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Spot-Zoning and Regulatory Takings: Developer Succeeds in California Court of Appeal – Avenida San Juan Partnership v. City of San Clemente

by Matthew Hinks
Court judgments finding a regulatory taking are relatively rare. So too are decisions upholding the oft-heard complaint of “spot zoning”. In the recent case of Avenida San Juan Partnership v. City of San Clemente, 201 Cal.App.4th 1256 (2011), the court (and the plaintiff) hit the daily double.

In Avenida San Juan, the city council of the City of San Clemente in July 2007 rejected plaintiff’s development application, which included a general plan amendment, zoning amendment, tentative parcel map, site plan permit, conditional use permit and a variance, to build four dwelling units on a 2.85 acre parcel. The property was purchased by plaintiff in 1980, which was then zoned to allow six dwelling units per acre. Soon after plaintiff purchased the property, it sought and obtained entitlements to subdivide the property into four single family lots. In connection with that approval, the City found that there were no “geological obstacles” to developing the property with four residences and that “the site is developable without danger to adjacent properties.” Plaintiff, however, did not develop the property at that time.

In 1993, the City amended its general plan to create a “Residential, Very Low” (“RVL”) density zone and impose it on several properties, including plaintiff’s. All parcels surrounding plaintiff’s property, however, were zoned “Residential, Low” (“RL”). RL zoning allowed four dwellings per acre; RVL zoning allowed one residence per 20 acres. As the trial court later described it, the restrictions created an “isolated area that has become an island of minimum lot size zoning in a residential ocean of substantially less restrictive zoning.”

The evidence presented in the trial court established that the plaintiff did not have actual knowledge of the down-zoning until 2004 when it hired a civil engineer seeking, once again, to develop the property. An application to develop the parcel was submitted on September 2006 and rejected by the City in July 2007. Plaintiff sued on August 29, 2007, seeking a writ of mandate and damages for inverse condemnation based on the spot zoning of the property.

The trial court proceedings were conducted in two phases. On the writ of mandate, the trial court ruled that the City’s refusal to lift the RVL restrictions on Plaintiff’s property was arbitrary and capricious and therefore issued a writ of mandate on September 10, 2009, which was later stayed by the court given the City’s stated intention to appeal the ruling. Trial of the inverse condemnation claim commenced a few months later. The trial court found that City had deprived plaintiff “of all economically viable use of the parcel” and awarded damages of $1.3 million. On a subsequent new trial motion, the trial court, given the California Supreme Court’s opinion in Hensler v. City of Glendale, 8 Cal. 4th 1 (1994), modified the judgment to provide that the City could avoid paying the damage award if it rescinded the development restriction.

The court of appeal largely affirmed, but reversed the damage award and remanded for recalculation of the amount.

According to the court, “the essence of spot zoning is irrational discrimination.” Quoting at length from Arcadia Development Co. v. City of Morgan Hill, 197 Cal. App. 4th 1526 (2011), the court continued: “Spot zoning occurs where a small parcel is restricted and given lesser rights than the surrounding property, as where a lot in the center of a business or commercial district is limited to uses for residential purposes thereby creating an ‘island’ in the middle of a larger area devoted to other uses. . . . Usually spot zoning involves a small parcel of land, the larger the property the more difficult it is to sustain an allegation of spot zoning. . . . Likewise, where the ‘spot’ is not an island but is connected on some sides to a like zone the allegation of spot zoning is more difficult to establish since lines must be drawn at some point. . . . Even where a small island is created in the midst of less restrictive zoning, the zoning may be upheld where rational reason in the public benefit exists for such a classification.” Rejecting the City’s proffered justification for the treatment of the subject parcel, the court determined that there was “no question” that the plaintiff’s property “is a one-house-per-20 acre island in two-to-six-house-per-acre sea”, noted that even after the proposed subdivision the property “would be less dense than everything that surrounds it” and upheld the trial court’s ruling on the writ of mandate.

Turning to the inverse condemnation award, the court rejected the trial court’s finding of a total regulatory taking citing a lack of evidence that plaintiff could not develop at least one home on the property. Nevertheless, the court affirmed the inverse condemnation judgment finding a partial taking. Rejecting the City’s argument that “there is no compensatory regulatory taking unless the regulation denies all economically viable use of the property”, the court, employed the famous Penn Central factors involving less than complete takings and found a partial taking had occurred. Finding that (1) the economic effect of the RVL restriction was “dramatic”; (2) the restriction wholly undermined plaintiff’s “investment-backed expectations”; and (3) the character of the government action was an improper motivation to keep the property open space, the court upheld the trial court’s ruling.

As to damages, the court found the trial court’s “rough justice” measure a little too imprecise. The trial court failed to calculate into its damage figure the value of the property with at least one home on it, but apparently compensated for that fact by accepting the lowest valuation of the property when zoned for four homes then deducting the highest cost estimate for the construction of a cul-de-sac needed to develop four homes on the property. The court of appeal rejected the rough approach and remanded for recalculation.

A couple aspects of the opinion stand out beyond the interesting discussions of spot zoning and regulatory takings. One is the court of appeal’s treatment of the Penn Central factor analyzing the character of the government action. There is little question that a municipality acts in the public interest by seeking to preserve open space. Nevertheless, the court found this factor to weigh in favor of a finding of a taking because the City offered pretextual justifications for the RVL designation and attempted to mask its true motivation.

The second is the trial court’s approach to the litigation. The case proceeded in two phases (not uncommon) and the trial court was apparently untroubled by the concept of issuing the writ of mandate while the inverse condemnation claim remained pending and before a final judgment was entered. Trial courts are often reluctant to issue a writ of mandate in those circumstances. For more on that topic, see Following up on Avenida San Juan Partnership v. City of San Clemente: Judges’ reluctance to issue a writ prior to final judgment demonstrates need for clarification of Palma footnote.