Supreme Court provides more protection for property rights

Earlier this year, City Council approved a plan for the Philadelphia Redevelopment Authority to acquire 17 privately owned parcels in Point Breeze for the future development of affordable housing. The plan was controversial, as are most plans that involve the government using its authority to take private property for public use, a power known as eminent domain.

The Point Breeze action was an example only of the most graceless form of that authority, which comes from the Fifth Amendment to the U.S. Constitution. The city identified private property it wanted to use—for the public good of providing affordable housing—announced that it was going to take it, and then agreed to pay the owners the fair market value of that property. And that’s perfectly legal: the Fifth Amendment protects property owners not from having their property taken at all, only from having it taken “without just compensation.”

In many cases, though, a government’s “taking” of private property, and the property owner’s subsequent constitutional right to “just compensation,” plays out more subtly. Developers and property owners often invoke the Fifth Amendment in much less cut-and-dry situations, like when they feel land use regulations put unfair restrictions on what they can do with their property.

Last week, in one of its less headline-grabbing moves, the United States Supreme Court settled a 20-year-old property rights case with a decision that enlarges the concept of unconstitutional takings.

The case, in a nutshell, played out as follows. A Florida man named Coy Koontz owned 15 acres of wetland property near Orlando, and in 1994 sought a permit to build on some 3.7 acres of that property while dedicating the remainder for conservation. The local water management agency, which gives permits to develop on wetlands, said the 11-acre conservation easement was not enough, and asked Koontz to either limit his development to one acre or pay for the improvement of offsite wetlands. The permitting agency also said it would consider an alternative mitigation plan that Koontz himself could propose.

Koontz refused, and the agency denied the permit. He then sued, arguing that he was entitled to damages under state law because the agency’s refusal to allow him to carry out his proposed development constituted a taking of his property without compensation.

The case worked through the court system. Lower courts sided with Koontz, whose son kept up the battle after he died in 2000, but the Florida Supreme Court ruled in favor of the water management agency. In a 5-4 decision, with Justice Samuel Alito writing the majority opinion, the U.S. Supreme Court reversed the state supreme court’s decision and remanded it back to that court for further proceedings. The decision was hailed as a “property rights victory” in a Wall Street Journal editorial, and a “blow to sustainable development” in a New York Times op-ed.

What it could mean for land use regulation in Philadelphia is likely to become clear only as it gets applied to individual claims of unconstitutional taking.

The makings of takings

The legal concept of what constitutes a “taking” is still evolving. When zoning came into wide use in the early 20th century, individual zoning ordinances were subject to challenges on the theory that, by saying what an individual could and couldn’t do with his or her property, governments were violating the property owners’ constitutional rights. In a landmark 1926 decision, Village of Euclid v. Ambler Realty Co., the Supreme Court ruled that basic land use regulations were a legitimate use of governmental authority.

In the late 1980s and early 1990s, two Supreme Court decisions established a test for determining whether compensation is required in individual takings cases. The “Nollan/Dolan test”—named for the plaintiffs in the separate decisions—requires that government demands of developers must have a “nexus,” or direct connection, and “rough proportionality” with the impact caused by the proposed development.

That test is intended to prevent governments from engaging in outright extortion. The city cannot require, for example, that a developer gut and refurbish a public school as a condition on a permit for building a new house, because the public good of fixing the school is unrelated to and out of proportion with the impact of the proposed development.

While the nexus and proportionality test has been in use for nearly twenty years, the Supreme Court’s recent decision will make it applicable in more circumstances. In the Koontz case, the majority ruled that the legal test must be applied to situations in which a government makes a “monetary exaction,” or charges a fee for environmental mitigation or some other purpose, as a condition for granting a permit. So, even when the government doesn’t take any actual property, a property owner could still make a claim that a fee requirement for a permit is an “unconstitutional condition.”

As Justice Alito wrote, “Extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation.”

That is, a government action can unconstitutionally “burden” an individual right without directly violating it. The majority worries that governments can deprive property owners of their rights by making unconstitutional permitting conditions that the owners would nonetheless give into rather than spend the time and money fighting the condition in court.

In dissent, Justice Elena Kagan worried that the majority decision would make municipalities wary of exercising their legitimate authority to guide land use.

