Posts Tagged ‘Regulatory Taking’


On rehearing, the Second Appellate District determined a public access easement required in a coastal development permit was an unconstitutional exaction based on the facts in the case Bowman v. California Coastal Commission, Case No. B243015 (Oct. 23, 2014). An earlier blog post describing the court’s original published opinion and the underlying facts of the case can be found here.

In short, Walton Emmick purchased approximately 400 acres of land in San Luis Obispo County that contained a single, uninhabitable residence and a barn in a state of disrepair. In 2002, Emmick applied to the County for a coastal development permit (CDP) to connect an existing well to the house. Emmick also received over-the-counter permits authorizing dry-rot removal and repairs to the roof and deck. Significantly, the County Code exempts repair and maintenance activities “that do not result in any change to the approved land use of the site or building…” from CDP requirements. Emmick began work pursuant to the over-the-counter construction permits but did not begin any of the work under the CDP.

As explained in the prior opinion, the original CPD included a condition imposing a lateral easement for public access along the shorefront portion of the property. No appeal to this condition was filed. Later, however, the County rescinded the first CDP and issued a second CDP that removed the condition imposing the easement. Environmental groups and two coastal commissioners appealed the second CDP to the California Coastal Commission, and the Commission accepted jurisdiction. After hearing, the Commission determined that the easement condition contained in the original CDP was permanent and binding on the landowner, and removal of the easement condition would violate the policy favoring public access to coastal resources. The Commission conditioned its permits on the implementation of the easement contained in the County’s original CDP.

Emmick’s estate filed a petition for an administrative writ of mandate to eliminate the public access condition from the CDP. The estate argued that the access easement condition constitutes an unlawful exaction of its property under the Fifth Amendment.

In its original opinion, the Court of Appeal denied the petition. The court determined that the estate failed to exhaust its administrative remedies because it had not challenged the County’s original CDP imposing the easement condition. Ordinarily, explained the court, the failure to pursue administrative remedies in an administrative mandamus action will bar a party from pursuing a remedy in court under the doctrine of collateral estoppel. In reaching the conclusion that Emmick’s estate had failed to exhaust, the court determined that Emmick had relied on the original CDP to make improvements on the property.

On rehearing, the court emphasized that, in fact, Emmick only completed work pursuant to the over-the-counter permits. Since these improvements were exempt from CDP requirements, the court concluded that Emmick had not relied on the original CDP. In light of these facts, the court concluded the doctrine of collateral estoppel did not support the court barring Emmick’s arguments due to a failure to exhaust administrative remedies.

The court then considered whether the access easement condition violated the Nollan and Dolan regulatory takings test: an argument the court did not previously reach. In this case, the easement lacked the “essential nexus” required by those cases since Emmick never accepted any benefit of the original CDP. Therefore, forcing Emmick to accept the access easement condition would amount to an unconstitutional taking.

This case presents an unusual about-face from an appellate court following a rehearing on a published opinion. The result of the rehearing here emphasizes the importance of the factual record in a mandamus case.

 

Court of Appeal Holds Required Overflight Easement in Exchange for Building Permit is Not a Taking

In Powell v. County of Humboldt, the First District Court of Appeal held that the required dedication of an airspace easement in exchange for a building permit was not an unconstitutional government taking under either state or federal law.

The Powells purchased a property containing a mobile home with an illegal attached covered porch and carport. When the Powells applied for an after-the-fact building permit, the County informed them that they would need to grant an airspace easement over their home in order to obtain the permit. The Humboldt County General Plan requires, as a condition for obtaining a building permit, that private property owners provide an aircraft overflight easement allowing planes from the nearby airport to fly overhead. The Powells sued, claiming the requirement was a government taking for which compensation was due.

The Fifth Amendment to the United States Constitution states that private property shall not be taken for public use without just compensation. Several Supreme Court cases have attempted to define what it means to “take” property. One way the government can effectuate a taking is through physical invasion of one’s property. (Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 U.S. 419.) Another way to take property is by depriving an owner of all economically beneficial use of that property. (Lucas v. S.C. Coastal Council (1992) 505 U.S. 1003.) The government can also effect a taking with regulation that interferes with investment-backed expectations of the property owner. (Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104.) Here, the Court of Appeal found there was no physical invasion, deprivation of all beneficial use of the property, or interference with the Powells’ investment-backed expectations.

