A trial court judge's decision ordering the closure of a neighborhood market in Santa Monica has been thrown out by the Second District Court of Appeal. The unanimous three-judge appellate panel said that the lower court judge misread two agreements between property owners and the City of Santa Monica in a way that improperly superceded the city's police power.

The Fair Market has been a neighborhood grocery store on Fourth Street since 1928, a year before the property was first zoned. After World War II, the city zoned the property "residential" but permitted Fair Market to remain as a nonconforming use. The city approved a number of short-duration conditional use permits for Fair Market before, in 1985, approving a conditional use permit effective through October 23, 2000. When the property owners sought to build two condominiums behind the market, the city in 1987 approved a parcel map and new use permit. Thereafter, the city and the property owner (who no longer owns the property) entered into an "Agreement Imposing Restrictions on Real Property" (AIR), and, in 1990, the city approved covenants, codes and restrictions (CC&Rs) for the property.

In April 2000, the Fair Market owner sought permission to operate the market beyond the October 23, 2000, termination date of the conditional use permit. Processing apparently took some time, as not until September 2003 did the city approve a new use permit allowing Fair Market to operate indefinitely.

About one year later, the owners of one of the condos (Juanita Richeson and Eugene Kallman) sued the new owners of Fair Market (Haque and Bakul Helal), who also own the other condo. Richeson and Kallman argued that the AIR and CC&Rs clearly prohibited the market from operating past the October 23, 2000, deadline contained in the 1987 conditional use permit. Kallman had testified before the city three times in support of the 2003 conditional use permit but apparently changed his mind about the neighborhood store when the housing market took off. Los Angeles County Superior Court Judge John Segal agreed that the AIR and CC&Rs required the market to close in 2000. The Helals appealed and the Second District, Division Eight, overturned the lower court.

Richeson and Kallman cited language in the AIR that requires the market building "shall be removed and the underlying area shall be landscaped or redeveloped … at such time as the retail use is discontinued for a continuous period of one year, the conditional use permit expires (on October 23, 2000) or the conditional use permit is revoked, whichever occurs first."

But the court found that the documents, when read together, "raise an ambiguity." The court said that the AIR does not prohibit the city from extending the termination date, and the CC&Rs contain no termination date at all. The court also noted that the only original party to the AIR and CC&Rs — the city — argued that the conditional use may be extended beyond the October 23, 2000, date.

"If that date was certain and immutable, surely the parties would have taken care to set it forth in the recorded CC&Rs," Justice Madeleine Flier wrote for the court.

"Moreover," Flier wrote, "the absence of any express freeze provision in the AIR and CC&Rs is consistent with an implied reservation of the city's police powers under existing authorities." Indeed, the court noted, the city's right to exercise the police power — which is the basis for all land use regulation — cannot be contracted away.

"The AIR and the CC&Rs do not expressly restrict the city's power to legislate in the future. The AIR, and corresponding CC&Rs, therefore must be read as containing an implied provision reserving the city's police power to modify its zoning regulations and conditional use permit for the property," the court ruled.

The court also rejected Richeson and Kallman's argument that the AIR amounted to a development agreement, finding that the document lacked the substantive requirements for a development agreement.

Richeson and Kallman appealed to the state Supreme Court, which declined to accept the case.

The Case:
Richeson v. Helal, No. B187273, 07 C.D.O.S. 14683, 2007 DJDAR 18876. Filed November 29, 2007. Ordered published and modified December 21, 2007.
The Lawyers:
For Richeson: Mitchell Dawson, Dawson, Tilem & Gole, (310) 285-0880.
For Helal: Christopher Harding, Harding, Larmore, Mullen, Jakle, Kutcher & Kozal, (310) 451-2968.
For the city: Barry Rosenbaum, city attorney's office, (310) 458-8336.