Garneau v. City of Seattle

O’SCANNLAIN, Circuit Judge,

concurring in part and dissenting in part.

I join Part IV of the court’s opinion regarding the district court’s discovery rulings. As to Parts II and III, however, which discuss the constitutionality of the Tenant Relocation Assistance Ordinance (“TRAO”), I respectfully dissent.

I

Nollan v. California Coastal Commission, 483 U.S. 825, 831-37, 107 S.Ct. 3141, 97 L.Ed.2d 677 (1987), and Dolan v. City of Tigard, 512 U.S. 374, 386-91, 114 S.Ct. 2309, 129 L.Ed.2d 304 (1994), outline the steps a court should take in determining the constitutionality of a government’s exaction of private property made in exchange for a development permit. In essence, the exaction is unconstitutional when it (a) would be an outright taking in the absence of any exchange for the development permit, and (b) is not “roughly proportional” to the harms caused by the proposed development. Regrettably, the court finds Nollan and Dolan to be inapplicable for two reasons, which I shall address in turn.

A

The court first concludes that Nollan and Dolan pertain only to as-applied takings challenges, not to facial takings challenges. The analysis goes as follows: (1) the Nollan “nexus” test and the Dolan “rough proportionality” test require a court to compare the government’s demanded exaction with the expected harm of the landlord’s proposed development; (2) before making this comparison, a court must calculate the total amount of the exaction to be levied against the landlord bringing the suit; (3) in facial challenges, courts do not look at the total actual amount of the exaction, but rather only at the ordinance which' permits the exaction; (4) consequently, Nollan and Dolan are not applicable to facial challenges. The weak link in this logical chain is the second step. The court incorrectly assumes that no comparison between exaction and harm can ever be made without first determining the total actual amount of the exaction. What the court disregards is this: When the harm is zero, an exaction can never be roughly proportional to, or even have a nexus with, the harm. Irrespective of the total actual amount of the exaction' — whether it be $1,000 or $50,000 — it is not roughly proportional to zero. For this reason, I must part company with my colleagues.

The proposed development in this case causes no discernible harm whatsoever. When the city claims that the development would cause the tenants', moving expenses, the city is patently incorrect. Whether or *814not a landlord develops his land, the tenants must bear moving expenses when they vacate the premises. This burden should come as no surprise to tenants, who, by definition, are legally obliged to move out eventually, perhaps involuntarily. In its conventional sense, a “tenant” is “one who has the temporary use and occupation of real property” owned by someone else. Black’s Law Dictionary 1314 (1979) (emphasis added). A landlord retains a right to evict the tenant at the expiration of the lease.1 In constitutional parlance, this right is known as the “right to exclude,” which, the Supreme Court has explained, is “one of the most essential sticks in the bundle of rights that are commonly characterized as property.” Kaiser Aetna v. United States, 444 U.S. 164, 176, 100 S.Ct. 383, 62 L.Ed.2d 332 (1979). It is the landlord’s exercise of his constitutionally protected right — and not the subsequent development — that causes the tenant’s moving expenses. If the landlord chooses not to renew a lease, the tenants must pay moving-expenses, regardless of what the landlord does to his land after eviction.

Moreover, even were I to accept the city’s argument that the proposed development could constitute the cause of the tenant’s moving expenses, I would still have to conclude that this “harm” is facially not roughly proportional to the requested exaction. Put simply, the magnitude of the relocation payments under the TRAO bears no relation whatsoever to the tenants’ actual or even expected moving costs. Estimated moving costs should not include first or last month’s rent, future rent increases, security deposits, or utility deposits because these amounts are not marginal costs. There is little reason to expect these amounts to be greater, on average, as a result of the proposed development.2 Because only $391 of the relocation expenses is attributable to marginal costs,3 the landlords’ $1,000 share of each payment is assuredly not “related both in nature and extent to the impact of the proposed development.” Dolan, 512 U.S. at 391, 114 S.Ct. 2309. Whether the landlord has to pay relocation expenses for one tenant or fifty, the monetary exaction is not roughly proportional to the costs of moving.

Thus, I cannot agree with the court’s first conclusion that Nollan and Dolan pertain only to as-applied takings challenges. Although the court is correct that the government may seek land, money, or other concessions in return for a building permit, the exactions in this case are impermissible because they are not roughly proportional to the harm caused by the landlords, regardless of the total amount of the exactions. There is no need to determine how many relocation payments the landlords would have to make.

