Discovery Builders v. City of Oakland

Filed 6/22/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
DISCOVERY BUILDERS, INC., et
al.,
Plaintiffs and Respondents, A164315
v. (Alameda County
CITY OF OAKLAND et al., Case No. RG20073110)
Defendants and Appellants.
In 2005, developers of The Monte Vista Villas, a large residential
development project in Oakland (“the Project”), entered into an agreement
with the City of Oakland (“the City”) to pay certain fees to cover the costs of
the City’s project oversight. The agreement provided that the fees set forth in
the agreement satisfied “all of the Developer’s obligations for fees due to the
City for the Project.”
In 2016, the City adopted ordinances which imposed new impact fees
on development projects that were meant to address the effects of
development on affordable housing, transportation, and capital
improvements. The City assessed the new impact fees on the Project, at that
point more than a decade into development, when the developers sought new
building permits. The developers petitioned for a writ of mandate
challenging imposition of the fees in light of the earlier agreement. The trial
court granted the writ, vacated imposition of the fees, and directed the City to
refrain from assessing any fee not specified in the agreement.
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We conclude that any provision in, or construction of, the parties’
agreement that prevents the City from imposing the impact fees on the
instant development project constitutes an impermissible infringement of the
City’s police power and is therefore invalid. Accordingly, we shall reverse.
FACTUAL AND PROCEDURAL BACKGROUND
A. Project Overview
The Project, located at the site of the former Leona Quarry, has been in
development since the early 2000s. The project’s initial developers, the
DeSilva Group and Leona, LLC, planned to close the 128-acre quarry site,
reclaim it, and develop the land into a residential neighborhood with over 400
residential units (primarily townhomes and condominiums plus some single-
family homes), a community center, a park, pedestrian trails, and other
recreational areas. The Skyview Executive Homes (“Skyview”), a 60-unit
condominium development housed in 10 separate buildings, is part of the
Project. Sky Chi 8, LLC (“Sky Chi”) is the current seller and owner of
Skyview, and Discovery Builders, Inc. (“DBI”) is Skyview’s current developer
and general contractor (Sky Chi and DBI are collectively referred to as
“Respondents”).
Between 2004 and 2005, the City approved the vesting tentative map
for the Project, as well as final tract maps. The City’s approval was subject to
the terms of a 40-page document entitled “Conditions of Approval” (“COA”)
and the adoption of all the mitigation measures identified in the
environmental review as set forth in the “Mitigation Monitoring and
Reporting Program” (“MMRP”).
The COA reflected the large scale, complexity, and phased schedule of
the Project, which required a level of review beyond the City’s standard
practices for a development project. The Project required implementation of
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dozens of mitigation measures to address the significant environmental
impacts identified in the environmental review. These mitigation measures
required numerous independent experts to monitor grading and construction
activities including but not limited to biologists, geotechnical engineers,
hydrologists, and air quality and noise monitors. Due to this additional
oversight, the City required the developer to enter into a cost-allocation
agreement with the City to fund the full costs incurred by the City in hiring
and supervising all independent technical and other consultants needed for
the Project.
B. The 2005 Agreement
Accordingly, in the summer of 2005, the City entered into an agreement
with the developers entitled “Agreement for Payment of City Fees and
Reimbursement of Specialized Consultant and Employee Services” (the “2005
Agreement” or “Agreement”), which set the terms for compensating the City
for employee services and outside consultants in compliance with the COA.
Following a series of recitals concerning the Project’s history and scope and
the obligations set forth by the COA, the Agreement has 21 enumerated
sections. Some relevant provisions are as follows:
Section 1 – “Payment of City Fees as Per Exhibit B and D” – provides
that “the City and Developer tentatively agreed on the amount of the City
Fees to be paid by Developer in connection with the Project (Exhibit D). The
payment of the City Fees detailed in Exhibit B hereto . . . , along with such
additional payments as called for in this Agreement, is agreed by the Parties
to fully satisfy and discharge Developer’s obligations for the City Fees and its
obligations pursuant to [the COA].”
Section 2 – “Specialized Consultant Services” – identifies Exhibit C as
the “best estimate” for “Specialized Consultant Services and Related Costs”
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required for the Project. The developer acknowledges that Exhibit C
“represents . . . the best understanding of the parties of the estimated amount
and type of Specialized Consultant Services that will be required to be hired
by the City to satisfy its obligations under the COA and the MMRP in
furtherance of the COA.”
