Based on oral argument last week in a case from El Dorado County, the U.S. Supreme Court seems ready to strike down California’s Ehrlich/San Remo exception to the Nollan/Dolan rule on exactions – an exception that allows California cities and counties to impose exactions that do not have a “direct connection” to the project in question and that are not “roughly proportional” to the project’s impact if they are part of a General Plan or broader legislative effort.

But the Supreme Court seems less clear about how to apply the ruling in situations where exactions are imposed by a legislation.

“Despite Petitioner’s urging, Chief Justice Roberts and Justices Sotomayor, Kavanaugh, and Kagan all expressed doubts about the workability of requiring local governments to undertake in the legislative context the same type of project-specific analysis that Nollan and Dolan call for in the context of case-by-case administration,” wrote Texas A&M law professor Tim Mulvaney in a blog.

“Against that backdrop,” he added, “will the Court create a new standard for examining the relationship between a legislative condition and the types of impacts generated by a specific class of developers that is something short of, or distinct from, the type of individualized reviewed required by Nollan and Dolan?”

In Sheetz v. County of El Dorado, decided a year ago, the Third District Court of Appeal ruled that under California’s Mitigation Fee Act, no individual analysis of the connection between the fee and the impact is required. “The Nollan/Dolan test does not apply to the legislatively prescribed generally applicable development impact fee at issue here, and California law does not require an individualized or site-specific determination of reasonableness for each particular project subject to the fee,” the court wrote. (CP&DR’s coverage of Sheetz can be found here.) The court upheld El Dorado County’s imposition of a $23,000 fee on as part of the approval for an 1,800-square foot manufactured home.

The Nollan/Dolan doctrine states that development exactions – including impact fees – must have a “rational nexus” to the development project in question and also must be imposed in a manner that is “roughly proportional” to the impact of the new development on existing conditions. Exactions that do not meet this test are considered a taking of property under the Fifth Amendment to the U.S. Constitution.

In Nollan v. California Coastal Commission, decided in 1987, the Supreme Court imposed the “rational nexus” rule, concluding ruled that a lateral easement in front of a Ventura beach house did not have a “nexus” to the impact of the house being expanded from one to two stories. Subsequently, in the 1994 case of Dolan v. City of Tigard, a case from Oregon, the court laid down the “rough proportionality” rule, saying that the size of the fee or exaction must be “roughly proportional” to the impact of the project.

However, in 1996, the California Supreme Court ruled, in Ehrlich v. City of Culver City, ruled that while the Nollan/Dolan test should be used when exactions are imposed on a single developer as a result of the expect impact of a single development project, a “reasonable relationship” test – such as the one El Dorado County used – is sufficient for exactions that are imposed on all developers as part of a broad policy scheme. That’s been the rule in California ever since – and now the Supreme Court seems like to overturn it.

Some has speculated that Justices Clarence Thomas and Samuel Alito might go beyond the Nollan/Dolan v. Ehrlich question and issue a broader ruling limiting exactions in all cases. But Thomas’s questioning at the oral argument seemed to argue the opposite. He specifically asked Sheetz’s lawyer, Paul Beard of the Pacific Legal Foundation, whether the justices should limit their ruling only to that issue. Beard responded that even El Dorado County seemed to concede the point.

In a blog on the PLF web site after the oral argument, Beard’s colleague Brian Hodges said: “What surprised us was how focused the Court was just on the question presented, which was whether legislative exactions are subject to Nollan and Dolan. The government briefs really didn’t address that issue. That’s the issue that the Court granted cert on, but they (El Dorado County) didn’t really address it. They tried to change the topic. And the fact that the Justices didn’t really take the bait was a bit surprising.”

According to blogger Amy Howe, El Dorado County’s lawyer, Aileen McGrath, did not dispute that there has to be a connection between the impact of a project and the exactions impose on it. However, according to Howe, McGrath said the legislature should not have to ‘justify how it imposed those fees’ on a case-by-case basis. Instead, she told (Justice Brett) Kavanaugh, ‘if any sort of heightened review is necessary here, it needs to be performed at a programmatic basis that looks at the categories that the legislature itself has drawn.’”

Chief Justice Roberts and some other justices questioned whether requiring a fee is the same as seeking a donation of property as an exaction. Indeed, Justice Ketanji Jackson said she found nothing unconstitutional “about a county saying, if you want to build in this way, because of the impacts on the traffic or environment or whatever, you have to pay a fee.” She suggested fees might be treated differently.

This prompted a strong reaction from Justice Samuel Alito, who asked Beard whether Jackson’s solution could be construed as nothing more than what he called a “no-build easement”. “It certainly could be characterized that way because if … he doesn't pay the ransom, he can't build,” Beard replied.

Alito’s question echoed his ruling 11 years ago in Koontz v. St. Johns Water Management District, a case from Florida, when he wrote for a 5-4 majority that Nollan/Dolan had to be followed even when a permit is denied because the developer refused to accept the exaction. and when the exaction involves money as well as property. In some ways, that case called Ehrlich into question. (CP&DR’s original coverage of Koontz can be found here.)

The transcript of the oral argument is attached to this article.

If you are interested in learning more about how the Sheetz ruling is likely to affect planning practice in California, take Bill Fulton’s one-hour course on exactions and Sheetz, which is available here. The course is eligible for AICP CM credit.