By Jonathan Stempel 

WASHINGTON, Jan 15 (Reuters) - The U.S. Supreme Court waded back into the hotly contested area of property rights on Tuesday, examining whether a Florida property owner must accept strict conditions in exchange for obtaining a development permit for his land.

A decision, expected by the end of June, could clarify the ability of a government to limit how an owner uses his property, short of an illegal seizure known as a "taking."

Governments often cite public policy reasons for limiting property use, such as to preserve the environment or a neighborhood's character, or else to help the community at large.

The Supreme Court has in the past said that power is not absolute, requiring sufficient links to public policy and some degree of proportionality in limiting the use of property.

But in Tuesday's case, some justices questioned whether Coy Koontz was treated unfairly in being denied a commercial development permit for his property near Orlando by the St. Johns River Water Management District.

The district had turned him down after he refused to pay for wetlands improvements elsewhere.

"Here, there's nothing that happens. The permit was denied," Justice Antonin Scalia told Koontz's lawyer Paul Beard. "I can't see where there's a taking here. Nothing was taken."

Other justices, however, said there were limits to what a government can demand before granting such permits.

A government cannot "ask for the moon," Chief Justice John Roberts said. "The Takings Clause (of the U.S. Constitution) is designed to prevent property owners from having to bear the costs that should be borne by the people as a whole."

EIGHTEEN YEARS

Tuesday's case is the culmination of a more than 18-year-old battle waged by Koontz and his late father over the development of their nearly 15-acre (six-hectare) parcel of land.

After Florida designated much of the parcel as protected wetlands, Koontz proposed to develop about a quarter of it, in an area near a highway, and dedicate the rest for conservation.

That was not enough for local officials. They offered some alternatives, requiring Koontz to pay money - estimated at between $10,000 and $150,000 - to protect wetlands elsewhere, some several miles away.

Those offers were rejected, and a trial court awarded Koontz $327,500 for being unable to use his property.

But Florida's Supreme Court threw the award out. It said that because St. Johns did not issue a permit, Koontz never spent money on offsite improvements. Thus, it said, "nothing was ever taken."

FOOTBALL STADIUM

While agreeing that preserving wetlands was a legitimate policy, Beard argued that St. Johns' demands were excessive.

Justice Ruth Bader Ginsburg appeared to disagree. "We really can't say this was a 'take it or leave it,'" she said. "It offered many, many ways that this permit might be granted, and then said, 'You are free to come up with something else.'"

But Roberts said there were limits, suggesting it would be unfair to force a single landowner to pay $1 million to help fund a football stadium.

"That would be unconstitutional, right?" Roberts asked Paul Wolfson, a lawyer representing St. Johns.

Wolfson suggested that nothing like that happened here. "It's hard to see how you can have an exactions/takings claim when nothing has ever actually been exacted," he said.

Justice Sonia Sotomayor said a broad ruling for Koontz could hurt a government's ability to conduct public policy.

"I see an enormous floodgate here, one in which we are sending a signal that perhaps states should be more quiet," she said. "They should just say no, because anything they offer is going to be seen potentially as an unconstitutional taking."

Beard disagreed, saying governments would simply "lose flexibility in demanding whatever it is that they want."

Koontz is backed by various conservative legal groups, property owners and the U.S. Chamber of Commerce.

St. Johns is supported by 19 U.S. states, Washington, D.C., and Puerto Rico, as well as advocates of wetlands conservation. The U.S. government also supported the water district and urged that the Florida Supreme Court decision be upheld.

The case is Koontz v. St. Johns River Water Management District, U.S. Supreme Court, No. 11-1447. 

(Additional reporting by Barbara Liston)

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