Legislature Seeks To Prevent Local Voters From Enacting Many Types of Pro-Development Initiatives

The California Legislature just sent another “stop me before I vote again” bill to the Governor.  Assembly Bill 890 proposes to limit severely the scope of voter-sponsored, pro-development land use initiatives.  The Governor has until October 15th to decide whether to sign the bill into law.  The actual effect of AB 890, if enacted, may need to be resolved in litigation.

The bill would enact new provisions of the Government Code that delegate exclusive authority to city councils and boards of supervisors to determine certain general plan, specific plan and zoning decisions.  Courts have determined that when the legislature delegates authority over an issue exclusively to councils and boards, voter action regarding those issues is precluded.  However, AB 890 also purports to preserve to the voters their power of referendum, and to allow councils and boards of supervisors to place pro-development measures on the ballot.  AB 890 also proposes to prohibit the approval or amendment of a development agreement by initiative, while retaining provisions of existing law which state that a development agreement is a legislative act subject to referendum.  AB 890 states that it applies to charter cities as well as general law cities.

The general plan, specific plan and zoning decisions that would be exclusively delegated under AB 890 (and therefore could not be pursued in a voter-sponsored initiative) are those that would:

  • Convert a discretionary land use approval necessary for a project to a ministerial approval.
  • Change a land use designation or zoning district to a more intensive designation or district, with the most intense use defined as industrial uses, followed by commercial uses, office uses, residential uses, and then agricultural or open-space uses.
  • Authorize more intensive land uses within an existing designation or district.

The local actions that are not affected by the bill (and hence could be the subject of a voter-sponsored initiative) are those that would:

  • Have “the primary purpose or effect” of increasing residential densities or building heights “in order to incentivize or accommodate the construction or funding of affordable housing units.”
  • Have “the primary purpose or effect” of requiring a percentage of new residential construction to be affordable to moderate income households.
  • Prohibit or otherwise mandate denial of any previously permissible land use.
  • Establish an urban growth boundary or urban limit line.
  • Any other legislative action that does not come within the listed actions that are exclusively delegated.

The questions the bill leaves unanswered provide substantial fodder for litigation.  Among these are:

  • Whether the bill can constitutionally be applied to charter cities.
  • Whether the bill can constitutionally delegate exclusive authority for purposes of initiative but not referendum.
  • Whether the statewide purpose of the bill will be upheld as sufficient to usurp local voter rights. One of the statewide purposes articulated in the bill is to “prevent an initiative that allows for more intensive land uses than were previously analyzed and mitigated under [CEQA].” This stated purpose, however, is difficult to reconcile with the fact that an initiative that allows less intensive uses (such as rezoning from commercial to office uses), or that proposes more intensive land uses that have the primary purpose or effect of encouraging affordable housing, could be pursued without CEQA review.
  • How to determine whether the effect of an initiative is an increase in density that has a purpose to incentivize or accommodate affordable housing units. This provision is especially perplexing in light of the common sense fact that increasing density or heights will usually result in lower per-unit housing costs and therefore prices.
  • What it means to convert a “discretionary land use approval needed for a project” into a ministerial approval.
  • How the provision stating the bill does not apply to initiatives that mandate denial of any previously permissible land uses is to be interpreted, given that many of the prohibited initiatives – ones that change land uses to more intensive designations – would result in a mandate to deny the previously-allowed uses.
  • How the proposal to vest discretion exclusively in councils and boards can be reconciled with other legislative proposals that would divest cities and counties of discretion to deny certain housing projects.

College District’s Approval of Agreement to Buy Land Did Not Trigger CEQA

A community college district’s approval of an agreement to buy land for possible use as a new campus did not trigger CEQA review where the agreement required an EIR before the sale could be consummated and the District had not otherwise committed itself to building a new campus on the site. Bridges v. San Jacinto Community College District, No. E065213 (4th Dist., Aug. 8, 2017).

At a regularly scheduled meeting, the Board of Trustees of the San Jacinto Community College District approved an agreement to acquire 80 acres of property from a regional park district for possible use as a new college campus. There were no public comments on or objections to the agreement at or before the board meeting.

