An extraordinarily complicated takings case stemming from the City of Capitola’s mobile home rent control ordinance has received new life, even though the city has won numerous rounds in federal and state court. In the most recent decision, the Sixth District Court of Appeal ruled that the mobile home park owner who is fighting the city should have the opportunity to amend a lawsuit because the trial court judge applied an incorrect test for determining if an unconstitutional taking had occurred. The problem, the Sixth District ruled, “is the reliance by the parties and the court on the concept that the ordinance either did or did not ‘substantially advance a legitimate government interest.’ The United States Supreme Court has held that the ‘substantially advances’ formula is not a valid method of identifying regulatory takings for which the Fifth Amendment requires compensation.” The Sixth District cited the Supreme Court decision in , 544 U.S. 528 (2005), which reversed a 25-year-old precedent from , 447 U.S. 225 (1980). The court held that a government regulation that does not substantially advance legitimate state interests could amount to a regulatory taking. But in , the court ruled that such a regulation posed a due process question, not a takings question (see , July 2005). The decision was widely seen as a victory for cities with rent control, because property owners had started successfully using the “substantially advances” test to challenge rent control ordinances. But in the Capitola case, the decision — which was issued after the trial court had ruled — appears to have worked against the city. “The error of applying a due process test in determining a takings claim requires reversal,” Justice Eugene Premo wrote for the Sixth District. “Furthermore, since the error permeates the case from pleadings to final determination, and because park owner was not allowed to amend its as-applied takings, equal protection and due process claims when they were ripe, park owner should be allowed to amend its complaint.” The case involves a long-simmering conflict and a great deal of ill feeling. In 1987, Los Altos El Granada Investors purchased Castle Mobile Estates, a 108-space mobile home park in Capitola a short distance from the Santa Cruz beach. The park is governed by the city’s rent control ordinance first adopted in 1979. Almost immediately, the new park owner began pressuring tenants to sign long-term leases that remove the tenants’ spaces from rent control protections. At least as early as 1994, the park owner began both demanding large rent increases and offering to sell the park to residents for millions more than the $1.7 million the owners paid in 1987. The park owner apparently got few leases and no interest in a park sale to tenants, so the owner began trying to close the park once space at a time. Litigation eventually halted that scheme, but residents claim the intimidation has continued. In March 2000, the park owner filed with the city a request for a $300 a month rent increase — equal to a rise of about 150%. Several months later, the owner renewed an offer to sell the park to the tenants for somewhere between $6 million and $10 million. After extensive bickering over methodologies and experts’ abilities, the city in April 2001 approved a rent increase of $5.68 on top of a small inflationary increase, plus $9.69 per month for the city’s expert witness costs. The property owner eventually filed four lawsuits in federal court alleging that the city had taken property without just compensation. The city successfully defended three suits, but one case ( , U.S. District Court No. C-03-3859-JF) remains pending after the district court determined that the park owner’s takings claims were ripe for adjudication. However, the case is on hold pending the outcome of the state court litigation. The park owner’s state court lawsuit, filed in 2002, did not get far at the trial court level. The court found that the property owner’s claims were facial challenges to the ordinance itself, and, because the ordinance has been around for years, the claims were barred by the statute of limitations. The court also determined that prior federal court rulings on the same claims prohibited the state court from considering the claims. Finally, the court determined that the city’s approval of the April 2001 rent increase was supported by substantial evidence. On appeal, the park owner continued to press its takings claims. The Sixth District upheld portions of Santa Cruz County Superior Court Judge Robert Atack’s decision, including his ruling regarding the base year from which the city should calculate rent increases — a victory for the city. The Sixth District also upheld Judge Atack’s refusal to grant the park owner an “ reservation,” in which the park owner attempted to notify the court that it would pursue only its state law claims in state court while reserving federal claims for federal court. (Federal courts have declined to consider takings claims adjudicated by state courts.) The Sixth District found that an reservation was not applicable here. Still, the heart of the Sixth District decision was the reversal based on the lower court’s incorrect application of the “substantially advances” test. The litigation now heads back to Superior Court for further proceedings. The Case: , No. H027860, 06 C.D.O.S. 4062, 2006 DJDAR 5902. Filed May 17, 2006. Modified June 16, 2006, at 2006 DJDAR 7614. The Lawyers: For Los Altos El Granada Investors: Robert Coldren, Hart, King & Coldren, (714) 432-8700. For the city: John Barisone Jr., Atchison, Barisone, Condotti & Kovacevich, (831) 423-8383.

After suffering two generations worth of economic decline and malaise, the East Bay city of Pittsburg is trying to reinvent its downtown as a residential, office and retail district. Although the city has been working at redevelopment since the late 1970s with mixed results at best, the downtown project appears to be taking off. Developers A.F. Evans and the Olson Company are building mixed-use projects, while the city’s redevelopment agency is investing more than $50 million in infrastructure improvements and real estate development. The agency also has begun implementing a master plan for the marina, a plan that intends to connect downtown to the Delta waterfront via a wide pedestrian promenade. Few cities in the Bay Area are in more obvious need of revitalization than Pittsburg, a city of 63,000 people on Highway 4, just over the hills from the wealthier Contra Costa County cities of Walnut Creek, Concord and Pleasant Hill. However, for the better part of a century, Pittsburg was the economic hub. The city grew up around the railroad line that connected the Black Diamond coal mine on Mount Diablo to Pittsburg’s docks, where the coal was loaded onto barges. Later, the fishing industry rose to prominence. From 1942 to 1954, Pittsburg was the home to Camp Stoneman, the principal jumping off point and welcoming home center for U.S. Army soldiers headed to and from World War II’s Pacific Theater and the Korean War. But by the mid-1950s, the coal, the fishermen and the soldiers were gone from Pittsburg. Ever since, the city’s primary regional role has been to provide affordable housing for the East Bay’s blue collar workers and commuters. In the last couple of years, though, city officials have adopted new plans for downtown (or “Old Town” as it has become known) and signed agreements with downtown-savvy developers. Construction is under way on numerous projects at once, with more to come. Although there is no single keystone project, the largest so far is Vidrio, also known as the Black Diamond project — a five-story mixed use development along Railroad Avenue, downtown’s main drag. The project is planned to contain 196 condominiums above nearly 40,000 square feet of ground floor