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Morgan Hill
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January 27, 2021

Judge orders city, developer to pay $416K in legal fees

November ruling is latest action in litigation dating back to 2015

A superior court judge has ordered the City of Morgan Hill and developer of a once proposed hotel project to pay $416,508.75 in attorneys’ fees to a coalition of South County hotel owners in a legal dispute that dates back to 2015.

Santa Clara County Superior Court Judge Helen E. Williams awarded the sum to attorneys J. Randall Toch and Asit Panwala for the Morgan Hill Hotel Coalition in a Nov. 13 order. The dispute centers around a zoning decision made by the city council in 2015 that would have allowed River Park Hospitality to build a new hotel on a 3.39-acre site near the corner of Madrone Parkway and Lightpost Way.

The lawsuit—initiated by the City of Morgan Hill in 2016—went all the way to the California Supreme Court. The lawsuit centered around a petition for a ballot referendum, filed by the MHHC, to repeal a 2015 city council decision to rezone the property in north Morgan Hill from industrial to general commercial.

Panwala noted that the city has already spent local tax dollars on the litigation over the last four years, and Morgan Hill could have easily saved all that money plus MHHC’s attorneys’ fees by letting the voters decide if the property should be zoned commercial.

“The city made the decision to file this action and to fight it vigorously all the way to the state Supreme Court,” Panwala said in response to Williams’ ruling. “Now, they not only paid their outside counsel, they’re on the hook for us.”

Asit Panwala

The city has 60 days to appeal the Nov. 13 ruling. Morgan Hill City Attorney Don Larkin said. The city has spent about $165,000 so far on outside attorneys who have worked on the case over the last four years. 

Larkin added that the city’s legal team disagrees with Williams’ assigning of the burden of proof regarding one aspect of MHHC’s request for attorneys’ fees: whether the hotels’ financial interests in repealing the zoning (thereby blocking a competitor from building on the site) disqualify them from seeking damages. 

“Under the law, the Hotel Coalition has the burden of proving that they did not have a financial interest in the litigation that outweighs the cost,” Larkin said. “Rather than requiring the coalition to meet the burden, the court asked the city and River Park to demonstrate that the coalition had a financial interest. This was a clear error.”

Lengthy process

In 2016, the city council ultimately accepted the MHHC’s certified petition and related ballot referendum, but then decided to file a lawsuit against Santa Clara County Registrar of Voters Shannon Bushey to challenge the ballot question. The city’s attorneys argued that the referendum, if victorious in repealing the commercial zoning, could create an illegal inconsistency between Morgan Hill’s zoning ordinance and general plan.

A superior court judge sided with the city in a March 2016 ruling. The hotel coalition appealed that decision, which was overturned in the coalition’s favor May 30, 2017, by the California Sixth Appellate District Court. That brought the case to the state’s Supreme Court, which in 2018 ruled in MHHC’s favor—namely, that the citizens’ right to challenge government actions through ballot referendums outweighs the city’s need to retain consistency between its planning and zoning guidelines.

That decision kicked the original question of zoning for the Lightpost Way property back to the lower courts, but the site remains zoned industrial with no development activity.

The city attorney added that the legal team agrees with the court’s determination that the litigation “conferred a benefit on the public” by mitigating a conflict in the law. 

“A Supreme Court decision was needed to resolve that conflict, so that cities throughout the state would have clear direction on how to handle future referenda of zoning ordinances that are enacted to conform to a general plan,” Larkin said. 

Donald Larkin

In July 2020, the local court held a hearing on a request by MHHC for attorneys’ fees from the City of Morgan Hill and River Park Hospitality. MHHC was listed as a “real party in interest” in the lawsuit, and not a defendant. The coalition in its 2020 request had asked for $650,000 in attorneys’ fees. Total legal fees billed to MHHC amounted to $235,000, according to the Nov. 13 ruling. 

The MHHC represents existing hotels Holiday Inn Express, Hampton Inn, La Quinta Inn and Hilton Garden Inn of Gilroy, Panwala said. Panwala’s family owns the Comfort Inn in Morgan Hill, but that hotel was not part of the MHHC litigation.

The city—represented by Larkin and attorneys from the Leone & Alberts firm—argued that the coalition hotels’ financial interests in the repeal transcend any burden imposed on MHHC by the litigation, according to Williams’ Nov. 13 ruling.

However, the judge rejected this argument. “(Whatever) actual financial interests incentivized Hotel Coalition to participate in the litigation, those perceived benefits, even if they are subject to rough calculation here (questionable on the evidence presented)…are at least one step removed and too indirect and speculative to be realistically considered,” Williams wrote in the Nov. 13 ruling. “Those financial incentives were fully dependent not only on success in the litigation but also on the later electoral success of the referendum.”

Larkin noted that as evidence, the city cited previous information presented by MHHC showing the potential financial impact on the existing hotels if the Lightpost Way property were rezoned for a new hotel. The judge’s ruling acknowledged that the MHHC’s estimates were “wrong or far overestimated.” But Larkin added the MHHC continued to use those estimates in campaigning against the unrelated March 2020 Measure A, which would have allowed two hotels on a different site off Cochrane Road.

After the July hearing, the court assessed the coalition’s fees—for which the city and River Park are responsible—at $416,508.75, according to Williams’ ruling. 

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