On July 29, 2025, California’s Court of Appeal for the Third Appellate District once again addressed a property owner’s challenge to “traffic impact mitigation fees” (TIM fees), on remand from the United States Supreme Court in Sheetz v. County of El Dorado. The Supreme Court had unanimously decided in April 2024 that the California courts had previously got it wrong in assuming that such fees were “categorically exempt” from the heightened judicial scrutiny demanded by the Supreme Court’s decisions in Nollan v. California Coastal Commission and Dolan v. City of Tigard simply because the fee schedule had been “legislatively established.”
The Court of Appeal’s new opinion begins by claiming that its error in previously dismissing the property owner’s constitutional challenge to the fees was due to its reliance on what it characterized as “longstanding precedent from the California Supreme Court which held that the requirements of Nollan and Dolan [for heightened scrutiny] did not apply where (as here) the challenged impact fee was a legislatively imposed permit condition.” The appellate court opinion acknowledges the Supreme Court’s holding that the Constitution “prohibits legislatures and agencies alike from imposing unconstitutional conditions of land-use permits.”
The disputed TIM fees were included in a schedule of fees adopted by the County Board of Supervisors, based on numerous technical studies that purported to show a reasonable basis for the varying amounts of TIM fees to be charged on different categories of new development in different parts of the County. Based on the schedule of TIM fees, the County had demanded $23,000 in fees as a condition of issuing permits for the plaintiff’s installation of a modest single-family modular home on his rural property in El Dorado County. Mr. Sheetz paid the fees under protest and sued the County in state court, contending that these fees were unconstitutional exactions because they did not share a relationship with, or were not shown to be roughly proportional to, the purported impacts of his modest project as required by Nollan and Dolan. The trial court dismissed Sheetz’s lawsuit, and the Third District affirmed, on the basis that because such fees were “legislatively established” and “generally applicable” to a broad class of development, they were not required to meet the Nollan and Dolan standards.
Sheetz appealed to the United States Supreme Court. The Court unanimously held that the California courts had been in error, that there is no basis for applying different standards of review to development fees based on how they are imposed, and reversed the Third District’s decision. However, while the Supreme Court confirmed that constitutional Nollan/Dolan requirements apply universally to development fees and exactions, regardless of how imposed or by whom, the Court did not address the application of those requirements to the facts of the case or opine as to whether the fees at issue actually satisfied those standards, but rather remanded the case to the California appellate court for further proceedings.
On remand, the Third District’s opinion engaged in a lengthy acknowledgement of the Supreme Court’s precedential decisions on development exactions, and re-stated (“in other words”) the holdings of those decisions, apparently attempting to show that previous California cases were not so widely deviant from Nollan and Dolan as had been asserted. The appellate court concluded that the documents in the record sufficiently carried the County’s burden to demonstrate both a reasonable nexus and rough proportionality between impacts of single-family residential projects such as Mr. Sheetz’s home and the amount of the TIM fee imposed on Sheetz’s project. The opinion has three key holdings.
First, the court addressed Justice Sotomayor’s concurrence in Sheetz and held that the TIM fee imposed by the County constitutes a monetary exaction directly linked to a specific parcel of real property and is thus subject to scrutiny under the Nollan/Dolan “unconstitutional conditions” test. Citing the U.S. Supreme Court’s decision in Koontz v. St. Johns River Water Mgmt. Dist., the court reasoned that because the fee imposition burdened Sheetz’s ownership of a specific parcel, it implicated the same concerns as a compelled physical dedication. Therefore, the County had to show that it satisfied the heightened scrutiny required under Nollan and Dolan.
Second, the court held that the TIM fee satisfied the “essential nexus” requirement from Nollan because there was a logical connection between the County’s legitimate interest in mitigating traffic congestion and the condition requiring Mr. Sheetz to pay a fee that contributes to road improvements. The court distinguished this case from Nollan, where the easement demanded had no relation to the government’s stated interest.
Third, the court also held that the TIM fee met the “rough proportionality” requirement from Dolan. Significantly, the court agreed with Justice Gorsuch’s concurrence in Sheetz to hold that “the Nollan/Dolan test does not ‘operate[] differently’ when a land-use exaction affects (as here) a class of properties rather than a particular development.” It described the County’s detailed technical studies which supported the TIM fee schedule based on reasonable formulas to assess the likely traffic impacts of different classes of development in different areas of the County. The court glossed over the Supreme Court’s statement in Dolan that “the government must make some sort of individualized determination that the [exaction] is related both in nature and extent to the impact of the proposed development,” and concluded that the County’s detailed methodology provided a constitutionally adequate relationship between the fee imposed and the anticipated traffic impacts of the “class” or “type” of development.
While the Supreme Court held that the California courts had been “doing it wrong” in their review of legislatively established development exactions and fees, the Court did not explicitly tell the lower courts how to do it “right.” This subsequent opinion is an important explanation of the constitutional burdens on government agencies to demonstrate that all development fees satisfy the Nollan and Dolan requirements. It also indicates that those burdens can be met by technical studies, competent evidence and detailed “impact” analysis based on narrowly-described “types” of development in specific geographic zones, as in this case. However, the opinion semantically blurs or obscures the remaining inconsistencies between the Supreme Court’s holdings in Nollan/Dolan/Koontz and the appellate court’s approval of the “class based” fees in this case.
For more information, please contact Dave Lanferman or Jayson Parsons at Rutan & Tucker. Dave and Jayson represented the National Association of Home Builders and the California Building Industry Association as amicus curiae in support of the prevailing petitioner in briefing before the Supreme Court, in addition to serving as amicus curiae in the proceedings before the California appellate court on remand.
