SIX LESSONS FOR MUNICIPAL LAWYERS:
CITY OF MONTEREY V. DEL MONTE DUNES AT MONTEREY, LTD.
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One of the most disturbing features of the Ninth Circuit's ruling in Del Monte Dunes was its application of Dolan's "rough proportionality" standard to a land use permit denial. The Supreme Court unanimously reversed this ruling and reaffirmed that Dolan is limited to the special context of exactions. 119 S. Ct. at 1635 (majority); id. at 1650 (dissent).

The Court defined the "exactions" that are subject to Dolan to include only compelled dedications, which are generally understood to require transfers of title to a property interest. Id. at 1635. This limited definition of "exaction" suggests that Dolan does not apply to impact fees and other non-dedication permit conditions. Prior to Del Monte Dunes, the courts had split on the application of Dolan to impact fees and other non-dedication exactions. Compare Ehrlich v. Culver City, 911 P.2d 429, 433 (Cal. 1996) (Dolan applies to impact fees) with McCarthy v. City of Leawood, 894 P.2d 836 (Kan. 1995) (Dolan is inapplicable to impact fees); Home Builders Ass'n of Central Arizona v. Scottsdale, 930 P.2d 993 (Ariz. 1997) (same), cert. denied 521 U.S. 1120 (1997).

Municipalities are already using Del Monte Dunes' limitation of Dolan to their advantage. For example, in Benchmark v. City of Battle Ground, 972 P.2d 944 (Wash. Ct. App. March 12, 1999), an intermediate appeals court applied Dolan to strike down a permit condition requiring street improvements. The city petitioned the Washington Supreme Court for review and submitted Del Monte Dunes as a supplemental authority on the inapplicability of Dolan. Just weeks ago, the Washington Supreme Court vacated the appeals court ruling and remanded for further consideration in light of Del Monte Dunes. Similarly, in Lambert v. City and County of San Francisco, 67 Cal. Rptr. 2d 562 (Cal. Ct. App. 1997), an intermediate appeals court rejected a takings challenge to a permit denial that occurred after the applicants refused to pay a monetary exaction, and it rebuffed the claimants' invitation to apply heightened scrutiny under Dolan. The California Supreme Court granted the claimants' petition for review, but on July 28, 1999, perhaps in response to Del Monte Dunes, the state Supreme Court dismissed the appeal as improvidently granted, thereby preserving the city's win at the appeals court.

Del Monte Dunes also provides strong arguments that the so-called "essential nexus" test set forth in Nollan v. California Coastal Comm'n, 483 U.S. 825 (1987), is similarly limited to dedications. What follows is a brief summary of Nollan, Dolan, and the effect of Del Monte Dunes.

In Nollan, the California Coastal Commission granted a development permit on the condition that the Nollans give the Commission an easement to allow the public to pass across their property. 483 U.S. at 828. To justify this condition -- which effectively allowed California to obtain an interest in land without paying compensation -- the Supreme Court ruled that there must be an "essential nexus" between the harm attributable to the development and the condition demanded. Id. at 837. The Court tied this essential nexus requirement to the specific facts of the case, stating that it is "inclined to be particularly careful * * * where the actual conveyance of property is made a condition to the lifting of a land-use restriction, since in that context there is heightened risk that the purpose is avoidance of the compensation requirement, rather than the stated police-power objective." Id. at 841.

Dictum in Nollan created uncertainty concerning whether Nollan's essential nexus test could be applied more broadly to all regulations challenged under the Takings Clause. Specifically, Justice Scalia suggested that the Court might carefully look at the connection between the regulation and the state interest in all future takings cases. 483 U.S. at 835 n.3. This dictum cracked the door for an argument that Nollan's "essential nexus" test should be applied in takings cases across the board.

Although Nollan cracked the door for broad application of the essential nexus test, subsequent Supreme Court cases now have slammed that door shut.

The Court revisited the subject of compelled physical dedications in Dolan. Dolan resolved a question the Court considered to be left open by Nollan, "the required degree of connection between exactions imposed by the city and the projected impacts of the proposed development." 512 U.S. at 377. The Court ruled that the degree of connection required was "rough proportionality." Id. at 391. Thus, after Dolan, a local government seeking a dedication of land in exchange for a development permit must demonstrate that the dedication is related to and proportional with the harm attributable to the proposed development. Id.

The language and logic of Dolan limit the Dolan/Nollan test to compelled dedication cases. As in Nollan, the Dolan Court emphasized its unique concern with dedication requirements. The Court distinguished general land-use planning requirements, which have routinely withstood constitutional scrutiny, with restrictions that are "not simply a limitation on the use petitioner might make of her own parcel, but a requirement that she deed portions of the property to the city." Id. at 385. The Court also reiterated its concern that government agencies were using dedication requirements to avoid the need to pay compensation for physical takings, stressing that "had the city simply required petitioner to dedicate a strip of land along Fanno Creek for public use, rather than conditioning the grant of her permit to redevelop her property on such a dedication, a taking would have occurred." Id. at 384.

