Takings and the Supreme Court’s Decision in Koontz v. St. Johns River Management District

Takings and KoontzIf you read The Antitrust Attorney Blog regularly, you might have noticed that I think that the governments—federal, state, and local—tend to overreach into our business, our pursuits, and our lives. And I have strongly advocated that we apply the federal antitrust laws to counter the bloating influence of governments everywhere into our markets.

You may have also noticed my interest in property and real estate. Part of that is personal—I believe that real-estate investing is a great idea. There are many advantages to it. And my wife and I are real-estate investors. Besides antitrust, my firm offers real-estate litigation (in addition to appeals, business litigation, and challenges to government conduct).

Well, these interests have collided into a massive project that I just completed with Luke A. Wake of the National Federation of Independent (NFIB) Small Business Legal Center. We finished the initial version of a law review article entitled Legislative Exactions After Koontz v. St. Johns River Management District.

Update: We are excited to announce that the Georgetown International Environmental Law Review published our article.

This isn’t the first time that Luke Wake and I have written something together. Last year, we published an antitrust article entitled The Market-Participant Exception to State-Action Immunity. Back when I was with DLA Piper, we also worked on an amicus brief together for the NFIB in the U.S. Supreme Court case of FTC v. Phoebe Putney Health System, Inc. Luke is a rising star in the legal world, so you should remember his name.

Koontz v. St. Johns River Management District

In 2013, the Supreme Court enhanced property rights in the United States when it decided Koontz. It was a sharply split decision that included an expertly written dissent by Justice Elena Kagan, who in my view is coming close to equaling Justice Antonin Scalia as the Supreme Court’s top writer.

As an aside, Justice Kagan (then Professor Kagan) was my Administrative Law professor at Harvard Law School and the wit that you see in her opinions was on full display in class. (She did, by the way, mention one day in class that Justice Scalia was her favorite Justice; I don’t think she meant that from an ideological perspective).

Koontz arose in the context of what is called the unconstitutional conditions doctrine, as applied to Takings law. If you don’t know what a Taking is, you can read this short article distinguishing eminent domain and inverse condemnation (takings).

First, some quick background. In 1987, the Supreme Court held in the case of Nollan v. California Coastal Commission that governments cannot attach conditions to permit requirements unless the condition bears a “nexus” to the impact of the proposed project. In 1994, the Supreme Court in Dolan v. City of Tigard further held that such conditions must also bear a rough proportionality to the harm from the proposed project.

The names of the plaintiffs in these cases conveniently rhyme, so people in the takings arena refer to this doctrine as the Nollan and Dolan requirements.

Here is what happened: Coy Koontz, an entrepreneur in the Orlando, Florida area, sought to develop some property that he held. Sounds reasonable enough. The property was zoned commercial and he sought a permit for its development.

Florida, however, had enacted comprehensive environmental restrictions that required a state agency to review any such applications to determine whether the proposed project will reduce wetlands. So, in this case, Mr. Koontz couldn’t develop his land unless the St. Johns River Management District blessed the project.

It won’t surprise you to learn that they didn’t just approve it as is—the case ended up in the Supreme Court, after all, so like a good movie, there has to be some conflict. In negotiations, the District tried to force Mr. Koontz to change his project by scaling it back, a requirement that would forever prohibit development on part of the land, etc.

After some back-and-forth, the District finally insisted that it would only approve his permit application if he would agree to the condition that would require him to improve off-site public property miles away—a monetary exaction.

Mr. Koontz wanted to develop his land, but this was too much. So he refused to yield to the condition. And, as promised, the District stamped (metaphorically, I think) his application with the giant letters “REJECT.”

Not surprisingly, this led to litigation, a lot of litigation—almost twenty-years of legal fighting.

By the time the case reached the US Supreme Court, two major disputed issues had formed: (1) does the unconstitutional-conditions doctrine (as developed by Nollan and Dolan) apply to denied permits as well as permits granted (with conditions); and (2) whether the same restrictions on government takings apply to monetary exactions. The Supreme Court, through an opinion by Justice Samuel Alito, held in favor of the property owner on both issues.

That is, the Court in Koontz held that the Nollan and Dolan requirements of nexus and rough proportionality applied to denied permits and monetary exactions.

Koontz involved a challenge to a discretionary decision by a governmental agency. But what if the required condition to the development permit results from legislation not ad hoc governmental decision-making. That is the question we answer in our article—Legislative Exactions After Koontz v. St. Johns River Management District.

Below is the abstract for our article, which you can access on the SSRN.

Decided in June, 2013, Koontz v. St. Johns River Management District settled a long-running debate among scholars as to whether the nexus test—first pronounced in Nollan v. California Coastal Commission—applies in review of monetary exactions. In the preceding years, the lower courts had largely resolved this question in the government’s favor—limiting Nollan to its facts, and holding the nexus test inapplicable if a challenged permit requires the applicant to pay or expend money as a condition of permit approval. Further, the trend among the lower courts held the nexus test inapplicable in review of legislatively imposed exactions, regardless of whether the contested condition requires a dedication of real property or money.

Without question, Koontz has set the monetary exactions issue to rest. The Supreme Court squarely repudiated those cases holding the nexus test inapplicable. But the question remains as to whether the nexus test applies in review of legislatively imposed exactions. Accordingly, this article examines the theoretical foundations underpinning Koontz; we conclude that doctrinal principles underpinning Koontz ultimately dictate that the nexus test applies in review of legislatively imposed exactions.

Further, we address other recurring questions in land-use permitting cases, including the legality of aviation and open-space dedication requirements, and the constitutionality of affordable housing linkage fees. We conclude that, in the wake of Koontz, the nexus test should apply whenever the government demands such exactions as a condition of permit approval. The Takings Clause prevents permitting authorities from requiring permit applicants to give up any interest in property—including the dedication of negative easements, or the dedication of money into any sort of public fund—unless the permitting authority can demonstrate that those conditions are necessary to proportionally mitigate negative externalities from the proposed project.