Plaintiffs Failed to Exhaust Administrative Remedies When Their Consultant Did Not Expressly Raise Takings Claim

Continuing a trend toward stricter application of the administrative exhaustion doctrine, an appellate court held that plaintiffs could not bring a takings claims against the Coastal Commission when they failed to raise that express claim during the permit application proceedings. Greene v. California Coastal Commission, 40 Cal.App.5th 1227 (2019).

Plaintiffs’ beachfront duplex bordered the designated location for Los Angeles’ public walkway to the beach. Plaintiffs proposed to expand their home, diminishing the beachfront setback from 15 feet to 1.5 feet on the ground level, with no setback on the second level. The property was under dual jurisdiction, requiring both City and Coastal Commission approvals. The City approved the proposed development.

At the Coastal Commission hearing, petitioners’ representative (who was not a lawyer) objected to the setback on several grounds but never expressly asserted that the condition resulted in an unconstitutional taking. Instead, the representative’s presentation was about the Coastal Commission’s historical reliance on the City’s zoning to approve a one-foot setback on similar properties. The Coastal Commission ultimately approved the permit but included a five-foot setback condition.

Plaintiffs filed a mandamus action, arguing the Coastal Commission abused its discretion imposing the setback requirement and that the condition resulted in a taking. The court held that the claim was barred for failure to exhaust administrative remedies. The court rejected plaintiffs’ argument that the issue was adequately raised through their consultant’s general objections regarding the City’s legislative action establishing a one-foot setback requirement and the unfairness of imposing a greater requirement in this case. The court reasoned that these objections did not meet the requirement that plaintiffs must “present the exact issue” to the agency in order properly to exhaust administrative remedies.

Increase in San Francisco Office and Laboratory Use Development Fees to Pay for Affordable Housing

The San Francisco Jobs Housing Linkage Fee (JHLF) is set to more than double under the “Housing for SF Workers” ordinance recently passed by the San Francisco Board of Supervisors (Ordinance). Mayor London Breed refused to sign the Ordinance, but even without the Mayor’s signature, Housing for SF Workers becomes effective on December 15, 2019.

Increase in Jobs Housing Linkage Fee and Inclusionary Housing

 The City creates seven jobs for every one unit of housing, causing a crucial jobs/housing imbalance. The JHLF impact fee was established in 1996 and applies to certain new commercial spaces in an effort to solve this issue. The JHLF is supported by a Jobs Housing Nexus Analysis showing that non-residential uses create a potential demand for affordable housing.

On October 29, 2019, the Board unanimously passed the Ordinance, which more than doubles the JHLF and applies to construction or expansion of more than 25,000 square feet of entertainment, hotel, integrated PDR, office, research and development, retail, and/or small enterprise workspace development. The new rates approved by the Board impose a $52.20 fee for office projects of 50,000 square feet and above that submitted a complete Preliminary Project Assessment (PPA) to the Planning Department before September 10, 2019. A PPA is an initial evaluation process that the Planning Department requires for certain projects, including construction of a new non-residential building or an addition of at least 10,000 square feet. The PPA process is separate from the primary Development Application procedure. The fee increases to $60.90 for projects that submitted a complete Development Application between September 11, 2019 and January 1, 2021. Starting January 1, 2021, the fee increases to $69.60. Projects in the application pipeline are not grandfathered into the current JHLF. Thus, projects must obtain a building or site permit prior to the effective date of the Ordinance in order to avoid the JHLF increase. There is a lower rate for projects under 50,000 square feet. A summary of the JHLF increases for office construction is below:

Current JHLF Projects that submitted a PPA on or before September 10, 2019 Projects that submit a Development Application between September 11, 2019 and January 1, 2021 Projects that submit a Development Application on and after January 1, 2021
Large Office Project

(≥ 50,000 gross square feet.)

$28.57 per gsf $52.50 per gsf $60.90 per gsf $69.60 per gsf
Small Office Project

(< 50,000 gross square feet)

$28.57 per gsf $46.98 per gsf $54.81 per gsf $62.62 per gsf

The JHLF fee for laboratory development will increase to $46.43 per gsf. Developers may elect to donate land to the City in-lieu of the fee.

Additionally, projects that were approved by the Planning Commission or Planning Department before September 10, 2019, with the condition that they would be subject to the JHLF increase if enacted prior to issuance of a certificate of occupancy for the project, will be required to pay the difference between any fee assessed at site permit issuance and the higher fee effective when the certificate of occupancy is issued.

