• High Court Holds that Excess Permit Mitigation Can Be A Per Se Unconstitutional Taking
  • July 31, 2013 | Author: Stanley A. Millan
  • Law Firm: Jones Walker LLP - New Orleans Office
  • The Supreme Court decided Koontz v. St. John's River Management District, 133 S.Ct. 2586, No. 11-1447 (June 25, 2013). It held that unconstitutional state wetland permit mitigation conditions, including government requirements for paying for off-site mitigation, can be a per se taking of property contrary to the Fifth Amendment of the United States Constitution.

    The case involved a landowner (Koontz) applying for state permits under the Florida Water Resources Act and the Warren S. Henderson Wetlands Protection Act. These statutes require permits for construction for draining water or dredging or filling in surface waters. Landowner Koontz purchased 14.9 acres of property in Florida in 1972, much of which became burdened by the District's permit processes under the above state laws passed in 1972 and later in 1984. Koontz decided to develop 3.7 acres of the drier, northern portion of his property. He offered the District mitigation by foreclosing future development of the remaining approximate 11 acres of the southern portion of his property in a conservation easement dedicated to the District. The District declined that offer, and instead proposed two options.

    The first would be that Koontz limit his development to one acre and deed the remaining 13.9 acres to the District. Alternatively, Koontz could build on his 3.7 acres only if he agreed to fund improvements of District-owned wetlands several miles away. Koontz declined and filed a lawsuit because he believed the state demands for mitigation to be excessive considering the limited environmental effects of his proposal.

    The Court agreed in a 5 to 4 decision with Koontz. The Court (led by Justice Alito) reiterated that the government may not deny benefits to a person because he exercises a constitutional right. The Court further reiterated that the government may choose whether and how a permit applicant is required to mitigate the impacts of a proposed development, but it may not leverage its legitimate interest in mitigation to pursue government ends that lack an essential "nexus" and "rough proportionality" to those impacts.

    The Court also held that the law against unconstitutional conditions applies whether the permit is issued subject to the conditions or denied because the applicant refuses to comply with the conditions. Here, Koontz refused to comply. The Court further held that the payment of money instead of the surrender of real property rights still runs afoul of the Takings Clause because state extortion demands can impermissibly burden the right of someone not to have property taken without just compensation. The Court finally held that government demands for the relinquishment or exaction of funds linked to a specific identifiable property interest (such as a parcel of real property) is a per se taking.

    Since the case arose out of state law context, there are a number of issues the Supreme Court did not address. Among those issues is whether petitioner should have pursued an administrative challenge to his permit denial before seeking a taking claim, whether money damages are available, or whether his cause of action was limited to injunctive relief only. Such issues were remanded to the Florida courts. It would appear that damages may lie between excess mitigation costs paid or the value of property lost due to the unconstitutional conditions, but the Court vaguely suggested if the permit was denied there may be no taking for which to compensate. The Court also explained that its decision did not overlap into legitimate permit fee and local tax requirements, as feared by the dissent (by Justice Kagan). The Court further did not comment on the arbitrariness or unfairness of the permit requirements in this case.

    The significance of this case, even though some issues are left unresolved, including remedy, relates to Section 404 wetland permits. The Corps of Engineers and the EPA require mitigation for such permits. This has long been required. However, in 2011, the agencies developed a new approach for determining the amount of mitigation needed for a wetland permit (i.e., the so-called "price of a permit" but beyond a permit fee). For instance, the New Orleans District applies the Modified Charleston Method in Louisiana and parts of Mississippi for wetland mitigation requirements. This is a strict mathematical formula which in most instances at least triples the cost of wetland credits needed to compensate for the wetlands being permitted for filling. That is, either the applicant must fund a wetland project which is many times more expensive than it would have been to fund before 2011, or it must pay "in lieu of" fees or mitigation fees to a mitigation bank for such mitigation, again which may be many times greater than previously required. The Corps would argue that the historic mitigation cost was too low to compensate for the loss of wetlands in Louisiana. Whether the Modified Charleston Method is an efficient approximation of wetlands damages or is reasonable are issues that can be fought in federal courts.