property taken without just compensation.”11 Presumably, if the government’s demand fails the proportionality test, it then gives rise to a constitutional claim because it is an impermissible burden. Yet, the Court’s opinion does not provide clear guidance as to when a demand crosses the line and becomes “extortionate.”

Koontz also raises another important question. How does the denial of a land-use permit application lead to a constitutional claim when the applicant had no vested right to the permit to begin with? Stated another way, if there is no “vested” right to a permit or zoning approval, how can an applicant be entitled to Constitutional protection if the government denies an application?

The Koontz decision may have a profound impact on how local governments engage applicants for land-use permits in the future. Justice Kagan may be right, particularly as municipalities may fear a Koontz-based constitutional challenge to both approvals and denials. Koontz may lead municipalities to grant or deny land use applications, or refrain from imposing conditions they consider appropriate for potentially the wrong reason; namely, the concern of litigating costly legal battles.

It will be interesting to see how local governments across the nation respond to land use applications in the wake of the Koontz decision. Local government boards may give greater deference to the land-use applicant as they weigh the imposition of conditions or consider a denial of an application in which they have asked for measures to mitigate impacts or the payment of money for mitigation purposes that the applicant has rejected. These are very complex issues and Koontz leaves much open to interpretation for future land-use permitting by local governments.

The dissent suggests that the balance has now tipped in favor of the land-use applicant, over the municipality, at the bargaining table for a land-use permit. It remains to be seen whether the Koontz ruling erodes the ability of local municipalities and applicants to negotiate beneficial terms and conditions that protect the public interest, but do not run afoul of the Constitution.

Michael H. Sahn, Esq. is the Managing Partner of Sahn Ward Coschignano & Baker, PLLC. He is a former co-chair of the NCBA’s Real Property Law Committee. Adam H. Koblenz, Esq., an Associate at the firm, contributed to this article.

1. Koontz v. St. Johns River Water Management District, 570 U.S. ___, 133 S.Ct. 2586 2602 (2013).
2. Id. at 2593.
3. See Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994).
4. 113 S.Ct. at 2591.
5. Id.
6. Id. at 2595 (internal citations omitted).
7. Id.
8. Id.
9. Id. at 2594.
10. Id. at 2603.
11. Id. at 2596.