Allocation of the JHLF

The JHLF collected will be deposited into the San Francisco Citywide Affordable Housing Fund. 10% of the fees received will be allocated for the preservation and acquisition of rent restricted affordable housing, and 30% for permanent supportive housing. Proponents estimate that the increased fees will generate $400 million for affordable housing projects.

Potential Negative Implications of the Fee Increase

As the Mayor noted in her statement opposing the Ordinance, the Feasibility Analysis prepared for the City in anticipation of the JHLF increase shows that developers could afford $38.57 per gsf before construction becomes infeasible. The fee increase approved by the Board of Supervisors goes above and beyond this threshold. A report prepared by the Office of the Controller also warns that the increase in the JHLF could decrease the feasibility of office construction.  This report estimates a reduction of 125,000 – 140,000 square feet per year, on average, or the annual decline in office construction spending is estimated at $61 million – $87 million per year.

 Mayor’s Opposition to the Ordinance

The Mayor did not sign the Ordinance within the statutory time period. While the Ordinance still became law, this enabled her to go on the record against the JHLF increase. In a letter to the San Francisco Board of Supervisors, the Mayor wrote “if projects become infeasible to build, the result is less funding for affordable housing.” The letter indicates that the Mayor’s opposition to the fee increase is based, in part, on concerns that it will lead to smaller businesses being priced out of an already expensive office market.

In response, Supervisor Haney, the author of the Ordinance responded, “San Francisco has the worst jobs-housing ratio in the Bay Area, the highest cost of housing nationally, and an out-of-control homeless crisis. There is tremendous urgency for the city to act.  It is disappointing that the mayor is so strongly opposed to a policy that has such wide support from labor and the community.”

The debate on the best way to solve the City’s job/housing imbalance is likely to continue as politicians and other stakeholders advocate for competing proposals.

Action for Refund of Developer Fees Was Subject to One-Year Statute of Limitations

The Third District Court of Appeal held that a suit for refund of developer fees based on failure to make findings required under the Mitigation Fee Act was an action for a “penalty or forfeiture” subject to the one-year limitations period under Code of Civil Procedure section 340(a). County of El Dorado v. Superior Court (Austin), No. C088409 (3rd Dist. Oct. 30, 2019).

Government Code section 66001 — part of the Mitigation Fee Act — requires local agencies that collect development impact fees to make findings every five years justifying the ongoing retention of those fees, including specifying the timing of the planned use of the fees. If the required findings are not timely made, “the local agency shall refund the moneys in the account . . . to the then current record owner … of the [property]” for which it was collected. Gov’t Code § 66001 (e), emphasis added.

Plaintiffs sued the County alleging that, as current property owners, they were entitled to a refund of eight development fees assessed by the County and its special districts because the County had not made the findings required under Section 66001 within the prescribed five-year period.

The issue on appeal involved the applicable statute of limitations. Section 66001 does not specify a limitations period. The appellate court concluded that the action was effectively one for a statutory penalty or forfeiture and was therefore subject to a one-year deadline under Code of Civil Procedure section 340(a).

The court relied on established law under which statutory damages recoverable regardless of actual fault or actual injury are considered a penalty or forfeiture. It reasoned that a refund of fees under Section 66001 met both criteria: the refund was mandated regardless of whether the local agency could in fact have made the nexus findings at the time they were due and was payable to the current property owner regardless of whether that owner had actually paid any fees.

Because Section 66001 thereby imposed liability regardless of substantive fault by the local agency and regardless of actual injury to the plaintiff, it amounted to a penalty or forfeiture subject to the one-year statute of limitations.

Unlicensed Treatment Facility Operating in Violation of Local Zoning Code Not Eligible for Safe Harbor Provisions of Health and Safety Code

Operators of an unlicensed alcohol and drug treatment facility in violation of a city’s zoning ordinance could not avail themselves of the California Health and Safety Code’s safe harbor provisions. City of Dana Point v. New Method Wellness, 39 Cal. App. 5th 985 (2019).

New Methods Wellness is licensed to offer mental health and substance abuse services and residential treatment centers. New Methods housed patients in homes in residential zones in the City of Dana Point. The properties were owned and operated by a different corporate entity, NMW Beds, which imposed 24-hour supervision and provided patients with transportation to New Method’s treatment center. The City zoning ordinance allows only residential uses at each of the properties. The City filed a complaint against New Methods, seeking to abate a nuisance on the grounds that the properties were being operated as unlicensed drug treatment centers in violation of the City zoning ordinance.