The court also assessed the Powells’ claim within the framework of the Nollan/Dolan cases. (Nollan v. California Coastal Commission (1987) 483 U.S. 825; Dolan v. City of Tigard (1994) 512 U.S. 374.) Nollan and Dolan both involved regulatory takings resulting from government demands that a landowner dedicate an easement allowing public access to the owner’s property as a condition of obtaining a development permit. The court noted that in both of those cases the dedications were so onerous that the exactions were essentially deemed per se physical takings. Here, however, even under California’s more expansive takings clause (whereby property damage may be considered a taking), the easement did not rise to the level of a per se physical taking. There was no evidence that the overflight easement would invade the Powells’ private airspace, substantially interfere with the use and enjoyment of their property, or cause a measureable reduction in the property’s value.

The court noted that this easement could, under the right circumstances, be considered a taking. The Powells, however, failed to present sufficient evidence that at the time of their suit, the practical effect of the easement was to bring about such a taking. The court found nothing to preclude the Powells from seeking just compensation if airport operations substantially increased in the future.

In Contasti v. City of Solana Beach (Oct. 22, 2013) 2013 U.S. Dist. LEXIS 15760 (Case No. 09CV1371), the United States District Court for the Southern District of California held that landowners had no Fourteenth Amendment property right in the use of their land where a city had broad discretion to decide whether to grant a development permit. The landowners could not reasonably rely on the benefit of development where it was clearly within the city’s power to deny that benefit, and the city had acted within its discretion.

Background. Plaintiffs were the owners of two adjacent lots in the City of Solana Beach. They submitted applications to build one home on each lot. The city approved the first application but denied the second, which proposed a 4,387 square foot house. Plaintiffs sued over the denial, claiming that the city had violated their constitutional substantive due process rights by denying them a protected property interest—their right to develop.

District court decision.  The court rejected the claim, finding no protected property interest under Fourteenth Amendment.  The Supreme Court in Board of Regents of State Colleges v. Roth explained that to have a property interest in a benefit, one must have a legitimate claim of entitlement to that benefit under state law. Where government officials are given a large amount of discretion in conferring that benefit, the court reasoned there can be no reasonable expectation of entitlement.

The plaintiffs in Contasti argued that they were entitled to the requested development permit, and thus had a constitutionally protected property interest. However, the Solana Beach Municipal Code gave significant discretion to the city council to approve or disapprove development projects. The code required the city council to review each development proposal to determine whether it was compatible with existing and potential development in the project area. Given that plaintiffs’ proposed residence for the second lot was 2,700 square feet larger than the average existing residences, and 387 square feet larger than the maximum size of future residences in the area, the city had found that the development plan for plaintiffs’ second lot was not in harmony with the surrounding area as required by the municipal code.

The court held that the city council complied with all requirements of the local municipal code and had rendered a decision based on those criteria. Thus, plaintiffs could not claim a property entitlement in their development permit given the city’s discretionary review.

In a 5-4 decision written by Justice Alito, the Supreme Court of the United States reversed the Florida Supreme Court in Koontz v. St. Johns River Water Management District, holding that the government cannot condition the issuance of a land-use permit on the applicant giving up a portion of his property, including financial property, unless there is a “nexus” and “rough proportionality” between the government’s demand and the proposed land use.

Background

Two earlier Supreme Court cases, Nollan v. California Coastal Commission, and Dolan v. City of Tigard, set limits on governments’ ability to impair property interests with land use regulations. Under those decisions, there must be a “nexus” and “rough proportionality” between the government’s demand and the effects of the proposed land use. This test was historically applied when the government requested that the owner relinquish some of his or her property, like an easement, as a condition on a land use permit.

In this case, Koontz sought to develop his land in Florida. The land was classified as wetlands, and Florida law requires permit applicants wishing to build on wetlands to offset the resulting environmental damage by creating, enhancing, or preserving wetlands elsewhere. Koontz offered to mitigate by deeding to the defendant water management district a conservation easement on nearly three-quarters of the property. The district found this mitigation inadequate.  The district then suggested that they would grant his permit request if he reduced the size of his development even further (from 3.7 acres to 1 acre) or hired contractors to make improvements to district-owned wetlands several miles away. Koontz did neither; instead he sued under a state law permitting him to seek damages for agency action that is an “unreasonable exercise of the state’s police power constituting a taking without just compensation.”

The trial court and the appellate court in Florida found that the district’s demand failed the Nollan-Dolan test. The Florida Supreme Court reversed, holding that Koontz did not have a claim because: (1) the Nollan-Dolan standard does not apply to the denial of a permit; and (2) the standard does not apply to a demand for the payment of money. Koontz appealed to the U.S. Supreme Court.