Plaintiffs subsequently sued, alleging the District violated CEQA by failing to prepare an EIR before approving the agreement. The appellate court concluded (1) plaintiffs did not exhaust administrative remedies or demonstrate they were excused from doing so by lack of notice; and (2) even if plaintiffs had exhausted, their claim foundered on the merits because the District had not committed itself to the new campus project and had expressly agreed to prepare an EIR before completing the purchase.

Plaintiffs Failed to Exhaust Administrative Remedies

A party alleging violation of CEQA must exhaust administrative remedies or demonstrate either that there was no public hearing or other opportunity to raise objections before the project was approved or that the public agency failed to give the notice required by law  (Pub. Res. Code § 21177(e)). Here, the District considered and authorized the purchase agreement at a public meeting of its board of trustees. While this was not a public hearing, it nonetheless triggered CEQA’s exhaustion requirement because it constituted an “other opportunity” for members of the public to raise objections prior to the approval of the project.

Plaintiffs contended they were nonetheless exempted from the exhaustion requirement because the District had failed to post the meeting agenda at least 72 hours in advance of the meeting as required by the Brown Act. The record, however, was silent on whether the required notice had been given. Under these circumstances, plaintiffs’ exemption claim failed because they bore the burden of proving inadequate notice. Faced with no evidence on the issue, the court concluded that it had to presume that the District’s official duty had been regularly performed.

CEQA Review Was Not Required

The court further held that execution of the purchase agreement did not trigger the duty to conduct CEQA review. When an agency purchases land for a public project that may have a significant impact on the environment, the CEQA Guidelines require the agency to prepare an EIR before acquiring the land. However, the Guidelines allow the agency to designate a preferred site and enter into an acquisition agreement if its future use of the site is conditioned on CEQA compliance. (CEQA  Guidelines § 15004 (b)(2)(A).) Here, the court found the District satisfied the latter requirement because the agreement expressly conditioned the opening of escrow on CEQA compliance — specifically, preparation of an EIR.

Plaintiffs argued, however, that the totality of the District’s actions indicated it had committed itself to acquiring the land for construction of a new campus. The appellate court disagreed, finding that nothing in the purchase agreement or in any of the District’s resolutions committed it to building a new campus on the property, no funds had been allocated for that purpose, the board had never formally designated the site for a new campus, and no development or construction plans existed. Thus, the court concluded, the District had in no way committed itself to the project or precluded its consideration of alternatives to the site. Accordingly, approval of the purchase agreement did not trigger the duty to conduct CEQA review.

City Cannot Compel State University to Collect and Remit City Taxes

In City and County of San Francisco v. Regents of the University of California (1st Dist., No. 144500, May 25, 2017), the court of appeal considered whether a city had the power to compel state universities that operate parking lots in the city to collect taxes from the parking users and remit them to the city. This case displayed some of the complexities in the distribution of powers between states and local governments, including the issues of preemption, sovereign immunity, and the local taxing power. Ultimately, the court concluded the city could not compel such action by a state entity.

Background

At issue here was the application of San Francisco’s parking lot tax ordinance. The ordinance imposes the tax on parking lot users and requires parking lot operators to collect the tax. Under the ordinance, operators must hold the taxes and periodically remit them to the city. Operators are liable for failing to collect the tax. While the ordinance provides that it is not to be construed as imposing a tax on the state or state entities, it nonetheless requires such entities to collect, report, and remit the tax and pay any taxes they fail to collect. In 2011, San Francisco directed several state universities, including the University of California, to collect and remit the parking taxes. The universities refused, after which San Francisco sought a writ of mandate to force compliance.

Majority opinion

According to the majority, the issue presented by the case was a conflict between the city’s constitutional power to tax and the longstanding doctrine that exempts state entities from local regulation. This doctrine is based on the California Supreme Court’s 1956 decision in Hall v. City of Taft and its progeny under which local jurisdictions are barred from regulating state entities engaged in governmental activities. After reviewing the case law, the majority determined that the doctrine was straightforward—it exempts state entities from otherwise-valid local regulation when they are engaged in governmental activities unless a constitutional provision or statute says they are not exempt.