B

The court’s second reason for holding Nol-lan and Dolan inapplicable is that these cases “do[ ] not address when a taking has occurred, [but] only how close a fit the exaction ... must have to the harms caused by development.” Maj. Op. at 811. The first step in the Nollan-Dolan analysis, as the court notes, is to determine whether a government exaction would be a taking if made outright, in the absence of any exchange for a development permit. The court apparently believes that, because Nollan and Dolan do not articulate when an outright exaction can *815constitute a “taking,” there could not be a taking under the facts of the present case.4

1

The problem with the court’s analysis, quite simply, is that the court’s conclusion does not follow from its premise. The question before us is whether a monetary exaction can constitute a taking. Nollan and Dolan’s silence on this question does not imply that the question should be answered in the negative; it merely indicates that the question was not before the Court in either case. Moreover, the Supreme Court has, on other occasions, given us sufficient indication that the monetary exactions authorized by the TRAO are indeed takings. See Ehrlich v. City of Culver City, 512 U.S. 1231, 1231, 114 S.Ct. 2731, 129 L.Ed.2d 854 (1994); Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 163, 101 S.Ct. 446, 66 L.Ed.2d 358 (1980).

a

First, after deciding Dolan, the Supreme Court granted certiorari and summarily vacated a takings decision of the California Court of Appeal, remanding for consideration in light of Dolan. See Ehrlich v. City of Culver City, 512 U.S. 1231, 114 S.Ct. 2731, 129 L.Ed.2d 854 (1994). Ehrlich involved a fee charged by the city (to pay for more city parks) in exchange for a building permit. If Dolan were not applicable to monetary exac-tions, as my colleagues suggest, then it would have been an unnecessary waste of judicial resources to vacate and to remand Ehrlich. The Supreme Court’s action suggests that the Court would apply Dolan to the monetary exactions at issue today.5

b

Second, in Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 101 S.Ct. 446, 66 L.Ed.2d 358 (1980), the Supreme Court found a Takings Clause violation in a monetary exaction that was “a forced contribution to general governmental revenues, ... not reasonably related to the costs of [any government service].” Id. at 163, 101 S.Ct. 446. If the exaction had been a “user fee” — a price for particular government services— then it quite likely would have been constitutional. See United States v. Sperry Corp., 493 U.S. 52, 60, 110 S.Ct. 387, 107 L.Ed.2d 290 (1989). Indeed, to pass Takings Clause scrutiny, a user fee need only be a “fair approximation of the cost of [government] benefits supplied.” Id. (quoting Massachusetts v. United States, 435 U.S. 444, 463, 98 S.Ct. 1153, 55 L.Ed.2d 403 (1978)) (internal quotation marks omitted). The exaction in Webb’s, however, was not a user fee; rather, it was nothing more than an uncompensated transformation of private property to public property in an attempt to “forc[e] some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Webb’s, 449 U.S. at 163, 101 S.Ct. 446 (quoting Armstrong v. United States, 364 U.S. 40, 49, 80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960)) (internal quotation *816marks omitted). Consequently, the exaction at issue in Webb’s was unconstitutional.

For the same reason, the forced relocation payments at issue today also violate the Takings Clause. The landlords do not receive any government service in exchange for the exaction. The city of Seattle does not even contend that they do. Because the TRAO is not a “user fee,” but rather a device for compelling landlords to bear a public burden, the TRAO cannot pass constitutional muster.

2

Moreover, even were I to accept the court’s unsubstantiated assumption that ordinary monetary exactions cannot constitute takings, I would still have to disagree with its conclusion that the unique exactions authorized by the TRAO are not takings. The TRAO does not merely exact money.6 Quite the contrary, a TRAO exaction is tantamount to a physical occupation of land because it has the effect of depriving landowners — without just compensation — of their constitutional right to exclude.

a

The TRAO is the economic equivalent of a hypothetical statute that

(a)“takes” the landowner’s right to exclude; and
(b) inadequately “compensates” the landowner by granting him the option to buy back the right to exclude, an option whose value is necessarily less than the value of the right to exclude.

This hypothetical law has precisely the same effect as the TRAO: the landowner has to pay money to retain his right to exclude.7 Because the two laws are functional equivalents, the constitutionality of the TRAO should follow the constitutionality of the hypothetical statute. Otherwise, we would be valuing form over function. Hence, if an out-and-out deprivation (without just compensation) of a landowner’s right to exclude tenants violates the Takings Clause, then so should the Seattle ordinance.

b

A deprivation of the right to exclude most certainly violates the Takings Clause, as it constitutes a physical occupation of land. In Yee v. City of Escondido, 503 U.S. 519, 112 S.Ct. 1522, 118 L.Ed.2d 153 (1992), the Supreme Court made clear, albeit in dictum, that a deprivation of a landowner’s right to exclude tenants, in the absence of just compensation, is unconstitutional: “Had the city required [landlords to permit] such an occupation, of course, the petitioners would have a right to compensation....”8 Id. at 532, 112 S.Ct. 1522. Because a taking of the right to exclude without payment of just compen*817sation is a violation of the Takings Clause, and because the TRAO accomplishes as much, I would hold that the ordinance constitutes an unconstitutional taking.9

II

To paraphrase the Supreme Court, the government may not obtain by extortion that which it cannot legitimately take outright. See Nollan, 483 U.S. at 837, 107 S.Ct. 3141. Because I view the Tenant Relocation Assistance Ordinance as akin to extortion, viola-tive of the Takings Clause, I respectfully dissent.