retail space, plus two public plazas, according to a city newsletter. The Pittsburg Redevelopment Agency is providing a $4 million subsidy to ensure that 30 of the units are available to moderate-income buyers. A.F. Evans began work on the project in June. The first block of the three-block project is scheduled for completion during 2007, with full completion likely to take three years. "It's three contiguous blocks in a downtown that has incredible water access," Muhammad Nadhiri, A.F. Evans project manager, said of the site. "It's a fairly central location for East Contra Costa County. It's just an area that is screaming for people to come to it." To make room for Vidrio, the city had to take via eminent domain the landmark Scampini building, a boxy white structure that many people in town considered an historic landmark. City officials, however, shed few tears. “For as long as I’ve been here, I’ve heard we need to revive downtown,” then-Councilman and now-Mayor Michael Kee told the . “I would like to see us save the building, but I think it needs to be sacrificed to create the image and memories of what people remember as a vibrant downtown.” The city owns much of the land on which Vidrio is rising, and officials chose A.F. Evans to develop the site over Hometown Group and Olson. The city picked A.F. Evans partly because the Oakland-based company proposed the most parking spaces. Although some people questioned the wisdom of providing more than 2 parking spaces per residential unit in a supposedly walkable district, parking is major a public concern and city officials ended up requiring more parking yet. Still, the environmentalists at Greenbelt Alliance endorsed the project “because it will revitalize Pittsburg’s downtown and create new homes without building on farmland and hillsides outside the city.” The project that Olson is working on is called Mariner Walk, a 123-unit, single-family home development that also includes a public park. That project, in which the redevelopment agency is investing $1 million, is expected to be complete in about a year. At the entrance to downtown on Railroad Avenue is the Gateway project by Domus Development. Gateway is planned to have 28 apartments for low- to moderate-income renters, offices for the city and about 4,000 square feet of space for retail shops or a restaurant. The redevelopment agency is investing $8 million in the Gateway project. Gateway is under construction right across the street from the location of what would be downtown’s first elementary school since the 1960s. The new Pittsburg Unified School District campus is planned for the site of a closed school and other parcels that the redevelopment agency has helped assemble. The redevelopment agency intends to put several million into the school project so that the general public may have access to the school’s parking. Construction also is under way on $15 million in improvements to the marina area, including dredging, a 25-foot-wide promenade reaching to downtown, new docks and more parking. Plans also call for the marina to offer a restaurant and an eight-unit bed-and-breakfast inn, with the redevelopment agency again providing funding. Elsewhere in downtown, the redevelopment agency is investing upwards of $20 million on more mundane items, such as new utility lines, storm drainage and sidewalks. The city is able to put so much capital into downtown because its redevelopment agency is among the richest in the Bay Area. More than half of the city lies within the city’s Los Medanos project area, which generated $35 million of tax increment for the city during the 2004-05 fiscal year, according to the state controller’s office. There is more downtown development on the way. Between Vidrio and the marina lies the site of the proposed New Mecca Square, where local developer Albert Seeno III has proposed 40 townhouses above retail spaces. Several blocks east lie 20 acres of former industrial property that has been rezoned for as many as 400 housing units. Cleanup of toxic materials is necessary before development occurs there. And in a true sign of revitalization, Mechanics Bank is expected to open a downtown branch shortly, providing the district’s first full-service bank since the 1980s.

The presence of ammonium perchlorate—an ingredient used in rocket fuel, military munitions and other applications—in underground aquifers is contaminating drinking water supplies in several high-growth areas around the state. Water providers in the Santa Clarita Valley, the Inland Empire, the Santa Clara Valley, Rancho Cordova and elsewhere are faced with closing wells, charging customers for treatment, and blending their supplies. Some cities could soon face limitations on additional development or be forced to consider charging developers for the additional cost burden. Ongoing litigation, prolonged negotiations, and regulatory uncertainty over legal limits of perchlorate allowed in drinking water complicate things further. Although perchlorate is not widely believed to be cancerous at concentrations found in California’s drinking water, contaminated water can result in hypothyroidism in adults and developmental deficiencies in unborn babies. Decades of unregulated disposal by the military and defense contractors prior to the creation of laws governing the handling of the hazardous material is primarily to blame. In 1997, technological advances enabled widespread testing that revealed hundreds of contaminated wells in California and throughout the West. By 2000, many dischargers had been identified and either engaged in settlement agreements or litigation aimed at recovering costs for cleanup and treatment. Many cases remain unresolved. In March 2004, the California Environmental Protection Agency set a public health goal (PHG) of 6 parts per billion (ppb), a level at which perchlorate in drinking water is not believed to cause harm. The PHG is merely a regulatory guideline, however, and is not strictly enforceable. The California State Department of Health Services is working on setting maximum contaminant levels (MCLs) for perchlorate in drinking water — the level at which water retailers could be found liable for delivering a harmful product. The MCL is not required to be the same as the PHG. The Federal Environmental Protection Agency has also set standards for perchlorate contamination, but they are more lenient. In the Santa Clarita Valley, six wells have been closed—one permanently—as a result of perchlorate contamination. Local water suppliers and the valley's largest polluter, Whittaker-Bermite, along with current property holders, have been embroiled in litigation since 2000. According to Fred Fudacz, legal counsel for Castaic Lake Water Agency (CLWA), the local water wholesaler and the lead plaintiff in the suit, a good portion of the roughly $80 million needed for long-term cleanup—perhaps $44 million—is available, but no money has changed hands yet. In the meantime, conservation groups including Santa Clarita Organization for Planning the Environment (SCOPE) and the Sierra Club have challenged two recent development proposals, one for an industrial park, the other for 1,089 residential units. Environmentalists argue the developments count on water that CLWA hasn't demonstrated it can provide. The environmental impact reports (EIRs) for these projects, known respectively as the Gate-King Industrial Park and Riverpark, rely on CLWA's assertion that contaminated well water is readily available because a settlement for perchlorate pollution is virtually in hand. They also rely on a transfer of 41,000 acre-feet per year transfer from the State Water Project. Yet, the decision in , 133 Cal.App.4th 1219 ( , December 2005) cast doubt over the use of the contaminated water, and EIRs for the water transfer have not been certified. Without these sources on the