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October Term, 2012

June 25, 2013

Today the Supreme Court issued one decision, described below, of interest to the business community.

Takings—Whether The Just Compensation Clause’s Nexus and Proportionality Requirements Apply to Government-Imposed Permit Conditions Requiring An Applicant to Pay for Unrelated Improvements

Koontz v. St. Johns River Water Management District, No. 11-1447 (previously discussed in the October 8, 2012, Docket Report)

Today, in a 5-4 decision authored by Justice Alito, the Supreme Court in Koontz v. St. Johns River Water Management District, No. 11-1447, clarified its holdings in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994), which provide that the government may not condition the approval of a land-use permit on a landowner’s relinquishment of a 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.

Justice Alito was joined in the majority opinion by Chief Justice Roberts and Justices Scalia, Kennedy, and Thomas. Justice Kagan dissented, joined by Justices Ginsburg, Breyer, and Sotomayor.

Petitioner Koontz wanted to develop 3.7 acres of a 14.9 acre parcel of property that is subject to regulation by the St. Johns Water Management District (a Florida State agency) because the parcel contains wetlands. The District informed Koontz that it would approve his development only if he mitigated its effects on the local watershed by either: (1) reducing the size of his proposed project to one acre and deeding a conservation easement to the District on the remainder of the property, or (2) paying to improve 50 acres of District-owned wetlands several miles away from his property. Koontz believed that these demands for mitigation were excessive in light of the environmental effects that his building proposal would have caused. He sued the District in Florida state court, arguing that the exaction was an impermissible “regulatory taking.” The state trial court and intermediate appellate court both ruled for Koontz, holding that the exaction lacked the “essential nexus” and “rough proportionality” required by Nollan and Dolan. The Florida Supreme Court reversed, holding that Nollan and Dolan do not apply when what is at issue is the payment of money or when the government deniesa permit (as opposed to approves a permit on the condition that the owner accede to the government’s mitigation demands).

The Supreme Court rejected the Florida Supreme Court’s interpretation of Nollan and Dolan. Applying its decisions disallowing “unconstitutional conditions,” the Court first held that the government’s demand for property from a land-use-permit applicant must have a nexus with and rough proportionality to the detrimental effects of the proposed land use even when the government denies the permit. The Court reasoned that extortionate demands for property in the land-use-permitting context run afoul of the Takings Clause even though they do not take property because they impermissibly burden the right not to have property taken without just compensation. The Court next held that Nollan’sand Dolan’snexus and rough-proportionality requirements apply even when the government demands money in exchange for approving a permit because the demand is directly linked to a specific parcel of real property.

The dissent agreed that the Nollan–Dolan standard applies when the government denies a permit until the owner meets a particular condition, but disagreed that it applies when the government conditions a permit on the payment or expenditure of money. The dissent was of the view that the majority’s holding in this regard was contrary to the views of five members of the Court in Eastern Enterprises v. Apfel, 524 U.S. 498 (1998), that the government may impose financial obligations without triggering the Takings Clause’s protections. According to the dissent, the boundaries of the majority’s new rule are uncertain and therefore threaten state and local land-use regulations.

Koontz is significant for the business community because it requires that permit conditions—whether in the form of exactions of real property, as in Nollan and Dolan, or of money to pay for off-site mitigation, as in Koontz—must be both related and proportional to the adverse effects of the planned development. The decision makes clear that thes requirements apply whether a permit is granted or denied. Although the decision strengthens the hand of permit applicants in negotiations with land-use regulators, it remains the case that prevailing under the nexus–proportionality standard is challenging. “[S]o long as a permitting authority offers the landowner at least one alternative that would satisfy Nollan and Dolan,” Justice Alito explained, “the landowner has not been subjected to an unconstitutional condition”; and remedies where an improperly conditioned permit is denied are a matter of state rather than federal law.

Any questions about the case should be directed to Tim Bishop (+1 312 701 7829) in our Chicago office.

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