Sheetz pt. I - "Radical Agreement" At SCOTUS: "Your Money Or Your Rights" Isn't OK Just Because A Legislature Does It

Guess where we stopped for coffee this morning?
(A reminder: this case has nothing to do
with the convenience store.)

Note: this is the first of two posts on the recent Supreme Court opinions in Sheetz v. County of El Dorado, the case in which the unanimous Court held that exactions imposed by legislation are not exempt from the essential nexus (Nollan) and rough proportionality (Dolan) standards. Here's the second post, which covers the concurring opinions.

[Disclosure: this case is one of ours.]

In this post, we cover the background, and the Court's unanimous opinion.

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Does the government have the unfettered ability to demand "the goodies" (as one municipality's chief land use planner famously called them in the 1980s), simply because a property owner needs the government's approval to make use if his or her land?

That's the issue the Supreme Court agreed to resolve (or more accurately, clarify) in in Sheetz v. County of El Dorado, No. 22-1074 (Apr. 12, 2024).

Confessing Judgment: Game over man, game over!

After oral arguments a bit over three months ago, the Court's unanimous opinion by Justice Barrett issued last week wasn't too hard to predict. Especially because during the arguments the advocate for the County expressly acknowledged that there was "radical agreement" on the Question Presented in the case:

The question presented is whether a permit exaction is exempt from unconstitutional-conditions doctrine as applied in Nollan and Dolan simply because it is authorized by legislation.

The unanimity of the resulting decision reflects that with the County's acknowledgement on the record, it was all over but the shouting: the Court, as predicted, held that a blanket exaction (in this case a traffic impact fee) isn't exempt from the "essential nexus" and "rough proportionality" standards that have long governed exactions imposed ad hoc. See slip op. at 1 ("The Takings Clause does not distinguish between legislative and administrative permit conditions.").

Which leads to an obvious question: if the County was going to confess judgment by agreeing that legislative exactions are not categorically exempt -- a conclusion it contested in the lower courts -- why did it let the case get to decision stage at the Supreme Court? We're not at all sure. [Disclosure: this case is one of ours.]

Anyway, with that question asked (but not answered), let's see what the entire Court thought about this, and why.

Laying the Foundation: Nollan, Dolan, (and Koontz)

In 1987, the Court held that before the government can force a property owner into the choice between giving up something in return for government land use approvals, there must be an "essential nexus" between the demand and the owner's proposed use of land. Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987). And in 1994, the Court refined the requirement by recognizing the need for a "rough proportionality" between the burdens the owner's proposed use is predicted to put on the public, and the magnitude of the government's demand. Dolan v. City of Tigard, 512 U.S. 374 (1994). In Koontz v. St Johns River Water Management Dist., 570 U.S. 595 (2013), the Court further refined the doctrine by holding that demands for money are subject to the nexus and proportionality requirements as much as demands for land.

The close nexus and rough proportionality requirements were designed to check the government's temptation to use the land use approval process as an opportunity to leverage its power to regulate in furtherance of the public health, safety, welfare, or morals to exact land, money, or other property out of the applicant.

These requirements were motivated primarily by two concerns. First, if the government wants land or other property from an owner, it has the means to do so -- eminent domain, which comes with the requirement to provide the property owner just compensation; it should not use the land use regulatory process to get by regulation for free what it is required to pay for by a compensated taking. Second, there is something unseemly about the government demanding that an owner give up one of her constitutional rights (the right to compensation for a taking of property) as a condition of exercising another constitutional right (the right to make reasonable use of land). The government has no business forcing people into these kind of "money or your rights" choices.

But many lower courts refused to understand how broadly the close nexus and rough proportionality requirements applied, and for the longest time, they were split. Some held that Nollan and Dolan's requirements applied any time the government conditioned land use permits on either a surrender of land or money. Others, like California, held that unless the government was demanding the donation of land, and did so on a case-by-case basis as an exercise of discretion and not as a product of a legislative-imposed ministerial requirement, that nexus and proportionality were not required.

With a longstanding lower court split, the stage was set for Supreme Court review.

