When the City of Morgan Hill annexed an 80-acre plot of land over public outcry, city residents fought back by approving ballot measures limiting the development that could take place on that parcel. With a recent appeals court ruling – 31 years after the initial annexation -- a developer's project is high and dry, with the court ruling that the city's actions did not amount to inverse condemnation or illegal spot zoning. 

In Arcadia Development Co., v. City of Morgan Hill, Arcadia Development filed a petition for writ of mandate and a complaint for damages against the City of Morgan Hill over an initiative measure placed on the ballot by the city and approved by the voters in 2004. Arcadia argued that the city illegally spot-zoned its 69-acre property, inversely condemned the property, and sought damages for violating its civil and equal protection rights. Both the trial court and the appellate court rejected Arcadia's claims.

Background 

On March 19, 1990, despite great public opposition, the Santa Clara County Local Agency Formation Commission approved the annexation of an 80-acre property owned by Arcadia Development Co. into the urban services area of the City of Morgan Hill.  Within a few months, Arcadia had entitled 11 acres of its property. Thus, 69 acres remained undeveloped.

On December 8, 1990, voters of Morgan Hill approved Measure P, which amended the city's zoning code to restrict the density on lands annexed on or after March 1, 1990 to that which was allowed by the county's general plan prior to annexation. The measure and new ordinance had the effect of zoning Arcadia's un-entitled property (now only 69 acres) to 20-acre minimum lot sizes and limiting the development rights on the property to four single-family homes (versus 354 homes under the City's general plan). The terms of Measure P would expire in 2010.

On April 17, 2004, Measure C was approved by city voters, which prohibited the city from applying to LAFCO or otherwise requesting or supporting the addition of any land to its urban services area until the existing infill land is insufficient to accommodate five years of growth. It also contained the same density restriction for lands annexed on or after March 1, 1990 as the previous Measure P adopted by the voters in December 1990. The terms of Measure C expire in 2020.

Legal Issues

Arcadia sued the city over Measure C in 2004 arguing the city illegally spot-zoned its site, inversely condemned the property; it sought damages for violating Arcadia's civil rights and equal protection rights. The inverse condemnation cause of action was dismissed. The trial court ruled in favor of the city on all remaining claims, which Arcadia appealed.

On Appeal

On appeal, the Court of Appeal, Sixth Appellate District, analyzed whether the city abused its police power by illegally spot zoning the Arcadia property. Here, the court found that because other land surrounding the Arcadia property had equally or more restrictive zoning (two sides of the property were bounded by 20-acre minimum agricultural sites) and no development surrounding the property had occurred since 1990, when the density restriction initially took effect, the city did not illegally spot zone the site. 

Arcadia's equal protection challenge was also unsuccessful at the appellate level. Even in accepting the fact that the city's new ordinance singled out Arcadia's property for differential treatment, the court still sided with the city. The issue was whether there was any rational basis related to the public welfare for the restriction imposed. The appellate court explained that the first inquiry into the issue must start with asking whose welfare is to be benefited by the ordinance at issue. A balancing of competing interests is undertaken and then the court must decide whether the ordinance has a rational basis. 

In distinguishing the Arnel Development Co. v. City of Costa Mesa (1981) 126 Cal.App.3d 330 (holding that an initiative to down-zone a site was not rationally related to the general regional public welfare, but was rather an attempt to address only localized development concern) asserted by Arcadia, the court noted that there was an extreme shortage of low to moderate income housing in the City of Costa Mesa and in down-zoning Arnel's site, the city had not addressed the regional housing shortage concern. Comparing the Arnel case to Arcadia's, the court noted that the public welfare concerns outlined in Measure C were legitimate in that they attempted to reduce the burden on the city's resources by discouraging noncontiguous development and urban sprawl. Moreover, the city had a legitimate goal of preserving the city's unique rural character.

Comment

The holdings in this case reinforce the long-standing rules regarding both spot zoning and equal protection. In sum, an agency does not abuse its police power in zoning unless it acted arbitrarily. Similarly, so long as there is a rational basis related to the public welfare for the restrictions imposed, no violation of equal protection will be found – even where an entity or parcel is singled out as was the case here. 

The Case: 

Arcadia Development Co., v. City of Morgan Hill (2011), filed August 5, 2011. 

The Lawyers: 

For Arcadia Development Co.: SSL Law Firm, Michael Burke, Diane K. Hanna

For the City of Morgan Hill: Shute, Mihaly & Weinberger, Ellison Folk

Katherine J. Hart is an attorney with Abbott & Kinderman, LLP, of Sacramento.