New Hampshire Municipal Association
New Hampshire Municipal Association

New Hampshire Town And City

Conditions Imposed by Local Land Use Boards Now Subject to Heightened Security

New Hampshire Town and City, September/October 2013

By Paul Sanderson

While our articles normally focus on changes made to New Hampshire law by legislative enactment or decisions of the New Hampshire Supreme Court, there are times when the United States Supreme Court renders decisions of such importance that they must be brought to your attention.

 

During this session, the U.S. Supreme Court rendered three decisions brought under the “Takings Clause” of the United States Constitution. That language is part of the Fifth Amendment, and states “...nor shall private property be taken for public use, without just compensation.” This clause is the basis of the law of “eminent domain,” where the public acts to directly take private property and put it to public use. It is also used when private property owners allege that the public is indirectly taking the value of their property, by enacting overbroad regulations or ordinances, by the actual conduct of the governmental agency, or by imposing conditions on development that are unreasonable. This is the law of “inverse condemnation” and the doctrine of “unconstitutional conditions.” When any of these things occur, a court may order the government to pay property owners “just compensation” for the property they have lost.

 

Horne v. Department of Agriculture, opinion issued June 10, 2013

 

The first two decisions can be quickly summarized. In Horne v. Department of Agriculture, opinion issued June 10, 2013, a raisin producer in California was administratively fined under a U.S. Department of Agriculture (USDA) regulation controlling how certain agricultural commodities are marketed. The fine was substantial, amounting to over $483,000.00. The plaintiff was given no opportunity to test the constitutionality of the USDA regulations without first paying the fine to the department, and then filing suit in federal court to obtain a return of the money. A unanimous Court found that this procedural requirement makes little sense, and allowed the injured party to bring suit challenging the regulation in court prior to assessment of the fine. The Court found the “unconstitutional taking” to be the assessment and collection of monetary penalties prior to granting an opportunity to challenge the legality of the underlying decision.

 

The lesson to be learned by our land use boards and governing bodies is that zoning or building code ordinances must include provisions that provide an aggrieved party an opportunity to challenge enforcement actions prior to assessment of fines and penalties. In practice, it is not unusual for code enforcement officials to provide an opportunity for individuals cited with a deficiency to appeal the decision to the local zoning board of adjustment, or building code review board. In such situations, either relief is granted by the board, or the violator receives a second review affirming that there is a deficiency that must be corrected.

 

Arkansas Game and Fish Commission v. United States, opinion issued December 4, 2012

 

In Arkansas Game and Fish Commission v. United States, opinion issued December 4, 2012, the plaintiff operates a large timber growing and wildlife management area bordering the Black River. The U.S. Army Corps of Engineers operates a flood control dam some 115 miles upstream. Periodically from 1993 to 2000, the Corps released an abnormally large amount of water from the dam into the river to provide irrigation waters to farmers downstream. This caused flooding in the timber growing areas and a loss of over 18 million board feet of marketable timber. The plaintiff argued that the temporary intentional release of water caused the flooding, and effectively took the value of the growing timber for public use without compensation. A unanimous decision of the Court found that these actions, although temporary, and not intended to harm the plaintiff, could nevertheless support a takings claim, and sent the parties back to court to continue the litigation and assess damages for the flooding.

 

The lesson for our municipalities is that all governmental projects that result in harm or damage to private property might support a takings claim, even if the damage is temporary and not directly intended to harm the property owner. In practice, it is not unusual for property owners impacted by highway construction or repair to be compensated for such temporary impacts, and for temporary takings of construction and access easements.

 

Koontz v. St. John’s River Management District, opinion issued June 25, 2013

The third decision has resulted in the most comment and disagreement, both among the justices of the Court, and among scholars of takings law. The plaintiff owned a 14.9 acre parcel near a major highway in Florida. Due to the presence of a drainage ditch and high voltage power lines, the parcel was effectively divided into a northern area of about 3.7 acres, with the remainder in the southern area. The northern area was fairly well drained, while the southern area was essentially a wetland where construction should not occur. The plaintiff sought to develop the northern area into a shopping center, and applied to the defendant for the necessary environmental permits under Florida law. To mitigate the effects of development, the plaintiff proposed engineering controls on runoff from the development within the northern area, and also to grant a conservation easement over the southern area to the defendant district.

