As reported earlier, the United States Supreme Court handed property owners across the country a major victory in Koontz v. St. Johns River Water Management District. The decision’s positive impact on individuals who seek to make use of their properties—e.g., landowners, homeowners, businesses, etc.—cannot be overstated. Here’s a summary, in layman’s terms, of what the Court decided. But first, some background.
In 1987, the Supreme Court decided another important property rights case (also argued by PLF attorneys): Nollan v. California Coastal Commission. In Nollan, the permitting agency had approved a permit to remodel a home, but only on the condition that the owner first dedicate to the State an easement that would allow the public to walk freely across his backyard. There was absolutely no connection between the owner’s remodel project and the easement demand. The agency simply wanted something—a valuable interest in Nollan’s land—without having to pay for it, and it used the permit process to coerce him into complying with its wish.
PLF sued the agency on behalf of the Nollan family, taking the case all the way up to the Supreme Court. The Court held that the government may not approve a land-use permit with conditions that bear no “essential nexus”—no fundamental relationship—to the impact of the project. In other words, if an owner seeks to make use of his land in a way that would produce some public harm, then the government may require him to mitigate for that harm. But unless the government demonstrates a connection between the mitigation and the impact of the owner’s use, the condition is nothing more than (in the Court’s words) “an out-and-out plan of extortion.” Since the Nollans’ home remodel created no adverse impacts to public access that could justify a taking of an easement in their land, the easement demand was unconstitutional. With the Court’s decision, the Nollan family was able to remodel its home without the offending condition.
Over the next 26 years, agencies have found ways to get around the Nollan case. Instead of approving a permit with conditions that the landowner must satisfy (which is what happened in Nollan), some agencies decided it would instead ask the landowner to first agree to satisfy certain conditions before approving the permit. If the landowner refused, the agency simply would deny the permit outright. With no approved permit in hand, the theory went, there were technically no conditions—and, therefore, nothing the landowner could claim was extortionate.
Also, agencies began demanding things other than land and interests in real property (like the easement in Nollan). Instead, they began imposing monetary obligations—i.e., requirements that property owners pay for totally unrelated public-improvement projects as a condition of obtaining a land-use permit. Because Nollan involved an easement, and not a monetary obligation, agencies argued that Nollan‘s heightened scrutiny—i.e., requiring governments to demonstrate a close relationship between what they were demanding and the impact of an owner’s use—did not apply.
A state land-use agency deployed these two tactics in Koontz. Coy Koontz, Sr., wanted to develop 3.7 acres of an approximately 15-acre lot in a developed area of Orange County, Florida. Unfortunately for him, his lot was located in an area of Orange County that was designated as wetlands. This didn’t mean his lot actually had wetlands on it; it seemly meant that he would have to apply to a special state agency—St. Johns River Water Management District—and prove that his lot didn’t have wetlands or offer mitigation if it did.
So Mr. Koontz applied for permits from the District. The District first demanded that he give up the remainder of his property to conservation as “mitigation” for his development of the 3.7 acres. This, despite the fact that there was no evidence that his 3.7 building site had any viable wetlands or habitat. Nevertheless, given the cost of proving otherwise and his desire to see the lot developed, Koontz reluctantly agreed to the conservation easement. But the night before the hearing on his permit applications, District staff insisted that he also pay to improve State-owned lands located miles away, by filling in ditches and replacing culverts at a cost of up to $150,000.
At the hearing, Mr. Koontz refused to pay for the off-site work, and the District denied his permits outright. As a man of modest means, he simply could not afford to pay that sum for a public project—especially when it had no connection to the impact of his proposed use of the land (i.e., the building site had no wetlands). Mr. Koontz sued in the Florida courts under, among other theories, Nollan. The trial court and court of appeal ruled in his favor, holding that the off-site-mitigation requirement bore no connection to his project, since the project would impact no wetlands.The Florida Supreme Court reversed, holding that Nollan does not apply where (1) a permit is denied (as opposed to approved with conditions), and (2) the exaction is for money. At this point, PLF took over representation and asked the Supreme Court to review the case on these two issues, which it did in October 2012.
Today’s decision by Justice Alito handed the Koontz family a victory on both points. First, it held that there’s no constitutional difference between a permit denial (following an owner’s refusal to submit to an extortionate condition) and a permit approval containing an extortionate condition. Extortion is extortion, and all such conditions should be reviewed under the heightened scrutiny provided for in Nollan—i.e., the government must show an “essential nexus” between the condition and the impact of the proposed use of the land. Second—and perhaps more significantly—the Court held that all demands for property in the permit context (including monetary exactions) are subject to Nollan review. This is an important holding for the countless property owners across the country who face an ever-increasing number of monetary exactions imposed by agencies in the permit process.
After today’s decision, the Constitution requires that such exactions bear an essential nexus to the impact of the owner’s use of the land. The four liberal Justices dissented. Curiously, even the liberals rejected the “permit approval v. permit denial” distinction that the District advanced. They, too, agreed that it doesn’t matter how a demand for property might be couched in the permit process; if an owner is coerced into giving up property in exchange for a permit, it is subject to Nollan review. However, the liberals disagreed with respect to the monetary exaction issue. In their view, money is not property for purposes of Nollan; thus, monetary exactions–unlike land exactions—are not subject to scrutiny under that decision. To open such exactions to Nollan review will, in their eyes, open the floodgates to challenges to taxes, user fees, and the like. (Alito’s opinion effectively rebuts this exaggeration, noting, inter alia, that the holding applies in the unique land-use context). There will be more analysis of this opinion as the day goes on, so stay tuned. In the meantime, every property owner in America has a cause to celebrate today. No longer will agencies be able to skirt the important protections provided to them under the Constitution.