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

Referendum that Leaves in Place Zoning That is Inconsistent With General Plan Upheld

Rejecting prior case law, the Sixth District Court of Appeal held that citizens may referend a zoning ordinance even when the result of doing so is to leave in place pre-existing zoning that is inconsistent with the general plan.  City of Morgan Hill v. Bushey (6th Dist., No. H043426, May 30, 2017)

In the prior case, the city council of Norco adopted an ordinance to bring zoning for certain property into consistency with the city’s recently-amended general plan. Norco voters opposed the zoning ordinance by presenting a referendum petition, but the city council refused to place the referendum on the ballot. The council contended that the repealing the ordinance would result in reinstatement of the prior zoning, which was inconsistent with the general plan, resulting in an invalid zoning scheme. In a 1985 decision, the Fourth District Court of Appeal upheld the council’s decision. It stated that zoning that is inconsistent with the general plan is invalid when passed, and repeal of the targeted zoning ordinance would have resulted in such inconsistency.  DeBottari v. City Council, 171 Cal. App. 3d 1204 (1985).

In City of Morgan Hill v. Bushey, a similar situation came before the Sixth District, which reached a different conclusion.  The Morgan Hill council enacted a zoning ordinance to bring zoning into consistency with a recently-amended general plan, and voters processed a referendum petition.  The trial court ordered the referendum removed from the ballot based upon DeBottari.  The Morgan Hill court reversed.  It acknowledged the principles relied on in DeBottari:  that state law prohibits a city from enacting zoning inconsistent with a general plan, and requires a city to amend a zoning ordinance within a reasonable time after it becomes inconsistent to bring it into consistency with the general plan. Thus, an initiative that attempted to enact zoning inconsistent with the general plan would be invalid. On the other hand, a referendum, the court stated, does not enact inconsistent zoning; it simply maintains the status quo by preventing a council-enacted zoning ordinance from ever taking effect. Further, the referendum in this case targeted a zoning ordinance that represented just one of a number of available consistent zonings. Because the council would have been free to comply with consistency requirements by adopting different zoning if the referendum had succeeded, the referendum did not prevent the city from complying with its duty to bring inconsistent zoning into consistency with the general plan within a reasonable time. Accordingly, the referendum should have remained on the ballot.

Action to Invalidate Building Permit Barred by Failure to File Timely Challenge to Underlying Site Development Permit

In Citizens for Beach Rights v. City of San Diego, 10 Cal.App.5th 1301 (2017), the court of appeal held that a challenge to issuance of a building permit necessarily included a challenge to the validity of the underlying site development permit, which was barred by the 90-day statute of limitations in Government Code section 65009.

Background

In 2006, the City of San Diego obtained a site development permit (SDP) to build a new lifeguard station on Mission Beach. Under the City’s municipal code, the SDP was required in order for a building permit to issue for the project. The SDP stated that failure to “utilize[]” the permit within 36 months would automatically void the permit. Over the ensuing years, the City worked to obtain funding for the station and secure a coastal development permit from the California Coastal Commission. Due to the late 2000s economic downturn, the City was not able to secure funding for the project until 2015.

The City issued a building permit for the lifeguard station on April 20, 2015. Over four months later, on August 26, 2015, Citizens for Beach Rights sought a writ of mandate and injunction to stop construction. The group argued that the SDP had expired automatically because it had not been utilized within 36 months of its issuance. The trial court agreed and enjoined the construction.

Challenge to the Building Permit Was Predicated on Invalidity of the Site Development Permit

The City contended that its issuance of the building permit necessarily included a decision that the SDP remained valid, and that any challenge to that decision had to be brought within 90 days under Government Code section 65009(c)(1). The court of appeal agreed. The purpose of Citizens’ lawsuit, it reasoned, was to stop construction by challenging the City’s decision, when it issued the building permit, that the SDP remained valid. That decision was required under the City’s municipal code; i.e., without a valid SDP, the building permit could not have been lawfully approved. Because Citizens’ suit was filed more than 90 days after the City decided that the SDP remained valid and because the building permit was based on that decision, the suit was time-barred.

