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North Pacifica, LLC v. City of Pacifica

May 16, 2005

NORTH PACIFICA, LLC, PLAINTIFF,
v.
CITY OF PACIFICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Edward M. Chen United States Magistrate Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW (DAMAGES PHASE)

Plaintiff North Pacifica LLC ("NP") filed suit against Defendant the City of Pacifica ("City" or "Pacifica"), alleging that its constitutional rights were violated through the City's handling and treatment of NP's development permit application for a condominium project. The Court dismissed NP's claims for violation of substantive due process but allowed NP to proceed with its claims for violation of equal protection.

The parties subsequently filed cross-motions for summary judgment regarding the equal protection claims. In its motion for summary judgment, NP raised an equal protection claim that had not previously been included in its second amended complaint -- namely, that the City violated NP's right to equal protection by imposing on NP's development project a condition of approval, known as Condition 13(b), that was more onerous than that imposed on similarly situated development projects. See Docket No. 108 (NP's motion for summary judgment, filed on 5/8/03). Although this claim was not a part of NP's complaint, the issue was fully briefed by the parties and the Court allowed NP to file a supplemental pleading to include the claim. The Court then granted summary judgment to the City on all of NP's equal protection claims except for the new claim regarding Condition 13(b). See Docket Nos. 180, 216 (orders, filed on 6/30/03 and 7/15/03). NP was permitted to file an amended complaint formally addressing the equal protection claim.

The Court thereafter bifurcated the trial on the remaining equal protection claim into a liability phase and a damages phase. See Docket No. 198 (order, filed on 7/7/03). Because neither party had demanded a trial by jury, the action proceeded to a bench trial, with the liability phase beginning on July 28, 2003, and ending on August 1, 2003. On October 23, 2003, the Court issued findings of fact and conclusions of law on liability, determining that the City had violated NP's right to equal protection by imposing Condition 13(b) on NP's development project. See Docket No. 264 (order, filed on 10/23/03). On February 7, 2005, the damages phase of the trial began. Testimony and evidence were presented from February 7 to 11, 2005, and closing arguments on March 16, 2005. Having considered the testimony of the witnesses and the documentary evidence presented, and having evaluated the weight, consistency, and credibility of the same, the Court concludes that NP is entitled to damages in the amount of $156,741.19, which includes prejudgment interest. This conclusion is without prejudice to NP moving for attorney's fees under § 1988.

I. FINDINGS OF FACT

A. Approval of NP's Development Permit Application

1. NP entered into a contract to purchase certain real property located in the City. This property is commonly known as the Bowl. NP has not yet closed escrow on the Bowl property. See Liability FF ¶ 3.

2. On or about August 1, 1999, NP submitted an application to the City seeking permits for the development of a condominium project on the Bowl. See id. ¶¶ 3-4. The development permits sought were a site development permit, a use permit, a coastal development permit, and a vesting tentative subdivision (condominium) map. See id. ¶ 24 n.4. On June 5, 2001, the City deemed NP's development permit application complete. See id. ¶ 4.

3. On July 12, 2002, the Planning Commission approved NP's application, subject to thirty-nine conditions recommended by the Planning Department staff, including Condition 13(b). See id. ¶ 24. Condition 13(b) provided: "The Declaration [of Covenants, Conditions & Restrictions (CC&Rs)] shall specify that the owners of each of the residential units shall be responsible jointly and severally, for the repair, maintenance and replacement of the building exteriors, common areas, parking, landscaping, building signage and improvement and maintenance of Edgemar Road to the satisfaction of the City."*fn1 Id. ¶ 14. A local citizen subsequently appealed the Planning Commission's decision to approve the permits to the City Council. See id. ¶ 25.

4. On August 12, 2002, the City Council held a hearing on the appeal. See id. ¶ 26. The City Council denied the appeal and basically upheld the Planning Commission's decision. See id. ¶ 38. Condition 13(b) remained one of the conditions of approval. 5. On September 11, 2002, the City sent a letter to NP, stating that the City Council had approved the permits at its meeting on August 12, 2002. The City also stated that the permits would expire on August 12, 2003, and the tentative map on August 12, 2004. See Ex. C (letter from M. Crabtree to R. Kalmbach, dated 9/11/02).

