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How Far Can Government Go When it Comes to Permit Conditions?

The United States Supreme Court recently agreed to hear a case brought by a property owner who challenged permit conditions imposed by the St. Johns River Water Management District for permits to develop a portion of the property.

The property owner, Coy A. Koontz, applied for permits to develop 3.7 acres of a 14.2-acre parcel of land in Orange County, Florida. According to Koontz’s petition for certiorari, the District deemed that 3.4 acres of the development site were wetlands. Under state law, permits to dredge and fill the wetlands would require mitigation. The District agreed to issue the permits conditioned on two forms of wetland mitigation:

  1. Dedication of the remaining 11 acres of the parcel to the State of Florida for conservation, and
  2. Payment for enhancements to 50 acres of wetlands owned by the District.

Koontz did not object to the dedication requirement but refused to pay for the off-site improvements, the cost of which his expert estimated was between $90,000 and $150,000. The District denied the permit application.

The Trial Court’s Ruling

The petition states that Koontz brought an inverse-condemnation suit against the District, claiming that the off-site mitigation requirement was an illegal exaction by the District and therefore unconstitutional under the Fifth and Fourteenth Amendments of the United States Constitution. Koontz’s claim was successful in the trial court, which found that the District did not prove the necessary relationship between the requirement to conduct off-site mitigation and the effect of the proposed development on Koontz’s property.

As a result, the trial court concluded, the permit denial was invalid and constituted a regulatory taking. In making its decision, the trial court relied on two U.S. Supreme Court precedents, Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994). Respectively, Nollan and Dolan stand for the propositions that, for the government to impose a condition to development approval, there must be 1) a connection between the condition and the projected impact of the proposed development, and 2) rough proportionality between the required condition and the projected impacts.

After the trial court’s ruling, the District reevaluated the impact of the proposed development, determined that the impact would be substantially less than it originally thought, and issued the permits. The trial court subsequently awarded Koontz $376,154 in damages for the temporary taking of his property during the 11 years that the District had denied the permit.

The District’s Appeal to the Florida Supreme Court

The District appealed the damages award to Koontz, arguing that the Nollan/Dolan rule applies only to permit approvals that contain unconstitutional conditions. In this instance, the District had denied the permit, and therefore, the District argued, Nollan/Dolan did not apply because Koontz had not actually complied with an unconstitutional condition.

The District also argued that Nollan/Dolan applied only to conditions requiring a property owner to dedicate real property, not to a condition requiring the owner to spend money to improve the District’s land. The Fifth District Court of Appeal rejected the District’s arguments and upheld the damages award. In its opinion, however, the court recognized a nationwide split of authority on these issues.

The Florida Supreme Court granted the District’s petition for review of the decision and overturned the lower court’s conclusion that the District’s refusal to issue the permits constituted a temporary regulatory taking. In so deciding, the Florida Supreme Court held that the Nollan/Dolan rule requiring an “essential nexus” and “rough proportionality” only applies where the condition imposed by the government involves a dedication of the property owner’s real property (not money) and when the regulatory agency actually issues the permit.

Petition to the U.S. Supreme Court

Koontz died during the pendency of the litigation. The petition to the U.S. Supreme Court was brought by Koontz’s son, the personal representative of Koontz’s estate, who is represented by the Pacific Legal Foundation. The petition asked the Supreme Court to clarify whether the government can be liable for a taking when it refuses to issue a permit because the applicant refuses to accede to a permit condition that would violate the Nollan/Dolan rule, and whether the Nollan/Dolan rule applies to a permit condition that requires the applicant to dedicate money, services, labor or other personal property (in contrast to real property) to a public use.

In its response opposing the petition to the U.S. Supreme Court, the District argues that the only mitigation Koontz proposed for the wetland impacts was the dedication of the 11 acres of his property. The District stated that this proposal would not be adequate under Florida law, which requires no net adverse impact to wetland resources and functions.

The District further stated that Koontz refused to propose any alternative mitigation options that might have been more palatable to him. The District also argued that Koontz brought a state law takings claim below, not an inverse condemnation case under the U.S. Constitution, and, therefore, the U.S. Supreme Court lacks jurisdiction over the case.

Koontz’s attorneys, the Pacific Legal Foundation, have a strong interest in defending the scope of the Nollan decision; according to the group’s press release, the Pacific Legal Foundation brought the Nollan case to the U.S. Supreme Court.

The outcome of the Koontz case will be closely watched by the Florida development community. Payment for off-site mitigation is routinely required as a condition for local, state, and federal approvals for the development of properties containing wetlands and has become part of the accepted cost of doing business for large property developers.

Ironically, a decision finding such conditions to be an unconstitutional taking could result in greater requirements for impact avoidance and on-site mitigation, giving developers less flexibility to develop their sites to its greatest commercial advantage.