The City of Rancho Palos Verdes' 30-year moratorium on new home construction in an area the city says is prone to landslides is an unconstitutional taking of private property, the Second District Court of Appeal has ruled. The decision marks a rare takings victory for property owners in state court.  

The decision is also one of two potentially landmark takings rulings issued recently. In the other case, a federal appellate court ruled that the mandatory diversion of water to aid an endangered fish species is a physical appropriation of a water district's property.

The Rancho Palos Verdes decision appears to be the first state appellate court ruling based primarily on the U.S. Supreme Court's 16-year-old Lucas decision, in which the high court held that a regulation that prohibits all economic use of a property is taking, except to the extent that principles of nuisance restrict the use (Lucas v. South Carolina Coastal Council, 505 U.S. 1003). The Second District determined that Rancho Palos Verdes did not prove that building houses on the property in question would constitute a nuisance. The court also ruled that the property owners did not have to exhaust their administrative remedies – namely, file applications for exceptions to the moratorium – because the process would have been futile.

Not surprisingly, views of the decision were mixed. The property owners' attorney, Stuart Miller, said the city's moratorium is a classic "Lucas taking."

"We've got a city that is so extreme and unreasonable," contended Miller, who said there is no evidence his clients' land will slide. "It's an absolute ban on use, and there's no justification for it."

J. David Breemer, a principal attorney with the pro-property rights Pacific Legal Foundation, which did not participate in the litigation, said the case could force cities to reconsider long-term building bans.

"I think it vindicates the principle that we argue a lot – that towns and agencies can't rely on speculative concerns of harm as a pretext for a ban on building," Breemer said. "You've got to show that there would be some actual harm,"

But attorney Edwin Richards, who represents the city, called the ruling a bitter one for Rancho Palos Verdes and all municipalities, which may now face greater scrutiny when they restrict development because of potentially hazardous situations.

"We just think that the decision puts this city, and cities in general, in a terrible catch-22 situation. They are being forced to allow development in a known landslide area with all of the hazards inherent in that," Richards said.

City officials and current residents fear that additional development will exacerbate the landslide potential, Richards explained.

"The lesson is a very distasteful one. Here, the city worked extremely hard to weigh the competing interests of these property owners and its citizens, and made a decision in the city's best interest," he said. "Then the court stepped in and said, ‘Nice try, but you have to pay market value for these properties.'"

Dan Selmi, a professor at Loyola Law School, said the case is strikingly similar to Lucas. "It seems to fall into that pattern like Lucas – a relatively rare fact pattern where the city was unwilling to permit housing on safety grounds," Selmi said. Thus, the burden of proof was on the city and, he said, "The court thought there was something wrong with the city's evidence."

Located on a peninsula that separates Santa Monica Bay from San Pedro Bay, Rancho Palos Verdes has a history of landslides. In 1957, an ancient landslide commonly known as the Portuguese Bend landslide began to move again. In 1974, a different area known as the Abalone Cove landslide began to shift. Both slides remain active, with annual movement typically measured in inches, but catastrophic slides are possible. In June 1999, the 18th hole at Ocean Trails Golf Course (now Trump National Golf Club) suddenly separated from the rest of the course by about 100 feet. The golf course is in the same area as the historic slides and about one mile south of the properties in question in the litigation.

In 1978, the City Council adopted an urgency ordinance prohibiting development in the general vicinity of the slides. The city has updated the ordinance a number of times since, always allowing some exceptions, such as for repairs and renovations to existing structures.

The city commissioned several studies over the years and in the mid-1990s divided the area into eight zones for purposes of remediation of residential development. The properties in question  here lie in Zone 2, which covers 130 acres largely unaffected by the historic landslides. Zone 2 contains 111 lots, 47 of which are undeveloped. Much of the local controversy centers on the proper "factor of safety," a geotechnical term that describes the stability of a piece of land. A 1.0 factor of safety means that the forces of stability are equal to the forces of instability, and the property is not considered safe for building. A 1.5 factor of safety means that the forces of stability are 50% greater than the forces of instability. Geotechnical professionals consider a 1.5 factor to be the minimum for residential construction, although a lower rating may be appropriate when a great deal is known about an area's geology.

In a 2002 report to the city, geologists with Cotton, Shires & Associates (CSA) said there was insufficient information to establish a factor of safety for Zone 2, but they also concluded that "development of the remaining parcels will not be of sufficient impact, in and of itself, to cause instability." In June 2002, the City Council approved the most recent moratorium resolution. It rejected the CSA conclusion that new homes could be built because the conclusion was not based on a factor of safety of at least 1.5. Under the resolution, the city would permit new home construction only if the applicant provided adequate geological data demonstrating a 1.5 factor of safety for all of Zone 2 – even though such a study would likely cost $500,000 to $1 million.