B. California Coastal Commission Litigation

6. On or about August 19, 2002, the City issued a notice of final local action regarding NP's coastal development permit. See Ex. A (letter from P. Imhof to M. Crabtree, dated 8/23/02). In the notice, a copy of which was sent to the California Coastal Commission, the City made the determination that the Coastal Commission did not have appellate jurisdiction over the issuance of the coastal development permit to NP. See id.; Liability FF ¶ 93.

7. On August 23, 2002, Peter Imhof of the California Coastal Commission sent a letter to the City Planner, Michael Crabtree, expressing disagreement with the City's conclusion that the permit was not appealable to the Coastal Commission. See Ex. A (letter from P. Imhof to M. Crabtree, dated 8/23/02). NP was copied on the letter. Mr. Imhof's letter stated in part as follows:

Based on review of the approved permit, the City's findings of approval, and the materials previously circulated in connection with the certification of the EIR [i.e., environmental impact report], the Executive Director has determined that the City's approval includes development that is located within 100 feet of a wetland, as that term is defined in the Commission regulations for purposes of identifying the Commission's appellate jurisdiction. In addition, . . . the City's approval may also be appealable because it includes development less than 300 feet from the top of the seaward face of the coastal bluff west of Palmetto Avenue."

Id. The letter also stated: "Section 13569 of the Commission regulations provides for the Commission review of local government determinations of permit appealability. If the City disagrees with the Executive Director's determination that the project comes within the Commission's appellate jurisdiction . . . , a Commission hearing will be scheduled in accordance with Section 13569(d) to resolve the disagreement." Id.

8. On September 11, 2002, Cecilia Quick, the City Attorney, responded to Mr. Imhof's letter, defending the City's determination. See Ex. B (letter from C. Quick to P. Imhof, dated 9/11/02). Keith Fromm, one of the members of NP, was copied on the letter. Subsequently, Mr. Imhof notified Mr. Fromm by letter that the Coastal Commission was scheduling a hearing in December 2002 to resolve the question of its appellate jurisdiction. See Ex. 89 (letter from P. Imhof to K. Fromm, dated 9/17/02). Mr. Imhof's letter noted that "[t]he Commission does not consider any coastal development permit issued prior to resolution of this question to be effective, and any development undertaken pursuant to such a permit could constitute a violation of the Coastal Act and be subject to enforcement action." Id. Ms. Quick was copied on the letter.

(1) San Mateo County Superior Court, No. 426268

9. On October 7, 2002, NP filed suit against the Coastal Commission in San Mateo County Superior Court (Case No. 426268). See Liability FF ¶ 95; Def.'s Req. for Judicial Notice, Ex. B (NP's ex parte application and request, dated 10/7/02). NP sought an alternative writ of mandate and/or prohibition "to restrain and prohibit the Coastal Commission from exercising jurisdiction over the Coastal Development Permit." Id. NP also asked the state court to stay the Coastal Commission's suspension of the permit. See id.

10. On October 9, 2002, the state court issued an order staying the Coastal Commission from suspending NP's coastal development permit "until 15 days after the Court issues a final decision on the Petition for Writ of Mandate and/or Prohibition." Ex. 13U (order of San Mateo Superior Court in Case No. 426268, dated 10/9/02). Approximately a month later, the state court held that it did not have jurisdiction over NP's petition because NP had failed to exhaust its administrative remedies before the Coastal Commission. See Liability Ex. R (order of San Mateo Superior Court in Case No. 426268, filed on 11/19/02). The state court also dissolved the stay that had previously been issued. NP appealed the state court's decision, see Ex. 16 (NP's appellate brief, dated 10/31/03), but the appeal was not successful. NP subsequently filed a petition for review with the California Supreme Court on this matter. See Ex. 128 (NP's petition for review, dated 1/31/05). That petition was denied after the bench trial on damages herein concluded. See Def.'s Req. for Judicial Notice, Ex. A (order of California Supreme Court, filed on 3/16/05).*fn2