books, the region is short the water necessary to approve the projects, said Lynne Plambeck, SCOPE president. The city has not a final decision on either Gate-King or Riverpark. The rapidly growing Inland Empire cities of Rialto, Colton, and Fontana, whose water is now heavily contaminated by perchlorate discharge from a former World War II munitions base in northern Rialto, are also without a solution. The City of Rialto has filed a suit targeting 42 parties, including the Defense Department, military contractors and fireworks operations, seeking hundreds of millions of dollars for treatment and cleanup for a site that presents a problem for local water providers. Roughly 40% of Rialto's wells are contaminated, said Bill Hunt, the interim director of the city's public works department. “We don't receive any state water,” said Hunt, “and about 95% of our municipal water supply comes from groundwater.” Two of Rialto's seven contaminated wells are now being treated, with another coming on line soon, he said. But without any real compensation, the city — whose City Council has adopted a zero-tolerance policy on perchlorate — has been forced to pass the cost along to its customers for now. Some communities have considered blending water from contaminated wells with clean water from other wells, said Kurt Berchtold, assistant executive officer of the Santa Ana Regional Water Quality Control Board. But with MCL levels hanging in the balance, it’s hard for a provider to know how to approach this, he said. An MCL of 8 to 10 ppb would allow most water providers to blend quite easily, said Berchtold, while an MCL of 2 to 4 ppb might force a reliance on treatment. The Santa Ana board has issued a cleanup order to Black & Decker and forced negotiations with Goodrich, both defense contractors who once occupied Rialto’s World War II site. Some federal and state appropriations have been provided, said Berchtold, but the money has arrived in a slow trickle. One of the biggest questions facing retailers is how to cover treatment cost. A city like Rialto could pass the costs along to developers provided that it is a developer’s project that necessitates the cleanup, said Fred Curry, chief of the California Public Utilities Commission's (PUC’s) Water Board, “It’s often argued that cost-causers should pay the cost,” said Curry. Hunt, however, said this is not an option that Rialto has seriously considered because much of the city’s growth is to the north, a portion of the city supplied by other retailers. Passing the cost on to the developers is not an option that the Fontana Water Company — which supplies Fontana and portions of north Rialto — is likely to embrace, said General Manager Mike McGraw. “Hopefully, we wouldn't get to that point,” said McGraw, “but if we did, we'd probably opt to spend some of our own money on treatment, or pursue a rate increase spread amongst all water users.” “Putting this all on private developers may not sit well with the community and the PUC may not look favorably upon it either,” said McGraw, adding that Fontana would do what it could to clean up the water supply and avoid holding up regional economic development. Contacts: Kurt Berchtold, Santa Ana Regional Water Quality Control Board, (951) 782-4130. Fred Curry, California Public Utilities Commission, (415) 703-1739. Fred Fudacz, Nossaman, Guthner, Knox & Elliott, (213) 612-7823. Bill Hunt, City of Rialto, (909) 820-2608. Mike McGraw, Fontana Water Company, (909) 822 2201. Lynne Plambeck, Santa Clarita Organization for Planning The Environment (661) 255-6899.

A city is not required to provide credit against park and recreation fees when it requires a developer to dedicate private open space, the Sixth District Court of Appeal has ruled. In an opinion interpreting the Quimby Act, the unanimous three-judge appellate panel reversed a lower court’s decision ordering the City of Santa Cruz to provide credit for the dedication of private open space in a small subdivision. “ ocal legislatures retain the flexibility to implement a private open space credit as they determine reasonable under local conditions,” the Sixth District ruled. In 1999, Branciforte Heights, LLC, applied for a conceptual planned development permit to demolish four houses on Branciforte Avenue and replace them with 10 new single-family units. The City Council approved the application but cut the number of new houses to nine. The council also required that the subdivision be reconfigured so that there would be a common area in the front yards that would be maintained by the homeowners association. One year later, the council approved a tentative map, design permit and demolition authorization. Approval again came with the condition of a common area. In July 2003, the council approved the final map. Shortly thereafter, Branciforte Heights notified the city that the developer would not be paying park and recreation in lieu fees because it was dedicating usable open space for parks and recreation to serve the subdivision. The city insisted that the usual fee still applied. Under the city’s municipal code, a planned development permit allows a developer to deviate from the underlying zoning if the project provides more amenities than usual. In this case, Branciforte was able to build at least two additional houses, but one of the required amenities was the common open space. As it began pulling building permits in December 2003, the builder paid the fees, eventually paying a total of $39,966. The developer then sued the city, demanding $118,000 in credit for the 4,000 square feet of open space and improvements. Last year, Santa Cruz County Superior Court Judge Robert Yonts ordered the city to “to allow a credit against the park fees for the value, at the time the fee was imposed, of that portion of the private open space in the development that is suitable for active recreational use.” The city appealed, and the Sixth District ruled that Judge Yonts read the statute incorrectly. At issue was an interpretation of the Quimby Act (Government Code § 66477). Subdivision (e) of § 66477 says that common interest developments “shall be eligible to receive a credit, as determined by the legislative body, against the amount of land required to be dedicated, or the amount of the fee imposed, pursuant to this section, for the value of private open space within the development which is usable for active recreational uses.” The developer argued this language commanded the city to provide a credit. The city contended the phrase “as determined by the legislative body” gave the city an option. Citing extensively from the legislative history, the court sided with the city. The language in question was inserted into the Quimby Act in 1982 at the same time that the state Legislature mandated that a developer’s dedication of public park and recreational improvements “shall be a credit” against park and recreation fees. The Legislature did not go that far with regard to the dedication of private open space. “ he Legislature did not go so far as to dictate the precise parameters of any private open space credit or to define the meaning of ‘usable for active recreational uses.’ Instead it left it up to local legislative bodies to determine the exact criteria and procedures for granting a credit,” Presiding Justice Franklin Elia wrote for the court. Santa Cruz has no ordinance that provides for a credit for private open space, the court noted. Without such an ordinance, the city has no duty to provide Branciforte Heights with a specific amount of credit, and the developer has no right to a credit, the court concluded. The Case: , No. H028864, 06 C.D.O.S. 3217. Filed April 19, 2006. The Lawyers: For Branciforte Heights: John Barisone, Atchison, Barisone, Condotti & Kovacevich, (831) 423-8383. For the city: Edward Chun, Bosso Williams, (831) 426-8484.

