The Delaware Supreme Court Confirms That New Castle County’s Unified Development Code Is Constitutional

13 Min Read By: Sidney Liebesman, Lisa Zwally Brown, William Burton

Facts and Procedural History

On December 7, 2016, the Delaware Supreme Court sitting en banc heard oral argument in Golf Course Assoc, LLC v. New Castle County. The Delaware Supreme Court agreed with the county and affirmed the Delaware Superior Court’s opinion that New Castle County’s Unified Development Code (UDC) did not violate the U.S. Constitution. Golf Course Assoc, LLC v. New Castle County, 2016 WL 7176721 (Del. Dec. 9, 2016).

In Golf Course Assoc., Toll Brothers, Inc. submitted an application to the New Castle County Department of Land Use and the New Castle County Council to construct a housing development on a golf course near Route 48 (Lancaster Pike) outside of Wilmington, Delaware. In determining whether to accept or reject such a proposal, the department relies on the process outlined in the UDC, a process which is based on the concept of concurrency—whether the infrastructure necessary to support the proposed development exists or will exist by the time the development is complete. The first step in this process is to determine the “carrying capacity” for a proposed development, or how much development the surrounding infrastructure will support. In this case, the main issue was the traffic carrying capacity which, pursuant to the UDC, is determined by a Traffic Impact Study (TIS). Once a TIS has been completed, the developer must provide it to the Delaware Department of Transportation (DelDOT) for its written review and comment. The primary metric for measuring traffic congestion is the Level of Service (LOS) of intersections within the area of influence of the proposed development. The LOS for intersections is calculated by traffic engineers using a standard formula, which considers the number of vehicles and the amount of time spent waiting at an intersection at peak travel times. The proposed development in this case would impact the intersection of Lancaster Pike and Centerville Road.

The TIS prepared in 2010 rated the intersection of Lancaster Pike and Centerville Road as LOS “F” and anticipated that in 2016 the intersection would continue to operate at LOS “F.” DelDOT’s engineering firm, hired to review the TIS, assessed the intersection and determined that in 2010 the LOS rating was a “D” and projected that it would be at LOS “F” in 2016. An “F” rating for 2016 meant that the anticipated congestion at the intersection would exceed the standards allowed by the UDC and that the intersection would be in failure.

Toll Brothers had anticipated that traffic at the intersection would pose a problem to its proposed development and, as a result, designed a remedy to fix the congestion. Toll Brothers’ remedy was estimated to cost $1.1 million. Through negotiations with DelDOT, Toll Brothers offered to pay for this proposed remedy. DelDOT, however, preferred another remedy with an estimated cost of $3.5 million, but was willing to accept Toll Brothers’ $1.1 million as a contribution to DelDOT’s preferred solution.

Based on the traffic congestion issue, the New Castle County Department of Land Use disapproved Toll Brothers’ TIS. Accordingly, Toll Brothers’ record plan could not be filed. At the time the county disapproved the TIS, the statutory time period, including two authorized extensions totaling 180 days, had run and thus Troll Brothers’ record plan was deemed expired.

Following the expiration of its record plan, Toll Brothers appealed the county’s disapproval of the TIS and the resulting expiration of the plan to the New Castle County Board of Adjustments. Among other claims, Toll Brothers argued that an unconstitutional exaction had occurred. The board disagreed with Toll Brothers and dismissed its constitutional challenge. However, raising the unconstitutional exaction issue to the board preserved it for judicial review. The board agreed that pursuant to the UDC the plan had properly expired and that there was no constitutional violation. Toll Brothers subsequently filed an appeal with the New Castle County Superior Court. After briefing and oral argument, Judge Parkins of the Superior Court found in favor of the county, issuing its own well-reasoned opinion. The Superior Court’s decision was then appealed to the Delaware Supreme Court.

Toll Brothers’ Constitutional Claim

Toll Brothers argued before the board, the Superior Court, and the Delaware Supreme Court that the department and board’s rejection of the TIS constituted a violation of its constitutional rights under the “unconstitutional conditions” doctrine found in the Nollan/Dolan/Koontz trilogy of cases. This constitutional challenge involves the Takings Clause of the Fifth Amendment of the U.S. Constitution, made applicable to the states through the Fourteenth Amendment, which provides: “[N]or shall private property be taken for public use, without just compensation.” Dolan v. City of Tigard, 512 U.S. 374, 383-84 (1994) (internal citations omitted).  The public policy behind the Takings Clause is “to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Armstrong v. United States, 364 U.S. 40, 49 (1960).