(2) San Mateo County Superior Court, No. 427550 11. On December 3, 2002, NP filed a second suit against the Coastal Commission in San Mateo County Superior Court (Case No. 427550) in another attempt to stop the Coastal Commission from exercising jurisdiction over NP's coastal development permit. See Liability FF ¶ 95; Ex. 13L (NP's petition, filed on 12/3/02). The state court issued an order staying the Coastal Commission's December hearing "until 15 days after the Court issues a final decision on the Petition for Writ of Mandate and/or Prohibition." Ex. 13W*fn3 (order of San Mateo Superior Court in Case No. 427550, filed on 12/3/02). The order also barred the Coastal Commission from taking further action on NP's coastal development permit until such time. See id. The state court subsequently stayed all proceedings in the case until a final decision was reached in the first state court action (Case No. 426268). See Liability Ex. W (order of San Mateo Superior Court in Case No. 427550, dated 1/30/03).

C. Litigation in the Instant Case

12. As noted above, NP's second amended complaint did not include any claim of equal protection based on the City's imposition of Condition 13(b) on NP's development project. Rather, NP first asserted the claim based on Condition 13(b) when it filed its summary judgment motion on May 8, 2003. See Docket No. 108 (NP's motion for summary judgment, filed on 5/8/03). The claim was briefed by both parties.

13. On June 11, 2003, the Court held a hearing on NP's summary judgment motion as well as a summary judgment motion filed by the City. During the hearing, the Court questioned the parties about the merits of the Condition 13(b) claim which had been briefed by the parties. Subsequently, on June 17, 2003, Mr. Crabtree sent a letter to Robert Kalmbach, another member of NP, stating that Condition 13(b) would be interpreted consisted with what NP wanted in its letter of November 6, 2002 -- i.e., there would be no requirement of joint and several liability. See Ex. E (letter from M. Crabtree to R. Kalmbach, dated 6/17/03). Ms. Quick, the City Attorney, did not sign but was copied on the letter.

14. The following month, the City extended NP's development permits, which were due to expire on August 14, 2003, to August 12, 2004. See Ex. 62 (letter from K. Fromm to M. Crabtree and City Council, dated 7/14/03). The City also extended the tentative map to August 12, 2005. See id. Thereafter, the liability phase of this trial was held from July 28, 2003, to August 1, 2003.

15. In September 2003, the Planning Commission approved a litigation stay for the tentative map for five years or until both the Coastal Commission lawsuits (Case Nos. 426268 and 427550) were final, whichever occurred first. See Ex. 63C (Planning Commission minutes, dated 9/2/03).

16. On October 23, 2003, this Court issued its findings of fact and conclusions of law for the liability phase of the trial. The Court determined that the City was liable for violating NP's right to equal protection in imposing Condition 13(b). See Docket No. 264 (findings of fact and conclusions of law, filed on 10/23/03).

D. Events Subsequent to Liability Determination

17. On November 10, 2003, the City Council held a hearing during which it directed staff to interpret Condition 13(b) as if it did not require joint and several liability. See Ex. F (City Council minutes, dated 11/10/03).

18. On January 20, 2004, the Planning Commission passed Resolution No. 800, which extended NP's development permits for five years or until the tentative map expired, whichever occurred first. See Ex. 36D (Planning Commission resolution, dated 1/20/04). The Planning Commission also passed Resolution No. 799, which approved an amendment to clarify Condition 13(b). See Ex. 36B (Planning Commission resolution, dated 1/20/04). The Planning Commission explained that Condition 13(b) was "never required and does not now require that each individual homeowner be jointly and severally liable." Id.

19. On January 21, 2004, counsel for the Coastal Commission, Joel Jacobs, proposed to NP that the parties settle all pending litigation between the Coastal Commission and NP for $300,000 to fund a one-acre wetlands restoration project in San Mateo County. See Ex. 13A (letter from J. Jacobs to J. Pope, dated 1/21/04).