Section 9.09.020 of the City’s zoning ordinance declares any non-permitted use in a residential zone a nuisance per se. This means that no proof is required, beyond the fact of the existence of the use, to establish a nuisance. The zoning ordinance enumerates the permitted uses in a residential zone and “any use not expressly allowed is prohibited.” A drug treatment facility is not listed as a permitted use. Thus, the only issue for the appellate court was whether substantial evidence supported the trial court’s finding that the properties were being operated as a part of a drug treatment facility.

However, New Methods attempted to find safe harbor under California Health & Safety Code section 11834.23, which preempts local zoning regulations. Section 11834.23 permits operators of licensed alcohol or drug abuse recovery or treatment facilities that service six or fewer persons to qualify as a residential use of the property. The court did not find this argument compelling. There was no evidence the properties housed six or fewer people. More importantly, while NMW Beds was licensed to operate in other locations in Orange County, it was not licensed to operate on the Dana Point properties.

New Methods also argued that the properties constituted “recovery houses,” which do not require a license. A recovery house is defined as “group living arrangements for adults recovering from alcoholism or drug addiction where the facility provides no care or supervision.” The court also rejected this argument because residents’ lives were highly regulated and subject to a code of conduct. Also, New Methods’ website advertised that patients would receive treatment at the properties.

New Methods also claimed that the zoning ordinance provisions violated its patients’ rights under the ADA and that the City’s abatement action constituted a taking. The court summarily rejected both arguments and concluded there was sufficient evidence to find that New Methods operation of the property was a nuisance per se and subject to an injunction.

New California Law Restricts Municipalities’ Ability to Limit Housing

California Governor Gavin Newsom has signed into law a major set of restrictions on the actions California cities and counties may take to impede housing development. Senate Bill 330  broadly aims to prevent local agencies from putting up new barriers to housing production. The legislation declares a statewide housing emergency and, on that basis, amends state law with a scheduled sunset date of January 1, 2025.

One key reform under SB 330 is its amendment of the Housing Accountability Act. The legislation establishes a new rule that housing projects statewide generally are subject only to the ordinances, policies, development standards and fees (except automatic annual adjustments) that are in effect when the developer submits a “preliminary application.” This newly-defined submission must contain certain information about the project as specified by statute. The legislation’s new protection applies to projects where at least two-thirds of square footage is designated for residential use.

SB 330 also prohibits nearly all cities in urban areas, as well as counties with respect to certain urbanized places, from taking the following actions:

  • Parcels of land where housing is an allowable use may not be downzoned, and general or specific plan land use designations may not be changed to a less intensive use as compared to what was allowed as of January 1, 2018. This provision includes reductions in height, density or floor area ratio, or other types of increased requirements. (However, cities and counties may limit a property to less intensive uses if changes in land use designations or zoning elsewhere ensure no net loss in residential capacity.)
  • Moratoriums or similar restrictions may not be imposed, with certain exceptions, on housing or mixed-use development.
  • Design standards established on or after January 1, 2020 that do not qualify as “objective” standards may not be imposed or enforced.
  • The number of housing units may not be capped, and limitations may not be set on population or how many approvals or permits will be issued for housing, except in predominantly agricultural counties.
  • Housing projects may not be approved that either fail to replace any dwelling units lost to demolition or that will require demolishing units recently occupied by low-income households or other “protected” units, unless specified criteria are met.

Finally, among several additional provisions, SB 330 prohibits cities and counties from holding more than five hearings on a proposed housing project, including any continuances, if the project complies with the applicable, objective general plan and zoning standards in effect when an application is deemed complete.

While SB 330 will limit the ability of cities and counties to restrict housing projects by deviating from established zoning and development standards, many legislators also have expressed interest in more far-reaching reform that would force local agencies to accept housing at higher densities. Any such reform will have to wait until the legislature returns next year.

Award of Attorney’s Fees Warranted Where Plaintiff Lost on Most Claims But Achieved Primary Litigation Objective

A plaintiff challenging a city council’s interpretation of a local ballot measure was entitled to recover costs and attorney fees when successful on only one cause of action because the primary relief sought was granted. Friends of Spring Street v. Nevada City, 33 Cal.App.5th 1092 (2019).

