The U.S. Supreme Court has tightened the screws on exactions, ruling in a case from Florida that government agencies must follow the Nollan/Dolan doctrine – even when a permit is denied and when the exaction involves money as well as property.

At a glance, the ruling would appear to strike down the California Supreme Court's 17-year-old ruling in Ehrlich v. Culver City, 12 Cal.4th 854, which gave cities and counties more leeway on exactions when they are imposed as part of a general plan policy rather than a one-off permit. 

The Nollan/Dolan doctrine demands that exactions imposed on developers be closely connected to the development's impacts. In Nollan v. California Coastal Commission, 483 U.S. 825 (1987), the Supreme Court ruled that there must be a "rational nexus" between a development and an exaction. In Dolan v. City of Tigard, 512 U.S. 374 (1994), the Supreme Court ruled that there must be "rough proportionality" between the cost of the impact created and the cost of the exaction demanded. 

In Koontz v. St. Johns Water Management District, the court ruled 5-4 – along predictable ideological grounds – that these two rules apply in a situation where a property owner declined to accept the exactions and therefore the permit was denied. The court also ruled that there is no difference between an exaction of property and an exaction of money.

Writing for the five-justice majority, Justice Samuel Alito resolved the most basic question in the case by saying that an actual taking did not have to occur in order for the property owner to have his constitutional rights violated. "Extortionate demands for property in the land-use permitting context run afoul of the Takings clause [of the U.S. Constitution] not because they take property but because they impermissibly burden the right not to have property taken without just compensation." He added: "[T]he impermissible denaiol of a government benefit is a constitutionally cognizable injury."

Writing for the four-judge minority, Justice Elena Kagan predicted that the ruling's effects would be widespread and confusing because ordinary fee setting will now be subject to federal constitutional tests. "The Federal Constitution … will decide whether one town is overcharging for sewage, or another is setting the price to sell liquor too high." 

The facts of the case will be pretty familiar to anybody who follows California land-use regulation and wetlands regulation in particular. Property owner Cory Koontz bought a piece of land along the East-West Expressway east of Orlando in 1972, then lost part of it via eminent domain for an extension of the highway in 1987. Koontz was left with 14.2 acres of land, of which 12.8 acres is located in the Riparian Habitat Protection Zone (RHPZ) of the Econlockhatchee River Hydrological Basin and therefore subject to regulation by the water district.

In 1994, Coontz sought approval to develop 3.7 acres of the property, of which 3.4 acres were wetlands and 0.3 acres were uplands. This was the portion of the property closest to highway. The water district agreed to permit this development so long as Koontz dedicated the remaining 10.5 acres to a conservation area and engaged in a variety of offsite mitigation efforts, including replacing culverts and plugging drainage canals several miles away. As an alternative. the water district said he could reduce his project to one acre and dedicate the rest to the conservation district. Koontz rejected the offsite mitigation and the alternative and the water district denied his permits.

Writing for the court, Alito stopped short of deciding whether the property owner was entitled to monetary damages and remanded the case to Florida courts for further discussion.

As stated above, by subjecting all exactions to the Nollan/Dolan test, Koontz would appear to overrule the longstanding Ehrlich rule in California, which permits more flexibility on exactions if they are imposed as part of an overall policy such as a general plan. Koontz would appear to eliminate any such flexibility.

The Koontz ruling put to rest the idea that a conservative justice – possibly Antonin Scalia – would cross over to the liberal camp on the argument that the Takings clause cannot be applied in a case where a permit was not issued and therefore nothing was actually taken. He appeared to be leaning in that direction during oral argument. In the end, however, he sided with his conservative brethren.

Koontz is notably for its unusually cross-referential banter between Alito and Kagan. Each refers to the other's opinion repeatedly and refutes it at length. As is his custom, Alito cloaked his ruling in arcane cases from long ago, a palpable anti-government streak (he used the word "confiscate" four times), and an unwillingness to play out the consequences of the ruling. Indeed, he spends a significant amount of time in his ruling explaining why the court does not need to go further than simply rule whether the Nollan/Dolan doctrine applies. He bases his opinion in large part on the doctrine of "unconstitutional conditions" – a doctrine rarely relied on, at least overtly, in land use cases – and his view that exactions are similar to liens, a notion that has rarely been put forth previously in a land use case.

By contrast, Kagan's dissent is written in a straightforward fashion that is much more accessible to the lay reader and deals more extensively with the likely consequences of the ruling.

Indeed, throughout both opinions, it is sometimes not clear whether or not the two justices are even talking about the same case. Kagan's interpretation of the interplay between the water district and Koontz is far different from Alito's, and this interpretation plays a big role in her conclusions. Alito accepted Koontz's version of the facts, saying that the water district gave Koontz two alternative mitigation proposals, both excessive. Kagan's dissent oozed skepticism about this black-and-white view of what happened, saying instead that the water district had simply proposed two mitigation options as possibilities and invited Koontz to negotiate further.

"[T]he District never made a demand or set a condition – not to cede an identifiable property interest, not to undertake a particular mitigation project, not even to write a check to the government. Instead, the District suggested to Koontz several non-exclusive ways to make his applications conform to state law."

This interpretation led her to argue that if even casual negotiations between government agencies and developers are subject to the Nollan/Dolan rule, then government agencies will simply stop negotiating with developers and turn permits down – not a good outcome for developers.