In April, the United States Supreme Court released its opinion in Sheetz v. County of El Dorado, California, 144 S.Ct. 893 (2024) (“Sheetz”) (slip op.).  In this case, the Court addressed the question of whether a substantial traffic mitigation fee[1] related to the development of a small residence that was imposed by a legislative body is subject to the 5th Amendment Takings analysis provided under the Nollan and Dolan cases.[2]  These now familiar cases created a framework for determining when a condition to development becomes an unlawful taking.  In Nollan, the Court held that permit conditions required by local jurisdictions for developing or using real property must have an essential nexus with the development or use, i.e., the permit condition must address a public cost arising directly from the development/use requested by the property owner.[3]  Dolan supplemented the Nollan analysis by requiring the permit condition to be roughly proportional to the identified public cost.[4]

In reversing the California Court of Appeals, the Supreme Court in the Sheetz case held that the Takings Clause analysis does not distinguish whether land use permit conditions are administratively imposed ad hoc fees or rather formulaic fees created through a legislative process.  Ultimately, the Court’s decision implicitly reverses the California Supreme Court’s decision in San Remo Hotel, L.P. v. City and County of San Francisco, 27 Cal.4th 643, 670 (2002), where the California Supreme Court held that the so-called “stricter scrutiny” of Nollan and Dolan were not appropriate for legislatively-determined, formulaic mitigation fees because they could be modified through the political process and had the statutory guardrails found in California’s Mitigation Fee Act.[5]

While everybody is talking about the potential effects of the Sheetz case on challenges to imposed development conditions, in California it may not have as significant an impact as publicized.  The Supreme Court did overrule the California Court of Appeals, but it did not provide any new methodology for analyzing development impact fees or other conditions for land use permits. Justice Kavanaugh specifically stated in his concurring opinion that the question remained open whether a permit condition imposed on a class of properties must be tailored with the same degree of specificity as a permit condition targeting a particular development.  Due to California’s Mitigation Fee Act, the types of fees discussed in the Sheetz case are already subject to a similar analysis to that in the Nollan/Dolan takings analysis.  California’s Mitigation Fee Act already requires local legislative bodies to implement development-related fees that are both (1) reasonably related to the issue to be mitigated and (2) demonstrate the reasonableness of the relationship between the fee and the development.[6]  These two factors seem strikingly similar to the Nollan/Dolan analysis, and the Sheetz case does not provide any assistance in determining whether such a fee is an unconstitutional taking, leaving that issue for the state courts to consider in the first instance.

The Nollan/Dolan analysis, as extended to fees by Koontz,[7] examines whether there is (i) a “sufficient nexus” between the fee and the development and (ii) if there is a “rough proportionality” between the condition and the impact of the development.  This type of analysis, while referred to by some California courts as “heightened scrutiny,” is already mentioned, if not used directly, by these same courts when deciding Mitigation Act Fee cases.[8]  Even if it is not being integrated into all Mitigation Fee Act cases, the Nollan/Dolan analysis has been influencing the results.

The Sheetz decision may encourage developers to challenge legislatively-created mitigation fees or other development-related exactions from local governments in California either as an alternative to the Mitigation Fee Act or as an attempt for a second bite at the apple; however, the results of this type of challenge are unlikely to be any different than those litigated under the Mitigation Fee Act.  Courts may have a difficult time finding that a reasonably-related fee under the Mitigation Fee Act was not also roughly proportional to the subject development under Nollan/Dolan.  There may be some wiggle room to relitigate a fee that survived a Mitigation Fee Act challenge because Mitigation Fee Act claims have tight filing deadlines, administrative review requirements, and relation back to prior property owners, which could have ended the challenge prior to any substantive analysis. Even with this possibility, California developers are not likely to see a great benefit from the Sheetz case.

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[1] The fee amount in Sheetz was not based on the costs of traffic impacts specifically attributable to Sheetz’s particular project, but rather was assessed according to a rate schedule that took into account the type of development and its location within the County.

[2] Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987) (“Nollan”) and Dolan v. City of Tigard, 512 U.S. 374 (1994) (“Dolan”).

[3] Nollan, 483 U.S. at 837-41.

[4] Dolan, 512 U.S. at 391.

[5] Cal. Gov’t Code §§ 66000, et seq. (requiring reasonable relationship between fees and conditions to be created by development, among other terms).

