American Savings and Loan Association v. County of Marin

No. 77-3703 (9th Cir. June 13, 1980)

Reversing the district court, the Ninth Circuit Court of Appeals rules that where a county zoning ordinance adopts two different zoning designations for contiguous pieces of realty, that property must be deemed divided into two separate parcels for purposes of determining whether the zoning actions constitute a taking of private property. Appellant had purchased two separate but contiguous parcels of property in Marin County, California. The city-county planning council subsequently zoned one parcel of appellant's property for low density housing and the other parcel for substantially higher density housing. Appellant filed suit in district court seeking to enjoin enforcement of the ordinance or to recover damages for inverse condemnation. The lower court ruled that for taking purposes the property was considered a single parcel, and since the ordinance merely lowered the value of one section of the entire piece of property, there was no unlawful taking requiring compensation. The appellate court rules that when a zoning ordinance isolates a parcel in a unique zone, the propriety of that action must be judged by its effect on that particular parcel. Since the ordinance applied more stringent protections to only one section of the entire piece of property because of potential environmental harm to that area if overdeveloped, the property is to be treated as two distinct parcels for zoning purposes. The court therefore remands the case to determine whether a reasonable beneficial use remains for the more strictly zoned parcel in order to ascertain whether there has in fact been a taking requiring just compensation.

Counsel for Appellant
Edmund L. Regalia, M. Janice Smith
Miller, Starr & Regalia
1 Kaiser Plaza, Oakland CA 94612
(415) 465-3800

Counsel for Appellees
Douglas J. Maloney, Cty. Counsel
Suite 342, Civic Center, San Rafael CA 94903
(415) 479-1100

Before MERRILL, SKOPIL and ALARCON, Circuit Judges.

[11 ELR 20233]

SKOPIL, Circuit Judge:

Plaintiff American Savings & Loan appeals from the district court's grant of summary judgment in favor of Marin County (hereafter "the County"). The broad issue presented is whether a county zoning ordinance effects an unconstitutional "taking" of plaintiff's land, a spit extending into San Francisco Bay. The spit is zoned to require very low housing density. Plaintiff's contiguous land is zoned to allow a substantially higher density. In granting summary judgment, the trial court held that for "taking" purposes all of the plaintiff's contiguous land was to be considered as a single parcel; because the zoning designations merely lowered the value of the parcel, there was no taking. We reverse and remand for further proceedings.

FACTS

Plaintiff owns Strawberry Point (hereafter "the Point"), about 20 acres, and Strawberry Spit (hereafter "the Spit"), about 48 acres. They are contiguous. The Spit was the result of a landfill operation begun in 1953 by the plaintiff's predecessor in interest, Neider. In 1967 plaintiff¹ acquired the Spit and the Point. Plaintiff entered into an option agreement with Eichler Homes. Eichler could develop and buy the property within two years. In 1965 Eichler declared bankruptcy and development stopped. The bankruptcy court found plaintiff's agreement with Eichler resembled a mortgage more than an option. In 1973 at a bankruptcy sale plaintiff purchased the land for $4,791,772.73 (less all principal amounts and interest plaintiff had previously expended for the property).

Meanwhile, the County was in the process of formulating a county-wide plan. In 1968 the City-County Planning Council recommended that the County acquire water-edge lowlands of Richardson Bay. The acquisition would include the Spit. In 1973 a citizen's group approved this approach in the Strawberry Community Plan. In January 1973, the Strawberry Park and Recreation District passed a resolution stating that it would "seek all means available to keep [the Spit] permanently and in public trust as open areas and research areas". In May 1973 the County Park, Recreation and Open Space Commission resolved that the Spit was "of Countywide significance as a Wildlife Preserve" and suggested that acquisition be considered. In August 1974 the County adopted a plan that incorporates this concept in general terms. Water-edged lowlands including the Spit were depicted on a map accompanying the plan as "urban open space".

