What Counts As an Exaction?

In Nollan v. California Coastal Commission, 483 US 825, and Dolan v. City of Tigard, 512 US 374, the United States Supreme Court established that constitutional scrutiny of government exactions is more stringent than constitutional scrutiny of other land use controls. Last month, the New York Court of Appeals addressed an issue not fully resolved by Nollan and Dolan: What counts as an exaction for takings clause analysis?

The Smith Case

Smith v. Town of Mendon (NYLJ 12/22/04, p. 19, col. 1) involved an application by the Smiths for site plan approval to build a single-family house on a portion of their 9.7-acre tract. Part of the tract, but not the proposed house, sat within areas classified by the Town Code as environmental protection overlay districts (EPODs). The first of these, a “steep slope” EPOD, prohibited construction and other activities without a development permit, which would be granted only if the landowner demonstrates that the proposed activity would not destabilize the soil, cause erosion, or destroy ground cover, and if the landowner demonstrates that there is no reasonable alternative to the proposed activity. The other EPODs, which apply to lands bordering a major creek, to established wooded areas, and to flood plains, include similar restrictions.

In response to the Smith's application, the Town Planning Board concluded that the proposed house would not result in any adverse environmental impact so long as no development occurred within the EPOD portions of the site. As a result, the Board granted the application on condition that the Smiths file a conservation restriction on any development within the EPODs. The conservation restriction would prohibit construction, clear-cutting of trees, removal of vegetation, and use of motorized vehicles, but would otherwise leave the Smiths with “full use and quiet enjoyment” of the EPODs, including the right to exclude others from the entire tract. The Smiths, however, refused to file the conservation restriction, and instead brought a hybrid action/declaratory judgment proceeding, asserting that the town's action constituted an unconstitutional taking. Supreme Court and the Appellate Division rejected the claim, and the Smiths appealed.

Nollan and Dolan

In the Nollan case, supra, the United States Supreme Court confronted a California determination that granted the landowner a permit to expand a beachfront house on condition that the landowner dedicate to the town a lateral easement. The Commission justified the permit condition on the ground that the expanded house would constitute an increased obstruction to the public's visual access to the beach. When the landowner challenged the constitutionality of the permit condition, the Supreme Court started by assuming (without deciding) that the Coastal Commission would have been able to issue an outright denial of the permit to the Nollans because of the alleged visual obstruction caused by the proposed house. (483 US at 835). The Court then reasoned that the power to ban construction “must surely include the power to condition construction upon some concession by the owner, even a concession of property rights, that serves the same end.” (Id. at 836). But the Court went on to hold that the constitutional validity of the condition disappears if the purpose for imposing the condition bears no nexus to the purpose for the original development ban. In Justice Scalia's words, “[w]hen that essential nexus is eliminated, the situation becomes the same as if California law forbade shouting fire in a crowded theater, but granted dispensations to those willing to contribute $100 to the state treasury.” (Id. at 837). Because the Court's majority found no nexus between the reasons for the Coastal Commission's development ban and the reasons for the lateral easement, the Court held that the Commission's action was unconstitutional.

In Dolan, the Supreme Court refined the Nollan rule, holding that when a municipality imposes an exaction as a condition for development, the required dedication must be “roughly proportional” both “in nature and extent to the impact of the proposed development.”512 US at 391. In Dolan, the Court invalidated the city's requirement that landowner, who sought to expand her plumbing supply store, dedicate about 10% of her land for improvement of a storm drainage system and creation of a pedestrian/bicycle pathway. The Court held that the city had not made the required showing that the required dedication was roughly proportional to the impact of the expanded store.

Together, Nollan and Dolan establish that the Supreme Court's scrutiny of municipal exactions is significantly more stringent than the deferential “Penn Central” balancing standard the court applies in ordinary takings cases. See Penn Central Transp. Co. v. City of New York, 438 US 104. But in neither case did the Court fully explain what sort of dedication triggers its exaction analysis.

The Smith Majority

Against that background, Judge Rosenblatt, writing for the Court of Appeals majority in Smith, concluded — relying on dicta in the Supreme Court's opinion in City of Monterey v. Del Monte Dunes, 526 US 687 — that the exaction analysis applies only when a municipality has required a dedication of property to public use. In the majority's view, no such dedication was required in Smith, because the Smiths — unlike the Nollans and Ms. Dolan — retained the right to exclude others from their entire tract. Moreover, the majority concluded that in any event, the conservation restriction required the Smiths to give up no more than the right to seek a variance from the EPOD ordinance — a right the majority characterized as “trifling,” and perhaps too insignificant to characterize as a property right. Hence, the court analyzed the planning board's decision under the deferential Penn Central standard, and upheld the board's decision.