Supreme Court’s Decision

On the first issue, both the majority and the dissent (authored by Justice Kagan) agreed that the denial of a permit should be held to the Nollan-Dolan standard. If the government coerces the project applicant into giving up property rights—a condition precedent—that implicates the Fifth Amendment in the same way that granting a permit with conditions does—a condition subsequent. To hold otherwise would allow governments to evade the Nollan-Dolan limitations by framing demands as conditions precedent.

The majority and the dissent disagreed on the second issue: whether monetary exactions were subject to the same limitation. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, believed that this issue had already been settled in Eastern Enterprises v. Apfel, 524 U.S. 498 (1998). In Eastern Enterprises, the court held that the Takings Clause did not apply to government-imposed financial obligations “that do not operate upon or alter an identified property interest.” Justice Alito felt that Koontz’ property interest was altered by the District’s demand for money to improve wetlands on a District-owned parcel because of the direct link between the government’s demand and a specific parcel of real property. The dissent disagreed since it was not Koontz’s property that was affected, but the public wetlands. Citing Eastern Enterprises, the court saw this as the government simply imposing “an obligation to perform an act that costs money.” The District did not place any restrictions on Koontz’s property. They did not demand any particular lien, or bank account, or income stream from property. So according to the dissent, Koontz was never asked to relinquish a constitutional right.

The majority believed that this was a clear application of the unconstitutional conditions doctrine, which prevents the government from denying a benefit to a person because he exercises a constitutional right. Here, according to the majority, Koontz was exercising his constitutional right not to have his property taken without just compensation and should not have his permit denied because of that exercise. The majority emphasized that land-use permit applicants are especially vulnerable to the type of coercion that the unconstitutional conditions doctrine prohibits, because the government often has broad discretion to deny a permit that is worth far more than the property it would like to take. This makes the landowners likely to accede to the government’s demand, no matter how unreasonable.

The dissent viewed the District’s request as part of a negotiation process with the developer, not as an unconstitutional condition. In his permit application, Koontz suggested one kind of mitigation (a conservation easement on his property). The District found this inadequate and countered with other forms of mitigation that would be acceptable (a larger easement or improving public wetlands). There were no conditions placed on the permit itself, only a suggestion of how the permit application could comply with state law. Had the District denied the permits outright, without providing Koontz with suggestions on how to modify his applications, it would not have run afoul of the Takings Clause under the majority’s test. The dissent expressed concern that the majority’s reasoning will prevent local governments from providing suggestions to or negotiating with project applicants.

Implications

This decision extends the Takings Clause into more local land-use actions. Property owners can challenge demands for money during the permit application process, whether the demand comes before or after the permit is granted. This will only result in compensation, however, when property is actually taken. In this case, Koontz was not entitled to just compensation under the Fifth Amendment because he never paid for the improvements to the other wetlands.

The majority emphasized that the decision does not prevent local governments from insisting that the “applicants bear the full costs of their proposals.” Rather, they are only “forbidding the government from engaging in out-and-out extortion that would thwart the Fifth Amendment right to just compensation.” Taxes and user fees are not takings, so this case “does not affect the ability of governments to impose property taxes, user fees, and similar laws and regulations that may impose financial burdens on property owners.” The court did not decide “at precisely what point a land-use permitting charge denominated by the government as a ‘tax’ becomes so arbitrary that it was not the exertion of taxation but a confiscation of property,” but noted that the determining if something is a tax or a taking is more difficult in theory than in practice. The dissent disagreed, and would have preferred the majority provide a more straight-forward, like the one used in California, which states that Nollan-Dolan only applies to permitted fees that are imposed ad hoc, and not to fees that are generally applicable. Finally, the majority emphasized that “so long as a permitting authority offers the landowner at least one alternative that would satisfy Nollan and Dolan, the landowner has not been subjected to an unconstitutional condition.”

In Lockaway Storage v. County of Alameda (2013) ___ Cal.App.4th ___ (Case No. A130874), the First District Court of Appeal held that Alameda County’s application of a voter-approved growth control initiative resulted in a compensable temporary regulatory taking entitling the property owner to nearly $1 million in damages and over $725,000 in attorneys’ fees.

Background

Lockaway is a general partnership that develops, owns, and operates storage facilities.  It has owned a parcel of land in Alameda County since 2000.  In 1999 the County approved a conditional use permit for the property authorizing a storage facility at the site. The CUP required that it be implemented within three years of its issuance, or it would expire on September 22, 2002.  When Lockaway purchased the property in May 2000, it assumed the rights and obligations of the seller in the CUP.

