The city of Morgan Hill won a key decision in the 7-year-old
lawsuit filed by Arcadia Development Co., avoiding a potential
payout of $50 million in damages and keeping its voter-approved
growth control ordinance undisturbed.
The city of Morgan Hill won a key decision in the 7-year-old lawsuit filed by Arcadia Development Co., avoiding a potential payout of $50 million in damages and keeping its voter-approved growth control ordinance undisturbed.
The California Court of Appeals, Sixth District, issued a ruling last Friday upholding the city’s residential growth control system after repeated challenges from Arcadia, who claimed the law singled them out by applying a “spot zoning” rule that did not affect any other developers. The rule prevented Arcadia from building a significantly more dense residential project, with many more houses than they are allowed as a result of the city’s policy and the recent ruling.
The appeals court’s decision last week means the city had a “rational reason” for adopting growth control and excluding Arcadia’s property from the city’s zoning restrictions, specifically to limit the strains of urban sprawl, city attorney Danny Wan said.
“The city was trying to prevent this over-explosion of development in the city, and a lack of sewer capacity” and other unpaid-for impacts on public infrastructure, Wan said. “The court said the city has a right to make decisions based on policy that may adversely impact certain property owners, and may even impact them solely, but as long as the city had a good rational policy basis for doing it, it was OK.”
Arcadia, Wan noted, was not singled out by name in the provisions of the ordinance approved by voters in 2004 as Measure C, though the measure’s supporters including the city knew the company planned to build on its roughly 80 acres near Hill Road and Barrett Avenue in southeast Morgan Hill.
In 1990, the city annexed Arcadia’s property during a singular window of time when Measure C’s predecessor, Measure P, was being circulated for signatures. Drafted by citizens, Measure P adopted amendments to the slow-growth system, strengthening its requirements and limiting the ability to add land to the city for residential development.
Measure P also included a clause providing that lands added to the city during the time the measure was circulating for signatures and the time it was ultimately adopted by residents – between March and December 1990 – would be limited to the density permitted under Santa Clara County’s general plan. Arcadia’s property was added to the city during the time Measure P was circulating and therefore is limited to the amount of development permitted by Santa Clara County – or one unit per 20 acres, until 2020.
That provision was added to Measure P because its proponents feared a sudden rush of annexations by property owners on the city’s edges who foresaw the measure’s victory at the polls and might want to take advantage of the law which would allow them to build more homes for sale, Wan said.
As of 2009, Arcadia had received 23 housing allocations for part of the property that was not restricted to county zoning, but that left them with 70 undeveloped acres, city staff said at the time.
For similar properties established within the city limits for longer periods of time, or closer to already-developed property, the city ordinance allows far more dense residential building such as can be seen throughout the city.
The ruling, disposed by a panel of sixth district judges, concludes, “Given the size of the property and its location on the southern edge of (the) city adjacent to large swaths of unincorporated agricultural land, restricting development on the property between 2010 and 2020 bears a substantial and reasonable relationship to the public welfare goals of limiting the burden on city services and resources, discouraging noncontiguous development and urban sprawl, and maintaining (the) city’s unique rural character.”
Parts of the lawsuit have hovered between the trial court and appeals court since it was filed in 2004. Arcadia’s initial complaint alleged not only the equal protection civil rights claim that the law singled them out, but also an “inverse condemnation” claim that the city’s growth control system had a negative effect on their property’s value. However when the case went to a jury trial in Santa Clara County Superior Court, Arcadia dropped the complaint regarding property values.
That trial was interrupted when the city argued that Arcadia’s complaint had expired by the statute of limitations since the harm they cited happened too many years prior to the passage of the 2004 extension of the law. The trial court agreed with the city, but Arcadia appealed that decision. The appeals court ruled that the statute of limitations had not expired because the “density restriction” provision of the 1990 law, prohibiting certain annexed properties from developing a density higher than the county’s restrictions, was reaffirmed in 2004.
The case then went back to the trial court, which decided fully in the city’s favor.
Arcadia then appealed that decision to the sixth district court of appeals, which issued last week’s ruling.
The developer’s next available recourse is to appeal the case to the state Supreme Court, though that court is not required to hear every case that is submitted for its consideration.
Phone messages left with Arcadia’s attorneys and a staff member were not returned by press time, and it is unknown whether or not the developer plans to appeal to the state’s highest court.
In 2006, an attorney for Arcadia said the company planned to ask the court for up to $50 million in damages due to the lower density to which the city’s ordinance limited them.
The city has paid $100,000 in attorney’s fees to defend itself from the lawsuit, and is covered from remaining costs by its insurance policy administered by the Association of Bay Area Governments, Wan said. That policy covers legal expenses in such cases up to $2 million, minus the $100,000 deductible. Wan said total expenses so far are well below the $2 million cap.
