The Supreme Court Expands the Nollan/Dolan Standard

The United States Supreme Court’s recent decision in Koontz v. St. Johns River Water Management Dist.has broad implications for state and local governments attempting to work with developers to find mutually agreeable solutions that will mitigate the impacts of development projects.  The decision expands the application of the unconstitutional conditions doctrine articulated in Nollan v. California Coastal Commission, 483 U.S. 825 and Dolan v. City of Tigard, 512 U.S. 374 (“the Nollan/Dolan standard”) to a broader range of land use permitting decisions while providing little guidance as to how reviewing courts will actually apply the expanded doctrine.  Previously, in limited circumstances where an adjudicative land use permitting decision required a dedication of property to offset impacts on the public from a particular project, reviewing courts would apply the Nollan/Dolan standard to ensure that the requisite property dedication had a reasonable nexus to the public impact of the proposed project and was roughly proportional to the size of the impact of the project.  If these two prongs were not satisfied, the dedication was found to be a taking of private property requiring payment of just compensation under the Fifth Amendment.  In Koontz, the Supreme Court found that the Nollan/Dolan standard applies beyond the takings context to any situation in which the government’s demand of a permit applicant is “excessive.”

In Koontz, the Supreme Court considered a situation where a Water Management District provided a landowner with three options to issue a permit for development of his property that would destroy protected wetlands – 1) develop 3.7 acres and conserve 11 acres of onsite wetlands as proposed in the application but also purchase mitigation credits to improve an offsite protected wetland, 2) reduce his development proposal from 3.7 acres to 1 acre and increase the protected acreage from 11 acres to 13.7 acres, or 3) some other equivalent option.  The landowner rejected the District’s proposed conditions and his permit was rejected. 

The Supreme Court held that the Nollan/Dolan standard applies not just to situations in which a permit is issued with conditions but also when a permit is denied because the landowner rejects the conditions.  The Court found that each option the District offered the applicant required an excessive dedication of either property or money, therefore, its actions violated the prohibition against unconstitutional conditions under Nollan/Dolan.  Addressing the Florida Supreme Court’s puzzlement as to how a government can be held liable for a taking under the Nollan/Dolan standard when no property is actually taken, the Court explained that there was no taking because the permit was denied and no condition was ever imposed; however, the Nollan/Dolan standard applies not just to situations where property is taken but also to situations where the government impermissibly burdens the right not to have property taken without just compensation.  As the Court explained “[i]n cases where there is an excessive demand but no taking, whether money damages are available is not a question of federal constitutional law but of the cause of action-whether state or federal-on which the landowner relies.”  Thus, in order to determine what remedy is available in a particular situation where there is no taking, the reviewing court must look to the particular state or federal statute which was the basis for the plaintiff’s claims.   

The Supreme Court may also have extended the scope of prior California and Ninth Circuit decisions in holding that all “in lieu fees” are the functional equivalent of other types of land-use exactions and therefore must also satisfy the Nollan/Dolan standard.  The Court explained that requiring payment of money alone as a condition for issuance of a permit can be a per se taking if it is tied to the ownership and right to use real property.  The California Supreme Court reached this same conclusion in Ehrlich v. Culver City (1996) 12 Cal.4th 854, with respect to fees imposed in ad hoc adjudicative land use proceedings, but the Supreme Court’s decision does not distinguish between ad hoc and generally applicable fees; therefore, the opinion may extend this reasoning to generally applicable development fees in California.  The Court distinguished taxes and user fees as appropriate land-use tools that would not be monetary exactions subject to the Nollan/Dolan standard, but otherwise left the issue of distinguishing, as a practical matter, between fees that are subject to the Nollan/Dolan standard and those that are not for the state courts to resolve.

In reaching these holdings, the Supreme Court appears to have expanded the reach of the Nollan/Dolan standard to a broader range of land-use permitting situations than those that previously fell within its gambit, adding considerable risk to municipalities dealing with such situations.  As a precautionary measure, when adopting generally applicable legislative conditions involving in-lieu fees, municipalities should consider including findings establishing that the fees satisfy the Nollan/Dolan tests.