The Ninth U.S. Circuit Court of Appeals has dealt another blow to housing developers who sued the City of Fresno, an individual city councilman and twelve citizens because the city refused to approve tax-exempt bonds for an apartment project.
Not only did the Ninth Circuit upheld verdicts by a jury and District Court Judge Oliver Wanger, the appellate panels also awarded attorney fees for the trial and appeal to the citizens. Considering that the litigation originated in 1997, those fees could be considerable.
The dispute centers on a 324-unit low-rent housing project called Wellington Place and proposed by Affordable Housing Development Corporation (AHDC) near Herndon and Polk avenues. AHDC made various arrangements to move forward on the project on the assumption that $30 million in tax-exempt bonds would provide the ultimate financing. However, the Tax Equity and Fiscal Responsibility Act, 26 U.S.C. § 147(f) (TEFRA), requires the local government to approve such “private activity bonds.”
After an outpouring of opposition to the project from area residents, the Fresno City Council voted 5-2 in March 1997 to deny the bonds. The council cited the project’s potential impact on existing single-family homes and questioned the need for more rental units.
AHDC then sued, claiming it suffered $9 million in damages. Essentially, AHDC contended that the city, then-Councilman Chris Mathys (who led the opposition) and the citizens violated fair housing and non-discrimination laws. Judge Wanger issued summary judgment for the citizens. A jury found in favor of Mathys but produced a mixed verdict for the city. Wanger later entered judgment for the city, finding that AHDC had failed to persuade the jury that discrimination caused AHDC any damages. The judge, however, declined to award attorney fees to the winning parties.
All parties appealed. In its relatively short decision, the Ninth Circuit made clear that it had no patience for AHDC’s arguments.
The court ruled that Mathys’s activities organizing the opposition were protected by legislative immunity and by the Noerr-Pennington doctrine, which upholds free speech rights when petitioning the government.
“Mathys made and distributed flyers encouraging his constituents to oppose the Wellington Place project. He urged the executive director of the Fresno Housing Authority to oppose it. He organized a neighborhood meeting in opposition,” Justice John Noonan wrote for the three-judge Ninth Circuit panel. “As the district court found, no evidence was presented that Mathys intimidated anyone or threatened violence to anyone. His activities amounted to petitioning the city council. The activities were protected by the right to petition the government for redress of grievances, and by a government official’s right to seek to affect governmental action.”
The court dealt in some detail with AHDC’s argument that the decision was discriminatory because it disproportionately impacted minorities and families with children, in violation of the Fair Housing Act. But the court ruled that the statutory scheme did not impose automatic liability.
“We hold only in this case of first impression under TEFRA that if an elected representative authority declines to approve TEFRA housing bonds for a legitimate non-discriminatory reason, the defense is good,” Noonan wrote. “A decision motivated by hostility to race, ethnicity or family size would have been illegal under California law. The jury found that the city’s decision was not so motivated.”
The court then reached the issue of attorneys fees. Here, the court made its thoughts clear.
Because AHDC alleged that the citizens violated California’s Bane Civil Right Act, the defendants could have been liable for treble damages, or $27 million.
“A lawsuit seeking this sort of damages against each citizen casts a cloud over his or her credit,” Noonan wrote. “As AHDC could not have expected to recover these amounts from the citizens, the inference may be drawn that the claims against the citizens were advanced in terrorem, to scare off anyone who would resist AHDC’s demands on local government. That inference is strengthened by the testimony of Michael Schulte of AHDC as to how the individual defendants were selected: ‘the number of times essentially that the person protested.’”
The citizens were exercising their First Amendment rights, and those rights supercede the fair housing law, the court noted, pointing to White v. Lee, 227 F.3d 1214 (seeCP&DR Legal Digest, November 2000). In White, the Ninth Circuit held Department of Housing and Urban Development officials liable for damages for chilling the free speech rights of three citizens who opposed a housing development for disabled and homeless people in Berkeley in 1992.
“What was true as to the lawless actions of federal officials in 1992 is equally true of the attack launched by AHDC on the constitutional rights of the citizens of Fresno in 1997,” the court ruled.
The Case:
Affordable Housing Development Corporation v. City of Fresno, No. 04-15625, 06 C.D.O.S. 283, 2006 DJDAR 455. Filed January 11, 2006.
The Lawyers:
For AHDC: William J. Davis, (213) 253-5939.
For the city: Douglas Sloan, Dowling, Aaron & Keeler, (559) 432-4500.
For Chris Mathys: Nancy Jenner, McCormack, Kabot, Jenner & Watson, (559) 734-6729.
For 11 citizens: Howard Sagaser, Sagaser, Franson & Jones, (559) 233-4800.