On May 14, 1974 (before adoption of the County's plan) the County adopted zoning ordinance no. 2091 ("the ordinance"). The ordinance rezoned over 12,500 acres of ridge and upland greenbelt areas. The Spit was downzoned to allow one "multiple residential unit" per five acres. The Point was rezoned to allow four "multiple residential units" per acre.²

The planner who coordinated the process of drafting the ordinance said the lowered density on the Spit was due to "particular environmental problems or certain environmental concerns that would have to be met in development". The record shows that the Spit fill should subside over a forty-year period. Planners also felt the site would be particularly susceptible to tsunami (tidal waves). No specific studies were made of either possibility. The ordinance was based primarily on the earlier studies and recommendations of community and public groups. At the time the ordinance was adopted, no separate economic or traffic studies were made.

In August 1974 plaintiff filed a written claim with the County. Damages for inverse condemnation were claimed under Cal.Gov.Code § 900, et seq. The County rejected the claim. In November 1974, plaintiff filed suit in federal district court. It alleged that the ordinance was unconstitutional facially and as applied to the Spit and the Point. It requested the court to enjoin enforcement of the ordinance, or to award damages for inverse condemnation.

After extensive discovery the defendant moved for summary judgment. The County contended that the Point and the Spit were legally a single parcel, because they were contiguous, owned by the plaintiff, and intended for the same use. Because the Point retained monetary value (about $2 million), it suggested that the effect of the ordinance was merely to diminish the value of the parcel as a whole. Diminutions in value are not unconstitutional takings. The plaintiff maintained that the validity of the ordinance must be judged by the effect of a given zone on a particular parcel. Because the Spit and the Point were zoned differently, the effect of the ordinance must be judged differently. Plaintiff contended that the Spit's zoning deprived it of any substantial beneficial use of the Spit, and so was a taking.

Summary judgment for the defendant was orally granted, holding:

"(W)here a single party has a single contiguous parcel of property affected by a community zoning program, and where that program permits a reasonably profitable use of the property taken as a whole, that no claim has been made for a unlawful (sic) taking . . ."³

[11 ELR 20234]

The trial judge did not consider whether the Spit itself would have a substantial beneficial use under its current zoning classification. Plaintiff appeals. We note jurisdiction under 28 U.S.C. § 1291.

DISCUSSION

In this appeal we consider whether the district court erred in treating the Spit and the Point as a single parcel for taking purposes. The precise issue is whether the ordinance identifies two separate parcels for taking purposes by adopting different zoning designations for each parcel. We hodl it does.

Single Parcel Theory

We begin by discussing the relationship between the taking issue and the severance damage issue in eminent domain proceedings. Government regulation can "be so onerous as to constitute a taking which constitutionally requires compensation". Goldblatt v. Town of Hempstead, 369 U.S. 590, 594, 82 S. Ct. 987, 990, 8 L. Ed. 2d 130 (1962). There is no set formula for determining when an economic injury occasioned by regulation must be compensated by government. Penn Central Transp. Co. v. New York City, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978), reh. denied 439 U.S. 883, 99 S. Ct. 226, 58 L. Ed. 2d 198. A police power regulation is not invalid simply because it prevents the highest and best use of the land. Ibid. Nor is a regulation invalid merely because it dramatically reduces the value of property. E.g., Hadacheck v. Sebastian, 239 U.S. 394, 36 S. Ct. 143, 60 L.Ed. 348 (1915) (value reduced from $800,000 to $60,000). The validity of the ordinance must be judged "by focusing on the uses the regulations permit". Penn Central Transp. Co. v. New York City, supra, 438 U.S. at 131, 98 S. Ct. at 2663.If the regulation is a valid exercise of the police power, it is not a taking if a reasonable use of the property remains. See Agins v. City of Tiburon, 24 Cal. 3d 266, 157 Cal. Rptr. 372, 598 P.2d 25 (1979), cert. granted U.S. , 100 S. Ct. 658, 62 L. Ed. 2d 639 (1980). This analysis does not permit balancing benefit to the public versus detriment to the landowner. Haas v. City and County of San Francisco, 605 F.2d 1117 (9th Cir. 1979). The plaintiff conceded below that the Point had not been taken. The Point is still worth about $2 million and can be economically developed under current zoning. Nevertheless, the plaintiff maintains that there is no economically feasible use for the Spit, and so it has been taken. The County contends that condemnation cases concerned with severance damages require us to treat the Spit and the Point as a single parcel. Under this single-parcel theory, a reasonable use remains for the parcel as a whole (the Point plus the Spit) because a reasonable use remains for the Point. Severance damages are awarded when government condemns only a portion of a larger parcel:

"[W]hen part only of a parcel of land is taken for a highway, the value of that part is not the sole measure of the compensation or damages to be paid to the owner; but the incidental injury or benefit to the part not taken is also to be considered. When the part not taken is left in such shape or condition, as to be in itself of less value than before, the owner is entitled to additional damages on that account." Bauman v. Ross, 167 U.S. 548, 17 S. Ct. 966, 42 L.Ed. 270 (1897). See also U.S. v. 429.59 Acres, 612 F.2d 459, 464 (9th Cir. 1980).

This rule applies only when the part taken and the remainder are together a single parcel. For severance damages purposes, the criteria for determining property is a single parcel are: (1) physical contiguity; (2) unity of ownership; and (3) unity of use. City of Los Angeles v. Wolfe, 6 Cal. 3d 326, 99 Cal. Rptr. 21, 491 P.2d 813 (1971); People v. Thompson, 43 Cal.2d 13, 271 P.2d 507 (1954); Sharp v. U.S., 191 U.S. 341, 24 S. Ct. 114, 48 L. Ed. 211 (1903); 4A Sackman, Nichols on Eminent Domain, § 14.31, et seq. These criteria are not absolutely inflexible. They are working rules courts have adopted to do substantial justice in eminent domain proceedings. U.S. v. Miller, 317 U.S. 369, 375-76, 63 S. Ct. 276, 280-81, 87 L. Ed. 336 (1942); U.S. v. 429.59 Acres, supra, 612 F.2d 459.

The County acknowledges that these cases concern damages in condemnation actions. It suggests that "they are the only available judicial analysis of this issue and plaintiff is suing in inverse condemnation." We reject this suggestion. The issue is not the same in condemnation cases and in inverse condemnation cases. In condemnation cases the issue is damages: How much is due the landowner as just compensation? In inverse condemnation the issue is liability: Has the government's action effected a taking of the landowner's property? In the latter the boundaries of the property allegedly taken must be determined by taking jurisprudence rather than the law of eminent domain. See Arastra Ltd. Partnership v. City of Palo Alto, 401 F. Supp. 962, 977-78 (N.D.Cal.1975).

Effect on Entire Parcel

We consider next whether taking jurisprudence supports the County's position. We have considered the cases cited by both parties and find none of them directly controlling. However, we find the County's position to be inconsistent with general principles governing taking questions. Dicta in several cases provide inferential support for the plaintiff's position. We reject the County's position.

The County cites Multnomah County v. Howell, 9 Or.App. 374, 496 P.2d 235 (1972), for its position that "the reasonableness of a zoning ordinance must be tested by its effect on the whole of the [landowner's] contiguous property, not simply on a portion thereof". 496 P.2d at 238. Penn Central Transp. Co. v. New York City, supra, uses similar language:

"'Taking' jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, this Court focuses rather both on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole . . ." 438 U.S. 130-31, 98 S. Ct. at 2663.

Neither case involved the specific issue at stake here. In both cases the entire subject property was covered by a uniform restriction. In Multnomah County v. Howell, supra, the plaintiff's thirteen acres were all zoned agricultural-residential. In Penn Central Transp. Co. v. New York City, supra, the Landmarks Preservation Commission declined to permit a proposed building over the plaintiff's entire property. The challenged government action had not divided the property into discrete segments, and the courts refused to do so. The question here is whether the challenged ordinance creates two separate parcels for taking purposes by adopting different zoning designations for each parcel.