Section 7 – “Developer Obligations” – states in full: “The parties agree
that except as expressly provided herein, the City Fees and other monies paid
and to be paid by Developer which are referred to in this Agreement satisfy
all of the Developer’s obligations for fees due to the City for the Project
(including without limitation all obligations of the Developer related to [the
COA]), including plan check fees, permit fees, project management fees,
construction management and inspection fees, grading fees, tentative map
fees, and contract compliance fees as set forth in Exhibit B.”
Section 16 – “Severability” – states that if one or more of its provisions
are found to be “invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions shall not, in any way,
be affected or impaired.”
Multiple exhibits are attached to the Agreement. Exhibit A to the
Agreement is the COA. Exhibit B is a one-page document entitled “Estimate
of City Fees,” which categorizes the various “City Fees” into three categories:
(1) building permit fees; (2) the City’s Public Works Agency (“PWA”)
improvements and other fees; and (3) other project-related fees. Exhibit C, a
one-page document entitled “Estimated Costs for Specialized Services,”
contains a table listing three consultants and the estimated costs for each.
Exhibit D, a three-page document entitled “Summary of City Fees and
Payment Timelines as of April 19, 2005,” lists the total developer cost
obligation for each City Fee category (e.g., off-site sewer mitigation fees, final
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map fees, grading permit fees, etc.), and details past payments and timelines
for satisfying the remaining balances.
The Agreement was signed on behalf of the City by Claudia Cappio, the
City’s Director of Planning, Building and Major Projects.
C. Pre-Impact-Fee Development
Development of the Project began soon after the City approved it and
has continued uninterrupted through the present day. Between 2005 and
2015, the developer applied for and obtained from the City numerous
building permits to support the initial phases of development.
In April 2016, Respondents applied for and obtained their first building
permit for one of Skyview’s 10 buildings. In August 2016, they applied for
and obtained another building permit for another Skyview building.
D. The New Impact Fees
On September 1, 2016, three new impact fees for development projects
– an affordable housing impact fee, a transportation impact fee, and a capital
improvements impact fee – adopted by the City in May 2016 took effect.
(Oakland Municipal Code (“Oakland Mun. Code”), §§ 15.72 et seq., 15.74 et
seq.) The adopting ordinances noted the City’s critical need to ensure that
the impacts of new development on the need for affordable housing,
transportation, and capital improvements (fire, library, parks and recreation,
police, and storm drain) were addressed; the ordinances also noted that
development impact fees were a commonly used mechanism to address such
needs. Thus, the affordable housing impact fee was established to “assure
that market-rate residential developments projects pay their fair share to
compensate for the increased demand for affordable housing generated by
such development projects” within Oakland. (Id., § 15.72.010.) Similarly, the
transportation and capital improvements impact fees were established “to
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assure that development projects pay their fair share to compensate for the
increased demand for transportation and capital improvements
infrastructure generated by such development projects” within Oakland. (Id.,
§ 15.74.010.)
The amount of each impact fee was determined by a study evaluating
the degree of impact fairly attributable to that development and varies by
location in the city and the type of development. (Oakland Mun. Code,
§§ 15.72.020, 15.74.020, 15.72.060, 15.74.060.) For a given project, the total
amount in impact fees owed is based on the impact fee amounts set forth in
the Master Fee Schedule in effect upon submission of a complete building
permit application. (Id., §§ 15.72.050, 15.74.050.) All three impact fees are
assessed “as a condition of the building permit.” (Id., §§ 15.72.040,
15.74.040.)
The developer of any project “for which a complete building permit
application is submitted on or after September 1, 2016, must pay the impact
fee in effect at the time of the building permit submittal.” (Oakland Mun.
Code, §§ 15.72.040, 15.74.040.) Any project for which a complete building
permit application was submitted prior to September 1, 2016, is exempt from
paying the impact fee as long as certain criteria are met. (Id., §§ 15.72.040,
15.74.040.) Other exemptions also apply. Projects that “obtain[ed] a vested
right, as defined by California law, no later than sixty (60) days after” the
laws’ adoption (or July 2, 2016), are exempt, as are certain developments,
such as those that provide affordable housing on site. (Id., §§ 15.72.040,
15.74.040.) After identifying these exemptions, the ordinances state that
“[t]he impact fee and requirements authorized . . . are in addition to any
other fees or mitigation measures otherwise authorized by law.” (Id.,
§§ 15.72.040, 15.74.040.)