The majority likewise found the application of the doctrine to this case to be straightforward: providing parking for students, faculty, staff, and visitors was integral to the universities’ educational purposes and was further authorized by state statute. Therefore, under Hall, the city was precluded from forcing the universities to collect and remit taxes imposed on users of the universities’ parking facilities.

The Dissent

The dissent argued that the applicability of the Hall doctrine was far from straightforward, as Hall and its progeny involved situations where a municipality was attempting to exert regulatory control directly over state entities. These cases, according to the dissent, differed markedly from this case where the municipality was imposing the tax on third parties transacting with state entities. The dissent found that the situation presented in this case was more similar to cases addressing the scope of the municipal taxing power and urged a more “nuanced” approach that would balance the state’s sovereign interests with the municipality’s power to tax third parties.

Federal Courts Lack Jurisdiction to Hear Challenges to EPA Objections to State Water Pollution Discharge Permits

Federal courts of appeal do not have original jurisdiction under the Clean Water Act to hear a challenge to EPA’s objection to a state’s draft water pollution discharge permit, the Ninth Circuit held in Southern California Alliance of Publicly Owned Treatment Works v. EPA, 853 F.3d 1076 (9th Cir. 2017).

The Clean Water Act allows EPA to delegate primary responsibility for issuing pollution discharge permits to a state. When a state assumes permitting authority, it must submit draft permits to EPA for review. If EPA objects to a state’s draft permit, the state may either revise the permit to address EPA’s objection or, if the state does not address EPA’s objection, permitting authority will revert to EPA.

This litigation arose over discharge permits for two water reclamation plants in California, a state that has assumed primary permitting authority. EPA objected to the state’s draft permits, primarily because of concerns related to numeric limitations for whole effluent toxicity. The state revised the permits to satisfy EPA’s objections and, after receiving approval from EPA, issued the permits. The Southern California Alliance of Publicly Owned Treatment Works (SCAP) then petitioned the Ninth Circuit for review of EPA’s objection letter.

                    Environmental Protection Agency (EPA) at Federal Triangle in Washington D.C.

Before reaching the merits, the court considered whether it had subject matter jurisdiction to hear the case. The Clean Water Act gives federal courts of appeal original jurisdiction to hear challenges to certain EPA actions. In this case, SCAP relied on 33 U.S.C. §§ 1369(b)(1)(E), which allows for review of EPA action “in approving or promulgating any effluent limitation, and 1369(b)(1)(F), which allows for review of EPA action “issuing or denying any [effluent discharge] permit.” The court concluded that neither provision gave it subject matter jurisdiction to review EPA’s objection letter.

The court held that it did not have jurisdiction under section 1369(b)(1)(E) because the objection letter was not an action “approving or promulgating any effluent limitation.” The court relied on the Ninth Circuit’s decision in Crown Simpson Pulp Co. v. Costle, 599 F.2d 897 (9th Cir. 1979), which held that EPA’s veto of a state’s draft permit was not the functional equivalent of a newly promulgated regulation. The court explained that promulgating effluent limitations, which set standards for an entire industry, are different from the individualized adjudications that occur in the permitting process; section 1369(b)(1)(E) only allows review of the former.

The court further held that it did not have jurisdiction under section 1369(b)(1)(F) because the objection letter was not an action “issuing or denying any permit.” The court explained that an objection letter is merely an interim step in the permitting process. After EPA issues an objection letter, there remain several possible outcomes: EPA and the state may resolve their dispute, EPA may modify or withdraw its objection after holding a hearing on the permit, the state may agree to accept EPA’s modifications, or EPA may issue a permit itself if the state refuses to accept EPA’s modifications. The court also noted that the Seventh and Eighth Circuits had reached similar conclusions on the issue of whether they had jurisdiction under section 1369(b)(1)(F) to hear challenges to an objection letter.

