Building Industry Association – Bay Area v. City of Oakland, 2018 U.S.Dist.LEXIS 18822 (Case No., 15-cv-03392, Feb. 5, 2018)
Fifth Amendment takings challenges to adjudicative land-use exactions and permit conditions are governed by the two-part test in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994). In Nollan, the Court held that a government could, without paying compensation, demand an easement as a condition for granting a development permit the government was entitled to deny as an exaction of private property, provided that the exaction would substantially advance the same government interest that would furnish a valid ground for denial of the permit. (483 U.S. at pp. 834, 836-837.) In Dolan, the Court held that the dedication of private property must be “roughly proportional” both in nature and extent to the impact of the proposed development. (512 U.S. at p. 391.) In Koontz v. St. Johns River Water Management District, 133 S.Ct. 2586 (2013), the Court held that the Nollan/Dolan test applies to a government’s demand for a monetary exaction imposed on a land-use permit applicant on an ad hoc, adjudicative basis. But Koontz did not address the question of whether legislatively imposed monetary exactions are also governed by the Nollan/Dolan test. That led Supreme Court Justice Clarence Thomas to note in early 2016: “For at least two decades, however, lower courts have divided over whether the Nollan/Dolan test applies in cases where the alleged taking arises from a legislatively imposed condition rather than an administrative one. That division shows no signs of abating.” (Cal. Bldg. Indus. Ass’n v. City of San Jose, 136 S. Ct. 928, 928 (2016) (Thomas, J., concurring in denial of cert.)) Justice Thomas added: “Until we decide this issue, property owners and local governments are left uncertain about what legal standard governs legislative ordinances and whether cities can legislatively impose exactions that would not pass muster if done administratively.” (Id. at pp. 928–929.)
While waiting for the Supreme Court to decide that question, courts are now having to decide whether the Koontz decision can be interpreted as applying Nollan/Dolan to generally applied and legislatively imposed exactions. For its part, the California Supreme Court said no: “The Koontz decision does not purport to decide whether the Nollan/Dolan test is applicable to legislatively prescribed monetary permit conditions that apply to a broad class of proposed developments.” (California Building Industry Assn. v. City of San Jose (2015) 61 Cal.4th 435, 460 & fn 11, cert. den., Cal. Bldg. Indus. Ass’n v. City of San Jose, supra, 136 S.Ct. 928 (emphasis added).) Since Koontz does not apply, the existing rule in California is that “legislatively prescribed monetary fees that are imposed as a condition of development are not subject to the Nollan/Dolan test.” (Ibid. See also San Remo Hotel v. City and County of San Francisco (2002) 27 Cal.4th 643, 663-671; Santa Monica Beach, Ltd. v. Superior Court (1999) 19 Cal.4th 952, 966–967; Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, 874-885 (plur. opn. of Arabian, J.).) The existing rule in the Ninth Circuit Court of Appeal is the same. (See McClung v. City of Sumner, 548 F.3d 1219 (9th Cir. 2008), cert. denied, 556 U.S. 1282 (2009).)
U.S. District Judge Chhabria of the Northern District of California recently came to the same conclusion as the California Supreme Court. In Building Industry Association – Bay Area v. City of Oakland, 2018 U.S.Dist.LEXIS 18822 (Case No., 15-cv-03392, Feb. 5, 2018) (“BIA”), Judge Chhabria determined: “The Court did not hold in Koontz that generally applicable land-use regulations are subject to facial challenge under the exactions doctrine [in Nollan and Dolan].” (Id. at *5.) Judge Chhabria reached that conclusion by rejecting the reasoning of fellow U.S. District Judge Breyer in Levin v. City of San Francisco, 71 F.Supp.3d 1072 (N.D. Cal. 2014), appeal dismissed as moot, remanded, 2017 U.S.App.LEXIS 4384 (9th Cir., Feb. 14, 2017).
