Header graphic for print
California Eminent Domain Report "…nor shall private property be taken for public use, without just compensation."

Sometimes Regulatory Takings Do Exist Under Penn Central

Posted in Court Decisions, Inverse Condemnation & Regulatory Takings

Last April, we reported on a bizarre case arising out of the City of San Clemente’s attempt to down zone a piece of property.  The trial court had concluded that the down zoning constituted a taking and ordered the City to rescind a decision supported by that down zoning.  The City had denied an application to develop the property because the application did not conform to the current general plan and zoning ordinance (the City seems to have sidestepped the fact that the development applications included applications to amend the general plan and zoning). 

In addition to a writ of mandate ordering the City to rescind its decision, the Court also awarded damages of $1.3 million, representing the overall value of the property ($2.8 million), less the anticipated cost to build a driveway needed to support its development ($1.5 million).  Following a post-trial motion, the Court amended the judgment to make clear that the City had the choice of either (1) rescinding the denial based on the down zoning or (2) paying the damages award.

Yesterday, the Court of Appeal issued its decision in Avenida San Juan Partnership v. City of San Clemente.  It upheld the writ and the determination that the owner was entitled to a damages award, but it remanded the case for recalculation of the amount of the award.  It’s a long, complicated opinion, and we’ll just hit some of the high points for now.

Spot Zoning.  The Court held that the City had specifically targeted this property for down zoning, leaving it as an "island" of "minimum lot size zoning in a residential ocean of substantially less restrictive zoning."  It didn’t help that the enabling legislation that created the new RVL (residential, very low) zoning had described the zone as intended for preserving "open space in canyons" by rezoning "significant acreage."  The subject property was less than three acres – and not located in a canyon.  This was enough to qualify as "irrational discrimination" under cases such as Hamer v.
Town of Ross
(1963) 59 Cal.2d 776 and Arcadia Development Co. v. City of Morgan Hill (2011) 197 Cal.App.4th 1526, 1536.   

Penn Central and "Economically Viable" Uses.  The City argued that its action fell short of a regulatory taking, as a matter of law, because the RVL zoning did not leave the owner with no economically viable use of he property, a fatal flaw under Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003.  The Court held that this view "is too limited," and that a taking occurs where a regulation goes "too far," even if some economically viable use remains.  (See Palazzolo v. Rhode Island (2001) 533 U.S. 606.)   Where this occurs, courts look to the "Penn Central" test, which the California Supreme Court has held contains three "core" factors:

  1. The economic effect on the landowner;
  2. The extent of the regulation’s interference with investment-backed expectations; and
  3. The character of the governmental action.

The Court quickly concluded that all three factors "readily appl[ied]" in this case. 

Timeliness.  As we have reported in the past, regulatory takings claims often fail on procedural grounds, either because they are too late, missing the applicable statute of limitations, or because they are premature, failing on ripeness grounds.  (We’ve even seen cases, such as MHC Financing Limited Partnership Two v. City of Santee, where claims failed because they were both too late – and too early.) 

Here, the City argued that the owner waited too long to challenge the RVL zoning.  The Court disagreed, concluding that the statute began to run on the challenge only when the City denied the owners’ development applications in 2007.   The Court went through a painstaking analysis of the difference between "facial" and "as applied" challenges, holding that the owners’ challenge clearly fell on the "as applied" side of the ledger, making it timely. 

The City also argued that the owners’ claim was not ripe because the owners failed to apply for entitlements to build what the RVL would have allowed them:  a single dwelling.  The Court rejected this argument as well, holding that under Palazzolo, the City’s denial of the application qualified as final. 

Damages.  The Court examined closely the damages award, ultimately concluding that the trial court’s methodology was flawed.  The trial court had performed a simple analysis, taking opinions of the value of the property absent the RVL zoning, and subtracting out the cost the owners would have incurred to build the (expensive) driveway necessary to support the property’s development. 

The Court correctly noted that this methodology ignores the fact that the takings conclusion was premised on on the Penn Central test, not a "no economically viable use" theory.  Because of this, damages had to take into account the fact that the property still has some value, even with the RVL zoning in place:  "A very large taking is not a total taking."

There were a number of other issues addressed in the Court’s opinion, including an interesting attorneys’ fees discussion, but I think they go beyond the scope of a blog post.   As we digest the opinion a bit further, we’ll probably have more to say.