California Courts: We Don't Ask Whether The County's $23k Traffic Impact Fee Is Related, or Proportional, to Sheetz's Proposed Home

The facts of the Sheetz case are straightforward. George and Mrs. Sheetz, property owners in unincorporated rural El Dorado County, California, sought a building permit to "build a modest prefabricated house on the parcel, with plans to raise their grandson there" on their residental-zoned land. Slip op. at 3. The County was okay with issuing the permit, but only if Sheetz first paid the County's $23,420 traffic impact fee.

The impact fee was determined by the preset fee schedule in the County's General Plan, and not on a determination that the Sheetz home would increase the County's traffic burdens. California law treats the County's General Plan as legislation. In recent years, the area has seen dramatic growth, with related demands on infrastructure, the County uses the traffic fees to fund improvements to county roads. The rates for the traffic impact fees are fixed, and set by the schedule:

The fee amount is determined by a rate schedule, which takes into account the type of development (commercial, residential, and so on) and its location within the County. The amount is not based on "the cost specifically attributable to the particular project on which the fee is imposed."

Slip op. at 2 (citation omitted).

The General Plan prohibited the County from issuing building permits without collecting the fee, so "Sheetz paid the fee under protest and obtained the permit." Slip op. at 3. He filed suit in state court for a refund, arguing inter alia, that the County's conditioning the issuance of a building permit was an unlawful exaction of money, because the County had not demonstrated either a close nexus between the requested building permit for a "modest prefabricated house" and any additional traffic burdens this use of the property created in the County, or a rough proportionality between the scheduled amount of $23k and those same supposed traffic burdens.

The trial court prohibited Sheetz from asserting the claim. Under California law, the Nollan/Dolan requirements apply only "to permit conditions imposed 'on an individual and discretionary basis[,]'" and do not allow for any kind of judicial inquiry into nexus or proportionality when the condition is imposed on every applicant by broadly-applicable legislation. Slip op. at 3 (citation omitted).

The rule in California (and some other other jurisdictions) is that broadly-applicable rules like this, imposed ministerially on everyone and not individually, are just plain-old land use legislation, to be examined by courts (like zoning regulations) only under the rational basis test. And you know what that means: nearly everything passes muster.

As noted above, other courts went a different way. North Carolina, for example. See slip op. at 4 & n.3, where the opinion lays out a part of the lower court split of authority.

A Regulatory Takings Primer: the Right to Just Compensation and the Police Power "seem more like in-laws than soulmates"

The next portion of the opinion is a worthy read if you want to get an overall flavor of what all nine Justices of the Court think about regulatory takings today. Yes, the theory has been recognized as a federal constitutional doctrine for more than a century, but any insights we get into how the current Justices view the doctrine are going to be helpful. And there are a lot of clues embedded in Justice Barrett's opinion:

