City Must Pay for Temporary Takings: L.A.'s Delay in Issuing Permit Earns Landowner $1.2 Million
Delays by the City of Los Angeles in issuing a permit to demolish a burned-out hotel amounted to a temporary taking, the Second District Court of Appeal has ruled. The unanimous three-judge appellate panel upheld a trial court's ruling that awarded the landowner $1.2 million, plus interest, for the inverse condemnation.
The court upheld the trial court's monetary award after concluding that the city's delay in issuing the demolition permit was not part of the normal development review process, and that the delay temporarily denied the hotel owner of all use of his property. Lawyers on either side of the case could point to no other instances where a landowner has received payment for a taking under state law. Recent takings cases won by landowners, including City of Monterey v. Del Monte Dunes Ltd., 119 S.Ct.1624 (1999), involved federal law. (See CP&DR Legal Digest June and July 1999.)
The ruling is only the latest in a 10-year legal battle between Syed Mouzzam Ali, who owned the Ferraro hotel, and Los Angeles. Ali has won almost every round, including a 1995, unpublished appellate court case, Ali v. City of Los Angeles, B077712, in which the court ruled that the permit delay violated the Ellis Act. The Ellis Act (Government Code §7060 (a)) permits the owner of rental housing to go out of business (that is, withhold units from the market) regardless of local housing ordinances.
The appellate court's decision provided an outline for aggrieved landowners, said Rosario Perry, Ali's attorney.
"I think this case is important because it explains how people are going to get temporary takings in California. We've heard in a lot of other cases about how people cannot prove a temporary takings," Perry said.
The city has asked the Second District to grant a rehearing and will file a petition for review by the state Supreme Court if necessary, said Michael Klekner, deputy city attorney.
"Our problem with the court of appeal opinion is that it ignores the findings of the trial court that we acted in good faith," Klekner said.
In November of 1988, a fire "substantially destroyed" the Ferraro hotel. Two months later, Ali applied for a permit to demolish the burned-out structure. The city refused to approve Ali's application because it contended the Ferraro was a single-room occupancy (SRO) hotel, and the city prohibited demolition of such affordable housing units unless the building could not be repaired or the owner agreed to replace the units. After some legal and administrative proceedings, the city concluded the Ferraro was not an SRO hotel, so the city issued a demolition permit in August of 1990, 19 months after Ali filed his application. In the interim, the city determined that Ali was not providing adequate security at the abandoned hotel — there had been a series of small fires starting in July of 1989 — so the city hired 24-hour security and assessed the cost to Ali.
Ali sued the city, claiming that the delay was unlawful and that the security measures would have been unnecessary had the city acted properly. The appellate court in 1995 ruled in Ali's favor, remanded certain issues for trial and allowed Ali to raise new complaints. Two trials followed. In one, Los Angeles Court Superior Court Judge Gregory O'Brien ruled that the delay in issuing the demolition permit was illegal and was solely the fault of the city, so he refunded to Ali $399,000, plus interest, in assessments for security. The city did not appeal the portion of the ruling that set aside and refunded the assessments.
In a second trial, Los Angeles County Superior Court Judge Lawrence Crispo ruled that the city's actions amounted to a regulatory taking and a physical taking of Ali's property. Judge Crispo awarded Ali $1.2 million, plus interest, for inverse condemnation. The city did appeal this judgement.
At the appellate level, the city argued that the California Supreme Court's decision in Landgate, Inc. v California Coastal Com., (1998) 17 Cal4th 1006, was the controlling precedent. In Landgate, the court ruled the Coastal Commission's erroneous attempt to assert jurisdiction over a proposed parcel split — which delayed development — was not a temporary taking. The state's high court ruled that the delay was the result of the normal development approval process and that the Coastal Commission's actions were objectively reasonable. (See CP&DR Legal Digest, June 1998.)
But Ali argued that Landgate was inapplicable and, instead, pointed to the important takings case of First Lutheran Church v. Los Angeles County, (1987) 482 U.S. 304 (known as First English). In that case, the U.S. Supreme Court ruled that a regulation that deprives a landowner of all economically viable use of his land may constitute a regulatory taking, which requires compensation under federal law.
The Second District, Division Four, panel sided with Ali, ruling that the facts were distinguishable from Landgate. The court said the city's argument that there was no taking because Ali eventually sold his property to the original purchaser was "a non sequitur which fails to address the temporary deprivation of all use of the property."
The real issue, the court said, was whether the denial of the demolition permit for 19 months was a "‘normal delay' in the ‘development process' as explained in Landgate." The court said no.
In his opinion, Presiding Justice Charles Vogel noted that the Landgate court held that government action that was arbitrary was different from the Coastal Commission's action, and the delay from such arbitrary action would not be "normal."
Vogel wrote, "We conclude the City's attempt to enforce its SRO ordinance in violation of the Ellis Act involves the ‘different question' suggested by Landgate, where the position taken by the City was ‘so unreasonable from a legal standpoint' as to be arbitrary, not in furtherance of any legitimate governmental objective, and for no other purpose than to delay any development other than for an SRO hotel. Therefore, the delay in demolition of the hotel was a temporary regulatory taking requiring compensation."
The court rejected the city's argument that its erroneous enforcement of the SRO ordinance was an attempt to preserve the availability of low-income housing. The court said the city's action was "arbitrary and unreasonable in light of the Ellis Act."
Furthermore, First English requires that Ali receive compensation because the city's regulatory decisions deprived him of all use of his property, the court said. The court rejected the city's argument that Ali forced the delay because he did not seek administrative review of the decision to list the Ferraro as an SRO hotel. Whether or not it was an SRO hotel, Ali had the right to demolish it under the Ellis Act, the court said. Additionally, the validity of the SRO hotel ordinance vis a vis the Ellis Act "was not an issue for the Building and Safety Department acting administratively," the court ruled.
Deputy City Attorney Klekner, in an interview, said the court ignored the city's procedure. "Anyone who is familiar with the permit process knows that things are put down on a checklist that are incorrect, and there are ways to challenge the incorrect items checked," he said. Ali failed to do this, even though the city's administrative process was available, he said.
But Perry, Ali's attorney, said it was Los Angeles City Council politics that prevented the city from issuing what should have been a routine demolition permit for a building that was 90% destroyed.
"Cities are going to have to learn that they can't vote by popularity on these projects. They have to make an objective decision based on some facts," Perry said.
Klekner warned that the case sets a bad precedent for local government. "If this opinion holds up, it would turn every permit into a ministerial act," he said.
But Perry disagreed because, he said, the facts of the case are peculiar.
Syed Mouzzam Ali v. City of Los Angeles, No. B114226, 99 C.D.O.S. 15, 1999 Daily Journal D.A.R. 12941, filed December 28, 1999.
For Ali: Rosario Perry, (310) 394-9831.
For Los Angeles: Michael Klekner, deputy city attorney, (213) 485-5420.