[6] City of San Marcos v. Loma San Marcos, LLC, 234 Cal. App. 4th 1045, 1057 (2015) (“City of San Marcos”) (describing the analysis required under the Mitigation Fee Act).

[7] Koontz v. St. Johns River Water Management Dist., 570 U.S. 595, 619 (2013).

[8] See, e.g., City of San Marcos, 234 Cal. App. 4th at 1058-59 (2015) (citing Dolan in its summary of law to be used in analyzing a Mitigation Fee Act claim).

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On Monday, April 22, the United States Supreme Court will hear oral argument in City of Grants Pass, Oregon v. Johnson to review the decision of the Ninth Circuit affirming a district court’s certification of a class of homeless persons alleging they were unlawfully fined for violating city ordinances that were typical of anti-vagrancy laws that commonly exist in local jurisdictions.  Following its decision in Martin v. City of Boise, 920 F.3d 584 (2019), the Ninth Circuit held that, under the Eighth Amendment, “a person cannot be prosecuted for involuntary conduct if it is an unavoidable consequence of one’s status.”  Johnson v. City of Grants Pass, 72 F.4^th 868, 893 (2023).  Homelessness was deemed to be such a status.

State and local governments have been following this case closely in the hope that the Supreme Court will restore their authority to make legislative judgments about how best to address homeless issues, and property owners will in turn be anxious to know whether the government will have the authority to help them with their particular concerns.

To briefly summarize the development of the law in this area, in Robinson v. State of California, 370 U.S. 660, 667 (1962), the Supreme Court held that a state law making it a crime to be addicted to the use of narcotics violated the Eighth Amendment’s prohibition on the infliction of “cruel and unusual” punishments because the law was based on the person’s mere status as a person addicted to drugs rather than any act involving narcotics within the State.  So began the “status-act” distinction whereby only an act could be the basis for the application of criminal laws.  Six years later, the Supreme Court issued a fractured decision whereby the plurality appeared to limit Robinson to its unusual facts and upheld a conviction under the Texas penal code against a defendant convicted of being drunk in public.  Rejecting the efforts of the defendant to fall within Robinson’s protection against being convicted of a mere “status,” the four-member plurality of the Court found that “the present case does not fall within that holding, since appellant was convicted, not for being a chronic alcoholic, but for being in public while drunk on a particular occasion.”  Powell v. State of Texas, 392 U.S. 514, 532 (1968). However, the four-member dissent contended that the defendant “was accused of being in a condition which he had no capacity to change or avoid” in that he was suffering from the “disease of chronic alcoholism.”  Id. at 568.  The plurality responded that it would be revolutionary for the criminal law to require an inquiry into whether a defendant acted under compulsion or in a manner that was morally blameworthy; an unlawful act was enough to find guilt.  See id. at 545.

The question of whether, and to what extent, a defendant could claim that he was being unconstitutionally punished for a “status” in violation of the Eighth Amendment lay largely dormant for decades until, in the context of homelessness, it exploded with the Martin case in 2019.  Since the Martin decision, litigation between cities and homeless advocates has made clear the tension between the desire of governmental authorities to enforce their police powers for the public good and the desire of homeless advocates to protect the homeless from criminal and civil penalties for the need to find somewhere to sleep.  Critics of the Martin decision have argued that the complex policy judgments involved must be left to the legislature and that Martin and its progeny usurp the authority of legislatures to weigh competing needs of the public and the homeless.

While the legal debate may be interesting to lawyers as a matter of constitutional law, property owners have much more practical matters to confront.  Whether in the context of multifamily, office parks or residential, owners have faced an array of problems from the increasing presence of homelessness in both urban and suburban environments.

The urban multifamily landlord faces the complaints of tenants who are unhappy with the harassment they may face at the front door where homeless persons congregate.  “I don’t pay rent to have to wade through a homeless camp into the building” is a common refrain heard by landlords in San Francisco.  Tenants may threaten to file suit under the San Francisco Rent Ordinance and common law if the landlord fails to provide reasonable security.  When landlords install security cameras, some tenants appreciate it, while other tenants complain that security cameras invade their privacy.  When landlords take steps to try to reduce homelessness near an apartment building, such as by installing planters on the sidewalk, homeless advocates may contact the San Francisco Department of Building Inspection to cite the landlord for installing an alleged sidewalk obstruction.  In addition to the complaints of tenants, landlords have to consider the complaints of employees who manage the building and vendors who supply it, including potential safety issues that may arise when mentally ill or addicted persons loiter near the building.  In this manner, the landlord is put in the unenviable position of trying to comply with contradictory legal obligations to protect tenants while allowing for homelessness, all in the midst of a massive social problem that cannot be cured by the landlord.  When the landlord appeals to the city for aid, the city often states that its hands are tied by the Martin decision and its progeny, as exemplified by an injunction issued by a San Francisco federal court that enjoined San Francisco from enforcing its anti-encampment procedures whereby it would offer shelter and, if the offer was refused, require homeless persons to move out of encampments.  See Coalition on Homelessness v. City and County of San Francisco, 90 F.4^th 975 (9^th Cir. 2024).