The constitutionality of a zoning ordinance must be judged in part by the reasons supporting it. See Goldblatt v. Town of Hempstead, supra, 369 U.S. at 594-95, 82 S. Ct. at 990; Lawton v. Steele, 152 U.S. 133, 137, 14 S. Ct. 499, 501, 38 L.Ed. 385 (1894). This ordinance isolates the Spit in a unique zone. The County contends there is a sufficient reason for this approach. Environmental values inherent in the Spit, and potential safety hazards in its development, are said to justify a significantly lower residential [11 ELR 20235] density than is permissible on the Point. The Point is accorded a different density restriction for other reasons. We cannot judge the ordinance as if these differences did not exist. The Supreme Court's early prophesy in Euclid v. Ambler Realty Co., remains true:

"It is true that when, if ever, the provisions set forth in the ordinance in tedious and minute detail, come to be concretely applied to particular premises, including those of the appellee, or to particular conditions, or to be considered in connection with specific complaints, some of them, or even many of them may be found to be clearly arbitrary and unreasonable." 272 U.S. 365, 395, 47 S. Ct. 114, 121, 71 L.Ed. 303 (1926).

This case-by-case approach to judging the effect of zoning regulations on specific parcels of land is exemplified by Nectow v. City of Cambridge, 277 U.S. 183, 48 S. Ct. 447, 72 L.Ed. 842 (1928). There a landowner owned a tract of 140,000 square feet. Of that, 29,000 square feet were zoned residential and the rest were unrestricted. The landowner contended the residentially zoned land had been taken. In judging the validity of the ordinance as a police power measure, the court considered the smaller tract separately from the larger tract.⁴

Similarly, in Fifth Avenue Corp. v. Washington County, 282 Or. 591, 581 P.2d 50 (1978), the plaintiff purchased twenty acres for development as a shopping center, a permissible use at the time of purchase. The defendant then adopted a comprehensive plan under which the twenty acres were divided into four separate zones: "residential", "neighborhood commercial", "greenway", and "transit station". Shopping center development was prohibited. Plaintiff claimed that the zoning designations rendered his property "substantially valueless". 581 P.2d at 60. He contended that the entire property had been taken, without distinguishing between the various zones. In dicta the court divided the property analytically into two separate parcels: (1) those classified commercial or residential, and (2) those classified "greenway" or "transit station". As to the first, a substantial beneficial use remained, so there was no taking. As to the second, the court said that a cause of action for inverse condemnation could be stated.⁵

When an ordinance isolates a parcel in a unique zone, the propriety of that action must be judged by its effect on that parcel. Factors unique to the Spit resulted in zoning more restrictive than zoning for the Point. The County is entitled to take these factors into account in its planning and zoning decisions. However, it cannot isolate the Spit in a unique zone and still argue that for taking purposes it is identical to the Point. The County has drawn the boundaries for its development restrictions. It must accept those boundaries when one of them is challenged as a taking.

There is a dispute whether under current zoning there is a reasonable beneficial use for the Spit. We must remand the case to the district court for further proceedings.

The judgment is reversed and remanded.

1. Berkeley Savings & Loan actually acquired the property. Berkeley later merged with the plaintiff.

2. The zoning history of the Spit is as follows:

Originally: R-1 (single-family, 7,500 square foot lots)

8/29/67: RP-1-10 (single-family, 10,000 square foot lots)

2/28/68: RSP-4 (no change in density)

3. The court elaborated:

(At page 18 of the Reporter's Transcript):

Mr. Regalia: . . . I point out that never has there been a common zoning ordinance applicable to these two parcels as a unit . . .

The Court: I don't see that that has any significance at all. It very well may be that property in a single ownership has some part of it adjacent to a street that is zoned commercially and the rear part of it is zoned residentially. Does that make it two parcels of land?"

* * *

"The problem is that the constitution doesn't protect parcels of land. The constitution protects the owner of land from an uncompensated taking and the owner is a single person. When you look at what is claimed to be the taking, you must look at the entire area of his affected ownership and we are dealing here with what, to all of the senses appears to be a single parcel of undeveloped land and the county or community plan for permitting development of it."

4. The court did not reach the taking issue. It adopted a special master's finding that the residential zone "would not promote the health, safety, convenience, and general welfare of the inhabitants of that part of the defendant city", and thereby exceeded the city's police power. 277 U.S. 187, 48 S. Ct. 448.

5. In making this distinction the court said: "While plaintiff did not differentiate the different designations at trial, we see no reason that such a theory may not be considered on appeal." 581 P.2d at 61. The Oregon Supreme Court did not reach the taking issue, holding that the plaintiff failed to exhaust administrative remedies.