20. On January 26, 2004, the City Council adopted Resolution No. 08-04, which endorsed the Planning Commission's action in approving Resolution No. 799. See Ex. 36B (City Council resolution, dated 1/26/04). Subsequently, a local citizen, John Curtis, appealed the City Council's action to the Coastal Commission.

21. On February 11, 2004, the City filed a motion, asking the Court either to dismiss NP's case or in the alternative grant summary judgment to the City because of the pending Coastal Commission litigation. See Docket No. 283 (City's motion to dismiss or for summary judgment, filed on 2/11/04). On April 16, 2004, the Court denied the motion and further provided guidance to the parties as to how the damages phase of the trial should proceed on the merits. See Docket No. 311 (order, filed on 4/16/04).

22. In early May 2004, NP received several letters of intent from prospective buyers of the development project. See Ex. M (under seal). The purchase price offers ranged from $9-11 million.

E. Damages

Because the Court has already made findings of fact regarding liability, these findings of fact focus on damages.

(1) Permanent Taking v. Temporary Taking

23. In a previous order, see Docket No. 311 (order, filed on 4/16/04), the Court stated that it was proper to analogize NP's equal protection claim based on Condition 13(b) to a takings claim for purposes of measuring damages because the net effect of the equal protection violation was to make development of NP's project more difficult, thus diminishing its value (until the condition was effectively removed or cured) and to add unnecessary costs and delay. The Court also stated that the conduct of the City would rise to the level of a permanent taking, as opposed to a temporary taking, only if Condition 13(b) was not worth curing.

24. The Court finds that there was a temporary taking in the instant case and not a permanent taking. NP has not demonstrated that Condition 13(b) was not worth curing. That the condition was worth curing is demonstrated by the fact that NP pursued the instant litigation and other litigation at substantial expense. For example, NP claims that it spent almost a million dollars in attorney's fees to litigate (1) the state suits against the Coastal Commission, (2) a separate suit against the City in state court (for violation of a different condition of approval), and (3) a federal suit against individual employees of the Coastal Commission. See Exs. 31C (under seal), 31E (under seal). Moreover, if the condition were not worth curing, then NP would have abandoned the development project. However, it has never done so, instead taking various steps to preserve the project such as continuing to pay the owners of the Bowl property to keep its option to purchase the land alive. That NP has chosen not to abandon the project is reasonable because, as discussed in greater detail below, at the time the City Council approved the project on August 12, 2002, it was worth (without the encumbrance of Condition 13(b)) $8 million, and that value has increased substantially during the course of this litigation to $11.25 million as of April 26, 2004. Indeed, in May 2004, NP received several letters of intent from prospective buyers of the development project.*fn4

See Ex. M (under seal).

25. In sum, NP was not permanently deprived of the value of the project. The value of the development project (without Condition 13(b)) far exceeded the cost of cure. The deprivation is thus analogous to a temporary taking. As this Court previously held, because NP's equal protection claim is analogous to a temporary taking, Herrington v. County of Sonoma , 834 F.2d 1488, 1503-06 (9th Cir. 1987) [hereinafter Herrington I], and its progeny, see Herrington v. County of Sonoma, 790 F. Supp. 909 (N.D. Cal. 1991) [hereinafter Herrington II], and 12 F.3d 901 (9th Cir. 1993) [hereinafter Herrington III], as well as Nemmers v. City of Dubuque, 764 F.2d 502 (8th Cir. 1985); and Wheeler v. City of Pleasant Grove, 833 F.2d 267 (11th Cir. 1987) [hereinafter Wheeler III], and 896 F.2d 1347 (11th Cir. 1990) [hereinafter Wheeler IV], are instructive on the proper measure of damages.