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E. Development Following Effective Date of Impact Fees
Between October and December 2016 – after the impact fees took effect
– Respondents filed building permit applications for five more of Skyview’s 10
buildings. Even though these building permit applications were filed after
the September 1, 2016 effective date for the new impact fees, permits for all
five buildings were issued without any of the new impact fees being assessed
or paid.
In August 2019 and December 2019, Respondents filed building permit
applications for the three remaining Skyview buildings. For each of the three
building permits, the City assessed all three impact fees. In total, the City
assessed Respondents $432,000 in impact fees for the three buildings.
Respondents sent notices of protest to the Mayor and City Council
objecting to the imposition of impact fees on the three buildings under a
process established by the Mitigation Fee Act (Govt. Code, § 660202). As part
of this process, they paid a portion of the impact fees assessed in order to
secure the building permits, which the City issued between February and
December 2020. They also expressed their intent to pay any outstanding
balance due pending resolution of their protests.
In Respondents’ protests, they asserted that the 2005 Agreement
between the prior developer and the City barred the imposition of the impact
fees. They argued that the City’s 2005 approval of the vesting tentative map
for the Project resulted in a statutory vested right to pay only “the impact
fees in effect at that time.” They also laid claim to a “common law vested
right” by virtue of having obtained building permits and performed work on
other buildings within the larger Project. Finally, in two of their protests,
Respondents claimed the City “waived its ability to impose impact fees
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through its unreasonable delay” and noted their reasonable and detrimental
reliance on the City’s conduct.
The City did not rescind the fees.
F. Petition for Writ of Mandate
In September 2020, Sky Chi and DBI filed a petition for writ of
mandate challenging imposition of the impact fees and asserting many of the
arguments in their notices of protest. Following full briefing and a hearing,
the trial court granted the writ petition.
In its order, the court observed that Section 7 of the 2005 Agreement –
under which the parties agreed that the “City Fees and other monies paid
and to be paid by Developer which are referred to in [the] Agreement satisfy
all of the Developer’s obligations for fees due to the City for the Project” –
reflected the City’s agreement to limit the fees applied to the Project to only
those identified in the Agreement. The court found the impact fees to be
“building permit fees” under the 2005 Agreement, so that the Agreement’s
limits on fee obligations must govern. The court also noted that the “[i]mpact
[f]ees were adopted in 2016, and nothing in the 2005 Agreement authorize[d]
the City to impose new fees such as the [i]mpact [f]ees.” Therefore, the court
concluded Sky Chi and DBI maintained “a contractual right not to pay the
Impact Fees [and that] [t]he City’s requirement of payment of the Impact
Fees on [Sky Chi and DBI], as a condition of issuance of building permits at
Skyview, breached the 2005 Fee Agreement.”
In addressing the City’s argument that enforcing the 2005 Agreement
to preclude imposition of the impact fees infringed upon the City’s police
power, the court stated: “The Court does not find that enforcement of this
contract constitutes infringement of [the City’s] police power, and does find
the City is estopped from challenging this contract’s enforceability after 16
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years of having the contract in place and both parties relying upon and
complying with the contract. In this narrow instance, the making of a
contract between [the developers] and the City providing that [the
developers] would pay certain building permit fees, plus annual increases,
but not any new fees, does not impede the City’s ability to impose new
exactions on developers more generally. This is not an illegal contract that
can be avoided.”
The court also rejected Sky Chi and DBI’s argument that the impact
fees were precluded on the independent grounds that they maintained a
common law vested right and a statutory vested right based on the City’s
issuance of a continual series of building permits for the Project and its
approval of a vesting tentative map.
In November 2021, the trial court issued the writ of mandate ordering
the City to vacate imposition of impact fees upon Sky Chi and DBI and to
refund impact fees already paid with interest. The writ commanded the City
to abide by the “express language of the 2005 Fee Agreement” and noted the
City “may not assess any fees not specified in the 2005 Fee Agreement,
including the Impact Fees.” The court granted judgment in favor of
Respondents. This appeal by the City followed. On appeal, the City contends
the trial court erred because: (1) the agreement does not prohibit the
assessment of impact fees enacted after the agreement was signed; (2) the
trial court’s construction of the agreement infringed upon the City’s exercise
of its police power; and (3) the doctrine of equitable estoppel did not prohibit
the City from exercising its police power.