A billboard company has won the latest round in a drawn-out conflict with the City of Riverside. The Ninth U.S. Circuit Court of Appeals has ruled that Valley Outdoor Inc. may challenge the city’s handling of a permit application but may not contest the city’s sign ordinance. With its ruling, the Ninth Circuit sent the case back to federal district court for additional proceedings. In January 2000, Valley Outdoor began pouring foundations for five billboards next to the 91 Freeway in Riverside without permits. Two days after pouring foundations, Valley Outdoor sued the city, arguing that the city’s sign ordinance violated the company’s First Amendment rights. A few days after that, a state appellate court in an unpublished opinion struck down sections of the city’s ordinance, specifically a ban on billboards located within 750 feet of a freeway and a content-based exception to that ban ( , No. E022351). Valley Outdoor President J. Keith Stephens then attempted to file a permit application, but he was told the city still would not permit billboards within 750 feet of a freeway and he was turned away. In late February 2000, after the company had completed construction of all five billboards, Valley Outdoor again tried to apply for a permit. This time the city accepted the application. While it was pending, the city adopted a revised ordinance that restored the 750-foot freeway exclusion zone and prohibited offsite signage. In a letter dated one day before the effective date of the new ordinance, the city notified the billboard company that the city was rejecting the permit application because Valley Outdoor had not precisely identified the color and materials used for the sign uprights, and because the company failed to provide specific street addresses for two sign locations. Shortly thereafter, the city ordered Valley Outdoor to remove the billboards. Valley Outdoor amended its lawsuit, and in 2002 the district court ruled that the five billboards were governed only by those sections of the original sign ordinance left standing after the decision. In 2003, District Court Judge Dickran Tevrizian ruled that because Valley Outdoor had violated the city’s permit provisions by starting construction without applying for a permit, the company had no standing to challenge the billboard ordinance. Judge Tevrizian then granted the city’s motion for judgment as a matter of law. On appeal, the Ninth Circuit dealt only with the issue of whether Valley Outdoor has standing to bring the lawsuit. The court ruled that the company could not challenge the city’s regulations themselves. The original billboard ordinance “is irrelevant because its substantive restrictions were invalidated by ,” Judge Diarmuid O’Scannlain wrote for the court. And the amended ordinance does not apply because Valley Outdoor installed its billboards before the law’s effective date. However, the Ninth Circuit ruled that the billboard company could contest its treatment by the city. The court noted “that the city’s billboard ordinance contains a detailed procedure by which the city will process an application filed after the beginning of construction, i.e. a ‘latefiled’ permit application.” “Valley’s commencing construction before applying for the required permits does not constitute disqualifying ‘selfhelp,’ as the district court concluded, but actually gives rise to this very case or controversy,” O’Scannlain wrote. “Thus the district court erred in ruling that Valley lacked standing to assert constitutional claims related to the city’s conduct in refusing to process the latefiled permit applications.” The Ninth Circuit further ruled that the district court should have considered evidence regarding the city’s actions. “A jury could find that any differential treatment of Valley’s latefiled application may have been irrational and wholly arbitrary, in violation of equal protection principles,” the Ninth Circuit ruled. In a concurring opinion, Federal Circuit Court Senior Judge Daniel Friedman, sitting by designation, wrote that he disagreed with “some of the court’s statements” but that he agreed with the result. “I hope that evidence would be developed addressing these items: (1) Valley’s reasons, if any, for not seeking a permit before beginning construction of the billboards (other than its claim that such application would have been futile); and (2) the city’s reasons for apparently not considering the merits of Valley’s retroactive request for a permit or for denying that request (other than the city’s apparent position that it has absolute discretion to grant or deny a permit without stating a reason),” Friedman wrote. The Case: , No. 04-55029, 06 C.D.O.S. 3485, 2006 DJDAR 5036. Filed April 27, 2006. The Lawyers: For Valley Outdoor: Eliot Disner, Van Etten, Suzumoto & Becket, (310) 315-8200. For the city: Timothy Coates, Greines, Martin, Stein & Richland, (310) 859-7811.

A use permit condition limiting groundwater extraction to 12,000 acre-feet of water per year did not constitute a taking of property, the Fourth District Court of Appeal has ruled. An owner of farmland in Imperial County unsuccessfully tried just about every argument there is to convince the court that a taking had occurred. But the unanimous three-judge appellate panel ruled that there had been no physical appropriation of the water, and that the landowner had not shown that the county effected a regulatory taking. In 1994, Allegretti & Company, which owns 2,400 acres of land, filed an application for a conditional use permit to redrill an inoperable well. The well, one of several on the property, would provide water for crop production on 200 acres. Nearly three years later, the county approved the permit but with a condition limiting Allegretti’s draw of groundwater to 12,000 acre-feet per year from all wells on site. Allegretti never recorded the permit, and there exists today no county-imposed restrictions of groundwater pumping at the site. In November 1997, Allegretti sued the county for inverse condemnation, arguing that the county had no jurisdiction to require a conditional use permit and that a regulatory taking had occurred. After procedural wrangling that made its way to the Fourth District, Imperial County Superior Court Judge Jeffrey Jones ruled for the county. Judge Jones found that not only did the permit conditions not deprive Allegretti of all economically viable use of its property, Allegretti had failed to show that the conditions “would have any economic impact at all.” On appeal, Allegretti tried numerous approaches to win a reversal. First, Allegretti alleged that the county’s action amounted to a physical taking in that the county had denied the landowner access to water on its land. Allegretti relied heavily on a Federal Circuit Court of Claims decision in , (2001) 49 Fed.Cl. 313. In that case, the court ruled environmental regulations that prohibited farmers from receiving water deliveries to which they were contractually entitled amounted to a physical taking (see , March 2004). The Fourth District, however, said that it was not bound by the decision of an intermediate federal court, that the cases were different because only involved contractual water rights, that a more recent decision in , (2005) 67 Fed.Cl. 504, undercut , and that it disagreed with the holding. The court then considered the regulatory takings arguments. Allegretti contended that the county’s regulation amounted to a total regulatory taking because the landowner had been deprived of all “economically beneficial or productive use” of its property. The court quickly dismissed this argument, noting that a tenant had farmed 400 to 800 acres of the property’s 1,600 cultivatable acres. The court then undertook a takings analysis, which emphasizes three factors: the economic impact of the regulation, the extent to which the regulation interfered with “distinct investment-backed expectations,” and the character of the government action. The court found that Allegretti failed to pass the test. “Allegretti has not demonstrated any economic impact from county’s 12,000 acre-feet per year limitation other than unspecific lay testimony regarding reduced profits via a below market rental rate or diminution in value as a result of its inability to use the entirety of its 2,400-acre property for farming,” Justice Terry O’Rourke wrote for the Fourth District. “It is well established that mere diminution in value of property, however serious, does not constitute a taking.” Moreover, although Allegretti has superior groundwater rights as an overlying user, those rights are restricted to reasonable beneficial use consistent with Article X, §2 of the state constitution, O’Rourke noted. The final argument concerned whether the government regulation substantially advances a legitimate state interest. Last year, the U.S. Supreme Court in , (2005) 544 U.S. 528, disavowed this as a stand-alone takings test (see , July 2005). Allegretti argued that the substantially advances test still applies in California because the state Supreme Court used it in one of its most recent takings cases, , (1998) 17 Cal.4th 1006 (see , January 1999, June 1998). The court was willing to entertain the argument, and explained, “Under , no taking occurs if objectively there is ‘sufficient connection between the land use regulation in question and a legitimate governmental purpose, so that the former may be said to substantially advance the latter.’” Allegretti argued that the permit conditions could not advance a legitimate purpose because the county has no jurisdiction over groundwater usage. The court rejected the argument. “The permit condition, imposed under county’s police power for the purpose of conserving groundwaters and preventing their undue waste, had an objectively sufficient connection to that valid governmental interest,” O’Rourke wrote. “Allegretti does not identify and thus does not meaningfully challenge county’s underlying reasons for its action, nor does it explain why county’s limitation is in any way arbitrary.” As long as a governmental entity engages “in decision-making whose purpose is not delay for delay’s sake but legitimate oversight,” there is no compensable taking, the court concluded. The Case: , No. D045156, 06 C.D.O.S. 3519, 2006 DJDAR 5057. Filed March 28, 2006. Ordered published April 26, 2006. The Lawyers: For Allegretti: Michael Berger, Manatt, Phelps & Phillips, (310) 312-4000. For the county: Ralph Cordova, county counsel’s office, (760) 482-4400.