 

During the review of the application, the District considered the conservation easement offer to be inadequate, and countered that he could either reduce development in the northern area down to 1 acre, install a very costly subsurface drainage system under the proposed buildings, and grant a conservation easement over the remaining 13.9 acres, or he could proceed as planned and construct environmental improvements to 50 acres of District owned lands located some miles away. If plaintiff accepted either of these alternatives, the District staff noted it would “favorably consider” the application.

 

The plaintiff thought the demands to be excessive, and refused to agree to the requested conditions. His application was denied. He did not appeal his denial administratively, but instead immediately commenced suit in state court alleging that the denial of his application resulted in an unconstitutional taking of his property rights. The case proceeded through the state court system, and ultimately the Florida Supreme Court upheld the denial of his application and found that no taking had occurred.

 

The Questions

The U.S. Supreme Court granted review to answer two questions regarding the Takings Clause.

 

Has a “taking” occurred if, instead of approving a building permit on the condition that the applicant relinquish an interest in real property, the government simply refuses to approve such a permit until a condition is satisfied?

 

Has a “taking” occurred if the condition entails the payment or expenditure of money instead of relinquishment of a real property interest?

 

The majority and dissenting opinions of this 5-4 decision together cover some 40 pages, and are too complex to cover all of the points raised in an article of this length. However, the primary holding of the case, and the argument of the dissenting opinion, are important for all land use board members to understand.

 

The Majority Opinion

The majority opinion was authored by Justice Alito. He began by explaining the “unconstitutional conditions doctrine”, which provides that “the government may not deny a benefit to a person because he exercises a constitutional right.” He noted that land use permit applicants are especially vulnerable to coercion because the “...government has broad discretion to deny a permit that is worth far more than the property it would like to take. By conditioning a building permit on the owner’s deeding over a public right-of-way, for example, the government can pressure an owner into voluntarily giving up property for which the Fifth Amendment would otherwise require just compensation. ...Extortionate demands of this sort frustrate the Fifth Amendment right to just compensation, and the unconstitutional conditions doctrine prohibits them.”

 

That does not mean that land use boards can’t impose conditions upon developments. Instead, the test imposed by previous U.S. Supreme Court cases is that there must be a “nexus” between the condition imposed and the cost of the development to society, and there must be a “rough proportionality” between the cost of compliance with the condition and the cost of the development to society. The cases describing the test are Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994).

 

This case caused difficulty because the regulator did no more than deny the application for relief. No property was ever taken from this plaintiff. The majority answered its first question by holding as follows,

 

“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. As in other unconstitutional conditions cases in which someone refuses to cede a constitutional right in the face of coercive pressure, the impermissible denial of a governmental benefit is a constitutionally cognizable injury.” Citing other precedent they wrote, “The government cannot sidestep constitutional protections, merely by rephrasing its decision from ‘only if’ to ‘not unless’. To do so here would effectively render Nollan and Dolan a dead letter.”

 

In other words, when a land use board refuses to issue a permit unless the applicant first gives in to pressure to give up part of its property, an unconstitutional taking may have occurred.

 

The majority answered the second question by finding that land use boards also may not unfairly burden the legitimate development of real property by exaction of money instead of interests in real property. In this case, one of the alternatives offered to the applicant was the ability to mitigate the environmental cost of the project by constructing environmentally beneficial improvements offsite. That is, by expending money offsite to achieve environmental objectives, the cost to society could be balanced. This holding has now extended the tests of Nollan and Dolan to situations where offsite environmental mitigation is proposed, or there is a proposal to pay a fee in lieu of actual construction of such projects. Mitigation proposals must now meet both the “nexus” and “rough proportionality” tests of these cases in order to avoid a potential takings claim.

 

The Dissent

The four justices joining in the dissent have no quarrel with the answer to the first question posed. As Justice Kagan wrote,

 

“The Nollan-Dolan standard applies not only when the government approves a development permit conditioned on the owner’s conveyance of a property interest (ie., imposes a condition subsequent), but also when the government denies a permit until the owner meets the condition (ie., imposes a condition precedent).”

