Ordinance That Extended Restriction On Development Of Property For Ten More Years Gave Rise To An Inverse Condemnation Claim For Property Owner

In Arcadia Development Company v. City of Morgan Hill, (— Cal.Rptr.3d —, Cal.App. 6 Dist., Dec. 16, 2008), a California Court of Appeal considered whether a property owner’s lawsuit, which challenged a city’s ten-year extension of a density restriction, was timely-filed. The Court of Appeal held that the passage of the ordinance that extended the density restriction gave rise to a new cause of action for the property owner, and therefore, the owner’s lawsuit was timely.


The City of Morgan Hill (“City”) enacted its first residential development control system (“RDCS”), known as Measure E, in the late 1970s. Measure E remained in effect until 1990 when City’s voters passed Measure P, which placed additional limits on City’s rapid growth. Measure P was designed by City to concentrate residential growth toward City’s center in an effort to reduce sprawl and strains on City’s services. Measure P prohibited City from adding more land to its service area until the city council made a finding that the land already within City’s borders was insufficient to accommodate residential growth. It also introduced a Density Restriction “which expressly intended to limit development of properties annexed between March 1, 1990, and the effective date of Measure P.” The properties subject to Density Restriction were being considered for annexation by Santa Clara County Local Agency Formation Commission (“Commission”). Measure P, by its own terms, was set to expire in 2010.

Arcadia Development Company (“Arcadia”) owned property awaiting annexation when City drafted Measure P. Arcadia’s property was just outside City’s borders and consisted of approximately 80 acres. The Commission approved the annexation of Arcadia’s property and Arcadia was awarded a housing allotment for an 11 acre subdivision. City approved Arcadia plans for the subdivision in 1991 on the condition that no further subdivision or development of the remaining 69 acres would be allowed except in accordance with the Density Restriction portion of City’s RDCS, which limited development to one unit per 20 acres. Without the constraints of the Density Restriction, Arcadia could have developed 345 homes. Arcadia’s property was the only property that was, for all practical purposes, affected by the Density Restriction when Measure P took effect.

In 2002, City began to consider extending the duration of the RDCS for 10 more years. Arcadia asked City to do away with the Density Restriction. However, City chose to extend the Density Restriction until 2020. City put the new measure with the restrictions, known as Measure C, before the voters, who approved it. Measure C became effective on April 17, 2004.

Arcadia filed a lawsuit on May 28, 2004, asserting several causes of action, including claims that the Density Restriction in Measure C caused new and additional harm to Arcadia and also constituted a taking of property for public use without just compensation. The trial court found that Arcadia’s lawsuit was barred by the statute of limitations.


The Court of Appeal found that Arcadia’s lawsuit was not barred by the statute of limitations. Government Code section 65009 “provides a 90-day statute of limitations for facial challenges to a zoning ordinance.” Arcadia asserted that it timely-filed its lawsuit because the 10-year extension of the Density Restriction contained in Measure C caused it “new and substantial harm” and gave rise to a new cause of action. The Court of Appeal agreed with Arcadia.

The short statute of limitations contained in section 65009 is aimed at providing “certainty for property owners and local governments regarding decisions” about local land use, thereby alleviating “the ‘chilling effect on the confidence with which property owners and local governments can proceed with projects.'” Section 65009, subdivision (c)(1)(B), provides that a lawsuit challenging a “decision of a legislative body to adopt or amend a zoning ordinance” must be filed within 90 days from the date the legislative body makes its decision. In cases involving a facial challenge to a zoning ordinance, the 90-day limitations period begins to run on the date the ordinance becomes effective.

Arcadia argued that its causes of action accrued when the Density Restriction was extended for 10 years. The court found that City did not intend for the Density Restriction to be permanent when it was put in place in 1990. The restrictions were meant to be temporary as evidenced by the express acknowledgment in Measure P that the ban on annexations would eventually be lifted. The court found that “[t]he temporary nature of the 1990 restriction also mean[t] that extending it for 10 additional years was a new burden on the Arcadia property, triggering a new inverse condemnation claim.”

Arcadia was “not challenging the City’s implementation of an existing land-use scheme” but instead was challenging a new plan. Measure C was an alteration of Measure P, and Arcadia was in fact challenging Measure C and not Measure P. Therefore, the statute of limitations started to run from the date Measure C became effective. Because Arcadia filed its lawsuit within 90 days from the effective date of Measure C, its lawsuit was timely-filed.

The court cautioned that its “decision should not be read as holding that any renewal of an existing ordinance gives rise to a new cause of action.” Instead, its decision was “based upon the facts . . . which show that City recognized that the Density Restriction, as originally enacted, was intended to be temporary and that it would be lifted when circumstances changed.” One must consider the changed impact and the circumstances existing in 2004 when analyzing the validity of the Density Restriction under Arcadia’s takings and equal protection theories of recovery. The ten-year extension of the Density Restriction contained in Measure C “was a substantive change, which City and its voters considered and decided anew when Measure C was approved in 2004.” The court concluded that “[i]t follows that Arcadia may challenge the 10-year extension of the Density Restriction, even though Arcadia is barred from challenging the original 20-year restriction.”


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