. Of course, if a landlord terminates a tenancy prior to completion of the lease term, the tenant has a cause of action under state contract law, and his damages can include incidental damages such as moving expenses. In the absence of such breach, however, the landlord cannot be considered liable for moving expenses.

. To be sure, a landowner's decision not to rent space out to tenants may contribute marginally to a city-wide increase in rents, as it reduces the supply of residential units available. However, this attenuated effect is caused by the landowner's exercise of his right to exclude, not by any proposed development. Moreover, the total increase in city-wide rents is no doubt due in significant part to a number of factors beyond the control of any landowner, such as population growth, general inflation, and government regulation.

.The only direct costs of moving identified by the City are $291 for physical moving costs, and $100 for utility connection fees and deposits. The City then estimated that tenants would be forced to find new, more expensive housing, resulting in $1,200 in deposits and advanced payments to landlords, and $600 in increased rent.

. The court also claims that the plaintiffs have “entirely ignored” this step of the takings analysis. To the contrary, the plaintiffs argued extensively in their brief that the $1,000 exaction indeed gives rise to a taking. (Appellant’s Opening Brief at 11-15).

. Perhaps the Supreme Court simply recognized the functional equivalence of exactions of money and exactions of a portion of land. If a government wished to exact a portion of land, it could either (a) exact it directly, or (b) exact a sum of money and use that money to compensate the landowner in an eminent domain proceeding. In either case, the end result is the same: the government has taken the land from the landowner.

The concurrence would apparently have us disregard this functional equivalence when the fee is "a generally applicable assessment resulting from a legislative process.” Cone. Op. at 820. However, as Justice Thomas explained in a dissent from a certiorari petition:

It is not clear why the existence of a taking should turn on the type of governmental entity responsible for the taking. A city council can take property just as well as a planning commission can. Moreover, the general applicability of the ordinance should not be relevant in a takings analysis.... The distinction between sweeping legislative takings and particularized administrative takings appears to be a distinction without a constitutional difference.

Parking Ass'n of Georgia v. City of Atlanta, 515 U.S. 1116, 1117-18, 115 S.Ct. 2268, 132 L.Ed.2d 273 (1995) (Thomas, J., joined by O'Connor, J., dissenting from denial of certiorari).

. For this reason, even if there were a "long history of judicial deference to legislation requiring payment of fees,” as the concurrence claims, Cone. Op. at 4284, the TRAO would still be distinguishable. I nevertheless note that the two cases cited by the concurrence cannot form a part of any well-established history of Takings Clause jurisprudence. The first case, United States v. Sperry Corp., 493 U.S. 52, 110 S.Ct. 387, 107 L.Ed.2d 290 (1989), as discussed above, was only about “user fees,” not monetary exactions in general. The second case, Houck v. Little River Drainage Dist., 239 U.S. 254, 36 S.Ct. 58, 60 L.Ed. 266 (1915), did not even address the Takings Clause; rather, it solely concerned the Due Process Clause of the Fourteenth Amendment.

. This functional perspective of the TRAO also shows that what is taken is indeed compensable, contrary to the views of the concurrence. Cone. Op. at 4281. Instead of granting the landowners this inadequate option, Seattle could have paid them for their right to exclude with cash, tax breaks, etc. The city’s deprivation of the right to exclude is "otherwise proper,” First English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 315, 107 S.Ct. 2378, 96 L.Ed.2d 250 (1987), but unconstitutional because the compensation was inadequate.

.The law at issue in Yee did not exact a physical taking because it provided "that a park owner who wishes to change the use of his land may evict his tenants.” Id. at 528, 112 S.Ct. 1522. Although a landowner had to give his tenants six to twelve months advance warning of future plans to change the use of the land, there is no indication anywhere in the Yee opinion that any landlord had to delay construction and to permit continued rental occupancy on account of this notice provision. Suggesting the contrary, the Court explained: "At least on the face of this regulatory scheme, neither the city nor the State compels petitioners, once they have rented their property to tenants, to continue doing so.” Id. 527-28, 112 S.Ct. 1522.

. Disregarding the economic equivalency of the two laws could lead to an absurd result: whereas a government would be constitutionally unable to pass a law forbidding landlords from evicting their tenants, the government could presumably accomplish the same goal — without violating the Constitution — by simply passing a law requiring landlords to pay evicted tenants an exorbitant amount of money. Unable to afford these payments, the landlords would, in effect, be deprived of their right to exclude the tenants. Surely, there can be no constitutional distinction between these two laws, the effects of which arc identical.

Contrary to the suggestion of the concurrence, this economic analysis would not hold unconstitutional "any number of general development fees.” Cone. Op. at 820. If these fees were mere "user fees" to cover the cost of processing the development permit, they would not be takings. See Sperry Corp., 493 U.S. at 60, 110 S.Ct. 387. Moreover, even if the amount of the fees exceeded a fair approximation of the cost of the government service provided, they could nonetheless pass constitutional scrutiny if they were "roughly proportional” to the harms caused by the proposed development. See Dolan, 512 U.S. at 391, 114 S.Ct. 2309.