Thus, the court held that it lacked subject matter jurisdiction to hear SCAP’s challenge to EPA’s objection letter and dismissed the case.

*  *  *

An aggrieved party in a state that has assumed primary permitting authority is not without recourse—it may still pursue state administrative and judicial remedies to challenge a permit that conforms to EPA’s objection letter (with the possibility of ultimate review in the U.S. Supreme Court). Federal courts of appeal, however, are not the proper forum for challenging an EPA objection letter.

NEPA Violations Did Not Undermine Validity of EIS for Nuclear Missile Maintenance Facility

The Ninth Circuit rejected challenges to the Navy’s plans to construct a new nuclear missile maintenance facility. Although the court found that the Navy had violated NEPA by failing to adequately disclose information in the environmental impact statement, it held that these violations were harmless because they would not have improved public participation or changed the Navy’s decisionmaking. Ground Zero Center for Non-Violent Action v. U.S. Department of the Navy (9th Cir. No. 14-35086, June 27, 2017).

Background

The plaintiffs challenged the Navy’s plans to construct a new wharf for maintenance of nuclear missiles at Naval Base Kitsap in Bangor, Washington, alleging that the Navy had violated NEPA. The Navy had redacted three of the appendices to the EIS in their entirety on the ground that they contained sensitive information relating to nuclear material. During the litigation, however, in response to public records requests or as part of the administrative record, the Navy released significant information that had not been previously disclosed in the EIS. This included portions of the EIS appendices that had been redacted when the EIS was published. The new documents indicated that the Department of Defense Explosives Safety Board had rejected the proposed project because of concerns regarding the risk of an explosion. However, the Navy had received an exemption from the Secretary of the Navy allowing it to proceed with construction without conducting additional safety studies required by the Safety Board.

The plaintiffs argued that the Navy had violated NEPA by (1) redacting the portions of the EIS appendices that it later released publicly, (2) not adequately disclosing the project’s risks and the Safety Board’s disapproval, and (3) not evaluating reasonable alternatives in the EIS. The district court granted summary judgment for the Navy on the plaintiffs’ NEPA claims. The district court also sealed portions of the record that contained classified and controlled information that the Navy had inadvertently disclosed, and ordered the plaintiffs not to discuss or reference any of those documents in a court hearing and not to further disseminate those documents. The plaintiffs appealed to the Ninth Circuit.

NEPA Claims

First, the plaintiffs argued that the Navy violated NEPA by not disclosing the appendices when it published the EIS. NEPA requires that an agency disclose information, including appendices to an EIS, “to the fullest extent possible.” The Freedom of Information Act (which applies to NEPA), however, contains an exception for disclosing sensitive nuclear information if it “could reasonably be expected to have an adverse effect” on public safety or security. The Ninth Circuit agreed with the plaintiffs that the Navy violated NEPA by redacting the appendices in their entirety. The court explained that the Navy’s subsequent disclosure of portions of the appendices during the litigation indicated that material should have been disclosed in the EIS. The court concluded, however, that the Navy’s NEPA violation was harmless because the plaintiffs did not demonstrate that information in the appendices would have made a difference in the Navy’s decisionmaking or public participation. Continue Reading

Air District Permit May Be Challenged Under CEQA

In an unsurprising decision, a court of appeal held that CEQA claims may be asserted against an air quality management district.  Friends of Outlet Creek v. Mendocino County AQMD, (First Dist. Ct. App., No. A148508 (decided 3/23/17; ordered published 5/25/17)

The Mendocino County Air Quality Management District granted an “Authority to Construct” – a permit issued after the district determines a project will comply with air quality laws – for an asphalt production project. The district determined that no additional CEQA review was required in light of prior environmental review undertaken by the County.

Friends of Outlet Creek sued, claiming the district violated both CEQA and its own regulations in issuing the permit. The district demurred, contending that the only vehicle for bringing claims against an air district is Health & Safety Code section 40864, which states: “Judicial review may be had of a decision of [an air district] hearing board by filing a petition for a writ of mandate in accordance with Section 1094.5 of the Code of Civil Procedure.” The district contended this section did not authorize claims under CEQA.