(2) Herrington v. Wheeler/Nemmers

26. As a preliminary matter, however, the Court takes note, on closer examination, of an analytical distinction between the Herrington cases and the Wheeler/Nemmers cases that it did not delineate in its previous order on damages. See Docket No. 311 (order, filed on 4/16/04). In Herrington I, the Ninth Circuit took note of an expert's evaluation that a piece of property owned by the plaintiffs was worth $1.3 million with the potential to construct a subdivision and only $490,000 with no development rights. See Herrington I, 834 F.2d at 1504. Thus, there was a lost value of $810,000 during the restriction. However, this loss was only temporary; because the plaintiffs retained their property, "they have, at best, suffered delay in receiving the $810,000 [and] [t]hat delay is fully compensated by awarding interest (i.e., loss of return) for delay in receipt of the lost value." Id. (emphasis in original).

27. Wheeler and Nemmers took a slightly different approach. For example, in Wheeler III, the Eleventh Circuit explained that,

[i]n the case of a temporary regulatory taking, the landowner's loss takes the form of injury to the property's potential for producing income or an expected profit. The landowner's compensable interest, therefore, is the return on the portion of fair market value that is lost as a result of the regulatory restriction. Accordingly, the landowner should be awarded the market rate return computed over the period of the temporary taking on the difference between the property's fair market value without the regulatory restriction and its fair market value with the restriction.

Wheeler III, 833 F.2d at 271; see also Nemmers, 764 F.2d at 505 (noting that a landowner could be compensated for a temporary taking by getting the fair rental value of the land).

28. These cases represent two slightly different approaches to assessing damages resulting from a government's wrongful restriction or impediment to development. Herrington I focuses on delay. It posits that the landowner could have sold the property for $1.3 million without the encumbrance imposed by the defendant but for only $490,000 with the encumbrance. Under this measure, the loss to the plaintiffs was the delay in obtaining the ultimate profit -- the additional $810,000 it could have obtained from the hypothetical sale -- which plaintiffs could have invested. In contrast, under Wheeler and Nemmers, the focus is on the inability to use or employ the full economic value the asset during the period of the unlawful restriction. As to damages incurred during the period the property is encumbered by wrongful regulation or restriction, Herrington and Wheeler/Nemmers provide an alternativemeasure of damages in a temporary takings case, focusing on the loss of value during the encumbrance.*fn5

29. In the instant case, the Court finds that the latter measure of damages is more appropriate. As discussed infra, see ¶¶ 98-108, NP's project did not suffer any significant delay as a result of Condition 13(b). Consequently, Herrington would not provide NP with much relief even though its constitutional rights were violated. Rather, under the circumstances of this case, the damages flowing from the loss of value suffered by NP during the encumbrance of Condition 13(b) is appropriately measured by the Wheeler/Nemmers analysis.

(3) Fair Return on Diminution in Value

30. Under the Wheeler/Nemmers analysis, NP is entitled to the fair return on the difference in value (i.e., the "delta") between the fair market value of the development project without Condition 13(b) and the fair market value of the project encumbered by Condition 13(b) during the period of the temporary taking (i.e., the period during which the condition encumbered the project). To assess this damage, the Court must first address the start date and end date of the temporary taking.*fn6

a. Start Date

31. According to NP, the start date of the temporary taking is August 12, 2002, when the City Council upheld the Planning Commission's approval of NP's development permits. See Liability FF ¶¶ 26, 34, 38. However, according to the City, this is not the proper start date because the Court previously found at the liability phase that the City Council was not aware of the problem posed by Condition 13(b) as of August 12, 2002; rather, it only became aware of the problem on or about November 6, 2002. See id. ¶¶ 68(c)(iii), 71.

32. The Court acknowledges its prior finding that the City Council did not have sufficient knowledge as to constitute conscious endorsement or ratification of the joint and severability provision imposed by Condition 13(b) until November 6, 2002. However, the Court also found that, by failing to respond to NP's letter of November 6, 2002 discussing Condition 13(b), a letter received and presumably reviewed by Council members, the City Council ratified staff's action in imposing the condition. See id. ¶ 73 & n.10 ("Having been presented with, at trial, additional evidence regarding the relevant course of events, the Court concludes that the City is liable not only because of the City Council's direct action (or rather inaction) but also because of the City Council's failure to act with respect to the actions of its subordinates."). That ratification was a predicate to municipal liability under § 1983.

