A controversial desert redevelopment project in California City has been invalidated by the Fifth District Court of Appeal, which rejected the eastern Kern County city’s determination that the vacant land qualified as blighted because of its parcelization and lack of road access.

A few years ago, California City amended its redevelopment plan to take in an additional 15,500 acres to accommodate development of a Hyundai test track and development facility on 4,340 acres. The attorney general’s office characterized the project as a “poster child” for redevelopment abuse, and the project was commonly cited during state Capitol hearings on redevelopment reform.

The Fifth District decided the case on narrow grounds, but the ruling does suggest that the skeptics were correct.

“The court threw this out because they saw what was going on,” said Donald Johnson, an attorney for California City property owners fighting the project. “This is another in a long line of cases in which courts have warned about vacant land redevelopment projects.”

California City determined that the area qualified as blighted under the antiquated subdivision provisions in state redevelopment law. Under those provisions, the existence of subdivided lots of “irregular form and shape, and inadequate size for proper usefulness and development that are in multiple ownership” qualified an area as blighted and urbanized. However, partly because of California City’s interpretation of the law, lawmakers last year amended the statute. Now, the existence of such parcels can be one factor in determining blight, but not the sole factor.

“The repeal of the subdivision element focuses the state on urban areas, rather than on this undeveloped desert land,” said Daniel Siegel, a deputy attorney general who argued against the California City project and testified at the Legislature last year. “It was such an extreme example.”

In 2002 and 2003, the 200-square-mile desert city (the third largest in the state) annexed about 29 square miles on its southern end, while detaching a similar amount of territory on the north side. The city expanded its redevelopment project area by about 24 square miles, including some of the newly annexed territory. The city also approved development of the Hyundai facility, for which the redevelopment agency assembled about 200 parcels covering 1,000 acres and agreed to split tax increment 50-50 with the Korean company over 10 years (see CP&DR Economic Development, May 2004).

However, about 15 property owners refused to sell, so the redevelopment agency commenced eminent domain proceedings to acquire their land. In late 2002, one property owner, acting without an attorney, filed a reverse validation action challenging the city’s first redevelopment plan amendment. Eventually, lawyers got involved, a second lawsuit was filed over the second redevelopment plan amendment and the suits were consolidated. In an unpublished 2004 opinion, the Fifth District ruled that the landowner who started things had standing to pursue his challenges in court. The case then returned to Kern County Superior Court, where Judge John I. Kelly ruled for California City.

On appeal, the landowners argued that the city’s redevelopment project violated numerous state laws. But the Fifth District ruled only on one issue — whether the city correctly interpreted the law’s antiquated subdivision provisions.

The city had found that 80% of the land in the expanded project area consisted of lots that were of irregular form and shape and of inadequate size for proper usefulness. The lots were not particularly small, ranging from 2.5 acres to 480 acres apiece. However, they were created without provisions for roads, so many lots lacked access. The city argued that this lack of access made the lots of “irregular form and shape” and of inadequate size under Health and Safety Code § 33031 (a)(4), a section of the community redevelopment law. The court did not accept this line of reasoning.

“Because a lot’s configuration or spatial contour is not altered when access to the lot is obtained, we conclude that access is not a characteristic that determines whether a lot’s form and shape is regular or irregular,” Justice Betty Dawson wrote for the court. “In other words, the lot itself might be deemed irregular under applicable standards of law if it does not have physical and legal access to a right-of-way, but that irregularity does not affect the lot’s form and shape.”

Dawson continued, “[The city’s] interpretation of the ‘inadequate size’ requirement so that it is satisfied by the same factor (lack of access) as that used to satisfy the ‘irregular form and shape’ requirement further illustrates that access is not a characteristic that defines the regularity of the form and shape of a lot. In other words, if one accepts the interpretation that physical and legal access to a right-of-way determine the adequacy of a lot’s size, then access is not a matter of form and shape.”

The court briefly noted some of the other issues raised, including whether the record supports the finding that the area was causing a “serious physical and economic burden on the community” and whether the redevelopment plan was economically feasible. The court did not decide those issues, though.

“The court,” said Deputy Attorney General Siegel, “did what was prudent. They addressed the narrowest basis of the dispute and made a decision on that basis.”

Attorney June Ailin, of Aleshire & Wynder, who argued the case for property owners, said she was disappointed the justices decided the case “on such narrow grounds. They may have felt because the statute has been changed, they didn’t want to spend a lot of time on it,” she said.

Because of the court’s narrow decision, and because the law on which California City relied was amended last year by SB 1206 and AB 782 (see CP&DR, October 2006), the ruling may not have major implications for redevelopment in general. Still, the decision is one in a string of cases where courts have shown little patience with cities that bend redevelopment law to their liking.

What will happen next in California City is unclear, as owners of five parcels have held onto their property, according to Ailin. City representatives have not been commenting publicly. A Hyundai spokesman told the Bakersfield Californian that the test facility would remain in place.

However, the court’s invalidation of the redevelopment plan means California City lost authority to acquire property for the test facility via eminent domain, landowner attorney Johnson noted. “The test track is built on land that Hyundai does not own and the agency cannot acquire,” said Johnson, who expects the Superior Court to dismiss pending eminent domain cases.

A footnote in the Fifth District decision says, “Hyundai chose to build the facility knowing that the judgment in the consolidated cases was not final. Generally, when a party to litigation decides to proceed with a project before the judgment in that litigation is final, that party has assumed the risk of reversal.”

The Case:
Nielson v. City of California City, No. F049143, 2007 DJDAR 375. Filed January 9, 2007.
The Lawyers:
For Nielson: Donald P. Johnson, Kane, Ballmer & Berkman, (213) 617-0480.
For California City: R. Bruce Tepper, (310) 551-6590.