The suburban multifamily landlord often faces a very different situation.  Most of the courts’ attention has been focused on the question of whether a homeless person on the urban sidewalk has the right to sleep on the sidewalk and, if so, whether the person also has the right to set up a tent and thereby obstruct the sidewalk by creating an encampment.  In contrast, very little attention has been paid to the question of whether a person living in an RV, van or car has the right to park on a city street indefinitely instead of renting a space for the vehicle.  Once a street becomes known as a location for vehicle campers, it often can attract dozens of other vehicles, many of which are nearly broken down or become broken down during extended stays.  Such lines of vehicles can appear in front of office buildings or industrial parks, creating an unattractive and potentially dangerous environment for employees, vendors and customers and also increasing property crime on the business. Again, the landlord is faced with complaints and the threat of litigation by persons negatively impacted by such vehicle encampments.

Courts have generally held that a city has the obligation to “bag and tag” the possessions of a homeless person when offering shelter, so that the person may reclaim his possessions later.  See, e.g., Coalition on Homelessness v. City and County of San Francisco, 647 F.Supp.3d 806 (N.D. Cal. 2022).  In Grants Pass, the Ninth Circuit equated persons living on streets to persons living in vehicles and concluded, without meaningful analysis, that they were affected in the same way by anti-vagrancy ordinances.  Grants Pass, 72 F.4th at 888.  However, there is a practical distinction unaddressed by the Ninth Circuit: How is a city supposed to offer shelter to a person living in a vehicle, including the requisite “bagging and tagging” of the person’s possessions?  A large RV cannot simply be bagged; it would have to be impounded.  Many such RVs are broken down; thus, assuming the person has a right to reclaim the RV after living in a shelter for some period of time, how does he do so if, as is often the case, the RV is not even drivable?  Removing a vehicle encampment may present a greater challenge than a sidewalk encampment.

In regard to persons camping in vehicles, Grants Pass raises more questions than it answers.  The Ninth Circuit held that a city may ban the use of tents by homeless persons because there is only a constitutional right to sleep, not maintain a structure.  Grants Pass, 72 F.4^th at 895 n.34.  If so, then should a city have the right to ban sleeping in a vehicle?  Separately, the district court in Grants Pass said it was “remarkable” that the city would argue that vehicle campers could instead camp on federal or county property outside city limits because, the court observed, such camping on federal property was illegal: “Homeless people who attempt to live on BLM land are subject to trespass prosecution under 43 C.F.R. 2808.10, fined $330, and summoned to this Court. Likewise, Josephine County does not welcome non-recreational camping in its parks.”  Blake v. City of Grants Pass, 2020 WL 4209227, at *7 (D. Or. 2020).  But if the Constitution requires cities to allow vehicle camping on city property, why does the Constitution not similarly require the federal government to allow it on federal property?  The federal government seems to be delegating the homeless problem to local authorities while at the same time, in the view of a dissenting judge, imposing federal restraints on their legislative judgments and thus exhibiting a “disregard for the state and local authorities that our constitutional system entrusts as the primary protectors of the health, safety, and welfare of our communities.”  Grants Pass, 72 F.4th at 933.

Regardless of the Supreme Court’s ruling, problems involving homelessness will remain.  For property owners, the outcome of the case may have a substantial impact on whether local governments will have authority to seek legislative solutions and will be able to partner with property owners and other stakeholders to address social ills that affect their properties as well as their employees, customers, vendors, tenants and others.

