U.S. Supreme Court Rules in Favor of Developer in Takings Case

July 9, 2013
MGKF Special Alert

On June 15, the U.S. Supreme Court in Koontz v. St. Johns River Water Management District, expanded its Fifth Amendment takings jurisprudence when it held that the "essential nexus" and "rough proportionality" requirements set forth in its prior opinions must be satisfied even when the government ultimately denies a permit application, and even when the government's demand is for money, rather than other forms of mitigation. Koontz has the potential to further limit the extent to which permitting agencies may require applicants to mitigate environmental impacts of their projects.

Koontz is the owner of a 14.9 acre tract of land along a four-lane highway east of Orlando and planned to develop roughly 3.7 acres of his property, including portions of which were classified as wetlands. Prior to commencing construction, Florida law required Koontz to apply for various permits. The Saint Johns River Water Management District (the "District") had permitting jurisdiction over Koontz's project and requires applicants who plan to develop in wetlands areas to offset the environmental damage by "creating, enhancing, or preserving wetlands elsewhere."

In his application for the required permits, Koontz proposed to mitigate the environmental impacts of his project by deeding to the District a conservation easement over the remaining 11.2 acres of his property, which would have foreclosed any future development. The District found Koontz's mitigation proposal to be inadequate and informed Koontz that it would approve his application only if he made one of two concessions: (1) reduce the size of his development from 3.7 acres to one acre and deed a conservation easement to the District for the remaining 13.9 acres; or (2) develop the 3.7 acres as proposed, deed a conservation easement to the District for the remainder of the property, and hire contractors to improve land in some other portion of the water management district. Koontz refused to concede to the District's demands and his application was ultimately denied.

Rather than appeal the denial, Koontz filed a lawsuit in Florida state court on the grounds that the District's demands constituted a taking of property without just compensation. At trial, Koontz put on expert testimony to establish that the 3.7 acres which Koontz planned to develop were degraded wetlands, and therefore the District's mitigation demands were excessive. The trial court agreed with Koontz's experts and concluded that the District's demands violated the U.S. Supreme Court's decisions in Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994), because the required mitigation did not have an essential nexus or rough proportionality to the impact of Koontz's project. The trial court's decision was affirmed on appeal, but was eventually overturned by the Florida Supreme Court.

After granting certiorari, the U.S. Supreme Court reversed the Florida Supreme Court. According to the Court, the Nollan and Dolan standard is necessary because "land-use permit applicants are especially vulnerable" to governmental coercion "because the government often has broad discretion to deny a permit that is worth far more than the property it would like to take." Because of the government's superior bargaining position, "the government can pressure an owner into voluntarily giving up property for which the Fifth Amendment would otherwise require just compensation." Thus, the "central concern" in a takings analysis is whether the government has used "its substantial power and discretion in land-use permitting to pursue governmental ends that lack an essential nexus and rough proportionality to the effects of the proposed new use of the specific property at issue, thereby diminishing without justification the value of the property."

Even where a permit application is ultimately denied and no property is given or deeded over to the government, "extortionate demands" by permitting authorities "frustrate the Fifth Amendment right to just compensation" because "they impermissibly burden [an applicant's] right not to have property taken without just compensation." Furthermore, monetary demands are "functionally equivalent" to exactions of land as they potentially subject a permit applicant to the same abuse of governmental authority. Permitting authorities, therefore, cannot avoid the Nollan and Dolan requirements simply by requiring an applicant to expend money to mitigate the environmental impacts of a project, rather than dedicate land for the same purpose.

Given the decision in Koontz, permitting authorities will need to ensure that any demands made of applicants which require the applicant to grant land or money to the government have an essential nexus and are roughly proportional to the proposed project's environmental impacts. Koontz is a victory for the development community, but only time will tell how meaningful the decision will be. At the very least, applicants for land-use permits should be aware that the government may not impose conditions on their applications which are not proportional to the impacts of their proposed projects.

If you have any questions concerning the Koontz decision and how it may impact you, please contact Michael Dillon (mdillon@mankogold.com or 484-386-6161) or Jonathan Rinde (jrinde@mankogold.com or 484-430-2325).