• Public Use. The opinion starts off with the idea that "[w]hen the government want to take private property to build roads, courthouses, or other public projects, it must compensate the owner at fair market value." Slip op. at 4. Focus on the examples the opinion lays out. All are "classic" public uses, and the opinion conspicuously avoids citing Kelo, its most recent eminent domain decision, where the project involved taking Kelo's property and turning it over to another private owner. So maybe that omission is a hint that Court would be open to revisiting Kelo's very reviled opinion.
• Takings law spreads the cost. The opinion next lays out the Armstrong rationale: the point of the Takings Clause and the requirement that government "pay for what it takes," is to avoid focusing the cost of public burdens on individual property owners. Id. Good to know that all nine Justices understand the big vibe of both eminent domain and de facto takings.
• De facto takings by over-regulation. Next, the opinion highlights the essential tension behind the regulatory takings doctrine and straight up eminent domain (what the Chief Justice calls an "upfront taking;" see PennEast Pipeline Co. v. New Jersey, 594 U.S. ___ (2021)). The essential question is when does an exercise of regulatory power "go too far" such that it has the same effects on the property owner's rights as an exercise of eminent domain?
• Per se regulatory takings. The Sheetz opinion noted the government's "substantial authority to regulate land use" on one hand, and on the other the various rules the Court has established for when that authority goes too far and triggers the obligation to pay compensation. Slip op. at 4-5. Things like when a regulation physically appropriates property, or "otherwise interfere[s]" with the owner's right to exclude others = easy analysis, compensation always required. 
• Euclid and land-use regulations. But "different rules apply" when government "merely restrict[s] how land is used." Slip op. at 5.
• Substantially advance? You takings mavens can be forgiven for a bit of an inside baseball chuckle for how the opinion lays out those different rules. The Court described the regulatory takings test thusly: "'[T]he Fifth Amendment is violated when land-use regulation does not substantially advance legitimate state interests or denies an owner economically viable use of his land[.]"” Id. (quoting Lucas v. South Carolina Coastal Council, 505 U. S. 1003, 1016 (1992)  (internal quotation marks omitted).
• Whoa!  Has Agins been resurrected? (Recall that in Lingle, the unanimous Court rejected Agins's "substantially advance" standard as a regulatory takings test.) No, we doubt that this was intended to bring back Agins. But this also doesn't seem to be merely a (mis)citation to the takings test as set out in Lucas (1994) before the Court clarified it in Lingle (2005).
• Character of the government action. Instead, we're viewing the Court's recitation of the regulatory takings test that "[a] use restriction that is 'reasonably necessary to the effectuation of a substantial government purpose' is not a taking unless it saps too much of the property's value or frustrates the owner's investment-backed expectations[,]" as meaning that Penn Central's "character of the government action" factor requires that regulation be reasonably necessary for the effectuation of a substantial government purpose." That isn't the rational basis test that many courts currently apply when asking about the character of the government action, is it? If so, this is a major clarification that deserves more attention.  
• Double whoa! Justice Barrett also treats Penn Central as a disjunctive test ("or frustrates the owner's investment-backed expectations"). That's a correct view of the Penn Central test we think, but many (many) lower courts have not received the message and treat it as a "one strike and you're out" (conjunctive) rule and not a series of factors to be weighed by a jury -- where a single factor could be dispositive, but also where failing to convince on a single factor is not an automatic loss. See Hodel v. Irving, 481 U.S. 704 (717) (1987) (proof of a single Penn Central factor alone could be sufficient to show a taking; in the case, "the character of the Government regulation ... is extraordinary"). 
• Very cheeky. The money quote in this part of the opinion might just be Justice Barrett's assertion that the relationship between the police power to regulate the use of property, and private property owners' right to just compensation is "more like in-laws than soulmates." Slip op. at 4. Probably not BFFs, but more like frenemies, Your Honor? We recommend lawprof Josh Blackman's take on this turn of the phrase ("Justice Barrett on the Takings Clause and the Police Power").

On To Exactions...Err "Permit Conditions"

The special application of the takings rules to permit conditions is "more complicated."

The opinion starts off with the premise that if the government can deny a building permit for some "'legitimate police-power purpose,' then it can also place conditions on [a grant of] the permit that serve the same ends." Slip op. at 5 (citation omitted).

[Sidebar: no one has adequately explained to us how the County could condition a building permit -- the classic example of a "must issue" ministerial permit -- on anything but the application's failure to comply with the Building Code. An application for a building permit does not involve any exercise of the government's discretion, at least in our experience.]

Here, if Sheetz's home would "substantially increase traffic congestion," then the County could legitimately condition its approval of the building permit on Sheetz's willingness to pony up land or money for road improvements. This, according to the Court is "the hallmark of responsible land-use policy." Id. (citation omitted). When this situation exists, then the government is within its authority if it tells the owner that it must accept the condition or else no government approvals will be forthcoming.

But (and this is a significant "but"), "[t]he bargain takes on a different character when the government withholds or conditions a building permit for reasons unrelated to its [legitimate] land-use interests." Slip op. at 5-6. (Remember, the County's police power interests here are limited in the Court's view to traffic mitigation.) In such a case, the condition isn't being employed to further the health, safety, or welfare of the public (traffic mitigation), but takes on the character of "an out-and-out plan of extortion[,]" an "abuse of the permitting process." Slip op. at 6 (citation omitted). Show us the money!