A Rohnert Park mobile home park owner’s demand that a court grant a rent increase because an unconstitutional city law held down rents has been rejected. The landlord sought a rent hike to make up for a rent cap based on an ordinance that a federal court threw out. But the First District Court of Appeal denied the increase because the property owner did not show that it was denied a fair return on its investment. In fact, the property owner argued that it did not have to show it was deprived a fair rate of return, a legal strategy that “defeats any possible right to recovery,” the court ruled. The controversy here started nearly 20 years ago, when the City of Rohnert Park adopted a rent control ordinance that limited mobile home park rent increases. Park owners chafed under the ordinance, and in 1996 a federal district court ruled the law unconstitutional because it did not provide landlords with a fair rate of return on capital improvements. The city appealed that decision, but the Ninth Circuit declared the appeal moot because the city in 1995 had amended the ordinance to allow park owners to recoup the cost of capital improvements. In 2002, a district court ruled that the amendment had corrected the constitutional defect. In 2003, the owners of the Rancho Grande Mobilehome Park — Hillsboro Properties and Goldstone Enterprises, whom the court called simply “Hillsboro” — filed an application for a rent increase to compensate for the period from 1988 to 1995, when the unconstitutional ordinance limited rents. The park owners contended that they were due a “ adjustment.” In ., (1997) 16 Cal.4th 761, the state Supreme Court said that future rent increases could make up for prior enforcement of a rent control law that overreaches. In a follow up case, , (2001) 24 Cal.4th 1003 (see , March 2001), the state Supreme Court ruled that a property owner could receive damages for a violation of constitutionally protected rights only by showing that a rent ceiling had been confiscatory and a adjustment was inadequate. Rohnert Park, however, refused to process the application because the city’s Mobile Home Rent Review Board has no jurisdiction over such an application. The city contended that the property owners had to seek either a net operating income (NOI) adjustment or a capital improvement pass-through. In September 2004, the park owners sued the city, alleging inverse condemnation. Sonoma County Superior Court Judge Raymond Giordano ruled for the city, finding that the takings claims were precluded by the five-year statute of limitations and that the challenge to the ordinance was also filed too late. He also ruled that the park owners had not shown that they were due a adjustment. A unanimous three-judge panel of the First District Court of Appeal upheld the outcome, although it took a different approach to the case. The appellate court first determined that the statute of limitations might not bar the takings claim because the claim might not have arisen until the city refused to process the 2003 application. The court did not decide on the statute of limitations issue, though, because it determined the property owners had not “made the allegations necessary to support any form of relief.” “ he crux of the dispute in this case,” Justice Stuart Pollak wrote for the court, “comes down to a single issue: Is Hillsboro entitled to recover rental income (either from its tenants or from the city) that it was precluded from charging by a constitutionally defective rent control ordinance if it was not thereby deprived of a fair rate of return on its investment?” Yes, the property owners argued, because the mere application of the defective ordinance denied them their substantive due process rights. There was no need to show they were denied a fair rate of return, the property owners contended. “Hillsboro’s position is based on a faulty premise,” Pollak countered. “One is not denied substantive due process simply because one is affected by the application of a governmental promulgation that for some reason is found to be constitutionally defective. A denial of due process giving rise to a claim for relief arises only if application of the defective measure deprives one of a constitutionally protected right.” “The constitutionally protected right that is involved in this case, as in , is the right to receive a fair rate of return on one’s property,” Pollak continued. “Hillsboro’s argument proceeds on the unarticulated premise that a property owner has the constitutionally protected right to charge as much as it wants for the use of its property, so that enforcement of an invalid rent ceiling deprives it of a constitutionally protected right. That is not what the federal or state constitutions, or or any other case, protect.” “A rent control measure is ‘confiscatory’ and its enforcement constitutes a violation of the substantive due process rights of the owner if it deprives a property owner a fair return,” the court ruled. Siding with the city, the court said the property owners should have sought an NOI adjustment or capital improvement pass-through. “ e are unable to conceive of any circumstance in which an owner would not receive a fair return that does not come within the scope of the NOI increase or capital improvement provisions,” Pollak wrote. The Case: , No. A110441, 06 C.D.O.S. 2882, 2006 DJDAR 4147. Filed April 6, 2006. The Lawyers: For Hillsboro: David Spangenberg, (707) 473-4340. For the city: Michelle Marchetta Kenyon, McDonough, Holland & Allen, (510) 273-8780.