In Levin, the City and County of San Francisco enacted an ordinance that required property owners who wanted to withdraw their rent-controlled property from the rental market under California’s Ellis Act (Govt. Code §§7060 et seq.) to pay a lump sum to displaced tenants in San Francisco. Property owners challenged the ordinance as an unconstitutional taking. Judge Breyer applied Nollan/Dolan to the takings claim because, “[a]s in Koontz, where the monetary exaction was subject to a Nollan/Dolan analysis because the City commanded a monetary payment ‘linked to a specific, identifiable property interest such as a . . . parcel of real property,’ here the Ordinance’s requirement of a monetary payment is directly linked to a property owner’s desire to change the use of a specific, identifiable unit of property.” (71 F.Supp.3d at p. 1083 (citing Koontz, supra, 133 S.Ct. at p. 2600).) Judge Breyer distinguished the contrary Ninth Circuit precedent in McClung v. City of Sumner by concluding that “Koontz abrogated McClung’s holding that Nollan/Dolan does not apply to monetary exactions, which is intertwined with and underlies McClung’s assumptions about legislative conditions.” (71 F.Supp.3d at 1083 n.4.)
However, in the recent BIA case, Judge Chhabria disagreed with Judge Breyer and held that Koontz did not address the applicability of Nollan/Dolan to legislative exactions, and therefore did not overturn the Ninth Circuit precedent in McClung. In BIA, the City of Oakland enacted an ordinance that required a developer of a multifamily project with over twenty units to either (i) spend 0.5 percent of building development costs on art displays on the site of the development or a nearby right-of-way; or (ii) pay an equivalent amount to a city-operated fund for public art installations. The Building Industry Association – Bay Area (“Association”) challenged the validity of the ordinance on the ground that it was an unlawful exaction that violates the “exactions doctrine” applied in Nollan, Dolan and Koontz. Judge Chhabria disagreed with the Association, and granted the City’s motion to dismiss, for the three several reasons.
First, Judge Chhabria explained that the U.S. Supreme Court has only applied the “exactions doctrine” in cases “involving a particular individual property, where government officials exercised their discretion to require something of the property owner in exchange for approval of a project.” (2018 U.S.Dist.LEXIS 18822 at *3.) He added that “the Court has consistently spoken of the doctrine in terms suggesting it was intended to apply only to discretionary decisions regarding individual properties. (Ibid. (citing Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 546-47, 125 S. Ct. 2074, 161 L. Ed. 2d 876 (2005).
Second, Judge Chhabria pointed out that both the Ninth Circuit in McClung and the California Supreme Court in Ehrlich have “expressly stated that a development condition need only meet the requirements of Nollan and Dolan if that condition is imposed as an ‘individual, adjudicative decision.’” (2018 U.S.Dist.LEXIS 18822 at *3.) Therefore, “[b]roadly applicable regulations like the one at issue in this case are assessed under the Penn Central regulatory takings framework.” (Id. at *3-*4.)
Third, Judge Chhabria rebuffed the Association’s reliance on Judge Breyer’s decision in Levin that held that held that McClung was invalidated by Koontz. Judge Chhabria explained:
The Court did not hold in Koontz that generally applicable land-use regulations are subject to facial challenge under the exactions doctrine; it held only that the exactions doctrine applies to demands for money (not merely demands for encroachments on property). In reaching this holding, the Court went out of its way to make clear that it was not expanding the doctrine beyond that. See 133 S. Ct. at 2602 (“This case does not require us to say more.”); id. at 2600 n. 2 (“[T]his case does not implicate the question whether monetary exactions must be tied to a particular parcel of land in order to constitute a taking.”). Koontz involved an adjudication by local land-use officials regarding an individual piece of property, and throughout its decision the Court spoke of the exactions doctrine in those terms. For example, the Court stated: “The fulcrum this case turns on is the direct link between the government’s demand and a specific parcel of real property.” 133 S. Ct. at 2600 (emphasis added). “Because of that direct link,” the Court stated, “this case implicates the central concern of Nollan and Dolan: the risk that the government may use its substantial power and discretion in land-use permitting to pursue governmental ends that lack an essential nexus and rough proportionality to the effects of the proposed new use of the specific property at issue, thereby diminishing without justification the value of the property.” Id. (emphasis added); see also id. at 2594 (noting that permit applicants are “especially vulnerable” to government coercion “because the government often has broad discretion to deny a permit that is worth far more than property it would like to take”). The exactions doctrine, in other words, has historically been understood as a means to protect against abuse of discretion by land-use officials with respect to an individual parcels of land, and Koontz itself spoke of it in those terms, undermining Judge Breyer’s argument that Koontz displaced the Ninth Circuit’s rule that the exactions doctrine is unavailable to a plaintiff making a facial challenge to a generally applicable land-use regulation. (Id. at *4-*6.)