Judge Read's Dissent

Judge Read, dissenting for herself and Judge Robert Smith, focused on the same dicta from City of Monterey; in particular, Justice Kennedy's assertion that “we have not extended the rough proportionality test of Dolan beyond the special context of exactions — land-use decisions conditioning approval of development on the dedication of property to public use.” 526 US at 702. But Judge Read concluded that the critical language in City of Monterey was “conditioning,” and she read Nollan and Dolan to apply more broadly whenever a development permit is conditioned on a land use restriction. In Smith, the permit was conditioned on dedication of a conservation easement, triggering Nollan and Dolan. Because the town had not demonstrated any relationship between construction of the proposed house and environmental harm that the conservation easement would mitigate, she would have held the town's action to constitute a taking. (Judge Graffeo, in a separate dissent, concluded that the debate was unnecessary because the town's action constituted a taking even under the Penn Central standard).

Analysis

Unfortunately, both the majority opinion and Judge Read's dissent misunderstood the import of Nollan and Dolan. The first step in a Nollan/Dolan analysis is to determine whether the required dedication — if separated from the development prohibition — would constitute a taking. In Nollan, Justice Scalia had no difficulty concluding that the Coastal Commission could not require the Nollans to convey a lateral easement without compensation. Similarly, in Dolan, the Court had no difficulty concluding that the city could not require Ms. Dolan to convey a portion of her land for a pedestrian/bicycle path without compensation. Similarly, a requirement that random individuals pay $100 into the municipal coffers would constitute an unconstitutional taking. If the required dedication (or fee) would constitute a taking if separated from the development prohibition, then and only then do the Nollan/Dolan standards become relevant. The “exaction” is the requirement that a person — generally a landowner — give up a constitutionally protected right.

If the landowner has been required to give up such a right as a condition for grant of a permit, then the condition passes constitutional muster if the exaction is roughly proportional — in nature and extent — to the impact of the proposed development.

Thus, the Smith majority missed the point by focusing on the rights retained by the Smiths — particularly the right to exclude. The majority opinion is consistent with Nollan and Dolan only if the court's reference to the “trifling” nature of the Smiths' loss can be read to suggest that the town had the power to impose a development ban without compensation. At the same time, Judge Read's dissent missed the point by focusing on the existence of a condition; if the municipality would have been entitled, without compensation, to prohibit construction in the ESOPs, then imposition of the easement as a condition of development would not have been unconstitutional. Neither the majority nor the dissent focused on the issue that should have been determinative: was the town entitled to prohibit development in the ESOPs without paying compensation to the Smiths. The answer to that question is not self-evident. The Supreme Court's opinion in Lucas v. South Carolina Coastal Council, 505 US 1003, suggests that an outright ban on all development constitutes a per se taking, but articulates an exception in cases where background state law would have prohibited development.

For now, the majority opinion in Smith suggests a narrow and problematic reading of exactions doctrine by the New York Court of Appeals. Whether that reading will long survive remains to be seen.

In Nollan v. California Coastal Commission , 483 US 825, and Dolan v. City of Tigard , 512 US 374, the United States Supreme Court established that constitutional scrutiny of government exactions is more stringent than constitutional scrutiny of other land use controls. Last month, the New York Court of Appeals addressed an issue not fully resolved by Nollan and Dolan: What counts as an exaction for takings clause analysis?

The Smith Case

Smith v. Town of Mendon (NYLJ 12/22/04, p. 19, col. 1) involved an application by the Smiths for site plan approval to build a single-family house on a portion of their 9.7-acre tract. Part of the tract, but not the proposed house, sat within areas classified by the Town Code as environmental protection overlay districts (EPODs). The first of these, a “steep slope” EPOD, prohibited construction and other activities without a development permit, which would be granted only if the landowner demonstrates that the proposed activity would not destabilize the soil, cause erosion, or destroy ground cover, and if the landowner demonstrates that there is no reasonable alternative to the proposed activity. The other EPODs, which apply to lands bordering a major creek, to established wooded areas, and to flood plains, include similar restrictions.

In response to the Smith's application, the Town Planning Board concluded that the proposed house would not result in any adverse environmental impact so long as no development occurred within the EPOD portions of the site. As a result, the Board granted the application on condition that the Smiths file a conservation restriction on any development within the EPODs. The conservation restriction would prohibit construction, clear-cutting of trees, removal of vegetation, and use of motorized vehicles, but would otherwise leave the Smiths with “full use and quiet enjoyment” of the EPODs, including the right to exclude others from the entire tract. The Smiths, however, refused to file the conservation restriction, and instead brought a hybrid action/declaratory judgment proceeding, asserting that the town's action constituted an unconstitutional taking. Supreme Court and the Appellate Division rejected the claim, and the Smiths appealed.

Nollan and Dolan

In the Nollan case, supra, the United States Supreme Court confronted a California determination that granted the landowner a permit to expand a beachfront house on condition that the landowner dedicate to the town a lateral easement. The Commission justified the permit condition on the ground that the expanded house would constitute an increased obstruction to the public's visual access to the beach. When the landowner challenged the constitutionality of the permit condition, the Supreme Court started by assuming (without deciding) that the Coastal Commission would have been able to issue an outright denial of the permit to the Nollans because of the alleged visual obstruction caused by the proposed house. (483 US at 835). The Court then reasoned that the power to ban construction “must surely include the power to condition construction upon some concession by the owner, even a concession of property rights, that serves the same end.” (Id. at 836). But the Court went on to hold that the constitutional validity of the condition disappears if the purpose for imposing the condition bears no nexus to the purpose for the original development ban. In Justice Scalia's words, “[w]hen that essential nexus is eliminated, the situation becomes the same as if California law forbade shouting fire in a crowded theater, but granted dispensations to those willing to contribute $100 to the state treasury.” (Id. at 837). Because the Court's majority found no nexus between the reasons for the Coastal Commission's development ban and the reasons for the lateral easement, the Court held that the Commission's action was unconstitutional.

