In Monks, the California Court of Appeal found the City of Ranch Palos Verdes (City) had exacted a permanent taking on a group of land owners seeking to build homes on 16 lots in the Palos Verdes coastal peninsula area by establishing insurmountable conditions for development without a valid justification. Since the City could not justify the development conditions under state principles of property or nuisance law, the City was found to have violated the takings clause under California’s Constitution, which states: “Private property may be taken or damaged for public use only when just compensation … has first been paid to…the owner.” Cal. Const., art. I, § 19.

In 1978 the City enacted an moratorium on development in Palos Verdes Peninsula area as a result of historical landside activity. The City established various exclusions to the development ban over the years which permitted certain homes to be built and/or remodeled if property owners could demonstrate the proposed construction activity would not aggravate existing geological conditions. Geological studies of the Peninsula’s historical landslide activity revealed the slides in the moratorium area were “block glides” where large blocks of earth tend to move slowly along a single plane. There is generally no risk of injury from block glides. Following the landslide studies, the City established eight “zones” in the moratorium area based on unique geological features in the zones. The zones allowed for focused remediation and residential development taking into consideration the geological features of each particular zone. Examples of mitigation measures to control the risk of landsides included installation of ground water monitoring devices and dewatering wells to control the amount of groundwater which if allowed to increase substantially, could contribute to increased landsides.

Monks and 14 others owned sixteen of the 47 undeveloped lots in “Zone 2” on the Peninsula. 64 other lots in Zone 2 already had homes on them. The land in Zone 2 is relatively flat and the lots are zoned for single-family-residential use, all about an acre in size and most with ocean views. Studies indicated that ground water was the only variable impacting stability issues in Zone 2. A number of dewatering pumps and one monitoring well had been installed in Zone 2 to assist with ground water control efforts.

In various pre-approval efforts with the City by plaintiffs trying to secure the right to build on their lots, what “factor of safety” should apply as a condition to development became a major discussion issue. The factor of safety is a geological term associated with a land stability rating. Land with a factor of safety greater than 1.0 is generally considered stable, and a 1.5 rating provides for a margin of error in the calculations. When referring to the stability of a single lot in Zone 2, the City characterized the factor of safety as “local” or “localized” and referred to the entire land area in Zone 2 with a “gross” safety factor.

Various studies of Zone 2 found that (i) future development would not adversely impact stability issues; (ii) a gross safety factor of over 1.0 — in the 1.2 range — was needed for construction; and (iii) a benchmark 1.5 factor of safety requirement was arbitrary. Consultants opined that although a Zone 2 landowner could calculate a local factor of safety for a single lot (focusing on the particular construction and mitigation), a single owner could not practically calculate a gross safety factor for the entire Zone 2 area unless great expense was incurred. The various reports and studies to the City indicated that the specific risk of landslides from Zone 2 construction was unknown and that the lots in Zone 2 had stability ratings over 1.0 but below the geological industry’s standard safety threshold of 1.5.

While Zone 2 studies were being conducted, the City installed utilities for the Zone 2 lots. In 2002, while plaintiffs development applications were pending, the City approved a resolution directing City staff to deny development requests from lot owners unless the applicant provided a geological study demonstrating a gross factor of safety of 1.5 or greater for the Zone 2 area. Prior to the 2002 resolution, Zone 2 lot owners were never required to establish a gross factor of safety for the entire area. The City was aware that the type of geographical studies to determine the gross factor of safety for Zone 2 would cost between $500,000 to $1 million.

Plaintiffs decided to sue the City for writ relief and inverse condemnation instead of trying to pursue the final approval or denial of their applications and establish a gross factor of safety of 1.5 or greater. Plaintiffs overcame objections that there was a failure by plaintiffs to first exhaust administrative remedies by showing: (i) it was virtually impossible to establish such a high stability safety rating for all of Zone 2; and (ii) it was unreasonable to require one property owner to spend potentially $1,000,000 in geological studies to see if the gross safety factor for the entire Zone 2 area could be achieved.

Initially, the trial court found the City’s resolution did not constitute a taking and that an evidentiary hearing on whether plaintiffs had been given a sufficient opportunity to challenge the resolution was unnecessary. Plaintiffs appealed (Monks I) and the appellate court agreed with plaintiffs that: (i) the administrative record was inadequate to resolve the takings claim; (ii) plaintiffs’ takings claim was ripe to litigate based on the futility exception; and (iii) plaintiffs’ action was not untimely because the challenged government action was the 2002 resolution not the 1978 moratorium. Following the appellate court’s reversal of the judgment and remand for trial, the trial court found that because a minor potential for land movement existed for Zone 2 such potential constituted a substantial and reasonable interference with the community’s general welfare amounting to a nuisance. The trial court also found that the City’s moratorium was valid. Plaintiffs timely appealed.

