November 22, 2014

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U.S. Supreme Court Decides Important Development Permitting Case, Extending Regulatory Takings Analysis

Reversing A Loss From The Grave: How Recent Supreme Court Decision Impacts Land Development Permitting

Coy Koontz, Sr.’s case lives again. In Koontz v. St. Johns River Water Management District, 570 U.S. ____, decided June 25, 2013, the United States Supreme Court reversed the Florida Supreme Court which had affirmed dismissal of Mr. Koontz’s case.

The United States Supreme Court clarified that the Fifth Amendment (no governmental taking of property without payment of just compensation) mandates that the conditions required by a government when a land development permit is issued must have nexus and rough proportionality to the projected impacts of the proposed development. In a 5 to 4 decision, the Supreme Court held that nexus and rough proportionality requirements extend to situations when (1) the permit was not issued because the applicant refused to accept the conditions and (2) the conditions required payment of money.

The requirements of nexus and rough proportionality exist to ensure that a government does not overreach when issuing permits by demanding transfers of private property that are unnecessary to mitigate the impacts of the applicant’s proposed development.

Facts

In 1994, Coy Koontz, Sr. sought a permit from a local water management district to develop 3.7 acres of a 14.9 acre tract of property by raising the elevation of the 3.7 acre portion of his property. He offered to mitigate the environmental impact of his proposal by deeding a conservation easement on the remaining 11 acres to the district.

The district rejected this proposal and desired additional mitigations in the form of Mr. Koontz reducing the size of his development to 1 acre and incorporating some design features or, in the alternative, Mr. Koontz could maintain the original size of his proposed project, grant the conservation easement and hire contractors to make improvements to the district’s property several miles away from Mr. Koontz’s land that would enhance these wetlands.

Mr. Koontz rejected both of the district’s proposals and sued claiming that the district had taken his property.

Last week, well after Mr. Koontz’s death, the United States Supreme Court, in a 5 to 4 opinion, held that the grounds upon which the Florida Supreme Court had affirmed dismissal of Mr. Koontz’s taking claim were wrong and remanded the case to the Florida state courts to determine the merits of Mr. Koontz’s estate’s claim. According to the Court, the rules of nexus and rough proportionality apply even when a permit was not issued and a proposed condition did not require the transfer of an interest in land.

Background to the Legal Issues

For those who might desire a “refresher,” the Supreme Court created a rule of law holding that when a land use or development regulation “goes too far,” it is a taking of private property without payment of just compensation and therefore violative of the Fifth Amendment of the Constitution.

For twenty-five (25) years, the Supreme Court has been developing rules which define “too far.” The rules of nexus and rough proportionality, developed in the United States Supreme Court cases of Nollan (1987) and Dolan (1994), apply in the special context where a government is requested by a property owner to issue a land use permit permitting new development. The Court, concerned that governments might overreach by using the permitting process to exact property from applicants, developed the nexus and rough proportionality rules.

What may be the impacts of the Koontz Decision?

Not unlike prior decisions regarding “too far” regulations, regulatory takings, nexus and rough proportionality, Koontz is a case rooted in theory. The theory is simple – its application is challenging. In the context of issuing permits, “[i]nsisting that landowners internalize the negative externalities of their conduct is a hallmark of responsible land-use policy.” Koontz at ___. On the other hand, when “someone refuses to cede a constitutional right in the face of coercive pressure, the impermissible denial of a governmental benefit is a constitutionally cognizable injury.” “Extortionate demands [by the government] …impermissibly burden the right not to have property taken without just compensation.” (emphasis added). Id. In other words, the government cannot demand a condition which does not satisfy nexus and rough proportionality because it burdens the right not to have property taken.

A. Past Practices and Understandings

When reviewing applications for land development permits, the typical practice of governments and applicants is to address impacts arising from the land owner’s proposed development by attaching conditions to the permit. The process of determining conditions tends to be a negotiation where the “final” conditions may be a product of multiple drafts of proposed conditions and address many matters. Some conditions may require the land owner to transfer land or personal property to the government. If the land owner does not accept the conditions which are acceptable to the government, he refuses to agree to the conditions. If the permit is not issued, the applicant has the right to appeal the denial of his application.

Koontz states that the applicant is to be free from any governmental demanded conditions that do not satisfy nexus and proportionality. It is impermissible to burden the applicant’s right “not to have property taken without just compensation.” Apparently, the right to appeal denial of the permit is not sufficient protection.

It is unclear whether nexus and rough proportionality rules apply to preliminary discussions/negotiations but they do apply to the final conditions proposed by government.

B. The Problem of a developing and incomplete record

Frequently, the impacts of a proposed development are uncertain until late in the permitting process and never fully known even at the time of issuance of a permit. The developed record documents, at most, the probabilities of future impacts.

Even when the record is complete, there are frequently a variety and range of possible projected impacts arising from a future development. Not only are there different acceptable models to measure the same types of impact, such as traffic congestion, which can reach very different projections, there are some impacts which are very difficult to measure but are real.

Once the permit has been issued, the land owner may have unilateral control over when and how the new development occurs. When and how the development occurs may significantly alter the new development’s negative external impacts.

In most uncertain matters of judgment involving projections of the future, the concept of a margin of safety –acknowledging the reality that projections of the future are imprecise and providing extra protection in case projections understate future impacts – is used. Koontz reaffirms that Fifth Amendment does not permit the government to demand that the applicant provide a margin of safety, unless perhaps it is part of the “rough” of “rough proportionality”. Who knows? The courts have failed to explain the analytics of rough proportionality. Somebody loses when reality is at variance with future projections. Either the government has overreached taking from the applicant, or underreached, causing other property owners who are not typically aware of the requested permit to suffer “negative externalities” from the proposed development.

Koontz evidences a concern about overreaching but not underreaching, although all property rights should be equally protected.

C. Changes in Future Behaviors

Careful governmental officials should adopt more circumspect and conditional communications with applicants. Applicants will need to better understand these more subtle communications. Unlike contract negotiations which generally do not give rise to a cause of action of any type, the special rules of Nollan, Dolan and Koontz may apply to negotiations regarding the presence, form and substance of conditions.

For developers who build quality projects, Koontz will have little positive impact except in extreme cases of governmental overreaching. Many sophisticated developers use sweeteners or substitute conditions to encourage issuance of their permit and to address latent uncertainties. Maybe the adjacent road only needs two lanes of traffic to provide good access to the new development. However, four lanes provide much better access and provide a margin of safety as to impacts of property owners’ developments. Good developers view such conditions as enhancing their project. High standards reflected in conditions may function to exclude developers with lower standards. Can governments accept such sweeteners or substitute conditions without running afoul of a Takings claim? Under Koontz, all such conditions might be deemed to be given “in the face of coercive pressure” even though not demanded by the government.

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About this Author

Michael C Thelen, Womble Carlyle Firm, Litigation Attorney
Attorney

Mike represents myriad clients – from Fortune 500® companies to smaller, privately-owned organizations – in cross sections of business throughout the many stages of federal and state litigation.  From his years of practice in New York and North Carolina, Mike primarily has experience in the areas of land use, local/municipal government law and real estate litigation, having handled zoning, development agreement, land use planning, eminent domain and condemnation, construction, retail and commercial landlord-tenant, partnership dissolution, state law torts, and civil...

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