In 1991, the Kendalls received a Conditional Use Permit to operate a bed and breakfast in a residential neighborhood. In 1994, Nevada City voters passed Measure G, which repealed the zoning code provision that allowed for B&Bs in residential zones. The Kendalls continued to operate the B&B for several years and then sold it to a couple who used the property as a private residence but continued to renew the B&B’s business license. The property was later sold to the real parties in interest, who applied for a Conditional Use Permit to resume operating the B&B. The City Council granted the Conditional Use Permit, finding that the intent of Measure G was to limit new B&Bs, not existing B&Bs.

Plaintiff challenged the Council’s decision on multiple grounds, including the claim that the Council incorrectly interpreted Measure G. The court upheld the latter claim, concluding that Measure G rendered existing B&B’s nonconforming uses and thus the owners were not entitled to resume operating the B&B as a matter of right. It rejected plaintiff’s remaining claims. The trial court also denied plaintiff’s request for costs and attorney fees, reasoning that there was no prevailing party because plaintiff prevailed on only one of five causes of action and did not enforce an important right and public interest sufficient to justify fees under Code of Civil Procedure § 1021.5 (the private attorney general doctrine).

The appellate court reversed the prevailing party determination, concluding that plaintiff achieved its primary litigation objective when the court ordered the City to set aside its determination regarding the intent and effect of Measure G. The court held that plaintiff’s failure to succeed on the other causes of action was not a sufficient reason to deny fees and costs. The court also disagreed with the trial court’s determination that plaintiff’s action had not enforced an important right and public interest, noting that correct interpretation of zoning laws is a “vital public interest” necessary to preserve the integrity of a general plan. Finally, the court rejected the City’s argument that plaintiff could not recover fees under the private attorney general doctrine because it had a personal economic interest, finding plaintiff’s personal motivation irrelevant.

Agency Inaction Is Not a CEQA Project

An agency’s failure to maintain a historic building—“demolition by neglect”—is not a “project” subject to CEQA. Lake Norconian Club Foundation v. California Department of Corrections and Rehabilitation, No. A154917  (First District Court of Appeal, Sept. 13, 2019).

The Lake Norconian Club is a former hotel that is listed on the National Register of Historic Places. The hotel building has been owned by the State of California since 1962. The building, which is next to a state prison, had been used by the Department of Corrections and Rehabilitation for administrative offices until 2002 but has been left vacant since then due to its unsafe seismic condition.

The Lake Norconian Club Foundation sued, claiming the Department’s ongoing failure to maintain the hotel building and protect it from further damage was tantamount to a decision to demolish it.

The court of appeal held that the Department’s failure to act was not a “project” subject to CEQA, even if environmental consequences might result from that inaction. The court explained that CEQA defines a “project” as an “activity” that (1) may cause direct or indirect physical change in the environment and (2) is “directly undertaken,” authorized, or supported by a public agency. Agency inaction, inherently, cannot be an “activity directly undertaken by an agency.” Treating inaction as a project would also make it difficult to apply a statute of limitations, as no particular date could be assigned to an agency’s failure to act.

Recognizing that no case has previously addressed this issue, the court also looked to NEPA—CEQA’s federal counterpart—for guidance. The court noted that federal courts have repeatedly held that an agency’s inaction is not an “action” subject to NEPA. The court recognized that a federal regulation applies NEPA to an agency’s failure to act when the agency had a mandatory duty to do so, but even if such a rule applied in the CEQA context, the Department had no mandatory duty to maintain the hotel building.

California Supreme Court Clarifies What Is a “Project” Subject to CEQA

The California Supreme Court clarified what activities are subject to CEQA in its recent decision in Union of Medical Marijuana Patients, Inc. v. City of San Diego, No. S238563, 2019 WL 3884465 (Aug. 19, 2019). First, the court held that enactment of a zoning ordinance is not necessarily a project in all circumstances. Second, the court held that when determining whether an activity is a project, a lead agency must consider whether the activity is theoretically capable of causing environmental impacts, not whether it will actually cause environmental impacts.

In 2014, the City of San Diego enacted an ordinance that regulated the establishment of medical marijuana dispensaries in the city. The city determined that the ordinance was not a project subject to CEQA. Union of Medical Marijuana Patients challenged the city’s adoption of the ordinance, arguing that it was a project subject to CEQA and that the city should have analyzed its environmental impacts. As we previously reported, the court of appeal rejected UMMP’s claims. The California Supreme Court granted UMMP’s request that it review that decision.