The Koontz Test

The unconstitutional conditions doctrine was first addressed in a 5–4 decision by the U.S. Supreme Court in Nollan v. California Coastal Commission, where a landowner wanted to tear down his existing beach front house to build a new one. In order to do so, the owner needed to obtain a building permit from the California Coastal Commission. The commission required the landowner to provide a public easement across his property before it would issue a permit. The state argued that this easement was necessary to protect the public’s view of the beach, assist the public in overcoming the “psychological barrier” to using the beach, and prevent congestion on the public beach. The U.S. Supreme Court struck down this requirement as an unconstitutional exaction stating:

[T]he lack of nexus between the condition and the original purpose of the building restriction converts that purpose to something other than wait it was. The purpose then becomes, quite simply, the obtaining of an easement to serve some valid governmental purpose, but without payment of compensation. Whatever may be the outer limits of “legitimate state interest” in the taking and land-use context, this is not one of them. In short, unless the permit condition serves the same governmental purpose as the development ban, the building restriction is not a valid regulation of land use but “an out-and-out plan of extortion.”

Seven years after the U.S. Supreme Court issued its opinion in Nollan, it was asked to clarify the “required degree of connection between the exactions and the projected impact of the proposed development.” Dolan v. City of Tigard, 512 U.S. 374, 386 (1994).  This question was left unanswered in Nollan because the court concluded that the connection did not meet “even the loosest standard.” In another 5–4 decision by the U.S. Supreme Court in Dolan v. City of Tigard, the court adopted a “rough proportionality” test which, while there is “[n]o precise mathematical calculation,” requires that the state demonstrate “some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.”

It was not until 2013 that the U.S. Supreme Court would again address this doctrine in Koontz v. St. Johns River Water Mgmt. Dist. 133 S. Ct. 2586, 2593 (2013). In Koontz, in response to the state’s demand for property from a landowner for a Management and Storage of Surface Water permit and a Wetlands Resource Management permit, the landowner refused to transfer the property. Because there had been no actual taking due to the landowner’s refusal, this action raised the question as to whether the Takings Clause was applicable where there had been no actual taking of property. The court in Koontz also addressed the question of whether the Takings Clause was implicated when the State demanded money as opposed to an interest in land. The U.S. Supreme Court, in yet another 5–4 decision, found that under such circumstances the test enumerated in Nollan and Dolan was applicable. Specifically, as to the monetary issue, the court noted that a monetary obligation on a specific piece of land is a sufficient link between the government’s demand and the property to implicate the central concern in Nollan and Dolan, namely that “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.” The court further explained that there could be a violation of the Takings Clause even though there was no property of any kind actually taken:

Extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation. As in other unconstitutional conditions cases in which someone refuses to cede a constitutional right in the face of coercive pressures, the impermissible denial of a governmental benefit is a constitutionally cognizable injury.

In Koontz the court made clear that in order to make out a claim for an unconstitutional exaction, there must first be a demand. This point was made most clear by Justice Kagan’s dissenting opinion in Koontz. This dissent provides in pertinent part:

Nollan and Dolan apply only when the government makes a “demand[]” that a landowner turn over property in exchange for a permit. I understand the majority to agree with that proposition: After all, the entire unconstitutional conditions doctrine, as the majority notes, rests on the fear that the government may use its control over benefits (like permits) to “coerc[e]” a person into giving up a constitutional right. A NollanDolan claim therefore depends on a showing of government coercion, not relevant in and ordinary challenge to a permit denial. Before applying Nollan and Dolan, a court must find that the permit denial occurred because the government made a demand of the landowner, which he rebuffed.

Concerns Following Koontz

Following the majority’s opinion in Koontz there was widespread concern that local governments would stop negotiating with, and making suggestions to, developers about how to meet permitting criteria and, that instead would simply deny applications that did not meet municipal standards or improperly accept development plans. This was a concern because collaboration between the developer and local government “is essential to an orderly and efficient system of land use regulation.” Julie A. Tappendorf & Matthew T. DiCianni, The Big Chill?—The Likely Impact of Koontz on the Local Government/Developer Relationship, 30 Touro. L. Rev. 455, 471-72 (2014). Indeed, as part of the development process, local governments and developers often meet and discuss possible negative impacts of the proposed development and ways to mitigate concerns in an attempt to reach an agreement. Commentators have suggested that Koontz prevents these discussions from taking place by providing an additional, unnecessary risk of possible lawsuits based on an unconstitutional exaction theory. Specifically, the suggestion is that if the local government participates in what has become the normal back-and-forth with the developer, at any time during that process the developer could cease talks and file suit claiming a taking based on the unconstitutional exaction doctrine. The local government, therefore, has no incentive to take part in those discussions for fear of being accused of making a demand. This necessarily prevents local governments and land developers from reaching agreements that work for both parties and, in effect, prevents a property owner, like the one in Koontz, from having an “opportunity to amend their applications or discuss mitigation options.”