After reciting the Nollan "essential nexus" and Dolan's "rough proportionality" requirements, the opinion next noted that the "nexus requirement ensures that the government is acting to further its stated purpose, not leveraging its permitting monopoly to exact private property without paying for it." Id. The rough proportionality requirement serves the same function, but from a slightly different angle: "[a] permit condition that requires a landowner to give up more than is necessary to mitigate harms resulting from new development has the same potential for abuse as a condition that is unrelated to that purpose." Id.

Wait, since when can legislation be subject to more exacting judicial review than the oft-applied rational basis test? After all, California law considers the County's General Plan to be legislation, adopted by a legislative body. Why isn't this treated like other legislation? The opinion stated it succinctly:

Nothing in constitutional text, history, or precedent supports exempting legislatures from ordinary takings rules.

Slip op. at 7.

We're going to emphasize the "takings rules" part of that sentence because it highlights what we've always thought was the problem with the analysis applied by those lower courts which focused on the form or source of the condition (legislative/legislature) rather than the effect the condition had. Perhaps applying the tiers-of-scrutiny method is what is called for when the challenge asks whether a regulation arbitrarily and capriciously interferes with a constitutional right. But the entire Court, it seems, views takings as a independent limitation on the power of government, subject to different rules. 

The opinion next laid out seriatim the "text, history, [and] precedent" to support its conclusion that conditions-from-legislation are to be treated on "equal footing" with every other condition, regardless of source.

• Text. After chiding the framers for the syntax of the Takings Clause ("[t]he Clause ... speaks in the passive voice"), the opinion noted that it "does not single out legislative acts for special treatment. Nor does the Fourteenth Amendment, which incorporates the Takings Clause against the States." Id. On one hand, this seems very noncontroversial. Of course legislation and legislatures are subject to the limitations the Fifth and Fourteenth Amendment place on them. Yet we've had several decades of some lower courts concluding otherwise, mainly because (in our view) they can't get past the form (legislation) to the substance (your money or your rights). 
• History. Legislation was how governments exercised their eminent domain power (today and historically), so "[s]pecial deference for legislative takings would have made little sense historically[.]" Slip op. at 7. This analysis tells us that once regulation is deemed a taking requiring compensation, the entire Court views the regulation as having taken on a different character. Instead of merely regulating property's uses, these regulations require compensation as if the legislature had exercised its eminent domain power, and not its police power.
• Precedent. The opinion noted that "[w]e have applied the per se [physical takings] rule requiring just compensation to both legislation and administrative action." Slip op. at 9. And to regulatory takings. Indeed, in the "big one" (Pennsylvania Coal Co. v. Mahon), the Court held that a Pennsylvania statute went "too far" was was a taking.

The Court also put the Nollan/Dolan test into a larger context, the "unconstitutional conditions" doctrine that covers other areas like free speech, the right to travel freely, and other constitutional rights, noting that in these areas, legislative conditions are regularly challenged. See slip op. at 10.

In sum, there is no basis for affording property rights less protection in the hands of legislators than administrators.The Takings Clause applies equally to both—which means that it prohibits legislatures and agencies alike from imposing unconstitutional conditions on land-use permits.

Id.

The majority opinion summed up by noting the "radical agreement" and the County's oral argument acknowledgement that it agreed with Mr. Sheetz (at least on the Question Presented):

The County no longer contends otherwise. In fact, at oral argument, the parties expressed “radical agreement” that conditions on building permits are not exempt from scrutiny under Nollan and Dolan just because a legislature imposed them. Tr. of Oral Arg. 4, 73–74. The County was wise to distance itself from the rule applied by the California Court of Appeal, because, as we have explained, a legislative exception to the ordinary takings rules finds no support in constitutional text, history, or precedent.

Slip op. at 10.

The Court took no position on whether the County's traffic impact fee has an essential nexus to the Sheetz development, or whether $23 grand is roughly proportional to any traffic his proposal might be responsible for. For this and more, the Court remanded the case. Notably, the Court did not decide whether "a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition that targets a particular development." Slip op. at 9-10.

In our next post, we'll cover the three concurring opinions, to thoughts about what Sheetz might mean, and what's on the horizon.

Sheetz v. County of El Dorado, No. 22-2074 (U.S. Apr. 12, 2024)