In the appellate opinion, the appellate court initially explained its findings from Monks I as to why under the facts of this case the futility exception applied. The court stated the general reason administrative remedies must be exhausted before a local regulation is challenged in court is so that a court can determine whether the regulation has gone too far when it is applied to the final development application. Normally, it takes a final determination by the local land use authority on the application before such a determination can be made. For the futility exception to apply, the plaintiff/applicant must show the land use regulations make it futile to pursue a final approval. The court said that the 2002 resolution made the outcome of the plaintiffs’ pending land use applications certain even prior to a final decision. The court noted the resolution required a gross stability factor of 1.5 or greater and that the evidence presented to the City in prior studies and investigations already indicated such a gross rating for the entire Zone 2 was not possible. Therefore, plaintiffs application would be denied. Further, the court noted that futility determinations also consider the administrative expense involved. Where the expense is unusually high, it counsels against exhaustion. Requiring an applicant to obtain geological data at a cost between $500,000 to $1,000,000 to try and establish a stability rating that most experts agree was not achievable, was a circumstance where one need not pursue a final administrative decision prior to litigating.

In addressing the takings issue, the court relied on the regulatory taking test established in Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1027 (Lucas) that if a regulation has the effect of depriving an owner of all economically beneficial use of their property, a permanent taking has occurred. Under Lucas, compensation by the local governmental agency must be paid to the property owner for total regulatory takings unless the restriction on the use of the property can be independently justified by nuisance or property law. The Lucas test focuses on whether there has been a complete elimination of the property’s value. In Lucas, following the implementation of bans on coastal development, the only use permitted on a beach front residential lot was for picnicking, camping, or mobile trailer use. Such a restriction eliminated all value in the property and constituted a taking. The plaintiffs’ in Monks faced a similar situation. With the moratorium in place and the practically insurmountable condition established by the 2002 resolution, the only use the City allowed on the plaintiffs’ lots in Zone 2 was for small, temporary, nonresidential, nonhabitable, structures not to exceed 320 square feet. Any such structure also could not increase water usage in Zone 2. The court noted that such restrictions under Lucas are known as categorical takings.

The appellate court found the City exacted a permanent taking of plaintiffs’ lots because neither nuisance nor property law justified the restrictive conditions and the City’s moratorium effectively prevented development. To escape liability, the City would need to have justified its development ban under nuisance law theories by showing that plaintiffs’ proposed use of their lots (i.e. residential use) was a substantial interference with the public welfare or a private owner’s use and enjoyment of their land. If the City could prevail under common law nuisance theories to halt such a use no taking liability would exist. In looking at the extent of potential interference to the general community or private owners (the court examined both public and private nuisance law theories), the trial court record revealed that there was very little historical movement in Zone 2. No evidence at trial was presented of the typical signs of property damage from land movement such as increased difficulty opening and closing doors and windows. Further the nature of the slides presented virtually no risk of injury to individuals. The record showed that whatever minor risks existed from the plaintiffs’ proposed residential uses, if any, were at best uncertain. These facts were not sufficient to support a claim by the City on nuisance grounds to prevent plaintiffs’ proposed construction. Since the City could not prevail in a common law nuisance claim the City could not justify its legislation and was liable for a permanent taking. The court noted that over the years, numerous other approvals had allowed construction in the moratorium area which made the restrictions on plaintiffs’ lots all the more questionable. After looking at the evidence demonstrating little risk of property damage or personal injury, there was no practical basis to justify the application of the moratorium to plaintiffs’ lots. Since the City’s ban was based on pure speculation regarding future land slides, that did not justify violating the state Constitution and depriving plaintiffs of all economically beneficial use of the land. The appellate court reversed the judgment and remanded the case to the trial court for a determination of an appropriate remedy for the permanent taking exacted by the City.

Sheppard Mullin Richter & Hampton LLP
David Collins
USA
October 23 2008
Monks et al. v. City of Rancho Palos Verdes, ___ Cal. App. 4th ___ (Oct. 1, 2008, Case No. B201280)

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