Thus, Koontz did not overrule the Ninth Circuit’s legislative exactions analysis in McClung, and under the same rationale did not overrule the California Supreme Court’s holding in Ehrlich.
Judge Chhabria did not explicitly address another argument raised in Levin regarding the McClung decision. In Levin, Judge Breyer concluded that Koontz abrogated the holding in McClung regarding legislative exactions because the monetary exactions is “intertwined with and underlies McClung’s assumptions about legislative conditions.” (71 F.Supp.3d at 1083 n.4.) In its briefing in Re: BIA case, the Association similarly argued that “McClung’s discussion of legislative exactions is so entwined with its abrogated repudiation of monetary exactions that the two cannot be parceled out.” (Opposition to Motion to Dismiss, at 11 fn. 5.) Judge Chhabria did not address that issue in his order granting the City’s motion to dismiss. However, contrary to Judge Breyer’s statement in Levin, and the Association’s argument in BIA, the McClung court discussed the legislative/adjudicative distinction apart from the “monetary” nature of the particular exactions in that case. For example:
Next, the McClungs attempt to recast the facts as involving an individualized, discretionary exaction as opposed to a general requirement imposed through legislation. The McClungs make this argument in recognition of the fact that at least some courts have drawn a distinction between adjudicatory exactions and legislative fees, which have less chance of abuse due to their general application. See San Remo Hotel, 41 P.3d at 104 (distinguishing between a fee condition applied to single property that would be subject to Nollan/Dolan review and a generally applicable development fee). The facts do not support the McClungs falling within the former category. All new developments must have at least 12-inch storm pipe; there is no evidence on the record that the McClungs were singled out. [548 F.3d at 1228–1229.]
Judge Breyer’s decision in Levin did not discuss that analysis and case law in McClung, which is a separate ground that supported the Ninth Circuit’s holding about legislative exactions. (Cf. United States v. Title Ins. & Trust Co., 265 U.S. 472, 486 (1924) [“where there are two grounds, upon either of which an appellate court may rest its decision, and it adopts both, ‘the ruling on neither is obiter, but each is the judgment of the court and of equal validity with the other’” (citation omitted)); Varshock v. Department of Forestry & Fire Protection (2011) 194 Cal.App.4th 635, 646 fn. 7 [“when a decision is based on two separate grounds, neither is dictum; rather, each ground is equally valid and constitutes an alternative holding in support of the judgment.” (Citation omitted.)])
It is important to note that Judge Chhabria did not decide in BIA whether or not the U.S. Supreme Court should extend Nollan/Dollan to legislative exactions; he merely determined that the High Court had not yet done so. He explained:
Perhaps reasonable arguments could be made for expanding the reach of the exactions doctrine so that it can be invoked in facial challenges to a generally applicable regulations, rather than merely discretionary decisions regarding an individual property by land-use officials. But the point, for purposes of this motion, is that it would be an expansion of the doctrine. If that occurs, it should be in the Supreme Court, not the Northern District of California. [2018 U.S.Dist.LEXIS 18822 at *6 (citation omitted).] 
Thus, the District Court recognized, as Justice Thomas observed in early 2016, that the constitutional level of scrutiny for legislative exactions has not yet been decided by the U.S. Supreme Court even after Koontz.
The Association appealed the decision in BIA to the Ninth Circuit on March 5, 2018. The briefing on that appeal is scheduled to begin on June 13, 2018.
Glen Hansen is Senior Counsel at Abbott & Kindermann, Inc. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann,Inc. at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, Inc., or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.
 For an extensive analysis of whether Nollan/Dolan applies to legislative exactions, see Glen Hansen, Let’s Be Reasonable: Why Neither Nollan/Dolan nor Penn Central Should Govern Generally-Applied Legislative Exactions After Koontz, 34 Pace Envtl. L. Rev. 237, 242 (2017).