In November 2000, Alameda County voters enacted Measure D. Among other things, Measure D prohibits the development of a storage facility in the area of Lockaway’s property, except by public vote and explicitly states that no use permit which is inconsistent with the measure can be approved or granted. Notwithstanding that proscription, other sections of Measure D limit its application.  Section 22, for example, is a grandfather clause that explains the ordinance does not affect existing parcels, development, structures, and uses that are legal at the time the ordinance became effective, provided the development had received all discretionary approvals and permits.

Lockaway continued to pursue its plan to develop the property even after Measure D became effective.  Towards the end of the planning phase, Lockaway received assurances from the County that the CUP would be formally implemented before the September 22, 2002 deadline.  On August 30, 2002, however, the County informed Lockaway that unless it obtained a new CUP, it could not proceed with the project after the 1999 CUP terminated. Lockaway, therefore, applied for a new CUP on September 3, 2002, but the County did not issue a building permit for the project prior to the September 22 deadline.

At a September 23, 2002 hearing to consider Lockaway’s application for a new CUP, the County took the position that Measure D barred to the project because Lockaway had not obtained a building permit and commenced construction prior to Measure D’s September 22, 2000 effective date. Lockaway argued that its right to complete the project was unaffected by Measure D because the 1999 CUP was grandfathered in and was implemented before it expired.  The County ultimately determined that the project was subject to Measure D and all work on the project stopped.

Lockaway sued the County for inverse condemnation and civil rights violations. The superior court issued a writ of mandate authorizing the project to proceed.  Although it initially resisted complying with the writ, the County ultimately acquiesced and issued the necessary approvals in August 2005.  During the damages phase of the trial, the superior court determined that the County was liable for a temporary regulatory taking and awarded Lockaway $989,640.96.  The court also awarded Lockaway attorney fees totaling $728,015.50. The County appealed.

Lockaway’s Project Was Unaffected by Measure D

The court held that the Lockaway project was unaffected by Measure D because it fit squarely within the grandfathering exemption. When Lockaway purchased the property in May 2000, the County had already issued all discretionary approvals for the project. Subsequent permits were not discretionary, but rather, ministerial in nature.  Moreover, the court held that the County had waived this argument by conceding it the trial level.

The County’s Actions Effectuated a Regulatory Taking

Applying the three-factor test articulated by the U.S. Supreme Court in Penn Central Transportation Corporation v. New York City, the court held that the County’s temporary suspension of the project amounted to a constitutional taking under the Fifth Amendment.  First, the court held that the County’s action unreasonably impaired the value and use of the property.  Although there were other uses that would have been consistent with Measure D, requiring Lockaway to pursue some different authorized use other than a storage facility would have deprived Lockaway of the return on investment that it reasonably expected from its intended use.  Moreover, by the time County first told Lockaway that Measure D would stop the project, Lockaway was already fully committed to developing the storage facility and would have incurred substantial loss to convert the property to another use. Thus, the court held that the County’s regulatory action unreasonably impaired both the value and use of the Lockaway Property.

Second, the court held that Lockaway had a reasonable investment-backed expectation that its project could proceed because Lockaway purchased the property only after the County expressly confirmed that it could rely on the 1999 CUP. County staff even worked with Lockaway for a few years before the County changed its position once the September 22, 2002 expiration date had passed.

The third Penn Central factor required the court to consider the character of the County’s action.  The court held that the County’s “regulatory about face” was manifestly unreasonable because it deprived Lockaway of a meaningful opportunity to attempt to protect its property rights.   According to the court, the County should have taken action to shut down the project when Measure D took effect, rather than encouraging Lockaway to continue development. The court also took issue with the County’s refusal to even consider whether the grandfathering section of Measure D exempted the project. The court further held that, under these facts, the County’s decision to abandon the approvals for the Lockaway project could not be justified as a “mere” consequence of a public program. The court, therefore, had no problem finding that a compensable temporary regulatory taking had occurred, and upheld the trial court’s damages award.

Award of Attorney Fees Was within the Scope of the Trial Court’s Discretion

Lastly, the County argued that even if the judgment was affirmed, the award of attorneys’ fees to Lockaway should be reversed because the fee award included compensation for work attributable to civil rights causes of action on which Lockaway did not prevail. The court disagreed. It held that the trial court had discretion to award fees incurred with respect to the civil rights cause of action because they were relevant to the inverse condemnation claim. It was clear that the degree of interconnection between the various causes of action was a key consideration for the trial court in awarding fees.  Although the trial court did not explicitly state that it was awarding fees for the civil rights claims based on their relevance to the inverse condemnation claim, the court had no difficulty in concluding that such a finding was implied. The court, therefore, upheld the nearly $1 million attorneys’ fee award in its entirety.