Another concern resulting from the Koontz decision is that if local governments do decide to partake in discussions with the developers, the developers are incentivized to only offer the “easiest and cheapest mitigation condition” because if that is rejected they can race to the courthouse claiming an unconstitutional exaction. See Michael Farrell, A Heightened Standard for Land Use Permits Redefines the Power Balance Between the Government and Landowners, 3 U. Balt. J. Land & Dev. 71, 74 (2013). The Koontz decision, therefore, places the developer in a stronger negotiation position forcing local governments to accept an unfavorable offer or risk litigation.

Applying the Koontz Test to Toll Brothers’ Claims

In Golf Course Assoc., LLC, the board, Superior Court, and, by extension, the Delaware Supreme Court found that the county never made a demand on Toll Brothers. Specifically, it was noted that there was no evidence in the record indicating that negotiations between the county and Toll Brothers had occurred. In fact, the New Castle County Department of Land Use  asserted that it had no authority to negotiate with Toll Brothers (or other developers for that matter). Instead, the negotiations occurred between Toll Brothers and DelDOT. However, as the court noted, when it comes to traffic, DelDOT plays merely an advisory role. The court held that in order to implicate the constitutional exaction doctrine the county has to negotiate with the developer and not DelDOT. In the absence of such negotiations and, in turn, a demand by the county, Toll Brothers’ Nollan/Dolan/Koontz constitutional exaction claim failed.

The Superior Court properly noted that at most there was a denial of a land use permit which, by itself, was insufficient to amount to a constitutional violation. The Superior Court further clarified that a statutory restriction, evenly applied, does not constitute an unconstitutional exaction under the trilogy. The court held that the exaction “must come in the form of a demand arising from an administrative requirement particular to the requested land use permit,” something that was absent in this case.

Conclusion—The Impact

The Delaware Supreme Court’s decision to affirm the Superior Court’s opinion seemingly addresses many of the concerns discussed by commentators following the Koontz decision. Specifically, the Superior Court’s decision, upheld by the Supreme Court, implies that a local government can negotiate with a developer, and avoid an exaction claim, so long as the negotiations involve a non-binding governmental agency which only has an advisory role. By using such an agency (such as DelDOT in this case), the local government does not have to outright reject a plan that fails to satisfy the governing municipality’s rules. Instead, negotiations can occur and an agreement that works for both parties can be reached between the developer and the governmental agency, which is then ratified by the local government. In addition, the non-binding governmental agency can provide the developer with advice on how to meet the permit requirements without fear of possible litigation. Further, the developer’s incentive to offer the “easiest and cheapest mitigation condition” is taken off the table because if such an offer is rejected by the non-binding governmental agency that, in it of itself, does not constitute an unconstitutional exaction.

The Superior Court and Delaware Supreme Court’s decisions not to needlessly expand the unconstitutional exaction doctrine to applications of zoning and subdivision laws serve several additional key public policy considerations. First, the decision prevents a developer from having a constitutional right to taxpayer-funded level of service improvements for water, sewer, and traffic. Had the Superior Court ruled differently, a developer would have had a constitutional right to infrastructure improvements because the county could not deny the application under concurrency laws without violating the Takings Clause. Second, the Superior Court’s decision prevents the public from bearing the responsibility of funding infrastructure improvements merely because a developer seeks to personally profit from a proposed housing development. Lastly, it prevents government officials from being forced to make frequent ad hoc judgments as to whether certain code requirements constitute an unconstitutional exaction.

Disclosure: The case discussed in the article represents one of only a handful of state appellate courts to have, so far, considered and applied the U.S. Supreme Court’s application of the takings provisions under the Fifth and Fourteenth Amendments to the U.S. Constitution found in the Nollan/Dolan/Koontz trilogy of cases in connection with land use decisions and processes. Municipalities, developers, land owners, and the lawyers representing them will have an interest in seeing the latest application of those U.S. Supreme Court cases to the rejection of a planned residential community substantially impacting traffic/transportation.

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