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DISCUSSION
A. Standard of Review
Sky Chi and DBI filed a petition for writ of traditional mandamus
pursuant to Code of Civil Procedure section 1085. A writ of traditional
mandamus may be used to compel the performance of a duty that is purely
ministerial in nature or to correct an abuse of discretion. (American Board of
Cosmetic Surgery v. Medical Board of California (2008) 162 Cal.App.4th 534,
547–548.) “In traditional mandamus actions, the agency’s action must be
upheld upon review unless it constitutes an abuse of discretion.” (O.W.L.
Foundation v. City of Rohnert Park (2008) 168 Cal.App.4th 568, 585 (O.W.L.
Foundation).)
“ ‘In general . . . the inquiry is limited to whether the decision was
arbitrary, capricious, or entirely lacking in evidentiary support.’ ” (O.W.L.
Foundation, supra, 168 Cal.App.4th at p. 586; Bright Development v. City of
Tracy (1993) 20 Cal.App.4th 783, 795 [“In a traditional mandamus
proceeding, the question of abuse of discretion turns not on whether the
agency’s findings are supported by substantial evidence . . . but whether the
agency’s action was arbitrary and capricious.”].) “ ‘[B]ecause “trial and
appellate courts perform the same function in mandamus actions, an
appellate court reviews the agency’s action de novo.” ’ ” (O.W.L. Foundation,
at p. 586.)
B. Interpreting the 2005 Agreement
The City argues that the 2005 Agreement was never intended to cover
the later-enacted impact fees, and does not prohibit the assessment of such
fees against Respondents. According to the City, the Agreement was
intended only to cover the costs of City employee services and specialized
consultant fees, and the impact fees fall outside of these categories.
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Respondents, on the other hand, argue that the Agreement’s plain
language precludes the imposition of the impact fees. They contend that the
language in section 1 – which provides that the payment of the City Fees
detailed in Exhibit B plus “such additional payments as called for in [the]
Agreement” fully satisfy and discharge the developer’s obligations – clearly
and unambiguously establishes that the 2005 Agreement encompasses all
fees Respondents are obligated to pay the City for the Project. In their view,
section 7 further reinforces the parties’ intent that the payment of the fees
expressly set forth in the Agreement would satisfy all of the developer
obligations for fees due to the City for the Project.
We find that, even if Respondents’ interpretation of the Agreement
were correct, any provisions in the Agreement that bar the City from
imposing its new impact fees on the Project are untenable and cannot be
enforced. That is because any such provisions would be an invalid
infringement on the City’s police power, as discussed below.
C. The City’s Police Power
The City contends the trial court’s construction of the 2005 Agreement
was erroneous because it “fail[ed] to interpret the Agreement in light of the
City’s inherent authority to exercise its police power.” The City asserts that
“[a]ny element of the 2005 Agreement intended to contract away the City’s
right to impose impact fees would be void from the outset.” We agree.
The California Constitution provides that a county or city may make
and enforce within its limits “all local, police, sanitary, and other ordinances
and regulations not in conflict with general laws.” (Cal. Const., art. XI, §7.)
From this police power, a California city derives its power to control land use
and enact comprehensive land use and zoning laws. (Sacramentans for Fair
Planning v. City of Sacramento (2019) 37 Cal.App.5th 698, 708–709; Summit
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Media LLC v. City of Los Angeles (2012) 211 Cal.App.4th 921, 934 (Summit
Media) [“[L]and use regulations involve the exercise of police power.”].)
Development fees are an exercise of this police power. (California Bldg.
Industry Assn. v. Governing Bd. (1988) 206 Cal.App.3d 212, 234–235.)
It is also well-established that “ ‘the government may not contract away
its right to exercise the police power in the future.’ ” (Summit Media, supra,
211 Cal.App.4th at p. 934.) “ ‘[A] municipality may not “contract away” its
legislative and governmental functions.’ ” (County Mobilehome Positive
Action Committee v. County of San Diego (1998) 62 Cal.App.4th 727, 736
(County Mobilehome); Delucchi v. County of Santa Cruz (1986) 179
Cal.App.3d 814, 823 (Delucchi) [“ ‘ “ ‘The police power being in its nature a
continuous one, must ever be reposed somewhere, and cannot be barred or
suspended by contract or irrepealable law. It cannot be bartered away even
by express contract.’ ” ’ ”].) Any agreement that contracts away these
functions is invalid and unenforceable as contrary to public policy. (County
Mobilehome, at p. 736; Morrison Homes Corp. v. City of Pleasanton (1976) 58
Cal.App.3d 724, 734 (Morrison Homes) [“The effect of the rule, however, is to
void only a contract which amounts to a city’s ‘surrender,’ or ‘abnegation,’ of
its control of a properly municipal function”].)