The SDP Was Valid Because Utilization of the SDP Included the Pursuit of Funding and Other Permits

The court of appeal also found that San Diego’s municipal code permitted utilization to be defined by standards developed by the City Manager, and that uncontested evidence demonstrated the City’s policy was to treat the pursuit of funding and other permits as “utilization.” Although one condition of the SDP was that “construction, grading or demolition” must begin within 36 months, that requirement needed to be harmonized with the municipal code and other parts of the SDP, which required the City to obtain other permits first. Because the City had sought funding and had continuously pursued the SDP within 36 months of the SDP’s issuance, the SDP was valid at the time the building permit was issued in 2015.

Court Must Defer to Local Agency Decisions if Supported by Substantial Evidence

The court of appeal reaffirmed that a court should not second guess or “micro-manage” the development decisions of municipal governments; rather, the courts are simply charged with reviewing whether there is substantial evidence in the record supporting the city’s decision. Kutzke v. City of San Diego, 11 Cal. App. 5th 1034 (2017).

A developer proposed to subdivide a large parcel of property in the La Playa neighborhood of Point Loma in San Diego. The La Playa neighborhood is characterized by very-low-density large single-family homes of various ages and architectural styles. The property is currently the site of a residence constructed initially in 1929, designed by a master architect and the long-time home of a prominent figure in San Diego, Joseph E. Jessop. Among the goals and objectives of the applicable community plan include conservation of the character of existing single-family neighborhoods, such as the low-density nature of the La Playa neighborhood.

The proposed project would subdivide the property’s two existing lots into four lots. One lot would continue to have the existing 1929 residence.  New residences would be constructed on the three other lots.  The four lots would share a private driveway, which would be too steep for fire trucks to access the property. However, the project would include the installation of standpipes near the three rear residences for fire department use.The project would deviate from the City of San Diego’s municipal code in three ways.  First, the residence on the front lot would not comply with the minimum rear-yard setback. Second, the residences on the three rear lots would deviate from the minimum street footage requirement, as they would have no street footage at all. Third, one of the lots would have a retaining wall that exceeded the maximum, six-foot height. The project thus required approval of deviations from the city’s municipal code.

The city’s initial study concluded that there would be a potentially significant impact to paleontological resources.  However, the owner agreed to mitigation measures that would reduce the impact to less-than-significant levels.  As such, the city prepared a mitigated negative declaration to comply with CEQA. The local community planning board recommended denial of the project due to concerns about fire safety, fire truck access, density, and the appropriateness of the necessary deviations. However, the planning commission approved the project, and certified the mitigated negative declaration.

An opponent appealed the planning commission’s approval to the city council. After a public hearing, the city council reversed the planning commission’s decision to approve the project. The city council also concluded that the mitigated negative declaration was inadequate, particularly as to the project’s potential impacts on geology, land use and public safety. The city council also found that the project was inconsistent with the applicable community plan and that the requested deviations were inappropriate and would not result in a more desirable project as required by the municipal code. The superior court reversed the city council’s decision, finding that there was insufficient evidence to support the city’s decision.

The court of appeal reversed, finding that there was substantial evidence in the record to support the city’s decision to deny the project. In doing so, the court of appeal reiterated well-established law that it must uphold the city’s decision to deny the project if substantial evidence supported any one of the city council’s findings underlying its decision to deny the project.

In reviewing the record, the court of appeal found substantial evidence to support the city council’s finding that the project was not consistent with the community plan.  It stressed that such a finding need not be supported by expert evidence.  Rather, opinions and objections of neighbors can be sufficient.  Here, these opinions were corroborated by visual simulations of the project and photographs of the surrounding neighborhood. The simulations also demonstrated the inconsistency of the project with the surrounding neighborhood’s density and character. The court of appeal concluded that, collectively, this evidence was sufficient to support the city council’s decision.

With respect to impacts on public health, safety, and welfare, the court of appeal found the record to contain substantial evidence, including expert opinions, that the project could not be built safely on a steep sandstone hillside and would present significant challenges for fire and emergency services. Similarly, this evidence supported the city council’s conclusion that the project was inappropriate for its proposed location and the required deviations would not result in a more desirable project.

