SUPREME COURT RULES FOR DEVELOPER, BUT AFFIRMS COMMUNITY RIGHTS

FOR IMMEDIATE RELEASE
May 24, 1999

CONTACT: Doug Kendall or Tim Dowling, 202-296-6889

In ruling today in City of Monterey v. Del Monte Dunes, the U.S. Supreme Court handed developers and advocates of community rights a decidedly mixed bag.

The Court affirmed a $1.45 million jury verdict in favor of Del Monte Dunes, LTD, a California development company. The Court ruled first that the developer had a right to jury trial under the Seventh Amendment of the U.S. Constitution in the extremely limited context of a federal claim alleging both that a state had (1) taken property within the meaning of the Fifth Amendment and (2) provided no procedure by which a developer could recover compensation for that taking. Second, the Court upheld the jury's award on procedural grounds - the fact that the city had not objected to the jury instructions -- without addressing whether the jury's ruling on the merits was legally sound.

Despite the Court's narrow ruling in the developer's favor, the Court's opinion contains significant good news for state and local governments seeking to defend reasonable community protections. Specifically:

Doug Kendall, CRC's Executive Director, comments:

"While ruling for this particular developer, the Supreme Court has given communities much to cheer about. Monterey has lost, but state and local governments around the country have largely prevailed in this case."

CONTACTS: Doug Kendall or Tim Dowling, CRC's Chief Counsel, at 202-296-6889 can provide you with extensive information about the Del Monte Dunes ruling. Community Rights Counsel is a nonprofit public interest law firm in Washington, D.C. that helps local governments defend challenges to land use controls and other community protections.

BACKGROUND ON
CITY OF MONTEREY vs. DEL MONTE DUNES AT MONTEREY, LTD.

The Facts:

The case involves a 37.6-acre parcel of environmentally sensitive, oceanfront property in Monterey, California at Del Monte Beach. The sand dunes on the property are among the largest and best preserved in central California. The property's native flora includes buckwheat, which is the natural habitat of the Smith's Blue Butterfly, a species listed as endangered under the federal Endangered Species Act.

In 1981, the previous owner of the property, Ponderosa Homes, applied to the City of Monterey for a permit to build a 344-unit residential complex on the property.

After denying several development proposals, the City Council approved a site plan for 190 units in 1984, subject to 15 conditions. The conditions included a requirement that the developer submit an adequate habitat restoration plan.

In late 1984, Del Monte Dunes at Monterey, Ltd. bought the property for $3.7 million, with full knowledge that development of the site was subject to the 15 conditions. Del Monte pursued final approval of the permit application by seeking to fulfil the conditions.

In June 1986, the City denied the permit. The City Council listed six reasons for the denial, including the significant harm to the environment expected from the development and the lack of adequate access to and from the property. During public hearings on the permit, regulatory agencies, environmental experts, city staff, and others advised the City that Del Monte's proposed habitat restoration plan would not adequately mitigate the environmental impact of the development.

In 1991, while the litigation was on-going, the State of California purchased the property for $4.5 million, $800,000 more than Del Monte had paid for the site in 1984. The $4.5 million purchase price was based on an appraisal that assumed that the highest and best use of the property is residential development with a density up to 150 units.

The lawsuit:

In late 1986, Del Monte filed suit in federal district court, alleging that the permit denial constituted a "taking" of private property under the Fifth Amendment that entitled Del Monte to just compensation. Del Monte also claimed that the denial violated the Equal Protection and Due Process Clauses of the Fourteenth Amendment. The parties argued for several years about whether Del Monte's claim was "ripe" for adjudication. In 1990, the Ninth Circuit Court of Appeals allowed Del Monte's suit to proceed. Viewing the facts in the light most favorable to Del Monte, the Ninth Circuit ruled that it would have been "futile" for Del Monte to make further permit applications.

The litigation proceeded to trial. The district court ruled for the City on the due process claim, concluding that the permit denial was "not arbitrary and irrational, but was for valid purposes." The trial record shows that regulatory agencies and many others advised the City that Del Monte's habitat restoration plan would not adequately mitigate the environmental impact of the proposed development. Del Monte presented contrary evidence. The court found that the evidence before the City was "in conflict," there were "differences of opinion" regarding the proposed development's effect on the environment. It concluded that the City's resolution of the conflicting evidence was reasonable and its decision to deny the permit was "for valid regulatory reasons." The district court also specifically concluded, based on a full factual record presented at trial, that the City was "not attempting to forestall all reasonable development." Finally, the district court found that city staff and the city planning commission spent "exhaustive time and energy" on the proposal and that they engaged in "a sincere effort" to work with Del Monte on the proposal.

Notwithstanding these rulings, the court sent the takings claim to the jury, instructing the jury to rule for Del Monte if the permit denial either (1) deprived Del Monte of all economically viable use of the property, or (2) did not substantially advance a legitimate public purpose. The jury awarded Del Monte $1,450,000, without specifying which theory of takings liability it has accepted. The Ninth Circuit affirmed.

The City sought review in the U.S. Supreme Court on three issues: (1) whether the trial court erred in having a jury decide the takings claim; (2) whether the trial court erred in allowing the jury to reweigh the evidence concerning the reasonableness of the permit denial; and (3) whether the appeals court erred in ruling that a development permit denial must be "roughly proportional" to the harm expected from the proposed development. In March 1998, the Supreme Court agreed to review the case, and in October 1998 it heard oral argument.