Here, there appears to be no disagreement that the new impact fees
reflect an exercise of the City’s police power. The parties, however, dispute
whether enforcement of the 2005 Agreement in a manner that bars the City
from imposing those fees on Skyview infringes on that power. The following
cases are instructive.
In Avco Community Developers, Inc. v. South Coast Regional
Commission (1976) 17 Cal.3d 785 (Avco), a new land use requirement (a
permit from the coastal zone commission) was enacted before the developer
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had obtained a building permit for a project, but after the developer had
performed pre-permit construction work. (Id. at pp. 788–790.) Our Supreme
Court rejected the developer’s argument that it did not need to comply with
the new requirement because it had a common-law vested right to develop
land based on the regulations in effect when certain subdivision and grading
improvements on the property were authorized. (Id. at pp. 791–800.) The
developer also argued that, even if it did not maintain a vested right, its
agreement to sell certain property to the Orange County Harbor District in
exchange for a commitment by the county and state that it would be
permitted to carry out its project in accordance with the planned community
zoning estopped enforcement of the new permit requirement. (Id. at pp. 799–
800.) In rejecting this argument, the Supreme Court agreed with the trial
court that the state’s police power “over[rode] any obligation of the state to
perform” the contract. (Id. at p. 800.) It found that an agreement to exempt
the developer from future land use regulation “would be invalid and
unenforceable as contrary to public policy,” because “it is settled that the
government may not contract away its right to exercise the police power in
the future.” (Ibid.) Further, “even upon the dubious assumption that the
[agreement] constituted a promise by the government that zoning laws
thereafter enacted would not be applicable to [the project], the agreement
would be invalid and unenforceable as contrary to public policy.” (Ibid.)
In Alameda County Land Use Assn. v. City of Hayward (1995)
38 Cal.App.4th 1716 (Alameda County Land Use), three governmental
entities entered into a memorandum of understanding concerning
approximately 13,000 acres of open space in which they agreed to use their
“best efforts” to adopt certain specified goals and policies into their respective
general plans concerning the open space. (Id. at pp. 1719–1720.) They also
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agreed that if all three entities adopted certain land use policies in their
general plans, then any future attempt to amend those policies would not be
effective unless the other two entities enacted parallel amendments to their
general plans. (Id. at p. 1720.) Relying on the rule that a local government
may not contract away its right to exercise its police power in the future, the
court found their agreement invalid: “Respondents’ agreement . . . that their
individual general plan amendments are ineffective unless like amendments
are made to the other jurisdictions’ general plans is a surrender of each
respondent’s power to amend its own general plan. This policy divests each
respondent, presently and in the future, of its sole and independent authority
to amend its respective general plan, by providing outside jurisdictions a veto
over such amendments.” (Id. at p. 1724.) The court further noted that the
agreement “constitutes an impermissible divestment by respondents of their
power and obligation to enact legislation affecting the lands within their
respective jurisdictions.” (Id. at p. 1725.)
These authorities make clear that any agreement that functions to
divest a municipality of its ability to exercise its police power with respect to
land use laws is invalid. (See also Delucchi, supra, 179 Cal.App.3d at p. 823
[“ ‘ “ ‘the police power that the sovereign always reserves to itself for the
protection of peace, safety, health and morals . . . cannot be nullified in
advance by making contracts inconsistent with its enforcement’ ” ’ ”].) As
noted, there is no dispute that the City’s affordable housing, transportation,
and capital improvements impact fee ordinances that took effect in 2016
arose from the City’s police powers. Thus, any provision in the 2005
Agreement that infringes upon the exercise of the City’s police power to enact
or enforce land use ordinances to protect public health and safety within its
jurisdiction cannot be enforced. Likewise, any provision in or construction of
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the Agreement that prevents the City from imposing those impact fees on
Respondents’ development infringes on the City’s police power and simply
cannot be enforced.
In reaching this conclusion, we also apply the bedrock principle that a
contract must, if possible, be interpreted to make it “lawful, operative,
definite, reasonable, and capable of being carried into effect.” (Civ. Code,
§ 1643.) We recognize that “ ‘California cases take a very liberal view of
severability, enforcing valid parts of an apparently indivisible contract where
the interests of justice or the policy of the law would be furthered.’ [Citation.]