The court of appeal recognized that it is the city council’s role—not the court’s—to weigh whether evidence from the project proponent was more persuasive. Because the project proponent could not establish that no reasonable city would have reached the same decision as the City of San Diego did here, the court of appeal concluded that the city council’s decision should be upheld.

 

Attorney Neglect Not Grounds For Relief From Summary Judgment For Failure to Lodge Administrative Record

A party against whom summary judgment is entered as a result of attorney neglect may not seek relief under a statute that provides relief from a default judgment or dismissal resulting from attorney neglect. The Urban Wildlands Group, Inc. v. City of Los Angeles, 10 Cal. App. 5th 993 (2017).

The plaintiff challenged the City of Los Angeles’s finding that a project was exempt from additional environmental review under CEQA. The parties stipulated that the plaintiff would lodge the administrative record with the court. Because of a mistake on the part of the plaintiff’s attorney and his new legal assistant, the plaintiff did not lodge the record before the stipulated deadline. After a hearing, the trial court found that the plaintiff could not support its arguments because it had failed to lodge the administrative record. Accordingly, the trial court denied the plaintiff’s petition and complaint and granted summary judgment for the defendant.The plaintiff then moved to vacate the judgment under Code of Civil Procedure section 473(b), which requires a court to vacate a “default[,] . . . default judgment or dismissal” that results from an attorney’s mistake, inadvertence, surprise, or neglect. The plaintiff submitted an affidavit from its attorney attesting to his neglect in failing to lodge the administrative record. The trial court concluded that the attorney’s neglect had deprived the plaintiff of its day in court (similar to the effect of a default judgment or dismissal) and vacated the judgment.

The court of appeal reversed and ordered the judgment reinstated, explaining that a summary judgment did not fall within the scope of Section 473(b). The court noted that there are two lines of court of appeal cases interpreting Section 473(b). Under the prevailing view, explained in English v. IKON Business Solutions, Inc., 94 Cal. App. 4th 130 (2001), relief under Section 473(b) is available only for default, default judgment, or dismissal. The minority view, following Avila v. Chua, 57 Cal. App. 4th 860 (1997), is that Section 473(b) allows relief from judgments that are “directly analogous to a default judgment.”

Following the English line of cases, and expressly disapproving Avila, the court concluded that because the language of Section 473(b) is unambiguous, it should be interpreted according to its plain language. Section 473(b) did not apply to the case because “summary judgments are neither defaults, nor default judgments, nor dismissals.”

This is one more case adopting the more narrow interpretation of Section 473(b) that “default judgment or dismissal” means just that and nothing more. Because the California Supreme Court has not yet resolved the split between the English and Avila lines of cases, trial courts may continue to apply either a strict or expansive interpretation of Section 473(b).

CEQA Action Challenging Oil Well Permits Not Barred By Res Judicata

The court of appeal held that the doctrine of res judicata (which precludes relitigation by the same parties of issues previously adjudicated on the merits) does not apply when a prior judgment was based on mootness and ripeness grounds because it is not a judgment on the merits. Association of Irritated Residents v. California Department of Conservation (No. F073018, May 4, 2017).

In 2012, several environmental organizations sued the California Department of Conservation in Alameda County contending that the Department failed to comply with CEQA because of its “pattern and practice” of issuing permits for oil and gas wells without analyzing the potential environmental impacts of fracking.  While the suit was pending, Senate Bill No. 4 (SB 4) was signed into law.  SB 4 required the Department to adopt new fracking regulations and to approve projects that met certain conditions before the new law took effect. The court then dismissed the claims as moot due to the passage of SB 4 and not ripe to the extent they targeted future practices of the Department.

In 2014, environmental organizations filed a second suit in Kern County alleging that the Department failed to comply with CEQA before issuing over 200 specific drilling permits. The trial court dismissed the case on the grounds that res judicata applied because the earlier suit had involved essentially the same issues and parties and had been ruled on by the court.

The court of appeal held that res judicata was not applicable because the earlier case had not been decided on the merits but, rather, on the ground that there was no justiciable controversy before the court. The appellate court reasoned that a judgment based on mootness or ripeness not is one “on the merits” because the substance of the claim is not adjudicated. Here, the ruling in the Alameda case had been based solely on mootness and ripeness grounds, and the trial court never addressed the merits of plaintiffs’ CEQA claims.