33. Ratification, however, does not start the damages date; it merely confers liability. Ratification is the "[c]onfirmation and acceptance of a previous act, thereby making the act valid from the moment it was done." Black's Law Dictionary 1268 (7th ed. 1999) (emphasis added); see also Rest. (2d) of Agency § 82 ("Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.") (emphasis added). Thus, for instance, if a city ratified a wrongful termination of an employee in violation of the First Amendment, damages would run from the date of termination, not the date of ratification. Therefore, when the City Council ratified staff's actions, the City became liable back to the point of wrongdoing -- the imposition of Condition 13(b) in granting the permits. The Court thus agrees with NP that the proper start date for the taking (and commencement of the damages period) is August 12, 2002.

b. End Date

34. As the Court stated in its previous order, see Docket No. 311, the end date for the temporary taking is not when Condition 13(b) was conclusively cured. Rather, it is when Condition 13(b) no longer had a discernible effect on the fair market value of the development project -- i.e., when a reasonable buyer of the project would have viewed the risk of Condition 13(b) as de minimus. At that point the "delta" is effectively zero.

35. According to the City, the proper end date is June 17, 2003, the day that Mr. Crabtree, the City Planner, sent a letter to Mr. Kalmbach, one of NP's members, regarding Condition 13(b). See Ex. E (letter from M. Crabtree to R. Kalmbach, dated 6/17/03). In the letter, Mr. Crabtree stated that "the inclusion in the CC&Rs" of the language proposed by NP in its November 6, 2002, letter, "would satisfy the City with respect to Condition No. 13(b) of the Conditions of Approval." Id.; see also Liability FF ¶ 43. In the letter, Mr. Crabtree also stated that, if NP was not satisfied with this interpretation of Condition 13(b), it could file an appeal pursuant to Pacifica Municipal Code § 9-4.3601.

36. According to NP, the appropriate end date is April 26, 2004, the day that the City's amendment of Condition 13(b) -- which took place on January 26, 2004 -- became final and unappealable by an administrative writ.

37. The Court does not agree with the City. Mr. Crabtree's letter of June 17, 2003, is not the proper end date because a prospective buyer would likely find the letter unsatisfactory for several reasons. First, shortly before the letter was sent to NP, the City filed several declarations with the Court stating that Mr. Crabtree did not have final decisionmaking authority regarding City planning. See, e.g., Ex. 7B (declaration of Mr. Crabtree in support of City's motion for summary judgment, filed on 5/7/03); Ex. 7D (declaration of Joseph Tanner, City Manager, in support of City's motion for summary judgment, filed on 5/7/03). Second, it was not clear that Mr. Crabtree had the authority to bind the City -- i.e., to prevent the City from changing its position on Condition 13(b) prior to the approval of the final map. William Abbott, one of the City's experts, testified that it is possible (though probably rare) for a City to reverse a condition of approval approved by staff. Third, there was nothing to prevent Mr. Crabtree from changing his mind. Steve Johnson, another of the City's experts, testified that, even if a developer and staff come to an agreement, there is a risk that staff will change its position and, in his experience as a developer, there have been instances where staff has changed its position.

38. A prospective buyer would also be unlikely to rely on the letter from Mr. Crabtree because of other uncertainties -- for example, because Ms. Quick, the City Attorney, did not sign the letter (although she was copied). Condition 13 provided that the CC&Rs had to be approved "as to form and content" by the City Planner and the City Attorney. Ex. C (letter from M. Crabtree to R. Kalmbach, dated 9/11/02). Furthermore, even though the City Planner and the City Attorney were given the authority to approve the form and content of the CC&Rs, it is not clear that they had the power to "read out" the joint-and-several-liability requirement expressly imposed by Condition 13(b) as approved by the City Council. Moreover, a third party could intervene and challenge that Mr. Crabtree's decision prior to approval of the final map, as acknowledged by ...


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