The court sided with Friends. It ruled that claims may be brought directly under CEQA, and that a petitioner need not invoke section 40864 to challenge an air district decision.  It noted “there is considerable precedent that air quality management districts can be sued for failing to comply with CEQA,” while “no case . . suggests that only Health and Safety Code section 40864 can be invoked in challenging an action by an air quality management district.” Moreover, the district had acknowledged that it has an obligation to comply with CEQA, in both its decision for the asphalt production project and in its regulations.

The court cautioned, however, that Friends could not obtain greater relief under CEQA than it could under section 40864. The remedy would be limited to a writ of mandate under CCP section 1094.5, and the case could be used only to address the validity of the district’s permit, not the county’s prior decisions related to the project.

Property Owner Who Proceeds With Development Under a Permit Cannot Challenge Land-Use Conditions Attached to the Permit

The California Supreme Court has ruled that a landowner who accepts the benefits of a permit by constructing the project forfeits the right to challenge land-use conditions imposed on the project. Lynch v. California Coastal Commission (Calif. Supreme Court, No. S221980, July 6, 2017).

Factual Background

After storms damaged a seawall and stairway structure beneath their bluff-top homes, plaintiffs sought a permit from the California Coastal Commission to demolish and reconstruct the seawall. The Commission granted the permit subject to conditions that included a prohibition against reconstruction of the stairway and a 20-year limit on the authorization for the seawall, after which plaintiffs would need to apply for a new permit to extend the authorization period.


Plaintiffs filed a petition for writ of administrative mandamus challenging the 20-year expiration condition and the condition prohibiting reconstruction of the stairway. They argued that the 20-year expiration date was unconstitutional because it did not mitigate impacts of the project, and that the Commission could not prohibit reconstruction of the stairway because that activity did not require a permit.

While the litigation was pending, plaintiffs satisfied other permit conditions, secured the coastal development permit, and built the seawall. The Court of Appeal held that plaintiffs’ challenge could not proceed because they had waived their claims by constructing the project.

California Supreme Court Decision

Under the Pfieffer/McDougal line of cases, a landowner may not challenge a permit condition if he or she has acquiesced to it either by specific agreement or by failing to challenge the condition while accepting the benefits of the permit. Instead, the landowner must file a timely challenge to the conditions and await the outcome before proceeding with the project.

An exception to this rule exists under the Mitigation Fee Act, which allows a property owner to challenge fees, dedications, reservations or exactions imposed on a permit by paying or otherwise complying with the exaction under protest and filing suit within 180 days after issuance of the permit. However, the Act covers only requirements that divest the property owner of money or a possessory interest in property; it does not include land-use restrictions, such as setbacks or height limits.

In Lynch, plaintiffs maintained that the Pfeiffer/McDougal rule was inapplicable because, unlike the landowners in those cases, plaintiffs had filed a timely mandamus challenge to the permit conditions. Moreover, they had not acquiesced to the conditions by fulfilling them and thus could not fairly be said to have waived their objections to them.

The California Supreme Court disagreed. While plaintiffs may not have waived their objections – in that they never intentionally relinquished the right to challenge them – that  conclusion did not save their case. The crucial point, according to the court, was that plaintiffs proceeded with the construction before obtaining a judicial ruling on the validity their objections. By accepting the benefits of the permit, the court said, plaintiffs effectively forfeited the right to maintain their otherwise timely objections, citing the equitable maxim “He who takes the benefit must bear the burden.” (Civil Code § 3521).

Plaintiffs also argued that because the objectionable permit conditions did not affect the design or construction of the seawall, they should have been allowed to challenge them while the project was being built. The court declined to create what it characterized as an “exception that would potentially swallow the general rule that landowners must take the burdens along with the benefits of a permit.” Permit applicants, it observed, frequently accept permit conditions they dislike in order to secure the permit. Creating an exception based on whether the conditions did or did not affect the construction itself, the court said, “would change the dynamics of permit negotiations and foster litigation.” It would also be difficult in practice, the court reasoned, to determine whether a particular condition attached to a permit was truly severable from the construction. Further, requiring a timely challenge and adjudication before construction commenced would allow the agency to revise the conditions to address the identified issue. If the condition were invalidated after construction, alternative mitigation measures might be rendered impracticable.