The court of appeal also rejected the argument that the Alameda court had ruled on the merits of the case because the court order discussed specific ramifications of SB 4.  The court of appeal concluded that the Alameda court was simply explaining its mootness ruling, not adjudicating a substantive defense.

The court also held that entry of final judgment in another case in Kern County Superior Court involving similar issues did not warrant dismissal of the appeal based on collateral estoppel. The collateral estoppel doctrine bars relitigation of identical issues that were actually litigated and decided in a prior case by one who was a party in the first suit or in privity with that party (i.e., having essentially the same legal interests). The court reasoned that the ultimate legal issues in the two cases were not identical because the facts in each case were different. Further, although the Sierra Club was a plaintiff in both suits, other plaintiffs in the second Kern County case were not necessarily in privity with the Sierra Club, hence the requirements for collateral estoppel were not met.

Ninth Circuit Upholds Biological Opinion for Silver State South Solar Project in Nevada

In Defenders of Wildlife v. Zinke, the Ninth Circuit upheld the Biological Opinion prepared by the U.S. Fish & Wildlife Service to assess the impacts on the threatened desert tortoise from the Silver State South solar project in southern Nevada.  856 F.3d 1248 (9th Cir. 2017).  A key takeaway from the decision is the substantial deference that the courts give to the scientific judgments of the FWS, especially in the face of scientific uncertainty.

The Biological Opinion

The principal issue in the case was that the project, which required approval by the Bureau of Land Management of a right-of-way over federal land, would narrow the corridor for the movement of the desert tortoise through the Ivanpah Valley in southern Nevada, although the project and the affected corridor were located outside of the species’ designated critical habitat.  The Biological Opinion recognized that the project’s impact on the “connectivity” of the tortoise’s movement through the Valley was uncertain in light of the available data.  But it found that the corridor provided for the species’ movement was likely to be sufficiently wide and it included a monitoring program that would be used to develop conservation measures to identify and address any negative impacts if they did occur.

In accordance with the procedures for “formal consultation” under the Endangered Species Act, the Biological Opinion made a “no jeopardy” finding, which determined that the project would not jeopardize the continued existence of the tortoise.  The Biological Opinion further concluded that formal consultation was not required to assess the potential modifications to the critical habitat for the tortoise, and instead relied on the more summary process of “informal consultation” to find that the project was not likely to affect this habitat.

Based on the Biological Opinion, in 2014 the BLM approved the federal right-of-way for the project.

The Ninth Circuit’s Decision

In upholding the Biological Opinion, the Ninth Circuit first rejected the plaintiff’s claim that the FWS did not adequately specify the applicable mitigation measures to support the “no jeopardy” finding.  The court reasoned that nothing in the ESA required firm, binding mitigation to address negative effects that are uncertain to occur.  The court explained that “our precedents do not require mitigation measures to be identified or guaranteed when the mitigation measures themselves may be unnecessary.”

The court further explained that, while a Biological Opinion must use the best scientific data that is available, the court was required to defer to the FWS in the face of scientific uncertainty.  As the court cautioned, “it is not our job to task the FWS with filling the gaps in the scientific evidence” and “we must respect the agency’s judgment.”  The court quoted the district court’s finding that “the FWS cannot be expected to respond to data that is not yet available to surmise potential mitigation actions that are not needed under the agency’s current interpretation of the data.” Continue Reading

Tie Vote Decision Resulting in Upholding Permit Approval was Subject to Challenge Under CEQA

The court of appeal rejected a claim that a tie vote of the air quality management district’s hearing board resulted in “no action” and hence was not subject to judicial challenge. Grist Creek Aggregates. LLC v. Mendocino County Air Quality Management District (No. A149861, June 14, 2017).

The Mendocino County Air Quality Management District approved a permit for Grist Creek Aggregates to construct a heating and blending unit for production of rubberized asphalt. Plaintiff appealed issuance of the permit to the District’s Hearing Board. After two hearings, the four members of the Hearing Board who participated in the appeal split evenly on their vote. The notice of the tie vote stated that the Hearing Board “was unable to make a decision due to a 2-2 tie vote. The Hearing Board will not hold any further hearings on the appeal.”