The City Council adopted the resolution five months after the owners of 16 parcels in Zone 2 filed a joint application for exclusion from the moratorium. Instead of pursing the application, the property owners sued, arguing that the June 2002 resolution was a taking within the meaning of Article I, § 19 of the California constitution. A Los Angeles County Superior Court judge ruled for the city based on the administrative record. The property owners appealed, and the Second District in an unpublished 2005 ruling concluded two things. First, the court ruled the administrative record was not adequate to resolve the takings claim, so the property owners should be able to submit evidence at trial. Second, the court ruled that even though the property owners stopped pursuing their application, the takings claim was ripe for adjudication because the conclusion of the administrative process was foregone – the property owners could not prove a 1.5 safety factor for Zone 2.

The case returned to Superior Court for trial, at which both sides presented expert witnesses to testify about the area's geology. Ultimately, Judge Cary Nishimoto rejected the takings claim because the land's stability was uncertain and because the city's regulation was not unreasonable. During the trial, the city agreed to pay property owners $4 million to drop their claim that the moratorium was a temporary taking.

At trial and on the second trip to the appellate level, the issue of "ripeness" returned. Judge Nishimoto determined that the city's regulation was not a taking partly because Rancho Palos Verdes had an administrative process for property owners to gain an exception. Again, the Second District panel rejected the lower court's reasoning.

"The City Council had already decided that Zone 2 had a safety factor less than 1.5 and was not going to be persuaded otherwise," Presiding Justice Robert Mallano wrote for the court. "We stated that plaintiffs should not be required to pay between $500,000 and $1 million to conduct a study in an attempt to prove what the city would not believe. Thus, the use of the administrative process was pointless."

As in Lucas, the question was whether the regulation was justified by principles of nuisance law, Mallano wrote. And as in Lucas, the government must prove that the moratorium was justified. This the city failed to do, the court concluded.

The court said that there was "nothing inherently harmful" in building a house on land zoned and subdivided for residential purposes, that uncertainty regarding land stability was "not a sufficient basis for depriving a property owner of a home," that the city's own expert testified that likely structural damage would occur in areas away from the plaintiff's properties and could be repaired anyway, and that the risk of personal injury was very low. Moreover, the court noted, the city has approved a number of moratorium exceptions for remodel or expansion of existing houses.

"The risk of property damage and personal injury, as we have said, is not sufficient in any practical sense to justify applying the moratorium to plaintiff's lots," Mallano wrote. "[G]iven the differing, and sometimes conflicting, views of numerous written reports and several witnesses, the trial court could not make a definitive finding on the safety factor, ultimately deciding that the stability of Zone 2 was uncertain. That finding is simply not adequate to satisfy the city's burden of proof under Lucas and state nuisance law."

The city will ask the state Supreme Court to overturn the Second District, Edwards said. "This is a Lucas case, I agree with that. Where I disagree with the court is in how it applied Lucas," he said. The property owners have not been deprived of their right to develop. They simply must follow the city's requirements, he urged.

The larger issue, though, is the public policy for weighing competing interests, Edwards said.

Both Selmi, of Loyola Law School, and the Pacific Legal Foundations' Breemer said the state Supreme Court just might accept the case. "It would not be an inappropriate case for the court to review because the city says it is a public safety concern," Selmi commented.

But if the decision stands, added Beemer, it could work in combination with a federal court ruling last year that the City of Half Moon Bay's wetlands regulation amounted to a taking (see CP&DR In Brief, May 2008, January 2008) "to signal that localities can't get too confident that they can go out and ban homes or rig the system so you can't build anything."

If the state high court does not take the case, the parties will return to trial court for a determination of fair market value without the city's moratorium. Considering that the 16 parcels in question are large lots with ocean views in a wealthy community, the land is probably worth millions of dollars. The city's choice will be to buy the property or lift the restrictions, said Miller, the property owners' attorney.

The Case:
Monks v. City of Rancho Palos Verdes, No. B201280, 08 C.D.O.S. 12855, 2008 DJDAR 15265. Filed October 1, 2008. Modified October 22, 2008, at 2008 DJDAR 16091.
The Lawyers:
For Monks: Stuart Miller, Wellman & Warren, (949) 580-3737.
For the city: Edwin Richards, Kutak Rock, (949) 417-0999.