Severance is favored in order ‘to prevent parties from gaining undeserved
benefit or suffering undeserved detriment as a result of voiding the entire
agreement—particularly when there has been full or partial performance of
the contract.’ ” (Koenig v. Warner Unified School Dist. (2019) 41 Cal.App.5th
43, 56.) In light of the severance clause in section 16 of the Agreement which
states that if one or more of its provisions are found to be “invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions shall not, in any way, be affected or impaired,” any
provision of the Agreement that prohibits or is interpreted to prohibit the
City from enforcing the impact fees must be stricken while the other
provisions remain.
While Respondents readily acknowledge that a city cannot contract
away its police power, they argue that the 2005 Agreement “does not
impermissibly surrender or abnegate the City’s police powers.” They claim
that “the City can continue to comply with the Agreement without now
surrendering police power.” Respondents further add that the Agreement
“ha[d] no impact on the City’s ability to legislate” because “the City retained
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control of the Project from 2005 on and never surrendered its power to make
or enforce future zoning laws or impose new exactions on other developers.”
The notion that the City’s police power is neither surrendered nor
abnegated because the City can still legislate is shortsighted. This argument
suggests that a city’s police power is concerned only with the power to enact
laws, not the power to enforce laws. However, our constitution plainly
establishes that “[a] county or city may make and enforce within its limits all
local, police, sanitary, and other ordinances and regulations not in conflict
with general laws.” (Cal. Const., art. XI, § 7, emphasis added.) Indeed, a
city’s authority to make laws would be fictional if not accompanied by the
power to enforce or impose those laws.
Respondents’ related argument that there is no surrender of police
powers because the City still maintains the power to make and enforce future
zoning laws on other developers – a position endorsed by the trial court – is
also misplaced. Respondents cite no authority that allows for the selective
enforcement or application of land use regulations by contract. Further,
courts have invalidated agreements exempting a small subset of parties from
laws and ordinances. (See, e.g., Summit Media, supra, 211 Cal.App.4th at p.
937 [concluding an agreement is invalid “when it contractually exempts
settling parties from ordinances and regulations that apply to everyone else
and would, except for the agreement, apply to the settling parties”].) We
cannot disregard the infringement on the City’s police power simply because
of its ongoing ability to impose land use ordinances on others.
Respondents’ reliance on Morrison Homes, supra, 58 Cal.App.3d 724,
and 108 Holdings, Ltd. v. City of Rohnert Park (2006) 136 Cal.App.4th 186(108 Holdings), is also unavailing, as both cases are distinguishable.
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In Morrison Homes, 58 Cal.App.3d 724, which predates Avco, the city of
Pleasanton entered into a series of written contracts with a developer under
which the city agreed to annex certain lands and to provide sewer services to
homes built on the annexed lands. (Id. at pp. 729–730.) Later, Regional
Water Quality Control Board orders relating to violation of its waste
discharge standards in connection with the city’s sewage treatment plant
prevented the city from making new sewer connections to the annexed tracts.
(Id. at pp. 731–732.) The developer sued, seeking a declaration that the city’s
sewer commitment was a binding and enforceable obligation the city had to
perform. (Id. at p. 732.) The court rejected the city’s argument that the
contracts were invalid attempts to contract away its legislative and
governmental functions and thus unenforceable because there was no
provision in the contracts that involved a surrender by the city of its control
of the annexation process or its sewer operations. (Id. at pp. 733–734.)
In 108 Holdings, supra, 136 Cal.App.4th 186, the city of Rohnert Park
entered into a settlement agreement and stipulated judgment (collectively,
“the agreement”) with a third party to resolve a lawsuit brought by the third
party challenging the city’s adoption of its General Plan. (Id. at p. 189.)
Under the agreement, the city agreed to apply to the local agency formation
commission to amend its sphere of influence1 and to apply certain policies
regarding groundwater, community design, and traffic to development
projects as set forth in the agreement. (Id. at pp. 190–191.) Following a
public hearing, the city amended its sphere of influence, thereby removing
1 “ ‘Sphere of influence’ means a plan for the probable physical
boundaries and service area of a local agency, as determined by the [local
agency formation] commission.” (Govt. Code, § 56076.) It is a “ ‘prospective
measure, charting what a city’s or district’s boundaries might be at some
future point.’ ” (Community Water Coalition v. Santa Cruz County Local
Agency Formation Com. (2011) 200 Cal.App.4th 1317, 1325, fn. 3.)