Plaintiff sought a writ of administrative mandate under Code of Civil Procedure section 1094.5 contending that the District and Hearing Board violated CEQA by approving issuance of the permit without having conducted environmental review. The Hearing Board argued that the 2-2 vote resulted in no action, and hence there was no “final administrative order or decision” subject to judicial review.

The appellate court disagreed. Acknowledging that tie votes by administrative agencies mean different things in different contexts, the court concluded that in the statutory and procedural context presented, the tie vote gave rise to a claim for abuse of discretion by the Hearing Board. The effect of the Hearing Board’s vote was to deny plaintiff’s appeal, thereby leaving approval of the permit in place. Thus, the Hearing Board’s failure to act was itself a “decision” not to revoke the permit, which the court could review for abuse of discretion under Section 1094.5. While it was true, the court said, that lack of any factual findings by the Hearing Board would make such review more difficult, the tie vote did not render the decision immune from judicial review.

An Attorney Fee Award Is Not Available To A Project Proponent That Successfully Defends A Challenge To Project Approvals Unless The Lawsuit Was Detrimental To The Public Interest.

A project sponsor can successfully defend an action brought to challenge a permit for its project, and satisfy the standards in Code of Civil Procedure section 1021.5 for an award of attorneys’ fees, but still have its fee claim rejected, if the court concludes the aim of the lawsuit was to protect, rather than curtail, important public rights, according to the decision in Save Our Heritage Organisation v. City of San Diego, 11 Cal.App.5th 154 (4th Dist. Div. 1, 2017).

Background.

The City of San Diego approved a site development permit for a revitalization project in Balboa Park and Save Our Heritage Organisation filed suit to challenge the permit. The superior court ruled the permit was invalid, and the city did not appeal. The project sponsor, Plaza de Panama Committee, did appeal however, and succeed in having the superior court judgment reversed. After the case was sent back to the superior court, the Committee requested an award of attorney fees against Save Our Heritage for its time spent on the appeal and in bringing the motion for fees. The superior court denied the fee motion and the Committee again appealed.

A Project Proponent May Be Entitled to a Fee Award If It Successfully Defends a Permit Challenge and Satisfies the Statutory Requirements for an Award.

Code of Civil Procedure section 1021.5 codifies the so-called private attorney general doctrine, which seeks to promote lawsuits that vindicate public rights but that might not be otherwise be brought because of the cost of litigation. On appeal, Save Our Heritage asserted that fees may never be awarded to a project sponsor that successfully defends a challenge to its project, because such an award would have a chilling effect on litigation brought to protect the public interest. The court rejected this argument. The statute allows a court to award attorney fees to “a successful party,” and does not draw a distinction between prevailing plaintiffs and prevailing defendants. Accordingly, the court held that any successful party in litigation involving public rights that otherwise satisfies the statute’s requirements may claim a fee award, not just the party that filed suit.

The Committee Satisfied the Three-Part Test for Obtaining an Attorney Fee Award Under Section 1021.5.

A party seeking a fee award under the statute must show that: (1) the litigation resulted in enforcement of an important right that affects the public interest; (2) a significant benefit was conferred on the public or a large class of persons; and (3) an award would be appropriate given the need for private enforcement and the financial burden of enforcement. Save Our Heritage did not dispute the Committee’s showing that it had met this three-part test for obtaining a fee award.

Fees Could Not Be Awarded Against Save Our Heritage Because It Did Nothing to Compromise Public Rights.

The main issue before the court was whether, under an exception recognized by the California Supreme Court, Save Our Heritage was the “type of party upon whom private attorney general fees were intended to be imposed.” Under this exception, “a section 1021.5 fee award may not be imposed on a litigant who did nothing to adversely affect the public interest.” A party adversely affects the public interest when it seeks to curtail or compromise important public rights or seeks to exonerate itself from the violation of such rights. The court held that the suit brought by Save Our Heritage did not adversely affect the public interest, but rather sought to correct what it believed to be significant violations of environmental, historic preservation, and land use laws by the city. Although the suit was unsuccessful, it involved the type of public interest claims section 1021.5 was enacted to encourage and was not detrimental to the public interest. A fee award against Save Our Heritage would, therefore, not be appropriate.

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