 

They do, however, take issue with the answer to the second question, arguing that the majority’s holding deviates from prior decisions of the court. They believe that the rule had been well established that requiring applicants to pay any amount of money to repair public wetlands was not a taking under the federal constitution. Following this case, such exactions must be reasonable under the “nexus” and “rough proportionality” tests to survive constitutional review. The dissenters believe that this new rule will cause significant practical harm in the administration of land use permitting schemes across the country because the standards are very difficult to apply in the real world.

 

The Lessons

All nine justices agree that any condition imposed upon a land use applicant must have a “nexus” to the actual project under consideration, and the cost of compliance with the condition must be “roughly proportional” to the cost that the development imposes upon society. Therefore, any condition imposed upon a land use applicant must be carefully crafted to meet these tests, or the land use board runs a risk of being found to have violated the applicant’s constitutional rights under the Fifth Amendment.

 

Fortunately, New Hampshire law is substantially the same. Note the language in the following portions of RSA 674:21, dealing with the concept of “impact fees”:

 

“V(a)...The amount of any such fee shall be a proportional share of municipal capital improvement costs which is reasonably related to the capital needs created by the development, and to the benefits accruing to the development from the capital improvements financed by the fee. Upgrading of existing facilities and infrastructures, the need for which is not created by new development, shall not be paid for by impact fees.”

 

“V(j)...The failure to adopt an impact fee ordinance shall not preclude a municipality from requiring developers to pay an exaction for the cost of off-site improvement needs determined by the planning board to be necessary for the occupancy of any portion of a development. For the purposes of this subparagraph, “off-site improvements’’ means those improvements that are necessitated by a development but which are located outside the boundaries of the property that is subject to a subdivision plat or site plan approval by the planning board. Such off-site improvements shall be limited to any necessary highway, drainage, and sewer and water upgrades pertinent to that development. ...”

 

What is now unclear is the status of any “fee in lieu of mitigation” program that may be imposed by state administrative rule or local ordinance. That is, the amount of the fee exacted must now meet the Nollan/Dolan tests of “nexus” and “rough proportionality” in order to be constitutionally applied. The Koontz opinion does not give us the final answer. The Supreme Court did not find that the proposed option of repair of 50 acres of wetland in mitigation of damage to 3.7 acres was unconstitutional. Instead, it remanded the question back to the Florida courts to have the issue litigated in accordance with the new tests. We simply do not know when a “fee in lieu of mitigation” will be found to be reasonable, and when it will be struck down.

 

Following the release of this opinion, more is now at stake every time a land use board member makes a decision on a condition to be imposed upon an applicant. In the past, the primary risk was that the decision would be overturned upon appeal to the Superior Court or the New Hampshire Supreme Court, and returned to the land use board for additional proceedings. Now, there is the added risk that the municipality and the individual members of the boards could be alleged to have violated a federally guaranteed right of an applicant, giving rise to potential federal liability under 42 U.S.C Section 1983. This statute provides a federal remedy to any person who has been deprived of a federally guaranteed constitutional right, and could result not only in monetary damages, but also a duty to pay the attorney’s fees of the applicant in the litigation.

 

While individual board members must be indemnified against the cost of such claims by the municipality in accordance with RSA 31:106, that protection applies only if board members are acting in good faith in accordance with their statutory authority. Thus, board members should act carefully and create a good basis in the record of the land use case that board members have made an estimation of the costs imposed by the development; that the cost of compliance with their proposed conditions is roughly proportional to the estimated costs imposed by the development; and that their proposed conditions are directly related to resolving the social costs actually imposed by the proposed development.

 

In the coming months, scholars will write more about this case and the standards it imposes. Additional litigation will certainly be filed testing the boundaries of conditions precedent, conditions subsequent, and whether the costs of compliance are “roughly proportional” to the costs caused by the development. Stay tuned for more on this issue, but in the meantime, as a board member, exercise a heightened level of care in drafting your conditions upon developers. They and their counsel will be examining the conditions under the new tests announced in this case, and will probably not hesitate to file a challenge if they believe your regulatory conditions cross the line.

 

Paul Sanderson is Staff Attorney for the New Hampshire Municipal Association. He may be contacted at 800.852.3358 ext. 3408 or at legalinquiries@nhmunicipal.org.

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