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certain lands from its sphere. (Id. at p. 191.) The plaintiffs – owners of
property removed from the city’s sphere of influence – sued the city on the
basis that it improperly surrendered its police power by entering into the
agreement. (Id. at pp. 191–192, 194.) The court concluded there was no
abnegation. (Id. at pp. 195–196.) After observing there was no prohibition
barring the city from resolving land use litigation by agreement, the court
noted that there was no provision in the agreement that limited the city’s
ability to later amend its General Plan should future events so require. (Id.
at pp. 195–197.) In a close review of the agreement, the court further
observed that its provisions did no more than carry out policies already
established in the city’s General Plan. (Id. at pp. 198–202.)
Both Morrison Homes and 108 Holdings recognize that a city can carry
out municipal functions by contract, and such contracts are valid and
enforceable provided they apply existing law or carry out existing policies.
However, neither case involved a contractual prohibition that purportedly
exempted select parties from compliance with generally applicable land use
ordinances. As such, they do not compel a different result.
Finally, we reject Respondents’ assertion that Avco, supra, 17 Cal.3d
785, is irrelevant to the issues in this appeal because they have not
challenged the trial court’s conclusion that they held no vested rights in the
Project, and because its holding on the contractual issue is dicta. While the
majority of the Avco opinion focuses on the court’s vested rights analysis,
which is inapposite to the case before us, we disagree that the Supreme
Court’s contractual analysis constitutes dicta. Broadly, the Supreme Court
explained at the outset of its opinion: “We are confronted with the apparently
irreconcilable conflict between the interests of a land developer who seeks to
avoid compliance with a recently enacted law regulating its project, and the
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interests of the public in assuring development of the property in a manner
consistent with the requirements of current law.” (Id. at p. 788.) To avoid
compliance with the newly enacted permit requirement, the developer
contended that even if it did not have a vested right to build, it should still be
able to proceed with construction based in part on a contract it had entered
that purportedly committed the state to that course of action. (Id. at p. 799.)
The Supreme Court’s ruling that any agreement promising that zoning laws
would not apply to certain lands would be invalid was therefore a necessary
part of its decision, not dicta. (Id. at p. 800.)
D. Equitable Estoppel
Respondents contend the City is estopped from arguing the 2005
Agreement is unenforceable after more than 16 years of enjoying the benefits
of the Agreement. We disagree both because Respondents have waived this
argument and on the merits.
“The principle of estoppel . . . prohibits a governmental entity from
exercising its regulatory power to prohibit a proposed land use when a
developer incurs substantial expense in reasonable and good faith reliance on
some governmental act or omission so that it would be highly inequitable to
deprive the developer of the right to complete the development as proposed.
[Citation.] The theory of equitable estoppel simply recognizes that, at some
point in the development process, a developer’s financial expenditures in good
faith reliance on the governmental entity’s land use and project approvals
should estop that governmental entity from changing those rules to prevent
completion of the project.” (Toigo v. Town of Ross (1998) 70 Cal.App.4th 309,
321 (Toigo).)
“The elements of equitable estoppel are ‘(1) the party to be estopped
must be apprised of the facts; (2) he must intend that his conduct shall be
19
acted upon, or must so act that the party asserting the estoppel has a right to
believe it was so intended; (3) the other party must be ignorant of the true
state of facts; and (4) he must rely upon the conduct to his injury.’ ”
(Schafer v. City of Los Angeles (2015) 237 Cal.App.4th 1250, 1261 (Schafer).)
“An additional requirement applies in cases involving equitable estoppel
against the government. In such a case, the court must weigh the policy
concerns to determine whether the avoidance of injustice in the particular
case justifies any adverse impact on public policy or the public interest.”
(Ibid.) “Even if the four elements of equitable estoppel are satisfied, the
doctrine is inapplicable if the court determines that the avoidance of injustice
in the particular case does not justify the adverse impact on public policy or
the public interest.” (Ibid.)
“The existence of equitable estoppel generally is a factual question for
the trier of fact to decide, unless the facts are undisputed and can support
only one reasonable conclusion as a matter of law. [Citations.] We review
factual findings regarding the existence of equitable estoppel under the
substantial evidence test. [Citation.] In a case involving equitable estoppel
against the government, however, the existence of estoppel is in part a legal
question to the extent it involves weighing policy concerns to determine
whether the avoidance of injustice in the particular case justifies any adverse
impact on public policy or the public interest. [Citations.] . . . . [W]e review
questions of law de novo.” (Schafer, supra, 237 Cal.App.4th at pp. 1263–
1264.)
Respondents’ estoppel argument has been waived. “It is axiomatic that
arguments not asserted [in the trial court] are waived and will not be
considered for the first time on appeal.” (Ochoa v. Pacific Gas & Electric Co.