Now little more than a stopping point for truck drivers and weary travelers, Santa Nella may be on the verge of becoming the next bedroom community for Bay Area commuters. Over the last five years, Merced County has adopted an updated community plan for Santa Nella and approved subdivisions containing more than 5,000 new lots, and a handful of new houses have been built. However, major infrastructure needs and endangered species habitat concerns must be addressed before large-scale development gets rolling. “We have a lot of tentative maps, but not a whole lot of building,” said Bill Nicholson, Merced County assistant planning and development services director. “The biggest problem has been the Endangered Species Act with the San Joaquin kit fox, and working out habitat areas and migration corridors.” Ever since Interstate 5 started serving motorists between the Bay Area and Los Angeles about 35 years ago, the town with the mysterious name (there is no Saint Nella) has provided a stopping point. The unincorporated town of about 1,500 people located 45 miles due south of Modesto continues to function mostly as a rest stop full of fast food, gas stations, truck stops and inexpensive motels. Just as location has spelled success for Santa Nella’s roadside business industry, location is now the attraction to builders. The town is about 10 miles closer to the Bay Area than Los Baños, which has emerged during the last decade as a bedroom community for Silicon Valley workers. That does not mean that the drive is short or easy. Santa Nella is about 65 miles from the southern tip of San Jose, and included in that distance are about 15 miles of two-lane highway outside of Gilroy that are notoriously congested. Highway improvements are planned, though, and the growth of Los Baños — whose population has doubled to about 34,000 in less than 15 years — gives developers hope. The community plan, which the county updated in 2001, calls for about 6,000 new houses. That is about 10 to 15 years worth of growth, planners say. The Santa Nella County Water District provides water and wastewater services to most of the planned growth area. The design of a new wastewater treatment plant that could handle up to 2.5 million gallons per day of sewage is nearly done, and the district is preparing an environmental impact report for the project, said Dennis Moniz, the district’s general manager. The district also has plans to build a water treatment plant that would produce between 5 million and 9 million gallons of water per day. The district currently gets its water from the San Luis Water District, a wholesaler that has a contract to receive water from the federal government’s Central Valley Project. (San Luis Reservoir, which stores water from the Central Valley Project and the State Water Project, is only a few miles west of Santa Nella.) Santa Nella County Water District officials are negotiating a contract with the Bureau of Reclamation that would eliminate the San Luis district as a middleman. The Merced County Local Agency Formation Commission also is reviewing the proposed water rights transfer to the Santa Nella district. Moniz, who became general manager in May, could not say when the infrastructure projects would be complete, but he suggested it may be several years. The district must not only complete the wastewater treatment plant’s environmental review, but must also acquire the land for the plant and for the disposal of treated effluent. Moniz conceded that developers are pressing the district to move quickly, but he noted that the regulatory process is strict. “We’ve got to respond to the Department of Health Services and the Regional Water Quality Control Board,” Moniz insisted. Roads are also an issue — and an expensive one. The growth area is served by Interstate 5 and state highways 152 and 33. However, there are few other roads, and, because of water canals from San Luis Reservoir, the road system will require numerous bridges, Nicholson said. The county has set road impact fees at about $20,000 per housing unit in the Santa Nella community plan area, by far the highest in Merced County. Developers also are expected to pay for the new wastewater and water treatment plants. Like much of the San Joaquin Valley’s west side, the Santa Nella area does not have the best farmland, although the county is insisting that developers ensure preservation of an acre of farmland elsewhere for each acre of farmland developed in Santa Nella. The more significant natural resource is a corridor for the endangered kit fox, a house-cat sized member of the dog family that lives in the Central Valley’s natural grasslands. “It’s a pinch point in terms of habitat,” said Cynthia Wilkerson, of Defenders of Wildlife’s Sacramento office. “There’s habitat to the north, and there’s habitat to the south. There’s a very small space at Santa Nella.” Large-scale urban development in Santa Nella could be problematic, Wilkerson said, because it could discourage migration. The result could be isolated kit fox populations, which is bad for genetic diversity. Individual developers have been working on small-scale habitat conservation plans, and the U.S. Fish and Wildlife Service approved an interim habitat plan earlier this year that allows for about 120 acres of development, according to Nicholson. Environmentalists, however, are insisting on a regional plan rather than piecemeal habitat planning. Nicholson said developers and county officials are frustrated because the Fish and Wildlife Service has identified land zoned for growth as kit fox habitat. How that conflict will play out is unclear. At this point, the county is insisting on a letter from the Fish and Wildlife Service clearing a project for endangered species purposes. How a developer gets that clearance is up to the developer, Nicholson said. Contacts: Bill Nicholson, Merced County Planning and Community Development Department, (209) 385-7654. Dennis Moniz, Santa Nella County Water District, (209) 826-0920. Cynthia Wilkerson, Defenders of Wildlife, (916) 313-5800.

Back in January, Gov. Arnold Schwarzenegger – still stinging from a unanimous round of losses in the 2005 special election – decided to focus on infrastructure as a way to change the subject and exhibit political leadership as he prepared to run for re-election. Calling his idea the “Strategic Growth Plan,” he called for a huge set of bond issues over the next decade to supplement other infrastructure funding in order to meet the state’s growth needs (see , February 2006). Politically, Schwarzenegger’s strategy worked. Sacramento has talked of little else in the planning and development arena this year besides “the infrastructure bond.” In the end, the Democrats decided it was good politics to sign on. As a result, this November California voters will be asked to approve a $37 billion bond package (in four different pieces) endorsed by both Schwarzenegger and the Democrats. The components, roughly speaking, are: • $20 billion for transportation • $10 billion for education • $4 billion for flood protection • $3 billion for housing This is approximately $1,000 per resident – a lot even in California. There is no question that if the bond package passes (along with an open space bond that qualified via initiative), the resulting projects will have a profound impact on the way California grows. But the nature of that impact isn’t clear. The bond package contains little in the way of new policy language about growth management. If the state follows existing laws and policies – for example, the requirements of AB 857, passed in 2002 – the bonds could create a new set of infrastructure policies focused much more on smart growth goals. AB 857 requires all state actions to promote three growth goals – infill development where possible, compact development on greenfield sites, and preservation of agricultural and open space land. However, pressure to use state infrastructure bonds for pork barrel purposes usually is so strong that such goals fall by the wayside. As it stands, most of the money that could be devoted to smart growth purposes is contained in a $1 billion pot of funds in the housing bond; another half billion is in the environmentalist-sponsored open space bond. Schwarzenegger’s original package focused almost exclusively on transportation, education, and flood protection. The Democratic criticism was that the package ignored housing and parks/open space – two areas of “infrastructure” that have traditionally been identified more with Democrats than Republicans. In the end, Schwarzenegger caved on housing, as everyone knew he must, given high housing prices and the power of the homebuilding lobby with the Republicans. But the Democrats folded on parks and open space. In order to put the state’s bond package on the ballot, Democratic lawmakers agreed to focus the natural resources bond on only levee protection and flood control, rather than attempting to expand it to include parks and open space. However, environmentalists have placed a separate $5.4 billion parks/open space bond on the ballot this fall – a measure they were working on long before Schwarzenegger introduced his proposal last January. Meanwhile, a long-delayed $10 billion bond for high-speed rail will be delayed again. Passed by the Legislature in 2002, the bond was originally scheduled for 2004, then bumped to 2006. Now it will likely be postponed again to 2008 because it is not part of Schwarzenegger’s infrastructure vision. Unlike local bonds, state bonds do not increase taxes. State bonds are, in effect, a pre-allocation of the state’s general fund, requiring the state to pay principal and interest on the bonds before available funds are spent for other purposes. And when the state passes huge bond issues such as those proposed this year, the money is not borrowed all at once. If the bond package and the open space bond pass, the state will likely borrow the money over a period of several years. When interest groups such as environmentalists qualify a bond measure for the ballot, it’s generally clear to the voters what they are buying. That’s because the enviros have to specify the uses of the money to gain the support of the local organizations who help gather signatures to place the measure on the ballot. (For parks and open space bonds, this is typically called the “park barrel” approach.) But when the Legislature places bond measures on the ballot, it’s not always so clear what the money is going to be used for. That’s because the Legislative deal often occurs late at night after lengthy negotiations. This year, the bond package passed the Legislature at 12:30 a.m., and even some of those involved admit to