The first question before the Supreme Court was whether all zoning ordinances are necessarily projects subject to CEQA under section 21080 of the statute. Section 21080 states that CEQA applies to “discretionary projects” carried out or approved by a public agency, and lists examples of discretionary actions that CEQA can apply to, including enactment and amendment of zoning ordinances. UMMP argued that inclusion of zoning ordinances on this list means all zoning ordinances are necessarily “projects” that are subject to CEQA. The court disagreed, based on section 21065 of the statute, which defines a “project” as “an activity which may cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.” A zoning ordinance is not a project subject to CEQA unless it meets this test.

The court concluded, however, that San Diego’s medical marijuana dispensary ordinance qualified as a project because it was capable, at least in theory, of causing a reasonably foreseeable indirect physical change in the environment. The court explained that when making an initial determination as to whether an activity is a project, the lead agency’s analysis should be limited to the effects that the activity is capable of causing, not the impacts that it actually will cause. Applying this standard, the court determined that the city’s ordinance—which would allow a sizable number of new retail businesses of a type not previously permitted in the city—could foreseeably result in new retail construction to accommodate the businesses, and could cause a citywide change in vehicle traffic patterns among the businesses’ customers, employees, and suppliers.

The court’s decision will likely result in agencies having to undertake an analysis of a broader range of activities under CEQA based on their potential to cause environmental impacts. As the court explained, the decision whether an activity will actually result in environmental impacts should be made in connection with either a categorical exemption determination or in an initial study, not at the outset of the process, when the lead agency determines whether the activity is subject to CEQA in the first place.

Regulation Finalizes Repeal of Obama-Era Clean Water Rule

A new final regulation issued on September 12, 2019 by the Environmental Protection Agency and the Army Corps of Engineers repealed the Obama administration’s 2015 “Clean Water Rule,” but did little to clear up longstanding confusion over the scope of federal authority and jurisdiction under the Clean Water Act. The current regulation simply repeals the 2015 rule, without any replacement, with the result that the pre-existing Clean Water Act regulations and guidance continue to apply until there is new regulatory guidance in place. For a discussion of the new final rule and the reasons for repeal of the 2015 rule, see our Update by Marc Bruner.

City Not Required to Evaluate Impacts of Loss of Rental Units from Already-Vacant Building

A lead agency was not required to evaluate the housing-related impacts of a proposed hotel in a vacant building that was formerly used for rental housing. Hollywoodians Encouraging Rental Opportunities v. City of Los Angeles, 37 Cal. App. 5th 768 (2019).

In 2009, the owner of an apartment building with 18 rental units filed an application with the City of Los Angeles to demolish the building and replace it with a 39-unit condominium building. The City Council approved a mitigated negative declaration for that project. Four years later, the building owner withdrew the building’s 18 units from rental housing pursuant to the Ellis Act, and the City approved demolition of the building. The developer was unable to obtain financing for the condominium project, however. In 2015, the owner submitted an application to the City to convert the vacant building into a 24-room boutique hotel. The City adopted an MND and approved the hotel project.

At issue in the case was whether the City should have prepared an EIR to evaluate the cumulative effect of the project and similar related projects on the loss of rent-stabilized housing units and the displacement of rent-stabilized tenants.

The court held that the baseline for the project was a vacant building, not a tenant-occupied rental property. Measured against that baseline, there was no fair argument that the project would have an adverse impact on the supply of rent-stabilized housing in the area or on displacement of tenants. The court explained that the baseline is generally the conditions at the time the lead agency commences its environmental analysis. In this case, when the City commenced its environmental analysis for the proposed hotel project in 2015, the property consisted of a vacant building that had been withdrawn from the residential rental market two years earlier independently of the hotel project.

The court further explained that there was no evidence in the record that the hotel project should have been analyzed as part of the 2009 condominium project. “The record reflects that the subject property was removed from the rental market pursuant to the Ellis Act in 2013, to enable the building to be demolished and replaced with a condominium project. After that plan failed for lack of financing, the instant Project was proposed to repurpose the property as a boutique hotel. There is nothing to suggest that the instant Project was ‘a reasonably foreseeable consequence of the initial project’ . . . or that the initial study and 2015 MND were an end run around CEQA.”

Finally, the court held that the City was not required to evaluate the cumulative impacts of the hotel project on housing and displacement, because the project would not have any individual adverse impact on the supply of rent-stabilized or displacement of tenants.