The City of Los Angeles may not revoke a building permit issued to a religious congregation that relied on the permit to commence a demolition and construction project, a divided panel of the Ninth U.S. Circuit Court of Appeals has ruled. The court ruled that under the doctrine of equitable estoppel, the congregation had a vested right with which the city could not interfere.

The ruling came in a case involving a long-running conflict between Congregation Etz Chaim and the city. Beginning in the mid-1990s, the congregation began using a house on South Highland Avenue in the city’s Hancock Park district for worship services. The neighbors complained about noise and traffic. When the congregation applied for a variance and conditional use permit for the activities, the city rejected the plan because of incompatibility with the surrounding residential neighborhood.

The congregation sued the city but lost in Superior Court and at the state Court of Appeal. The congregation then tried federal court, but its arguments regarding the violation of constitutional rights were quickly dismissed. The congregation’s only remaining claim concerned the city’s alleged violation of the Religious Land Use and Institutionalized Persons Act of 2000, which restricts the government’s police powers. While that claim was pending in court, the congregation and city signed a settlement agreement ending the litigation. The settlement allowed the congregation to conduct worship services at the house with certain conditions.

The congregation then filed plans to expand the existing house from 3,400 square feet to 8,150 square feet. After three months of review, the city’s building department issued building and grading permits on March 13, 2002. Work began on June 4 of that year, but neighbors immediately complained and the city issued a stop-work order about one week later.

The congregation returned to federal court to get the order lifted. District Court Judge Harry Hupp ruled for the congregation. The city appealed, but the Ninth Circuit panel ruled 2-1 for the congregation.

The district court and Ninth Circuit majority held that the city was barred from revoking the permit because the congregation had a vested right. “A developer’s right to develop property pursuant to its proposed plans vests when: (1) a valid building permit issues and (2) the developer performs substantial work and incurs substantial liability in good faith reliance on the permit,” Judge Johnnie Rawlinson wrote for the court. The congregation had paid more than $21,000 for permits and more than $15,000 for demolition work.

The city argued that the estoppel doctrine did not apply because the congregation had failed to comply with the settlement agreement and city ordinances. This is where the court divided. The agreement required the congregation to send correspondence to Associate Zoning Administrator Daniel Green. Instead, the congregation sent its application — and a copy of the agreement — to the building department, which reviewed the application with the assistance of a deputy city attorney. The court majority ruled that the congregation’s filing complied with a different part of the agreement and that “the buck stops with the city.”

In a dissenting opinion far longer than the majority’s ruling, Third Circuirt Court Judge Ruggero Aldisert (sitting by assignment) said the issue was not close. “[T]he ‘reasonable and commonsense interpretation’ of the settlement agreement is that it required the congregation to contact Mr. Green to make the quasi-judicial determination of whether the building and remodeling plans complied with the agreement. Indeed, such an interpretation is not only permissible but is compelled by the terms of the settlement agreement and the provisions of the Municipal Code,” Aldisert wrote.

The building department did not have the authority to issue the permits without approval from the zoning administrator, so the permits were not valid, Aldisert wrote. Therefore, the estoppel doctrine should not apply, he concluded.

The Case:
Congregation Etz Chaim v. City of Los Angeles, No. 0256487, 04 C.D.O.S. 5224, 2004 DJDAR 7214. Filed June 16, 2004.
The Lawyers:
For the congregation: Kathryn Davis and Susan Azad, Latham & Watkins, (213) 485-1234.
For the city: Claudia McGee Henry, senior assistant city attorney, (213) 485-5419.