being a bit fuzzy on the details. More than half the money will go to transportation – a switch from recent years, when K-12 education has gotten the biggest chunk – and this huge pot of funds holds vast potential to encourage either sprawl or smart growth. More than $6.5 billion is earmarked for large projects to be determined by the California Transportation Commission, including a $2 billion infusion into the cash-starved State Transportation Improvement Program and a new $4.5 billion pot of money focused on high-congestion highway corridors. But another $4 billion would be earmarked for rail and bus capital expenditures, presumably allowing local transit agencies to complete big-ticket lines in the Bay Area and Los Angeles. Other pots include $1 billion to local governments for transportation improvements, $1 billion for the Highway 99 corridor, and $2 billion for “trade corridors” (see ). The $4 billion flood control bond would flow almost entirely to levee reinforcement in the Central Valley – an issue that became hot after Hurricane Katrina struck Louisiana. Unlike past efforts, the $10 billion school bond has significant pots of money for special purposes, such as charter school facilities ($500 million) and small schools (a $200 million fund that could promote smart growth). Most of the funds, however, are allocated to K-12 and higher education modernization, and new construction and will flow through the Department of Education. Which brings us to the housing bond. Schwarzenegger got reamed by homebuilders and affordable housing advocates for leaving housing out of the original infrastructure bond proposal – especially because funds available under 2002’s Proposition 46 are running out. As approved by the Legislature, about $2 billion of the $3 billion housing bond would replenish existing state housing programs. The other $1 billion would go for infill and smart growth. As usual, the details are vague, but $850 million is earmarked for “regional planning, housing, and infill” and another $200 million for infrastructure improvements in older urban neighborhoods that would receive infill development. However, not even Department of Housing and Community Development officials are clear yet as to what the $850 million would be used for. Meanwhile, the environmentalist-sponsored open space bond contains a pot of $580 million for “sustainable communities.” This money would go mostly to local parks but about $200 million would go to joint use and “smart land use” projects. The bottom line: If voters approve the bonds, most of the money will probably be doled out in pork barrel fashion, with little consideration for the impact on the state’s overall growth patterns. The transportation bond is tilted toward highways, not transit. Some small but significant pots of money could be available for infill and smart growth, especially in the housing bond. If a Democrat beats Schwarzenegger, it’s possible that the new administration could use AB 857 as a smart growth lever. But if interest rates keep going up and housing production slows down, even that seems unlikely.

I tend to be skeptical about land use policy and development trends in California. Every time I leave the state, I see creative developments and practices that we Californians should be implementing. Instead, we’ve got “smart growth” developments that are nothing more than dense suburbia, and a system of funding government that encourages more of the same. Can’t we get anything right? I wonder. A recent trip to the East Coast suggests that, yes, we Californians can get things right. While attending a program at the Lincoln Institute of Land Policy in Cambridge, Massachusetts, I and about two dozen other journalists had the opportunity to tour three transit-oriented development (TOD) sites. What I learned was that California — especially the Bay Area — is way ahead in the TOD game. The first project we visited, which is in the early stages of development, is a residential-office-retail project in the suburb of Medford, Massachusetts. The second site, in Revere, is only a parking lot, but planners envision a mixed-use project with a linear park. The third project, mostly complete, is part of a larger South Boston waterfront redevelopment. All three sites are accessible via the “T,” the Boston region’s public transit system. By California standards, the Medford and waterfront projects are nice but ordinary. What struck me is how new they are. The T is the second oldest subway system in the country, and it has about 600,000 riders a day. A similar number of people use various commuter rail, trolley and bus services. These are big transit numbers, due in part to the fact that driving — and parking — in Boston is impractical. Yet, according to Office for Commonwealth Development, only four TODs, two of which are quite small, have been built. Only now is the trend finally taking hold, as 11 projects are under construction and at least 30 more are in the planning stages. The Bay Area, in contrast, has been building TODs since the 1980s, mostly adjacent to BART stations. In Southern California, cities are planning TODs in anticipation of getting rail transit. One Pasadena project was completed and occupied years before the Metro Gold Line showed up. I happen to think it’s a good idea to place residences, offices, shops, civic facilities and colleges in close proximity to public transit. And with gasoline at $3.50 a gallon, I’m betting that a few thousand people living or working in Contra Costa Centre — right next to the Pleasant Hill BART station — are feeling awfully smug right now. In Revere, Massachusetts, today, an asphalt parking lot covers two acres between a subway station and a popular ocean beach. Think that real estate would still be a parking lot if it were in California?

The Second District Court of Appeal has ordered the City of Santa Paula to place a slow-growth initiative on the ballot. The Santa Paula city clerk blocked the measure from reaching the ballot last year after concluding the initiative petitions did not satisfy state elections law because they did not include sections of the general plan the initiative would amend. The unanimous three-judge appellate panel ruled that the city clerk's demands went beyond the state Elections Code requirements. The initiative — which would require a public vote on any project of at least 80 acres proposed at a density greater than the general plan allows — could appear on the November ballot. In making the ruling, the court built on a 1998 decision from the City of Hayward regarding what language an initiative petition must contain. In , 69 Cal.App.4th 93 (see , February 1999), the court ruled that an initiative did not comply with Elections Code § 9201 because the petitions did not contain 17 pages of the city general plan to which the initiative text referred. The decision contained some "loose language," said Richard Francis, the attorney for the Santa Paula initiative backers, and development interests have used that language to argue that petitions for ballot measures seeking to amend a general plan need to contain the entire general plan. The decision in the Santa Paula case "really is a very helpful clarification — to know that you don't have to do that," Francis said. Santa Paula City Attorney Karl Berger read the decision differently. "Depending on your point of view, it's either a clarification of what the law is, or it's a departure from what the law is. I think it's a departure," Berger said. Berger conceded the city leaned heavily on the decision, which, he said, followed a long line of cases with similar outcomes. "The city clerk felt she had no other choice but to bounce the petition. That's certainly was what I advised her," he said. In May 2005, a group called We Care – Santa Paula submitted signed petitions for their initiative. City Clerk Josie Herrera verified that the petitions contained sufficient valid signatures to qualify for the ballot. However, Herrera rejected the petitions because they did not show where in the general plan the proposed language would be inserted, what parts of the general plan would be amended or the current text of the land use element. We Care sued, and Ventura County Superior Court Judge Steven Hintz accepted Herrera's arguments. The Second District, however, quickly dismissed those arguments. "The city points out," Presiding Justice Arthur Gilbert wrote for the court, "that We Care's petition seeks to amend the general plan. It believes this requires that the land use portion of the general plan be included in the petition. But the amendment does not change any land use or density designation in the general plan. Nor does it even purport to prohibit any change in land use or density. It simply adds a provision to the general plan requiring that any increase in density for projects involving 81 or more acres be approved by popular vote. The petition contains the full text of the measure. There is no need to include any portion of the general plan. Certainly, the passage of We Care's initiative will affect the general plan. But § 9201 does not require that a petition include the text of every plan, law or ordinance the measure might affect." The court distinguished We Care's petitions from those in the case, and petitions in other cases where courts identified Elections Code flaws. The petitions in the case referenced portions of the general plan by heading and chapter number but did not include the text. Similarly, referendum petitions rejected in , (1985) 171 Cal.App.3d 1225, identified the ordinance in question by number and title but did not contain the ordinance's text. Three other cases involving rejected referendum petitions also failed to provide the text of ordinances to be repealed. By contrast, Gilbert wrote, "We Care's petition does not omit the text of an incorporated exhibit or any other portion of the proposed enactment. Instead, the petition contains the full and complete text of everything that will be enacted if the voters approve it." Berger said the City Council would likely seek a political compromise with We Care rather than request a state Supreme Court hearing. Interestingly, the project that spurred the We Care initiative is scheduled to be decided by voters this month. That project is a 2,165-unit development proposed by Centex for an area in which the general plan now allows about 450 houses. The City Council approved the project in December 2005, but We Care forced a referendum vote. The Case: , No. B186242, 06 C.D.O.S. 3822, 2006 DJDAR 5617. Filed May 9, 2006. The Lawyers: For We Care: Richard Francis, (805) 486-5898. For Herrera: Karl Berger, Jenkins & Hogin, (310) 643-8448.

