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9th Circuit Overturns Pacifica Developer's Award Of Damages

An award of $665,000 in damages and legal expenses to a developer in Pacifica has been thrown out by the Ninth U.S. Circuit Court of Appeals. The unanimous three-judge panel determined that a questionable condition of project approval that the city eventually repealed did not constitute a violation of the developer's equal protection rights because the condition did not stop the project from moving forward.

The Ninth Circuit determined that the City of Pacific owed developer North Pacifica LLC nothing.

The case illustrates, Judge Mary Schroeder wrote bluntly, "the friction that can grow between a developer trying to secure approval of a condominium project as quickly as possible, and a city trying to use development permit procedures to avoid all foreseeable future problems."

Pacifica is a city of about 40,000 people on the coast of San Mateo County where slow-growth politics predominate. For more than 25 years, Pacifica's growth wars have spilled into the courts and voting booths. Ten years ago, Pacifica was the setting for the important state appellate court ruling Milagra Ridge Partners Ltd. v. City of Pacifica, 62 Cal.App.4th 108 (1998) (see CP&DR Legal Digest, April 1998). In that case, the court ruled that voters' decision to overturn a general plan amendment permitting a housing subdivision did not amount to inverse condemnation because the developer had never submitted an application that conformed to the general plan. In May of this year, a different developer wanting to develop the "Quarry" property where voters have blocked development multiple times sued the city, alleging construction of a water treatment plant and realignment of Calera Creek damaged the property.

The case at hand involved proposed development of a 4.3-acre parcel known as the "Bowl." In 1999, North Pacifica (NP) filed an application for a condominium project on the site. City officials made a number of requests for additional information before finally deeming the application complete in June 2001. Before the application made it to the Planning Commission, North Pacifica sued, alleging that city processing delays had violated the company's due process and equal protection rights.

The Planning Commission approved the project, but a citizen appealed to the City Council. In August 2002, the City Council approved the project subject to 39 conditions of approval. North Pacifica objected to a number of the conditions, including condition 13 (b) requiring that condominium owners be individually and collectively liable for maintenance of building exteriors, landscaping, common areas and an access road. North Pacifica contended that no other condo developer in the state had ever been subject to condition 13 (b) and said it would render the project unsaleable. Apparently, however, North Pacifica's written objections never reached either the Planning Commission or City Council until after the project was approved. At the time, city attorneys and planners insisted on the condition as protection because North Pacifica had filed a different lawsuit in state court demanding that the city maintain the access road. (North Pacifica eventually lost that suit at the appellate court level in 2005.)

A citizen appealed the City Council's approval of the entire project 19 houses and 24 condominium units on the 5.8 acres as the "Fish" and "Bowl" sites to the Coastal Commission. Those proceedings ground on for years before the Commission in May 2006 overturned the city's approval because of impacts to wetlands. The developer's suit against the Coastal Commission is pending in state court.

Meanwhile back in federal court, U.S. Magistrate Judge Edward Chen ruled that North Pacifica could not pursue its due process claim because it had not sought compensation in state court. But in October 2003, Judge Chen concluded that imposition of condition 13 (b) did violate the developer's right to equal protection. After that ruling, the City Council repealed the condition. Still, North Pacifica sought damages, and in May 2005 Chen awarded $156,000 in damages, $454,000 in attorney's fees and $55,000 in costs. Chen concluded that the development was worth less from August 2002 until November 2003, the period during which condition 13 (b) was in effect.

Both sides appealed to the Ninth Circuit. North Pacifica sought to resurrect its due process claim, while the city sought to overturn the award for violation of equal protection. The city won on both counts.

The Ninth Circuit concluded that imposition of condition 13 (b) did not violate equal protection rights because there was no evidence the city singled out NP for discriminatory treatment. The court also noted that compensation was not justified unless the developer could prove actual damages.

"The problem" wrote Judge Schroeder, "is that there was no reduction in value attributable to condition 13 (b) because development could not go forward until NP obtained a development permit from the Coastal Commission. The condition did not cause any actual delay. Even if we were to agree that NP should have prevailed on the equal protection claim, it would have been entitled only to nominal damages."

On the due process claim, the Ninth Circuit upheld the district court's ruling but on different grounds. The district court said NP first had to press and lose a claim in state court before seeking relief in federal court. That would have been true had NP filed a taking claim, but the developer instead filed a due process claim based on the city's lengthy process, the Ninth Circuit pointed out.

The Ninth Circuit found there was a "reasonable explanation" for every delay. The city needed additional information to review the application, it sought a new application when NP's agent dropped out of the process, and it restarted the environmental review process after determining that NP wrongly claimed the project was exempt, the court noted.

The Case:
North Pacifica LLC v. City of Pacifica, No. 05-16069, 08 C.D.O.S. 5685. Filed May 13, 2008.
The Lawyers:
For North Pacifica: Jaquelynn Pope, (310) 379-3410.
For the city: Lee Rosenthal, Goldfarb & Lipman, (510) 836-6336.
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