More importantly, the Court in Dolan grounded the Dolan/Nollan test in the unconstitutional conditions doctrine. In the Court's words:

In Nollan, supra, we held that governmental authority to exact such a condition was circumscribed by the Fifth and Fourteenth Amendments. Under the well-settled doctrine of "unconstitutional conditions," the government may not require a person to give up a constitutional right -- here the right to receive just compensation when property is taken for public use -- in exchange for a discretionary benefit conferred by the government where the benefit has little or no relationship to the property. [Id. at 385 (citations omitted).]

By placing Dolan/Nollan within the confines of the doctrine of unconstitutional conditions, the Court limited the application of the nexus/proportionality test to cases where the government action constitutes a per se taking. The reason is simple. Unconstitutional conditions cases involve a two step inquiry into (1) whether a government benefit is being conditioned on the relinquishment by the claimant of a constitutional right and (2) whether the burden on the constitutional right is justifiable or amounts to an unconstitutional condition. There were unconstitutional conditions in Nollan and Dolan because the landowners were asked to relinquish a clear constitutional right -- the right to receive compensation for per se takings -- in exchange for receipt of a government benefit, a permit to develop their property. See Nollan, 483 U.S. at 831; Dolan, 512 U.S. at 384.

It makes no sense to use a test designed to determine whether a constitutional right was improperly conditioned to determine whether a constitutional right is being infringed in the first place. Thus, zoning laws and other land-use regulations that simply limit potential uses of property and do not require that a landowner relinquish a per se right to compensation cannot be the subject of an unconstitutional conditions claim.

Following Dolan, numerous lower federal courts and state courts ruled that both Nollan and Dolan were properly limited to cases involving dedication requirements. See, e.g., Texas Manufactured Hous. Ass'n v. Nederland, 101 F.3d 1095, 1105 (5th Cir. 1996), cert. denied, 521 U.S. 1112 (1997); Clajon Prod. Corp. v. Petera, 70 F.3d 1566, 1578-79 & 1579 n.21 (10th Cir. 1995); Harris v. Wichita, 862 F.Supp. 287, 294 (D. Kan. 1994), aff'd 74 F.3d 1249 (10th Cir. 1996); McCarthy v. City of Leawood, 894 P.2d 836 (Kan. 1995); Home Builders Ass'n of Cent. Arizona v. Scottsdale, 930 P.2d 993, 1000 (Ariz. 1997), cert. denied, 521 U.S. 1120 (1997); GST Tucson Lightwave, Inc. v. City of Tucson, 949 P.2d 971, 978-79 (Ariz. App. 1997); Waters v. Montgomery County, 650 A.2d 712, 724 (Md. App. 1994); Arcadia Dev. Corp. v. Bloomington, 552 N.W.2d 281, 286 (Minn. App. 1996), rev. denied, 1996 Minn. LEXIS 795 (Minn. Oct. 29, 1996); S.E.Cass Water Res. v. Burlington, 527 N.W.2d 884, 896 (N.D. 1995).

One of the few decisions not following this overwhelming trend was the Ninth Circuit's ruling in Del Monte Dunes, which applied Dolan's rough proportionality test to a permit denial. The Supreme Court unanimously reversed this portion of the Ninth Circuit's ruling. The Court confirmed that Dolan's rough proportionality test does not apply "beyond the special context of exactions -- land-use decisions conditioning approval of development on the dedication of property to public use." Del Monte Dunes, 119 S.Ct. at 1635. Dolan addressed "dedications demanded as conditions of development," not "the much different questions arising where, as here, the landowner's challenge is based * * * on denial of development." Id.

Municipal attorneys should use Del Monte Dunes to show that Nollan is similarly limited. Dolan's rough proportionality is a refinement of Nollan's essential nexus test, not a stand-alone test. Indeed, Dolan resolved "a question left open by our decision in Nollan" regarding the required degree of connection between the dedication and the proposed development. Dolan, 512 U.S. at 377. The two cases and the test they articulate thus are inextricably linked. By unanimously limiting Dolan to dedications, Del Monte Dunes strongly implies that Nollan is similarly limited.

Moreover, the Del Monte Dunes Court went out of its way to tie Dolan and Nollan together and to stress the unique factual setting of both cases. The Court cited both Nollan and Dolan for the proposition that Dolan addresses only "the special context of exactions." 119 S.Ct. at 1635 (citing Nollan, 825 U.S. at 841). The cited passage of Nollan highlights the Court's unique concerns "where the actual conveyance of property is made a condition to the lifting of a land-use restriction." Nollan, 825 U.S. at 841. The Del Monte Dunes Court returned to Nollan again later in its opinion, suggesting that Nollan addressed only dedications and did not address the question of what test should apply outside that context:

[T]his Court has [not] provided * * * a thorough explanation of the nature or applicability of the requirement that a regulation substantially advance legitimate public interests outside the context of required dedications or exactions, cf., e.g., Nollan, 483 U.S. at 834-835, n.3. [119 S.Ct. at 1636.]

The significance of the Court's treatment of Nollan in these two portions of Del Monte is unmistakable. Nollan, like Dolan, addressed the unique concerns arising from dedication conditions. Nollan's essential nexus does not apply to the much different questions arising in cases where the landowner's challenge is based on restrictions on development or other land use.

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