A $1.4-million damages award that a jury granted to the owner of a San Bernardino adult cabaret has been upheld by the Fourth District Court of Appeal. The damages were based on expenses and lost income from a 53-month period when the City of San Bernardino’s zoning ordinance - which was eventually ruled unconstitutional - prevented Flesh Night Club from operating. The court upheld the award of damages even though both the Superior Court and the Fourth District approved an injunction blocking the night club from operating, the night club’s owner did not insist that the city post an injunction bond to cover potential damages, and a substantial portion of the club’s profits apparently came from prostitution. The court ruled that the forced closure violated the club owner’s First Amendment rights and the owner was due damages under the federal civil rights statute (42 U.S.C. § 1983). “ e conclude that a city is liable for damages under § 1983 if it chooses to enforce an unconstitutional ordinance by means of a preliminary injunction,” Justice Art McKinster wrote for the unanimous three-judge panel of the Fourth District, Division Two. “It is no defense that the injunction was sought in good faith, nor does the city’s reliance on a preliminary injunction duly issued by a trial court insulate it from liability.” Roger Jon Diamond, attorney for Flesh Night Club, told the that the court made a “courageous decision.” “It will tell cities they need to be very careful before trying to shut down an existing business if it’s protected by the First Amendment,” he told the newspaper. A San Bernardino deputy city attorney called the matter “pending litigation” and said city attorneys would have no comment. San Bernardino has been trying to shutter the adult night club since it converted from a comedy club to topless entertainment in 1994. The night club’s owner, Waldon Randall Welty, who does business as Manta Management Corporation, started the court proceedings in November 1994, when he sued the city in federal court. He contended that the city’s zoning ordinance was unconstitutionally restrictive. At the time, the city’s ordinance limited locations for adult businesses to “commercial heavy” and “industrial light” zones, and required a buffer of 2,000 feet from any other adult business, and 1,000 feet from a school, church, public park, residence or residentially zoned land. Flesh Night Club’s location complied with the buffer requirements, but the Hospitality Lane site was in the wrong zoning district. In January 1995, the city attorney bought an action in the name of the People alleging the business constituted a public nuisance and seeking to close the night club through a preliminary and permanent injunction. The following month, San Bernardino County Superior Court Judge Duane Lloyd granted a preliminary injunction and ordered Manta to cease operating as an adult cabaret. Manta appealed the injunction and filed a cross-complaint against the city, seeking relief under § 1983. After a lengthy bench trial in 1996, Superior Court Judge Carl Davis declared the city’s ordinance unconstitutional because it did not serve a substantial governmental interest and did not allow for reasonable alternative avenues of communication. The city appealed that decision, and the Fourth District in an unpublished ruling affirmed the trial court ruling and dissolved the injunction in early 1999 ( ., No E019635). The litigation then returned to the trial court for a two-step trial, first to determine liability and second to determine damages. Superior Court Judge Donald Alvarez ruled that the act of requesting and obtaining the preliminary injunction and stay pending appeal constituted a basis for liability under § 1983. A jury later awarded Manta $1.4 million in damages. On appeal, the city argued that seeking redress in court is not a First Amendment violation and, for that reason, the city cannot be held liable. However, in this case, the city’s ordinance had been ruled to violate the First Amendment, and, the court noted, a city may be sued for “monetary, declaratory or injunctive relief” if it implements an unconstitutional policy. Although city officials and employees have immunity, “municipalities themselves have no immunity from damages liability ‘flowing from their constitutional violations,’” McKinster wrote, citing , Mo., (1980) 445 U.S. 622. The fact that the city received a court-ordered injunction and relied on that injunction in good faith provides no immunity, he court ruled. The city noted that Manta did not obtain an injunction bond, which under state and federal law provides a means for recovering damages. But the court, again citing , said an exception exists for § 1983 claims. “The trial court recognized this, holding that the injunction was the vehicle by which the city sought to enforce an unconstitutional ordinance, and that Manta’s cross-complaint was thus based not on the mere wrongful issuance of an injunction but on ‘a separate and distinct action for violation of Manta’s constitutional rights,” McKinster wrote. “ he absence of a bond is irrelevant.” The court then turned to the evidence behind the damages award. Manta sought $2.6 million based on $1.66 million in net profits during the 53 months after Flesh Night Club reopened and $943,000 in expenses while the club was shuttered. During the trial, the city presented evidence that Flesh dancers, with Welty’s encouragement, engaged in prostitution. The jury determined that some profits earned from 1999 to 2004 were from illegal activity but the jury carved out what it considered lawful profits. On appeal, the city argued that because some of the night club’s income was from prostitution, Manta should be barred from recovering any lost profits. But the court said it is possible for a jury to separate legal profits from illegal income. Assuming the jury awarded Manta all $943,000 for expenses, the jury awarded Manta only $456,000 for lost profits, or about 25% of what Manta claimed. Evidence exists, the court continued, that Manta derived income from legal means, such as lap dance fees, admission charges and the sale of soft drinks “at greatly inflated prices.” Flesh Night Club attorney Diamond told the he would now seek about $500,000 in attorney fees from the city. Meanwhile, a city lawsuit that seeks to shut down the club because of prostitution is pending. The Case: , No. E036942, 06 C.D.O.S. 3913, 2006 DJDAR 5715. Filed May 11, 2006. The Lawyers: For Manta: Roger Jon Diamond, (310) 399-3259. For the city: Christopher Lockwood, Arias, Lockwood & Gray, (909) 885-1229.