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On March 1, 2024. a U.S. federal court in Alabama declared the Corporate Transparency Act (CTA) to be an unconstitutional exercise of congressional authority, and suspended its enforcement against the plaintiffs in that case.  National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.).  The CTA requires all companies to file a beneficial ownership information report (BOIR) by the end of 2024.  Companies formed in 2024 must file within 90 days of formation, unless an exemption applies.  Other court challenges to CTA requirements are emerging to raise questions of when or if a company is required to file. We expect the appeals process in these cases to stretch well toward the end of the year, or more likely into 2025.  Unless there is a nationwide order, companies remain required to file BOIRs for 2024 while cases make their way through the system.

The expectations of FinCEN itself are clear – companies will be required to comply with CTA.  FinCEN issued a release notifying companies that the reprieve granted in the NSBU case applies only to the NSBU plantiffs.  https://fincen.gov/news/news-releases/updated-notice-regarding-national-small-business-united-v-yellen-no-522-cv-01448  The NSBU case may be one of several cases that could cause companies to hesitate in their CTA processes.  Confusion caused by these court challenges may cause companies to delay analysis of their CTA obligations and/or collection of necessary information, making a filing on a timely basis difficult or impossible.  Meanwhile, the safest course is for companies to continue their BOIR filing processes, while the Government has appealed the NSBU decision.

The appeal will turn on the NSBU’s challenge to, among other things, the nexus between the regulated activity and interstate commerce.  Such Commerce Clause challenges have been considered long shots in the past, because settled law provides that the Commerce Clause doctrine supports federal regulation of “intrastate activities that substantially affect interstate commerce.”  Here, the stated purpose of the CTA is to “help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.”  Legislative purposes far less connected to interstate commerce have survived judicial scrutiny, and money laundering activity is logically an activity that affects interstate commerce.  In the end, the NSBU court concluded that Congress lacked authority to enact the CTA because “[t]he proximity and degree of connection between the formation of an entity and its activities is too attenuated[.]”  Essentially, the argument is that merely forming a company does not suggest that it will operate in interstate commerce.  At the same time, the Court noted that Congress could have “easily” written the CTA to pass constitutional muster, raising the possibility that Congress may choose to modify the legislation.  Further, the NSBU court acknowledged that FinCEN’s 2016 Customer Due Diligence rule “provide[s] FinCEN with nearly identical information.”  As such, the NSBU court struck down the CTA while acknowledging a similar rule that provides nearly identical information is constitutionally acceptable.

The NSBU court also rejected other bases for Congressional power to enact the CTA legislation, including Congress’ broad powers to oversee foreign affairs and national security and impose taxes and related regulations.  The NSBU court concluded that the lack of constitutional authority to pass the act in question was “clearly demonstrated.”

In finding that Congress was not acting within the scope of its foreign affairs powers, the NSBU court reasoned that “[n]o principle of corporation law and practice is more firmly established than a State’s authority to regulate domestic corporations.”  It found that foreign affairs authority did not extend to purely internal affairs, such as formation of corporations under state law.  While the court conceded that the CTA is not a direct regulation of corporate formation, it decided that there was not adequate nexus between the purpose of the act and the foreign affairs power.  The NSBU court found objectionable that the CTA was a federal reporting requirement imposed on entities that voluntarily incorporate solely under state law, and that might operate exclusively within their state’s borders.

The NSBU court likewise rejected Government arguments that Congress was acting within its taxing power in enacting the CTA.  The Government argued that “the collection of beneficial ownership information is necessary and proper to ensure taxable income is appropriately reported.”  The law expressly allows the Department of the Treasury to access BOIRs for tax administration purposes.  The court concluded that providing access to the CTA’s database for tax administration purposes is not enough to establish a sufficiently close relationship to the Constitution’s grant of taxing power to Congress.

The Government is appealing the decision in NSBU, and some commentators have read the NSBU case as providing a roadmap for Congress to amend the CTA to more clearly invoke the Constitution’s grants of lawmaking authority.  This issue may ultimately be decided by the United States Supreme Court.  While there may be interest in challenging well-settled Commerce Clause jurisprudence, few justices have gone as far as Justice Thomas, who has argued that “post-1937 Commerce Clause jurisprudence is unfounded and un-originalist.”  While it may be possible to curtail Congress’s power to pass laws affecting interstate commerce, such efforts still face an uphill battle.  Meanwhile, companies need time to collect information and process filings, and do what they need to do to avoid FinCEN penalties.

We will continue to provide updates on this case and others that may emerge, as well as provide guidance on the application of the CTA.  Unless a more definitive nationwide decision is reported, FinCEN has stated that it intends to continue its enforcement of the CTA.

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