Conclusion

Under Lynch, barring an express agreement with the agency providing otherwise, landowners who object to permit conditions not covered by the Mitigation Fee Act must litigate their objections in a mandamus proceeding before constructing the project. Proceeding with the project before conclusion of the mandamus case results in forfeiture of the challenge.

California Supreme Court Holds Governor’s Executive Order Setting 2050 GHG Targets Need Not Be Used As CEQA Significance Threshold

In November 2014, we reported on the controversial court of appeal decision that overturned the environmental impact report for the San Diego Association of Governments’ 2050 Regional Transportation Plan and Sustainable Communities Strategy.  The court faulted the EIR for failing to assess the plan’s consistency with the 2050 greenhouse gas emissions reduction goal contained in an executive order issued by the Governor in 2005. This decision has now been reversed by the California Supreme Court in a 6-1 decision.  Cleveland Nat’l Forest Found. v. San Diego Ass’n of Gov’ts, Supreme Court Case No. S223603 (July 13, 2017).

Background of the Plan and SB 375

In 2005, Governor Schwarzenegger issued an executive order establishing statewide targets to reduce greenhouse gas emissions to 1990 levels by 2020 and to 80 percent below 1990 levels by 2050.

The Legislature adopted several laws to address these targets, including AB 32 and SB 375. SB 375 required metropolitan planning organizations like SANDAG to incorporate “sustainable communities strategies” into their regional transportation plans.. The state then set initial targets for the San Diego area:  a 7% CO2 reduction by 2020 and a 13% reduction by 2035.

In 2011, the SANDAG Regional Transportation Plan became the first in the state to be adopted with a Sustainable Communities Strategy. SANDAG’s EIR found that the plan would reduce greenhouse gas emissions until 2020 but would increase them in later years. Although the EIR discussed the 2050 emissions reduction target in the executive order, it did not treat the order’s 2050 emissions reduction target as a standard for assessing the significance of the plan’s greenhouse gas impacts.

The Supreme Court Majority Opinion

The majority reversed the court of appeal decision, concluding that SANDAG was not required to use the executive order targets as a standard of significance.

The court, however, did not entirely excuse agencies from discussing the executive order in their CEQA analyses of greenhouse gas emissions. According to the court, the goals in executive order express “the pace and magnitude of reduction efforts that the scientific community believes necessary to stabilize the climate” and the information “has important value to policymakers and citizens in considering the emission impacts” of a project. The court found that SANDAG’s analysis was adequate in this regard because it “did not obscure the existence or contextual significance” of the executive order, making clear that the executive order’s 2050 goals were part of the regulatory setting for the plan. In this case, it was sufficient that the EIR conveyed the “general point” that the upward trajectory of emissions might conflict with the executive order’s 2050 emissions reduction goal.

The court also upheld SANDAG’s use of three different GHG significance thresholds authorized by CEQA Guidelines section 15064.4(b), as these three methods “together adequately informed readers of potential greenhouse gas emissions impacts.”

The court cautioned, however, against using SANDAG’s analysis as a template for future EIRs, observing that GHG analysis under CEQA should reflect improvements in data and methods and should also incorporate new legislation and regulations.

The Dissent

Dissenting from the majority opinion, Justice Cuellar concluded that the EIR was too “vague and shortsighted” to fulfill SANDAG’s duty to adequately acknowledge the impact of a transportation and land use plan that would increase, rather than reduce, transportation GHG emissions from the region.