An unwise adventure?

“The boundaries of the majority’s new rule are uncertain,” wrote Justice Kagan, in her dissent. “But it threatens to subject a vast array of land-use regulations, applied daily in States and localities throughout the country, to heightened constitutional scrutiny. I would not embark on so unwise an adventure …”

Kagan, whose dissent was joined by Justices Sonia Sotomayor, Stephen Breyer, and Ruth Bader Ginsburg, said that even if the Florida water management agency had “demanded” that Koontz pay for offsite wetland mitigation, that requirement is not the same as a government taking of property. Therefore, she argued, it shouldn’t trigger the nexus and proportionality test. Governments justly require people to pay money all the time, Kagan said, and applying the “perplexing” Nollan/Dolan test to those basic regulations will diminish “the flexibility of state and local governments to take the most routine actions to enhance their communities …”

In Philadelphia, early reactions to the decision from some land use attorneys were less apprehensive.

Blank Rome attorney Peter Kelsen pointed out that the city’s new zoning code, which he helped write, requires that any condition on a zoning permit must be “reasonably related to the anticipated adverse impacts” of the proposed special exception or variance. He said that the city would have to be careful about officially sanctioning any third-party agreements, like those between developers and community groups, which sometimes contain benefits that are unrelated to projects’ impacts.

“In my practice,” Kelsen said, “I would find it unusual that a condition is so outrageous coming from the city that it would be attackable…”

Robert Fox—a partner at Manko, Gold, Katcher, Fox, who also teaches law courses at Penn and chairs the Lower Merion Zoning Hearing Board—said he was dubious about the Court’s assumption that a taking of any kind was involved in the Koontz case. He said the extension of the nexus and proportionality test to situations in which no taking has occurred could have “a prohibiting effect” on governments looking to enforce environmental regulations or bargain with developers to get public benefits. But, he said, he doesn’t foresee “the parade of horribles” envisioned by Justice Kagan.

Fox said that takings law is a microcosm of the ongoing ideological battle about the proper role of government, and said that the Supreme Court’s recent decision is “absolutely” part of a conservative trend in property rights law.

“I think [the Court] stretched the rubber band a little thin there in terms of what the Fifth Amendment was meant to protect,” Fox said.

George Jugovic, an attorney for the environmental group PennFuture, said it will take time to see what impact the ruling will have in Pennsylvania. He said he understands the dissent’s worry about the majority degrading municipalities’ ability to oversee positive development, but doesn’t think the immediate impact will be all that dramatic.

“I think the concern is that it’s going to chill government regulation and local regulation, because if you have to go through that [nexus and proportionality] process every time someone claims they’ve been disenfranchised, then it’s going to be burdensome on local governments,” Jugovic said.

A spokeswoman for the state Department of Environmental Protection said Monday that the agency is reviewing the decision. 

J. Barry Davis, chief deputy solicitor in the Law Department’s Regulatory Affairs Unit, said the decision is not “earth-shattering,” and doesn’t immediately call into question any local or regional regulations.  

“I think [the case] just offended Alito or conservative members of the Court because of what seemed to be, on its face, a pretty good offer from the property owner in terms of dedicating roughly two thirds of his property under an easement … and then still having the [agency] come back and say, ‘It’s really not enough; we need some more out of you,’” Davis said.

“I’m hoping we’re not being as unreasonable as this district,” he added.

Ballard Spahr attorney Matt McClure said that Philadelphia is trending toward the use of development bonuses, rather than conditions, to get the types of public benefits it wants from builders. In most situations involving height or density bonuses, he said, the takings clause wouldn’t be relevant.

But McClure said he could imagine circumstances in which a city sets base dimensional standards irrationally low in order to extract public benefits from developers who are simply trying to build to scale with surrounding projects. Such a circumstance would be likely to arise in an area with new regulations, and McClure said he “wouldn’t be terribly surprised” to see a property owner try to challenge some aspect of the new Central Delaware zoning overlay, which gives developers size bonuses for public amenities, on the grounds of the recent Supreme Court decision.

Robert Fox said he’s certain to use the case to his clients’ advantage if it is relevant, even if he doesn’t think the decision is exactly right.

“The bottom line is, it’s another legal argument that you have,” he said.