(1998) 61 Cal.App.4th 1480, 1488, fn. 3; Newton v. Clemons (2003) 110
20
Cal.App.4th 1, 11 [reviewing court will not ordinarily consider claims,
arguments, authority and facts presented for the first time on appeal that
could have been but were not presented to the trial court].) Similarly, “ ‘[a]s a
general rule, theories not raised in the trial court cannot be asserted for the
first time on appeal; appealing parties must adhere to the theory (or theories)
on which their cases were tried. This rule is based on fairness—it would be
unfair, both to the trial court and the opposing litigants, to permit a change
of theory on appeal.’ ” (P&D Consultants, Inc. v. City of Carlsbad (2010) 190
Cal.App.4th 1332, 1344.) Respondents never argued equitable estoppel in the
trial court and are thus precluded from doing so for the first time here.
Nonetheless, we recognize estoppel was one of the grounds for the trial
court’s decision and thus shall address estoppel briefly on the merits. Even if
Respondents had argued equitable estoppel in the trial court, we would not
be persuaded the doctrine applies under the circumstances before us.
Assuming without deciding that Respondents could satisfy the four
requisite elements of estoppel, we cannot conclude that in this particular
instance there is any grave injustice to Respondents that outweighs the
adverse impacts on public policy or the public interest. Respondents face
“daunting odds in establishing estoppel against a governmental entity in a
land use case. Courts have severely limited the application of estoppel in this
context by expressly balancing the injustice done to the private person with
the public policy that would be supervened by invoking estoppel to grant
development rights outside of the normal planning and review process.
[Citation.] The overriding concern ‘is that public policy may be adversely
affected by the creation of precedent where estoppel can too easily replace the
legally established substantive and procedural requirements for obtaining
permits.’ [Citation.] Accordingly, estoppel can be invoked in the land use
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context in only “ ‘the most extraordinary case where the injustice is great and
the precedent set by the estoppel is narrow.’ ” (Toigo, supra, 70 Cal.App.4th
at p. 321.)
Respondents have not persuaded us that this is such an extraordinary
case. They argue that it would be unjust to require them to pay the new
impact fees because they have already made contributions towards
alternative affordable senior housing and towards traffic and capital
improvements, recreation space, and open space, which have already been
constructed per the Agreement. In their view, the injustice in allowing the
City “to double-dip” by imposing both the mitigation measures in the
Agreement and impact fees outweighs “any minimal public interest concern”
over the new impact fees.
Respondents have not reconciled their argument with or addressed
provisions in the ordinances which allow the impact fees to be assessed on top
of other mitigation measures. (See Oakland Mun. Code, §15.72.040 [“The
impact fee and requirements authorized by this Chapter are in addition to
any other fees or mitigation measures otherwise authorized by law.”], id., §
15.74.050 [same].) Even if their “double-dipping” argument were tenable
despite such provisions, Respondents have not established that the
mitigation measures they paid for and the impact fees they were assessed are
identical, or even overlap. And in other contexts, we have expressed
skepticism of claims that a purely economic hardship is an “extraordinary
case where the injustice is great,” meriting estoppel. (See Schafer, supra, 237
Cal.App.4th at pp. 1264–1265 [collecting cases denying estoppel even under
circumstances of severe financial hardship].) Simply put, any of
Respondents’ proffered injustices do not outweigh the public’s strong and
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vital interest in the enforcement of the land use laws enacted by its elected
representatives. (See id. at p. 1265.)2
DISPOSITION
The judgment is reversed, and the trial court is directed to enter a new
judgment denying the petition for writ of mandate. The parties are to bear
their own costs on appeal.
2 In light of this conclusion, we do not address whether the trial court’s
finding that Respondents did not have a vested right to be free of the new
impact fees – which Respondents have not challenged – means there can be
no estoppel.
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_________________________
Petrou, J.
WE CONCUR:
_________________________
Tucher, P.J.
_________________________
Rodríguez, J.
A164315/Discovery Builders, Inc. et al., v. City of Oakland et al.
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Trial Court: Alameda County Superior Court
Trial Judge: Hon. Frank Roesch
Counsel: Law Office/Firm, Attorney Name, Farella Braun + Martel,
James H. Colopy, Carly O. Alameda, and Jennifer Bentley,
for Plaintiffs and Respondents.
City of Oakland, Allison Ehlert, Barbara J. Parker, Maria
Bee, and Cynthia Stein, for Defendants and Appellants.
25