Supreme Court Announces New Test for Regulatory Takings Claims

Under the doctrine of regulatory takings, a regulation of property that goes “too far” in burdening property rights will be recognized as a Fifth Amendment taking. The Supreme Court’s recent decision in Murr v. Wisconsin (U.S. Supreme Court No. 15-214, June 23, 2017), represents an important step in the evolution of regulatory takings jurisprudence. It addresses the issue of how to define the “proper unit of property” in the regulatory takings analysis, a question often termed “the denominator problem.” In Murr, the Court rejected the notion that a legally defined parcel is necessarily the relevant unit of analysis finding that, under certain circumstances, multiple legal parcels may jointly constitute the relevant unit of property. But the Court avoided adopting a bright-line rule to determine the relevant unit of property and instead adopted a complex, multifactor test to address the denominator problem.

Background of this Case

The property at issue in Murr consisted of two adjacent lots, Lot E and Lot F, in Troy, Wisconsin, owned by two brothers and two sisters, the petitioners in the case. Local regulations prevented these lots from being sold or developed unless there was a minimum of one acre of developable land. A lot merger provision also provided that adjacent lots under common ownership could not be sold or developed as separate lots if they did not meet the size requirement.

The two lots were situated along the St. Croix river, with a steep bluff cutting through the lots limiting the lots’ developable area. Though each lot was approximately 1.25 acres in size, the lots’ combined buildable area was only 0.98 acres due to the terrain.

The petitioners’ parents purchased Lot F in 1960 and built a small cabin on it. Lot F was later transferred to the family plumbing company. In 1963, they purchased neighboring Lot E, which they held in their own names. The lots remained under separate ownership until 1995, when they were transferred to the petitioners.

The petitioners became interested in moving the cabin on Lot F to a different portion of the lot and selling Lot E to fund the project. However, based on the lot merger provision, the local zoning board determined that the lots could not be separately sold or developed.

The petitioners filed an action, alleging that these restrictions amounted to a regulatory taking by effectively depriving them of all or practically all use of Lot E.

The Takings Clause

The Takings Clause of the Fifth Amendment provides that property shall not “be taken for public use, without just compensation.” Traditionally, the Takings Clause reached only a direct appropriation or physical occupation of property. The Court’s regulatory takings jurisprudence was initiated by Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922), which declared that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.”

Two subsequent Supreme Court decisions provide guidance on application of this principle. In Lucas v. South Carolina Coastal Council, 505 U. S. 1003 (1992), the Court stated that, with certain qualifications, a regulation which “denies all economically beneficial or productive use of land will require compensation under the Takings Clause.” When a regulation impedes the use of property without depriving the owner of all economically beneficial use, a taking may still be found based on multiple factors described in Penn Central Transportation Co. v. New York City, 438 U. S. 104, 124 (1978), which include (1) the economic impact of the regulation; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action. Continue Reading

Double Trouble – Is Black Sky Capital Blue Skies for Lenders?

An annoying question for lenders is whether a lender can enforce two loans to the same borrower and secured by the same property.   The nagging issue is usually raised when a lender makes (1) a first loan and an additional advance to the borrower secured by the same property, (2) a first secured loan followed by a secured credit line, or (3) a first secured loan and a new secured second loan to finance other properties.

In California, there can only be “one form of action,” either a judicial foreclosure or a non-judicial foreclosure.  In a judicial foreclosure, if the real property collateral is sold for less than the amount owed under the secured debt, the lender may sue for a deficiency judgment – the difference between the amount owed and the fair market value of the property.  (Cal. Civ. Pro. Code § 726.); in a judicial foreclosure, the borrower has a right of redemption.  In a non-judicial foreclosure,  no deficiency judgment is allowed under a power of sale in a deed of trust.  (Cal. Civ. Pro. Code § 580(d).); in a non-judicial foreclosure, the borrower has no right of redemption. When there is a senior deed of trust and a junior deed of trust and the senior lender sells the property by a non-judicial foreclosure and the real property collateral is sold for less than the amount owed under the total secured debt, the junior lender becomes a “sold-out junior,” and the junior lender may enforce its promissory note against the borrower in a judicial proceeding,  (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2nd 35, 43-44.) Continue Reading

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