In Dolan, the Supreme Court refined the Nollan rule, holding that when a municipality imposes an exaction as a condition for development, the required dedication must be “roughly proportional” both “in nature and extent to the impact of the proposed development.”512 US at 391. In Dolan, the Court invalidated the city's requirement that landowner, who sought to expand her plumbing supply store, dedicate about 10% of her land for improvement of a storm drainage system and creation of a pedestrian/bicycle pathway. The Court held that the city had not made the required showing that the required dedication was roughly proportional to the impact of the expanded store.

Together, Nollan and Dolan establish that the Supreme Court's scrutiny of municipal exactions is significantly more stringent than the deferential “Penn Central” balancing standard the court applies in ordinary takings cases. See Penn Central Transp. Co. v. City of New York , 438 US 104. But in neither case did the Court fully explain what sort of dedication triggers its exaction analysis.

The Smith Majority

Against that background, Judge Rosenblatt, writing for the Court of Appeals majority in Smith , concluded — relying on dicta in the Supreme Court's opinion in City of Monterey v. Del Monte Dunes , 526 US 687 — that the exaction analysis applies only when a municipality has required a dedication of property to public use. In the majority's view, no such dedication was required in Smith, because the Smiths — unlike the Nollans and Ms. Dolan — retained the right to exclude others from their entire tract. Moreover, the majority concluded that in any event, the conservation restriction required the Smiths to give up no more than the right to seek a variance from the EPOD ordinance — a right the majority characterized as “trifling,” and perhaps too insignificant to characterize as a property right. Hence, the court analyzed the planning board's decision under the deferential Penn Central standard, and upheld the board's decision.

Judge Read's Dissent

Judge Read, dissenting for herself and Judge Robert Smith, focused on the same dicta from City of Monterey; in particular, Justice Kennedy's assertion that “we have not extended the rough proportionality test of Dolan beyond the special context of exactions — land-use decisions conditioning approval of development on the dedication of property to public use.” 526 US at 702. But Judge Read concluded that the critical language in City of Monterey was “conditioning,” and she read Nollan and Dolan to apply more broadly whenever a development permit is conditioned on a land use restriction. In Smith, the permit was conditioned on dedication of a conservation easement, triggering Nollan and Dolan. Because the town had not demonstrated any relationship between construction of the proposed house and environmental harm that the conservation easement would mitigate, she would have held the town's action to constitute a taking. (Judge Graffeo, in a separate dissent, concluded that the debate was unnecessary because the town's action constituted a taking even under the Penn Central standard).

Analysis

Unfortunately, both the majority opinion and Judge Read's dissent misunderstood the import of Nollan and Dolan. The first step in a Nollan/Dolan analysis is to determine whether the required dedication — if separated from the development prohibition — would constitute a taking. In Nollan, Justice Scalia had no difficulty concluding that the Coastal Commission could not require the Nollans to convey a lateral easement without compensation. Similarly, in Dolan, the Court had no difficulty concluding that the city could not require Ms. Dolan to convey a portion of her land for a pedestrian/bicycle path without compensation. Similarly, a requirement that random individuals pay $100 into the municipal coffers would constitute an unconstitutional taking. If the required dedication (or fee) would constitute a taking if separated from the development prohibition, then and only then do the Nollan/Dolan standards become relevant. The “exaction” is the requirement that a person — generally a landowner — give up a constitutionally protected right.

If the landowner has been required to give up such a right as a condition for grant of a permit, then the condition passes constitutional muster if the exaction is roughly proportional — in nature and extent — to the impact of the proposed development.

Thus, the Smith majority missed the point by focusing on the rights retained by the Smiths — particularly the right to exclude. The majority opinion is consistent with Nollan and Dolan only if the court's reference to the “trifling” nature of the Smiths' loss can be read to suggest that the town had the power to impose a development ban without compensation. At the same time, Judge Read's dissent missed the point by focusing on the existence of a condition; if the municipality would have been entitled, without compensation, to prohibit construction in the ESOPs, then imposition of the easement as a condition of development would not have been unconstitutional. Neither the majority nor the dissent focused on the issue that should have been determinative: was the town entitled to prohibit development in the ESOPs without paying compensation to the Smiths. The answer to that question is not self-evident. The Supreme Court's opinion in Lucas v. South Carolina Coastal Council , 505 US 1003, suggests that an outright ban on all development constitutes a per se taking, but articulates an exception in cases where background state law would have prohibited development.

For now, the majority opinion in Smith suggests a narrow and problematic reading of exactions doctrine by the New York Court of Appeals. Whether that reading will long survive remains to be seen.